The Railroad Week in Review:
Week ending August 12, 2000

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Learning to speak with a human voice is not a parlor trick. It can't be "picked up" at some tony conference. To speak with a human voice, companies must share the concerns of their communities But first, they must belong to a community. Cluetrain Clues 33-35

"This web thing continues to gather speed, largely driven by what customers have come to expect from other transportation vendors. What do you see happening on the rail scene to join the fray and even get ahead of the curve? What opportunities are out there? What is the role of the BDA and the sales rep? How do feeder railroads fit?" So I wrote in my covering e-mail to last week's WIR.

One of my staunchest yet fairest critics writes in response, "I must say right now I am pessimistic. Reports keep coming in that it takes a month or more to get a rate quote. Part of this stems from fear--"If I make a mistake, someone will be mad as hell, so I'd better protect my posterior," and that attitude extends all the way up and down the line. Just adding a layer of B-to-B e-commerce on top of that will gain the industry something approaching zero.

"The industry is so interdependent, and customer memories are so long that it is really hard to be optimistic that they will really do what ought to be done. They need to fix their operational controls [first], and get into e-commerce. Then they could kick ass in this economy of record shipments, environmental concerns, high fuel costs, congested highways and truck driver shortages--all, I might point out, rail advantages."

A reader in Ohio offers this gem: "If you want to see the basic 'best industry practice' for online shipment and web-based business- you don't have to look very far: http://www.onlinestore.ups.com. Most companies -- even small ones - now have the UPS desktop software to generate bills, get costs, get delivery times and pricing options to almost anywhere - generate the pickup label, track your shipments, and even know who accepted the delivery and when." It's probably already on a PC near you.

"Railroad attempts might be wise to closely study the architecture and approach of the basic UPS package, because it will already be in use by most, if not all, of your customers doing small express shipments. If you are at least similar, your training and explanation costs will be far less." And in that vein…

B2B supplier i2 Technologies notes in a press release, "Electronic marketplaces are meaningless unless sellers can effectively manage the product information in their catalogs and buyers can find exactly what they need in the marketplace. While today's online exchanges and marketplaces generate value for their participants, this is only the beginning of the value that they will gain. Many businesses have not yet evolved to the next generation of e-business - collaborative commerce, where significant value is created by addressing business partners' complex trading networks and supply chains."

For an example of what's possible in transportation, see the US Airways "e-Saver" program. A recent e-mail: "Purchasing tickets online couldn't be easier. Try our new low-fare search option by visiting the Reservations section on our home page. Enter your origin and destination and select 'My Travel Dates Are Flexible' to see a list of all fares offered for those cities." Now why can't we do that with carloads of widgets? Surely it's more dependable - maybe even cheaper - than contract rates set for years with unknown transit times and variable car supply.

Larry Kaufman writes in Traffic World, "Various shipper interests will be screaming almost as loudly as Tellier and Krebs if the STB does not act affirmatively to enhance, rather than simply preserve, competition. They left the agency's four-day March hearing into the future structure of the railroad industry believing that STB Chairman Linda Morgan was ready to give greater weight to shipper concerns than in the past."

This could be good news for everybody. The name of the game is taking business off the highways, yet there remain many railroad managers who still see the other railroad as the competition. As a result, new business that would require two railroads is lost because the originating road wants it all. Shortlines see it all the time, most recently in cases where the highly touted "Railroad Industry Agreement" (RIA) is being sidestepped.

The crux of the matter is that when Railroad A sold a branchline to Shortline X, and that branchline had a connection with competing Railroad B, a condition of the sale was that traffic already moving via Railroad A had to keep moving that way. The RIA - which all the railroads have signed - allows new business originating or terminating on new Shortline X to go via Railroad B if Railroad A can't or won't offer a competitive price-service option.

When Railroad A says to Shortline X they won't participate and won't let the other guy in either, then the truck wins and all three railroads lose. So does the shipper because railroad was the first choice. And shippers are increasingly taking the position that if Railroad A won't server me then I'll find a way to deal with Railroad B, even if I have to get there by truck. Ergo "shipper concerns" showing up at the STB.

The Australian Financial Review reports that a short list of bidders for West Rail has been announced, than of the four finalists, two have US roots. One is "the giant RailAmerica group, which last year secured the Victorian freight business V-Line for $163 million." The other is Perth-based rural conglomerate Wesfarmers, which has teamed up with US-based Genesee & Wyoming, also a consortium member in the Alice Springs to Darwin rail link."

AFR continues, "The four short-listed parties are expected to lodge their final offers in October, with the winner selected in November. The sale involves the Westrail freight business and a 49-year lease over the track." Further information on Westrail is available at www.westrail.wa.gov.au. Go to the "Financial Statistics" link and note annual Freight revenues come less than $AU250 mm, yet AFR reports the sale "is expected to generate $AU800 million in gross proceeds for the Court Government." Three times sales vs. the usual 1.5 times sales in the US. What are we missing?

RailAmerica reported earnings for 2Q00 this week. Comparing 2Q00 with 2Q99 shows phenomenal growth; however, much of it is from acquisitions. So we have to look at the 341% jump in revenues and 275% hike in net income from continuing operations and before extraordinary items in that context. In the tech sector, we look for rapidly accelerating sales and income levels regardless of source. Acquisitions are fair game for scoring growth there; why not here?

With the exception of the dip in 4Q99, revenues nearly doubled 2Q99 to 3Q99 and again from 3Q99 to 2Q00. The net grew proportionately. Unfortunately, share prices did not reflect this torrid pace, actually declining 38% to six-and-change from ten and five teenies YTY. Could it be the debt? YTY, the debt load rose to 76% of total cap from 67%, high for an industry that likes to stay in the 50% range.

In that regard, RAIL says its "on target" to raise more than $100 mm from the sales of non-core rail assets and the truck trailer maker. Also, the RailTex integration is about done, so the expenses associated with that will go away. As noted above, RAIL is one of four Westrail finalists, so a win there could give the company further economies of scale in that part of the world. And at home carloads and revenues are growing three times as fast as the industry averages. The balance of the year ought to be very interesting.

Nonsequitur: Frank Wilner reports in Traffic World that the lady in the "Whistler's Mother" painting was the wife of the man who invented the locomotive whistle, George Whistler. He was an engineer educated at West Point and he supervised the construction of the first mile of the B&O Railroad.

--Roy Blanchard

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