WIR 2020 First Quarter

Week ending March 27
Responses to last week’s question about railroads as a growth business, Class I customer support. Why tracking customers’ capex plans is important. Observations from railroad talks at the virtual Wolfe Transportation Conference.

Week ending March 20
The stock market as a leading indicator of the general direction of the economy; how company guidance for earnings estimates has dropped markedly for the present quarter; why RR managers need to pay attention. How and why non-investment debt levels are increasing; why “adjusted ebitda” is a bad idea. Railinc January 2020 summary of non-Class I railroads; commodity comps.

Week ending March 13
The stock market as a leading indicator of the general direction of the economy; how company guidance for earnings estimates has dropped markedly for the present quarter; why RR managers need to pay attention. How and why non-investment debt levels are increasing; why “adjusted ebitda” is a bad idea. Railinc January 2020 summary of non-Class I railroads; commodity comps.

Week ending March 6
Why it’s important to follow the CBOE Volatility index and the Dow Jones Transportation index: the more volatile the market, the less stable the demand for freight services. Energy, Industrials, and Materials sectors showing varying degrees of weakness in fundamentals, values, and relative strength; examples would be risks to export pulp and paper thanks to offshore overstocks and a pullback in steel demand from demand from the auto, construction, and energy sectors. Tony Hatch on the transportation impact of the coronavirus. CSX cancels shortline meeting.

Week ending February 28
BNSF wraps up the earnings season with full-year revenue of $23.5 billion, a year-over-year decrease of $340 million, or one percent, on 2.2 million revenue units, down four percent. Five-year operating income comparison for the six North American Class I railroads — table. UBS note saying John Deere ag sales are down; implications fir other ag-related commodities. UP’s Kenny Rocker cites new IANR intermodal terminal; IANR is the last-mile rail service provider, Watco runs the ramp, and Valor Victoria brings the customers.

Week ending February 21
How the four quadrants of the business cycle affect and predict railroad carloadings. Week 7 volume table; headcount reductions and NS shop closures are two results of negative traffic deltas. Railinc shortline and regional railroad commodity trends; chart.

Week ending February 14
Canadian National is shutting down significant parts of its Canadian network due to the blockades stemming from what the NY Times calls “an Indigenous group;” trains being parked. Canadian government imposing speed restrictions on hazmats; supply chain reliability and consistency endangered. Mexico finds there is a lack of “effective competition” for certain hazmats; impact on KCS Mexico minimal. AAR Freight Cars in Storage report.

Week ending February 7
Starting off with a seemingly unrelated quote but bear with me: It’s all about management focus as conveyed to investors. What do Apple and the railroad industry have in common? A core mission to create customers. What do they not have in common? A customer focus on earnings calls. BNSF announces $3.4 billion capex program for 2020, down 5% from the $3.6 billion investment made in 2019; For FY 2019, the railroad handled 10.7 million revenue units, down 4.5%. YTD volume comp.

Week ending January 31
Norfolk Southern did not have a good quarter commercially; revenue dropped seven percent to $2.7 billion on nine percent fewer revenue units and a two percent RPU gain. The Canadian National call was heavy on customer benefits and light on the usual ops and financial gleanings; operating income was down 16 percent to C$1.2 billion; the operating ratio added 415 basis points to a still-respectable 66 even. Canadian Pacific closed out the week with revenue of C$2 billion, up three percent, on 702,000 revenue units, down one percent, and RPU up four percent to C$2,883. Nobody’s raving about improved results in 1H2020 but they’re unanimous in saying life will return to normal in the back half.

Week ending January 24
Union Pacific and KC Southern report 4Q and FY results. Excellent PSR commentary by KCS; UP full-year results better than Q results, more representative of the railroad and carload commodities. Short lines say CSX ops getting better; commercial side needs to get more aggressive in the field.

Week ending January 17
CSX revenue units finished Q4 down nearly seven percent; merch carloads and revenue were down but three percent. CSX earnings presentation excerpt. Recent Wall Street sell-side discussion of what OEM sales portend for the trucking business; implications for railroads. Rod Case chart from RailTrends.

Week ending January 10
AAR North American revenue units finished Week 52 (December 28) down 4.0 percent — every single carload commodity group was in the red except for “petroleum and petroleum products,” which, we all know, is driven by crude oil car counts. Short lines and regionals are still out there drumming up business. Examples. Are the Class Is cutting back on sales and marketing? Notes from the field suggest they are. Railroad share prices are drifting back toward “fair value;” four of the six Listed Class Is are trading at less than intrinsic value. Reading between the lines in the AAR motor vehicles category. Cautionary signs from the oil patch.

Week ending January 3
We’re off to the races for another year. Revenue unit volumes are still in a funk but the tea leaves suggests a turn for better in the second half. I’m particularly pleased to hear that so many short lines are finding new customers and increasing volumes from older customers. The common thread appears to be simply staying in touch and being true supply chain partners. This week we’re taking a close look at the shale drilling business and the role money has played in its development. We examine the stunning correlation between the Fed’s balance sheet and U.S. oil production, the explosion of high yield issuance in the sector, and the impending wall of maturity. This conversation goes a long way to explain the sudden drop in shale-drilling in the Permian and elsewhere.

WIR 2019, Fourth Quarter

[No Week in Review December 27 — Christmas break]

Week ending December 20
The 45G tax credit deal appears to be reached; the bill still has to make its way through further legislative steps but ASLRRA’s Baker seems confident. New “RRIF Express” program expedites long-term, low-cost loans for short lines and regionals. Union Pacific completes mandated PTC installation; why PTC is an adjunct to PSR. UP streamlines marketing and sales around car type and service design more than strict SCCs.

Week ending December 13
PSR and how it relates to the railroad business in general; how PSR creates a railroad product better suited to customer supply-chain needs. Celedon trucking declares bankruptcy; a sign of the times as companies to minimize inventories, make smaller and more frequent shipments, and use less long-haul freight. Sorting out the AAR Chemicals and Petroleum Products commodity breakouts in their carload data.

Week ending December 6
A worrying crop report for railroads in the northern plains. Oliver Wyman’s Rod Case says merchandise carloads could be the canary in the railroads’ coal mine. Union Pacific customers realize benefits from PSR; a cautionary note for short lines on locomotive fleet management. The danger of share prices growing faster than earnings.

[No Week in Review November 29 — Thanksgiving Break]

Week ending November 22
Chart showing CSX and NS rates of change for STCC 262 revenue units and revenue per unit over time; some conclusions. Shortline operator R. J. Corman Railroad Company wins three of the five ASLRRA 2018 outstanding safety performance awards; thumbnails of their short lines. RailTrends 2019 observations and conclusions. Canadian Pacific buying the 481-mile Central Maine & Quebec Railway (“CMQ”) from Fortress.

Week ending November 15
Kansas City Southern sets new capital allocation policy for splitting available cash between “capital projects and strategic investments” — seeking alpha writer marks them down. Best days at CN are not over, in spite of what seeking alpha writer says. Why NS franchise in the growing southeast is not an automatic win; 2019 Proxy statement reveals management incentives. Pinsly’s Florida Central and the Rule of 100.

Week ending November 8
BNSF third quarter revenues slipped two percent to $6.0 million vs. a year ago; revenue units of 2.6 million were down less than three percent. The Four Quadrant economic outlook and how short lines can use it. Shortline caveats re AAR Week 44 merch carload trends.

Week ending November 1
Canadian Pacific held its “Connections” shortline and transload conference in Calgary this week; some 100 individuals representing more than 50 different companies were on hand. Pinsly Railroad Company is selling its three Florida properties to the Pennsylvania-based Regional Rail; the three Pinsly properties are the Florida Central (FCEN), Florida Midland (FMID) and the Florida Northern (FNOR). More on block swapping; why it worked and why it was killed. FreightCar America and Wabtec results reflect slowing use of freight car transportation in North America.

Week ending October 25
Canadian National finishes its third quarter with total revenue of C$3.8 billion, up 3.9 percent, on 1.5 million units, unchanged; RPU gains 4.1 percent to C$2,471. Norfolk Southern’s total revenue is down four percent to $2.8 billion on 1.9 million revenue units, down six percent; merchandise carloads 622 million units, including automotive, down four percent. Canadian Pacific posts record Q3 total revenues of C$2 billion, up 4.2 percent, on 711,900 revenue units, up 1.4 percent; system RPU was up 2.8 percent.

Week ending October 18
CSX total third quarter revenue units dropped five percent to 1.6 million; merch carloads including auto came in unchanged at 683,000 units. Union Pacific reported total Q3 revenue of $5.5 billion, down seven percent, on 2.1 million revenue units, down eight percent. Kansas City Southern total Q3 revenue increased 7.0 percent to $748 million on 598,900 units, unchanged; RPU gained 6.6 percent to $1,192 per revenue unit. Further comments on Precision Scheduled Railroading and its origins.

Week ending October 11
PSR on batch vs custom processing; Amazon parallel, shortline examples. Further NEARS observations: Professor gives PSR short shrift; need examples of CSX carload successes.

Week ending October 4
More than 250 souls came to the NEARS Fall conference in Burlington, Vermont this past week. Herewith some initial thoughts. Mike Miller, GWR President for North America, zeroes in on the changes coming to GWR as a result of the pending acquisition by Brookfield Infrastructure Partners. Arthur Adams, CSX VP for Sales and Customer Engagement, says his charge is to find out what it will take to win more merchandise business and translate customer needs into product design. Why the railroads need an attitude adjustment to make PSR work.

WIR 2019, Third Quarter

Week ending September 27
CP Book of Business discussion tells you what’s working and where in terms of both revenue dollars and revenue units; link to PDF. Why tracking truck rate changes is useful for knowing the direction of truck pricing; some thoughts on why rates change as they do and why RRs can’t seem to keep up. Shortline asset management practices; why knowing “available horsepower” is important. NEARS in Burlington, Vermont this coming week. Highlights: developing new business that sticks; how shippers are using technology to make rail service better; recent STB trends; state of the RR industry from shortline perspective.  We’re expecting 100+ attendees.

Week ending September 20
The UAW strike against GM will have a much wider effect on the railroads than just parts via intermodal and new vehicles in auto-racks; carload participation in the automotive market comes mainly from raw materials from glass to steel to plastics. Retail inventory levels have come down faster than have raw materials and finished goods inventories for manufacturers; it’s the latter that ought most to concern the non-class I railroads. An iRailroad parable. A further preview of RailTrends for November.

Week ending September 13
Cowen Conference highlights. UP strong commodity carload performance; group comprises 69 percent of UP revenues. NS champions pricing over volume. KCS the most customer-focused. RailTrends 2019 preview.

Week ending September 6
OmniTRAX to buy Cleveland Commercial Railroad (CCRL) and its wholly owned subsidiary, Cleveland Harbor Belt Railroad (CHB) for an undisclosed price. Canadian National and CSX have inked an agreement for the former to acquire the Massena rail line from the latter; short line implications? CSX names Adam Longson VP Energy, effective Sept. 9. Canadian Pacific to hold 2019 Shortline Workshop at the CP campus in Calgary October 27, 28.

[No Week in Review August 30]

Week ending August 23
OmniTRAX discontinuing service on its Central Texas & Colorado River Railway; anticipated traffic increases that had motivated the purchase of the line never materialized. Canadian National publishes its 2019-2020 Grain Plan and invites feedback from interested parties including short lines. Comparing UP traffic projections made on Q2 earnings call with YTD results half way through Q3; commodity pattern mirrors what’s happening on all the US Class Is.

Week ending August 16
One continual theme in the railroad business over the last six months has been the steady decline in revenue units; two charts. GWR 2Q YTD results; bulk commodities see largest gains. Now that all the results are in, it’s time to tally how the Class Is scored in percentage changes in my key financial and operating measures; CP ranks first seven of the nine categories. CP to hold 2019 shortline meeting in Calgary October 27-28; reception Sunday evening and formal remarks Monday morning with breakout sessions in the afternoon.

Week ending August 9
BNSF Q2 revenue $5.9 billion on 2.3 million revenue units, for an RPU of $2,299, up four percent. Of 17 commodity groups reporting, only four saw YOY gains; industrial products volume changes were primarily due to strength in the energy sectoroffset by lower sand volumes and reduced car loadings due to the challenging weather conditions in 2019. Why the Class Is are behaving as they do with respect to the manifest carload business; how short lines can cash in. How Watco’s Crew Connect software simplifies crew management and hours of service tracking.

Week in Review August 2
Why I think Class Is are spending more on share buy-backs than capex. OmniTRAX buys Winchester & Western for $105 mm. Santa Maria Valley Railroad celebrates 108th birthday. Pioneer Railcorp acquired by Denver investor group; $$$ not revealed. Anonymous deal-maker seeks $10 mm to buy three mystery short lines.

Week ending July 26
Earnings Week closes with three reports. Canadian National reports record quarterly revenues of C$4.0 billion, up nine percent, on 1.5 million revenue units, up two percent; 11 percent operating income gain to $C1.7 billion. KCS freight revenues increase four percent to $678 million; total revenue increases five percent to $714 million. NS reports total revenue $2.9 billion, up 90 basis points, on 1.9 million revenue units, down 3.8 percent; OR 63.6, off a point year-over-year. It’s getting to the point where the railroads are spending more on share repos than they are capex.

Week ending July 19
Canadian Pacific second quarter revenue units increase six percent to 716,800 and freight revenue gains 13 percent to C$1.9 billion, thanks in part to the seven percent RPU gain. CSX total revenue units decrease four percent in the second quarter; merchandise carloads, including auto, increase one percent; coal gains two points and intermodal plummets 11 percent. Union Pacific revenue units off four percent to 2.1 million units in the second quarter; commodity revenue slips two percent to $5.2 billion but total revenue, $5.6 billion, was down just a point.

Week ending July 12
Short lines, switch carriers, and regional railroads are closing ranks by getting closer and closer together; will we see more Alphabet Routes? First half 2019 weekly carload trends revisited; second-half comps repeating 2016-2018? Further thoughts on GWR going private.

[No Week in Review July 5]

WIR 2019, Second Quarter

Week ending June 28
Longer trains and less interim car handling can’t be all that good for single-car shipments not moving in unit trains. Paper commodity group is still in a funk — boxmakers who typically expect to see a seasonal uptick in demand by mid-June have yet to see any signs of a pickup as demand remains sluggish. IORY and Ohio Rail Development Commission get access to nearly $7 mm in funding for upgrading and adding to industrial trackage. A look at the BNSF O-gauge layout on display at the Berkshire Hathaway Annual Meeting.

Week ending June 21
This AAR graph clearly shows the continuing downward trend of railroad revenue units; continue the trend line down and see that, at this rate, the railroads will have no customers left by the year 2023 or so. CSX ’s Foote on reversing the trend; fitting short lines into the trip plan matrix. PMI contracting along with railroad revenue units. Continue reading

WIR 2019, First Quarter

Week ending March 29
GWR acquires two Indiana short lines to perpetuate its long-standing “contiguous railroad” model, stitching together formerly independent operations and its existing network. Greenbrier gets orders for 3,800 new fright cars — chiefly tank cars, auto racks, and covered hoppers; tank cars and covered hoppers easily fit the non-cyclical category for chemicals, energy, and grains. Not sure about auto racks.Tony Hatch reports from SEARS.

Week ending March 22
CSX is in flux; opportunities for short lines abound. CN looks for growth in shortline carloads; managing customer behavior. Thoughts on the Total Addressable Market (TAM) concept for short lines. Continue reading

WIR 2018, Fourth Quarter

Week ending December 21
The Dow Theory and share prices; what they tell us about the State of the Union and its effect on the railroad outlook. Table. What REALLY is Precision Scheduled Railroading; Quotes from Hunter’s book set the record straight.

Week ending December 14
RailTrends 2018 recap. More than 300 attended; all the Class Is and 14 non-Class I operators represented. Adding value to the customer, PSR, sustainable profitable growth, reliability the major themes. Regional and short line panel on first-mile/last-mile role; creating a custom process out of the batch process delivered by the Class Is. Why carload trip plans must be dock-to-dock. Rod Case on trucks eating our lunch and what to do about it. Continue reading