The Future of Rail

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The Future of Rail

Postby Jeff Smith » Mon May 30, 2011 11:33 am

Interesting WSJ article (subscription may be required):

http://online.wsj.com/article/SB1000142 ... lenews_wsj

Once a dying industry, railroads have made a strong comeback and are poised to become busier places in the years ahead. Forecasts for freight growth are substantial, prompting railroads to plan capacity additions. At the same time, the federal government is looking to railroads to handle more and faster passenger trains and install an extensive anticollision system known as positive train control.

The Wall Street Journal recently held an email discussion about the future of rail with panelists from the private and public sides of the business. Participating were Jim McClellan, vice president of railroad consulting firm Woodside Consulting in Virginia Beach, Va.; Bill Rennicke, a consultant at Oliver Wyman Group in Boston; Francis P. Mulvey, a commissioner of the Surface Transportation Board in Washington; and Joseph C. Szabo, head of the Federal Railroad Administration in Washington. Here are edited excerpts of the conversation:


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Re: The Future of Rail

Postby airman00 » Mon Jul 04, 2011 10:26 am

All this talk about railroads future looking bright? I live in bergen county in northern NJ, and have seen ALOT of old abandoned freight sidings. Even old lines just kinda hanging on with just a handful of customers left, like the CSX northern branch line. Or look at the NYSW lodi branch. (OOS for many, many years) The New Jersey Transit, Pascack Valley line, very few freight customers left. I was in passaic a couple of years back, lots of old rails and one struggling railroad company: NY & GL railroad. Much of this industry, in NJ has gone elsewhere or over seas. (and thusly so go the rails.) The NJ area has seen much in the way of freight rail traffic (as far as individual freight customers), going by the wayside. I can't see this revitilization of the railroad industry coming to NJ. (Even just over the border, peirmont, NY was many years ago, a hotbed for freight rail traffic with several customers and one even getting service 6 days a week. And now not a single piece of rail left.)

Any thoughts on this?
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Re: The Future of Rail

Postby v8interceptor » Wed Jul 06, 2011 11:10 am

airman00 wrote:All this talk about railroads future looking bright? I live in bergen county in northern NJ, and have seen ALOT of old abandoned freight sidings. Even old lines just kinda hanging on with just a handful of customers left, like the CSX northern branch line. Or look at the NYSW lodi branch. (OOS for many, many years) The New Jersey Transit, Pascack Valley line, very few freight customers left. I was in passaic a couple of years back, lots of old rails and one struggling railroad company: NY & GL railroad. Much of this industry, in NJ has gone elsewhere or over seas. (and thusly so go the rails.) The NJ area has seen much in the way of freight rail traffic (as far as individual freight customers), going by the wayside. I can't see this revitilization of the railroad industry coming to NJ. (Even just over the border, peirmont, NY was many years ago, a hotbed for freight rail traffic with several customers and one even getting service 6 days a week. And now not a single piece of rail left.)

Any thoughts on this?

You are referring to "loose car" railroading. A lot of freight that used to go in boxcars has shifted to containers which go from dockside to large container terminals so even though branchline railroading is not what it once was, total ton miles are much more than they were in the "golden era"...
The shift in business may mean fewer opportunities for railfanning but that doesn't mean the industry is dying..
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Re: The Future of Rail

Postby F-line to Dudley via Park » Thu Jul 07, 2011 7:13 am

It's all about long-distance, containers, and transloading. Yes, locals are still dying. Yes, branchlines are still dying. Mainline long-distance traffic...growing steady, and explosively in some parts of the country. Even in places where the RR decline overall has been worse than others, like New England, if you look at things like CSX's big double-stack initiative in Massachusetts. It's much less expensive to ship goods cross-country in bulk by train than by truck. Trucks are much better for transloading and distribution in <100 mile radii; that's why they're still increasingly displacing locals. But at multi-state distances...it's tilting ever further towards rail and consolidation to huge bulk shipping in one run as the cheaper alternative. And that's bankable for the multi-decade future the way fuel and labor costs are going and the economic drag from the price inflation on basic goods. RR's are a little later to the game than ocean ships re: bigtime container shipping, but the Class I's are catching up fast. And, yes, there are some local applications--situation- and area-specific--where turning the business over to shortlines for shorter-distance interchanging has also proven profitable. Allows the Class I's to shed some locals that are still profitable enough to retain but don't fit the corporate big picture, and still make money off them with interchange business by outsourcing the locals to shortlines who are right-sized to make a profit on it.

The freight industry isn't dying at all. It just needed to be psychoanalyzed. The market has pretty much rediscovered its purpose, and the carriers are pretty well-aligned with their business models for this century. We will see some residual trimming of the national network, as unused sidings rust and marginal branchline abandonments continue (but nowhere near the rate of the last 40 years because there just aren't that many truly sickly lines left to cut). But don't let the localized visual evidence of that mask what's really going on. Those containers are coming in ever-bigger and swifter numbers, they're doing it more cost-efficiently than ever, and the growth curve is very robust for that long-term as steadily rising long-distance trucking costs start precipitously eroding that mode's historical advantages back to a par.
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Re: The Future of Rail

Postby marco » Thu Jul 07, 2011 8:16 am

Would like to echo F-Line's statement; I live close to the CSZ track in New Windsor, NY (on the Hudson River), and the other day, I saw an ENDLESS LINE of DOUBLE STACKED CONTAINERS. Now, I do realize that this isn't factual empirical evidence of a "rail resurgence" in the country, but it seems to me freight trains are more frequent and longer.
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Too Big to Hide

Postby 2nd trick op » Thu Jul 21, 2011 4:03 pm

In part also in reply to the "popcorn" thread, I think it's worth noting that, like their utility cousins, the major freight roads are aware that the nature of their operation is woven so thoroughly into the fabric of urbanized life that they cannot escape some public scrutiny. Using that reasoning, they would be willing to accept a slightly lower return on their investemnt as the price for a longer, more stable future.

The United States remains the single freest economy on the globe with regard to the ownership and management of the means of production. And our freight system, all modes included, is respected as the envy of those among the industrialized, fully-tested democracies. But private capital has occasionally been held hostage to the shifting winds of politics, and while these abuses have usually been corrected over the long run, the consequences for individual managers have occasionally been catastrophic. Stuart Saunders, architect of much of the success story that was the ascendancy of the "final" Norfolk and Western, reportedly lost a sizable portion of his personal net worth to the Penn Central debacle.

So I would expect the "Big Seven" to contanue to maintain a policy of progress "at restricted speed" --- picking up market share most readily only among those sectors where the changing nature of the business, occasionally enhanced by the presence of underutilized capacity from previous investment, makes it a safe move. Where public-sector involvement is an absolute necessity, I would expect the freight roads to be very wary of the fickle nature of the local influence-peddlers.
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Re: The Future of Rail

Postby airman00 » Thu Jul 21, 2011 7:02 pm

So fine I get the idea that the long distance container trains and the transloading, are good for business. The question is then, how do we save the locals and the brachlines? What do we do to prevent the old rusting away freight siding, from becoming as such? How do railroads save the individual freight customer?
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Re: True to the real master

Postby QB 52.32 » Thu Jul 21, 2011 8:07 pm

2nd trick op wrote:In part also in reply to the "popcorn" thread, I think it's worth noting that, like their utility cousins, the major freight roads are aware that the nature of their operation is woven so thoroughly into the fabric of urbanized life that they cannot escape some public scrutiny. Using that reasoning, they would be willing to accept a slightly lower return on their investemnt as the price for a longer, more stable future.


The modern Class 1 railroad manager I suspect at this point, as has been the case once the industry got on its feet coming out of deregulation, views public opinion the least of its masters, eclipsed instead by the public policy makers to a greater degree, and the capital markets to the greatest degree. As such, I don't see any meaningful budging to appease the public which often demands a utility-like treatment and an "all things to all people" expectation for their own benefit, but instead steady vigilance and aggressive defense of the demonstrated success of deregulation amongst the policy folks, and, the greatest motivation in increasing returns on investment to maintain and improve access to their lifeblood- capital.
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Re: The Future of Rail

Postby gokeefe » Mon Jan 02, 2012 11:15 pm

The Impending End of "Stagnation"?: Implications for U.S. Railroads

Perhaps radically, I am prepared to state as a thesis right now that the U.S. national economy is on the verge of a period of very strong economic growth.

Why?

1. The global supply of cheap and accessible labor has been exhausted. Wage inflation in China and even Bangladesh is the best evidence of this. However, an even stronger notion in my mind also works. Although there are still many countries were one can employ cheap labor at abysmally low wages, these countries are also subject to political insecurity or simply do not have the infrastructure necessary to allow for rapid industrialization. Furthermore, and most importantly these other places simply do not have sufficient volume of available labor to meet demand. China and India both were the world's last great reserves of inexpensive labor that was accessible for rapid industrialization. While neither country is by any means completely industrialized yet, a great deal of new industrial capacity in both China and India will be used for domestic consumption, leaving export oriented production effectively competing for the same labor pool. The remaining available locations for industrialization or re-industrialization (outside the United States) are marginal at best.

2. The United States as described in the "North Dakota Bakken Crude Oil" thread via linked CNBC article is now a net exporter of distillates for the first time since records started being kept in the 1970's and by some estimates since WWII. In short this points to unnecessary imports of crude oil from foreign countries. Within the context of this data there is actually a double trend. The net export of distillates is not taking place solely because of an increase in production within the domestic United States. In reality these production increases have barely begun to affect the U.S. market. It is occurring because of a substantial reduction in demand from U.S. consumers. As the expected increases in production of crude oil begin to make their way through the domestic distillate market two things will happen. Imports of far more expensive crude oil will decrease substantially, as has already been documented elsewhere and prices for domestic distillates will likely slowly decrease as well. The additional production that will then consequently pour onto the global market, instead of the U.S. market will then have a depressing effect on the global price of crude, which will ultimately place downward pressure on all crude prices. This will finally result in a substantial price decrease in U.S. distillate prices. Short of a major global crisis of production (war with Iran) I expect to see this trend materialize over the course of 2012. Given the enormous amounts of new production coming out of North Dakota it is now only a matter of time for this cycle to begin. There is literally no stopping it. Stockpiling of crude oil reserves will prove nearly impossible for two reasons, current high inventories in private stock and current near capacity levels in the U.S. Strategic Petroleum Reserve (eliminates the possibility of the government being pushed to step in and absorb a systemic oversupply).

There is another trend, as indicated in the distillate exports. Even once crude becomes cheaper domestic refineries will be pressured to drop price levels to a point where domestic consumption can finally again begin to balance with refinery capacity. In short refiners must drop prices along with crude oil prices due to low utilization rates for refiners. Failure to do so would result in continuing declines in demand along with concurrent pressures on refiners. Thus, due to lower domestic demand for distillates, refiners will be under enormous pressure to drop distillate prices in step with crude oil prices in order to stimulate demand for distillates to a point where refiners can generate sufficient volume to make a profit. The confluence of low or declining distillate demand along with new domestic production (that is substantially cheaper than imported alternatives) is a highly unusual circumstance rarely seen in the past 30 years.

3. The U.S. has the only large pool of available comparatively cheap labor, good infrastructure, light(er) regulation, and political stability anywhere in the world. Furthermore a great deal of U.S. industrial infrastructure is relatively new having been abandoned or off-shored within the last 10-20 years. Many properties have yet to be redeveloped, leaving a glut of industrial property in the United States that is prepared for nearly immediate redevelopment. In top of all this discovery and new production of extremely abundant sources of natural gas will help bring energy prices in the United States down substantially. This runs counter to trends elsewhere in the world which will see continued increases in energy costs due to import requirements and the cost of building or improving energy infrastructure.

4. China's continued economic expansion will eventually make the Chinese Central Bank's currency peg for the Renminbi (Yuan) fiscally impossible to defend. In order to continue to peg the Chinese currency against the dollar China is forced to export capital inflow in large volumes. The only safe means to do so is through the purchase of U.S. Treasury securities and through the availability of inexpensive domestic Chinese credit. Due to the credit contraction now underway in China, the expected reduction in sales of U.S. government debt and the continued expansion of the Chinese economy the Chinese Central Bank will be unable to maintain the currency peg of the Renminbi against the U.S. Dollar. Continued accumulations of foreign capital in sovereign reserve accounts without the ability to buy large quantities of bulk U.S. government secured debt will make it largely impossible for China to hold the Renminbi peg against the U.S. Dollar. The alternative, removing the Renminbi from foreign currency exchange trading would essentially sever China's banking sector from world financial markets. This would be catastrophic to the Chinese economy and therefore as such does not represent a viable option.

5. Additional Miscellaneous Geo-Political Developments:

a. Continued growth of Iraqi oil production, now at close to 3.0 million BOPD, past Saddam era peak of 2.4 million BOPD. Production in Iraq is expected to grow well past 5.0 million BOPD before 2020.
b. Light damage to Libyan oil production facilities during 2011 civil war. Production in Libya has already recovered to 1.0 million BOPD and is expected to come back online to 100% of Qaddafi era capacity within the next 6 months. Much as with Iraq, exploration in Libya has not been seriously undertaken during the Qaddafi era. This means additional exploration, discoveries, and production are likely to come online over the next 10 years, to include gains in efficiency from current production which is mostly done using outdated facilities.
c. Possible retrenchment by the Chinese government in their economic liberalization policies.

What are the Implications for U.S. Railroads ("The Future of Rail")?

1. Moderate improvements in the U.S. industrial sector yield incremental traffic gains.

2. Lower energy prices improve overall profitability.

3. Broad based domestic economic recovery leads to increased consumption, meaning a potentially significant increase in intermodal traffic. This development may be tempered substantially by the expansion of the Panama canal and subsequent changes to international maritime traffic patterns.

Beyond these three basic conclusions it is very hard to see what the implications are for U.S. railroads of a domestic economic recovery due in part to the potentially sector-specific economic trends that may develop.

Conclusion

While it may not seem to be a reasonable thesis at this point, recent trends are impossible to ignore. Changes to the energy source composition for the United States have enormous implications for the U.S. economy. It is impossible to treat as insignificant the developing surge in new production of both oil and gas within the United States. Additionally other global trends, specifically wage inflation in China and India mean that the U.S. is suddenly very attractive again for development, where it wasn't the last time energy was really cheap (in the mid to late 1990s).

When I see Chinese factory workers successfully agitating for higher wages (and receving 50%+) across the board raises at the mere hint of a strike things have changed. That is exactly what happened in 2011 and I think it is an incredibly important indicator of the state of the global labor market.
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Re: The Future of Rail

Postby gokeefe » Tue Jan 03, 2012 12:54 am

I found the following article in American Thinker, published today, very interesting:

I have reset the links that were on the original website for the reader's convenience.

The second story is that North Dakota hit a record high oil production in October of 488,000 barrels per day (bpd). This was up 100,000 bpd (or 25%) from June's production. Lynn Helms, director of the North Dakota Department of Mineral Resources, projects that the state's total oil production will exceed 500,000 bpd next year and 900,000 bpd the year after that. The state will soon surpass California (539,000 bpd) and Alaska (550,000 bpd), rivaling top-producing Texas (1.2 million bpd).

Another story reinforces these bracing estimates. The National Petroleum Council estimates that by 2035 -- if the regulators will just stop endlessly excreting new hurdles -- the U.S. will hit 3 million bpd of shale oil alone. There are about 14 to 16 new American shale oil fields just starting to be exploited.

This has led the federal Energy Information Administration to raise its estimates for total American liquid fuel output by nearly 40% -- for next year alone!

The prior report indicates that total (i.e., conventional and non-conventional) American crude oil production hit 5.8 million bpd in September of this year -- an increase of 300,000 bpd (or about 5.5%) from the year earlier. American crude oil production could hit 7 to 7.5 million bpd by 2013, and hit 8-10 million bpd by 2015. Add in natural gas liquids, and we may well hit 11-14 million bpd. That would place our crude oil production up there with Saudi Arabia and Russia and, when you add in our natural gas liquids and ethanol, would place us tops in the world by far in liquid fuel production.

In fact, it now appears that in 2011, America will become a net petroleum product exporter for the first time in 62 years.

Not only is America now a net petroleum product exporter, but as expert Dave Ernsberger (global director at energy consulting firm Platts) put it, "[i]t looks like a trend that could stay in place for the rest of the decade. The conventional wisdom is that [the] U.S. is this giant black hole sucking in energy from around the world. This changes the dynamic."


I was utterly stunned to read the estimate which appeared to indicate that the U.S. was potentially on track to be the world's largest producer of liquid fuels within 10 years.
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Re: The Future of Rail

Postby scharnhorst » Sun Jan 29, 2012 3:19 am

Some of the Lines that Conrail sold off are prospering and growing tho. Where I am Conrail sold a line branch line hat saw a train once a week some times once every two weeks. They sold the line in 1995 to a Short line operator and business picked up 10 fold with in the 16 years over the whole 118 mile route the operator started with 3 units and now has 13 locomotives and more interested party's wanting to ship by rail along side of a number off off line company's also looking at shipping. I think it all depends on the location of the country and what there is for industry that determine weather a railroad will live or not.
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Re: The Future of Rail

Postby JayBee » Sun Jan 29, 2012 2:10 pm

gokeefe wrote:
I was utterly stunned to read the estimate which appeared to indicate that the U.S. was potentially on track to be the world's largest producer of liquid fuels within 10 years.


Keep in mind that part of the reason why the US is exporting gasoline is that foreign countries are willing to pay more for it than US consumers. Within the last week 4 refineries closed in Europe. The US Oil Refining companies have no hesitation, they will sell to the highest bidder. Right now the nearby Northern Tier Energy refinery at St. Paul Park, MN is testing using North Dakota Light as it's feedstock replacing the heavier Alberta Crude they had been using. One of the differences is that the Bakken Oil yields less Naphtha from the distillation, Naphtha is the primary feedstock for the unit that produces Gasoline. Less Naphtha is better for this refinery as they were producing too much Gasoline, and not enough diesel. Because of this glut (from the refinery's point of view), gasoline prices are low in this area, while diesel prices are sky-high, since to cover the refiner's costs the buyers of diesel fuel must pay more since the buyers of gasoline will not. Limitations in the unit that makes diesel fuel prevent them from increasing the production of that product, but it solves the problem of unsold gasoline (long way from the coast, so transportation costs make it difficult to sell overseas). BTW local gasoline prices jumped 12 cents within days after the changeover.
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Re: The Future of Rail

Postby amtrakowitz » Mon Mar 12, 2012 4:44 pm

v8interceptor wrote:
airman00 wrote:All this talk about railroads future looking bright? I live in bergen county in northern NJ, and have seen ALOT of old abandoned freight sidings. Even old lines just kinda hanging on with just a handful of customers left, like the CSX northern branch line. Or look at the NYSW lodi branch. (OOS for many, many years) The New Jersey Transit, Pascack Valley line, very few freight customers left. I was in passaic a couple of years back, lots of old rails and one struggling railroad company: NY & GL railroad. Much of this industry, in NJ has gone elsewhere or over seas. (and thusly so go the rails.) The NJ area has seen much in the way of freight rail traffic (as far as individual freight customers), going by the wayside. I can't see this revitilization of the railroad industry coming to NJ. (Even just over the border, peirmont, NY was many years ago, a hotbed for freight rail traffic with several customers and one even getting service 6 days a week. And now not a single piece of rail left.)

Any thoughts on this?

You are referring to "loose car" railroading. A lot of freight that used to go in boxcars has shifted to containers which go from dockside to large container terminals so even though branchline railroading is not what it once was, total ton miles are much more than they were in the "golden era"...
The shift in business may mean fewer opportunities for railfanning but that doesn't mean the industry is dying.

If they can't compete with the other land-based mode(s) and the size of the infrastructure continues to shrink rather than grow, then yes, it's dying—or rather being killed by government interference.
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Re: The Future of Rail

Postby hammersklavier » Tue Mar 13, 2012 11:17 pm

Gokeefe--You're confusing distillates with crude. The trend you're referencing is actually something more like this:

1. Crude oil producer with inadequate refining capacity sells the U.S. (that is, American companies) its excess crude.
2. The U.S. distills this crude into useful products (the distillates).
3. The U.S. sells this distillate back to the producing nation at, of course, a tidy profit.

Increasing distillate exports do not indicate a growing supply of domestic crude.

Second problem: You're using the most optimistic numbers on Bakken. Problem with those is that Bakken is not actually easy to get out. For every barrel of oil produced from it, the energy equivalent of something like 2/3 of a barrel has to be used. So even if there are a billion barrels of recoverable oil in the Bakken, the energy equivalent of some 660 million barrels have to be spent getting it out. This means the net energy yield of the field is closer to 330 million barrels, far, far less than the most wildly optimistic numbers being thrown about. Bakken wells are also going dry much quicker than anticipated, which (again) suggests initial overestimation. Because they are going dry at a rather rapid clip, for the production yields to increase new wells have to also be drilled at a rather rapid clip. This is part of the reason why Bakken's real energy yield is so low.
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Re: The Future of Rail

Postby gokeefe » Wed Mar 14, 2012 7:31 am

hammersklavier,

What is the average/normal energy expended for a conventional drilled well on land?
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