Original Thoughts by RRNET Member

I am taking extreme liberty here in posting verbatim (including a passenger related) the apparently original thoughts of RRNET Member Vincent, as well as my concurring response, that were made at another site. Since Vincent's thoughts encompass several matters of industry affairs all discussed at separate Forum topics, I have chosen to present this material at its own topic.

Mr. Smith, if I have violated Forum rules, I will understand if this material is killed:

Vincent wrote at another site:

The Class One railroads have taken quite a beating in the stock market over the last few months. Earlier this year I was reading investment advice suggesting that Union Pacific stock could be topping $130 a share in the near future. While I did roll my eyes at the $130 prediction, I'm very surprised to see the value of UNP and the other Class Ones dropping so sharply. The meltdown in the Chinese stock markets and fundamental changes in US energy markets seem to have driven investors away from railroad stocks. Clearly, the North American Class One railroads are going to have prepare for a future that is different from recent history. Coal traffic is fading, shale oil isn't a bonanza and there are soon going to be significant changes in the intermodal markets. The relative strength of the US dollar is also causing changes in the balance of imports and exports between the US and our trading partners. With all these changes in the freight business, does anyone see an opportunity for Amtrak to improved its system or even add new services in the near future?

I imagine CSX and NS are lamenting their lower coal volumes, but in the long term, the drop in coal will be replaced by new intermodal traffic arriving at deep water, PANAMAX-ready east coast ports. The change from coal to intermodal traffic might prove to be a net financial gain for the eastern railroads. Intermodal traffic generally flows from ports cities to large inland markets, similar to passenger traffic. Coal moves from mountains regions, where few people live, to large cities. Coal also does more track damage and generally moves slower than intermodal. Will there be room for more Amtrak or any of the proposed eastern or southeastern HSR systems on CSX or NS properties?

Rail traffic from Powder River Basin coal is also down. I was in Billings last week and noticed that the Montana Rail Link yard in Billings was still very full of oil tankers, but coal trains were hard to find. Will that open the door for passenger service from Billings west to Seattle or east to Chicago? At least the Empire Builder should be able improve its OTP with fewer oil and coal trains blocking the rails. But what other opportunities are there for passenger trains, other than timelier operations?

GBN responded:

Oh boy, Mr. Vincent, as I lick my wounds from last week's carnage (and I'm sure many another around here are doing same), I read your ominous words for the railroad industry's outlook. No wonder I have halved my positions in the sector.

Please let us not forget that any post-PANAMAX gains that the East Coast ports, and by succession CSX and NS realize in intermodal traffic, will be at the expense of the industry as a whole. Like it or not, a, say, Savannah-Chicago line haul does not equal an LA-CHI.

Likewise regarding oil, now that crude has touched $40bbl both at West Texas and Brent, there was a report last week in the Journal that Irving Oil in St. John NB has ceased sourcing crude from Bakken, and the resulting rail shipment, in favor of Middle East where of course the shipment is by vessel. Why all producers, especially the Saudis, seek to have this ruinous price war, simply escapes me. Just use the US airline industry as a model for for your own. Fare wars v. Fare control, what yields a better bottom line - and you Shieks need not worry about pesky bureaucracies looking over your shoulder, as have the US airlines, saying you are price fixing. After all, what else is OPEC?

Now coal, I'm not going to say it's back to the Dark Ages, i.e back to my 1970-81 railroad industry career, but here represents a commodity for where there is no reasonable and practical alternative shipping AND for which, when a spill occurs, there is no BOOM, you just sweep it up and move on with only a minimal shortage claim to settle.

Disclaimer: author holds long positions CSX UNP; formerly held same BNI KSU NSC

Interesting...
I agree with a lot of it, except I'd note that cheap oil and the general uptrend in the cost of offshoring to China will probably help US manufacturing.
Also, as far as landbridge traffic, the stuff that needs speed will stay on the rails, and obviously domestic traffic isn't going anywhere. So I don't think that UP/BNSF need to panic...
Not at all an expert, but that's my .02
All typos courtesy of my phone

All traffic is cyclical. Different businesses start and fail every day. Hopefully the railroads do not put too many eggs in one basket. An example is the anthracite roads. Changing technology resulted in automatic oil or gas home heating. Just turn up the thermostat. No more stoking the fire.

The key is for the railroad marketing folks to be diligent enough to recognize new sources of business. I have been a proponent of mixed car merchandise trains for years. Of course the bean counters hate them. They require yards, less efficient switch engines, and larger crews, and more facilities.

The upside is more potential customers. Not every business can produce 100 cars of product, nor does the receiver have the market to sell that 100 cars of whatever. Giving up on this is poor business, as is giving single car customers poor service. Does it make sense for a baseball team manager to tell the batter not to run unless he gets a home run? From tiny acorns come great oak trees.

I understand perfectly that unit trains are less labor intensive, and require less facilities. But just like home runs, they don't happen every time. Sometimes it is better to settle for less, rather than nothing.

People keep talking about enlarged Panama Canal being a game changer, well Boxing Day(December 26th) will see the first call at the Port of Los Angeles of the CGM CMA Ben Franklin, a 18,000 TEU containership. This ship is already too large to pass through the enlarged Panama Canal which isn't open yet. The serious downturn in Container shipping from Asia to Europe is seeing the cancellation of sailings, with the consequent diversions of some of the largest Containerships into the still slightly profitable Asia - West Coast market in order to drive down the per TEU cost of moving containers. The two biggest Mexican ports of Manzanillo and Lazaro Cardenas saw the assignment of the slightly smaller 13,000 TEU sized ships this past summer.