Ask The Experts: April 10, 2019
Independent Transportation Analyst and Consultant
Q: Do you think the recent border closing threats will have a greater impact than the tariff situation?
A: Border closing trumps any tariff threat! Just as NAFTA 2.0 might be about to be addressed by Congress, and the China negotiations just might be heading towards “endgame” (with upside for US Ag possibly a part of the deal, even as China now targets Canadian canola perhaps in retaliation for the Huawei mess) , the White House has opened new fronts in North America. The first was to press both Canada and Mexico for metals quotas (in return for tariff removal), threatening ratification votes in those partner countries, and causing the US Chamber of Commerce to state that “Tariffs are bad; quotas are worse”.
But that was nothing compared to the threat of a southern border closing – again, the US Chamber: “unmitigated economic debacle!” Even the threat and some redirected TSA personnel has led to truck delays increasing (at El Paso 2 hour waits increased to 5-6 overnight). So far, AMLO (who presented a balanced budget two days ago, to great relief) has been friendly to POTUS and US – but given that his top economic/business backer, Ricardo Salinas, says that AMLO has issues with “trust & delegation”, and the USA and US-owned railroads are a constantly tempting target, I am not sure why provocation, in a period of slowing Mexican GDP (even the government reduced 2019E form +2% to +1.6%) is the best tactic at present. Recently, it seems the White House is “walking back” some of the border closing threats, even noting that they would exclude trucks from the potential closing (no mention of rail!), what does this turmoil do to potential FDI? “Security is more important to me than trade”, said POTUS.
Q: What do you think about the current leadership changes in rail due to Precision Scheduled Railroading (PSR) efforts?
A: Change is a constant – PSR personnel shakeups not always easy to decipher: So, we covered a bit of CSX’s almost constant turnover; this week CN announced (along with a new steamship line, Zim, calling on Prince Rupert) self-described “sweeping changes….designed to forge closer links between operations and technology” (an interesting and helpful twist), and added strategic acquisitions to CFO Houle’s portfolio and operations/integration of new portfolio companies to that of SVP/Consumer Products Reardon. Clearly we should expect to see more supply chain extension deals like TransX and ports in the future. Meanwhile, Norfolk Southern’s personnel announcement was a bit harder to read. Three announcements – EVP John Scheib added strategy; SVP Annie Adams of HR was named Chief Transformation Officer (?? Isn’t that the CEO?), and vanes A. Sutherland, who joined NS last year, was named SVP-Law. One thing I don’t fully understand – and here I have to note that these guys are friends – but Scheib, in many ways responsible for the positive surprise coming out of the recent Investor Conference, has always been involved in strategy, clearly to NS’ benefit. But this seems to mean that Mike McClellan, on the of the bright lights of the entire industry, now reports to John who reports to CEO Squires. Anything that, in reality or perception, marginalizes McClellan is not good for NSC.
Q: Why have short lines been such a hot topic lately?
A: The following developments are making big news:
“3i Group” announced an agreement to invest in (note) Regional Rail LLC, a small 3-line short line holding company in the Mid-Atlantic run by old hand/friend Al Sauer, ex-Rail America.
GWR, itself the object of rumor, admiration and desire, added two small-ish lines via long-term lease to its Midwestern ops, a bolt-on, contiguous line (classic old-school GWR).
Anacostia & Pacific’s Louisville & Nashville was named Short Line of the Year by RA, while GWR’s Rapid City, Pierre & Eastern (ne’ CP’s DMW-West) was named Regional; Railroad of the Year.
At NEARS there was both a Short Line Panel and an address by Gil Lamphere of Mid-Rail, plus days of convention (more on this later) ….
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