Freight Rail Stocking Stuffers

December 21, 2018

Greetings and Happy Holidays!

This will be the last note of the year from me (unless something major occurs – and 2018 has suggested for rails, trade etc – something major seems to be always occurring).

Presents to unwrap - Some year-end gifts for the rail observer:

  • First female railways Chairman – Isabelle Courville will succeed Andy Reardon as Canadian Pacific’s (and, I believe the industry’s) first

  • CSX re-committed to (double-stack clearing) the Port of Baltimore, after all, though their reduced financial commitment (of $91mm down form the original, pre-Hunter promise of $125mm) means the project isn’t fully funded yet….

  •  AMLO’s budget – “fiscally prudent” (FT) - says maybe he is not so nuts after all?  The Mexico City airport bondholders seem to think so, approving by 3 to 1 the buyback/restructuring plan that caused so much angst.

  • The AAR’s “12 Days of (RR) Christmas”: https://www.aar.org/campaigns/12-days-of-freight-rail/  and the wonderful gift I received from the Railroad center for Photography & Art (http://www.railphoto-art.org/ )

  • North American Rail traffic is hanging in there – in fact in week 50 (12/15) it was up 4% (carloads a bit less than +2%, intermodal up over 6%)

  • CSX may have more presents for short line enthusiasts – word is going around that after a review of the network, there may be another series of announced segments for sale (on the order of 2X the announced miles on the 8 already listed or sold segments)

  • My first two, pre-earnings trips of the year will be very intellectually rewarding:

—Beginning Jan 5 - The NRC (National Rail Contractors & Maintenance Association - http://www.nrcma.org/2019conference ) annual convention has added panels (in addition to the usual excellent previews on network capex – and outsourcing trends) on Signals & Communications (think: developing PTC into the RR digital backbone) and on PSR with CN’s COO Mike Cory (as well as 3 former CN ops leaders and Howard Green, the author of the EHH Bio, “Railroader”)

—Then beginning Jan 15, the Midwest Association of Rail Shippers (MARS) winter meeting (https://www.mwrailshippers.com/wp-content/uploads/sites/2/2018/12/MARS-MEETING-AGENDA-WINTER-2019.pdf )will bring some 800 railroaders together to hear a “state of the industry” discussion between myself and (retiring) BNSF Executive Chairman Matt Rose – now that will be fascinating as we discuss the sweep of PSR throughout the (rest of?) the industry, as well as Matt’s many accomplishments in his exemplary career).  That’s not all, either, as we’ll hear from GWR CEO Jack Hellman, CSX CMO Mark Wallace, Watco CCO Stefan Loeb – whose birthday is today, folks – and CIT Rail CEO Jeff Lytle, as well as my preview 2019 speech….

Some of those presents whose meaning isn’t yet clear, like a winter coat that could mean “we’re going skiing!” – or it could mean “Dad says you are now permanently in charge of shoveling the driveway”:

  • Activists are still….active.  Bunge, the grain trader, lost a proxy fight and its CEO (and may sell itself to ADM?).   TCI meanwhile sold an $800mm block of Aurizon shares, with more selling possibly on the near horizon (all told they now are reported to own 9% of the outstanding) – and are thought to be interested in returning to North American railways (and PSR)….Third Point won proxy battles at United Technologies and Campbells the old fashioned hard-knuckled way, but new funds are touting a new name – “constructivism”, for working with managements….

  • Truck tonnage may be slowing but it was still up almost 8% in November (YOY).

  •  “The more people work on urban self-driving, the more they realize what a long road it is,” – from NY Times article on the status of AV technology, as the industry begins to realize that the promise that seemed so near at the beginning of this year now looks more realistically to be a bit farther off from delivery; in addition, it is “a technology in search of a purpose”.  However, a joint Swedish/German initiative, a remotely monitored AV truck called T-Pod (a so-called “smart container on wheels”) is expected to be approved for testing in 2019.

And of course there’s always some lumps of coal:

  •  Trade – and uncertainty - even if today isn’t the darkest day on this front (the 90-day delay and all that), the disruptions, changed supply chains, and full impact will begin to play out soon

  • US Grain – the unintended consequences of distortions in the soybean supply chain are a historical fact (the ‘90s trade war vs Japan helped jump-start the Brazilian soybean industry).  Now, the US exports to China are down 44% through 9 months.   Worse, the “normal” rail move of beans, a mostly for export crop, from the upper Midwest to the PNW – perhaps the most lucrative rail market there is, or was - is a much lower return move to the Gulf to backfill Argentina (which sends their beans to China).  Meanwhile climate change’s frontlines, if not in coral reefs, are in Ag, pushing corn northward, for example (Canadian corn crops?)  In addition, the still stoutly GOP farm belt (helped by the US Government bribes, er….”assistance”) is now all of a sudden finding storage prices going through the roof, in part because the tariff-inflated price of steel!  Farm equipment will growth will be down some 4/5 this year.  And, the US trade surplus in Ag will be the lowest in a dozen or so years….

  • Coal – coal is itself a lump of coal for railroads.  Sometimes it’s a small lump – but from now on it’s a lump.  But – look – there is so much more under the tree!

Anthony B. Hatch 
abh consulting
http://www.abhatchconsulting.com 

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