Holiday Catsup, or Ketchup - No - Catch-up!

Christmas

Greetings!


First, from the tweets:

  • Congrats to CP's (CEO) Keith Creel for being named RA's "Railroader of the Year" - well-deserved! So well deserved that Progressive Railroading and I named him the RailTrends "RR Innovator of the Year" ....in 2014! Still, toques and hats off to Keith...Well-deserved, as we thought 7 years ago.
  • Pete Buttigieg, former Democratic Presidential candidate and also a former mayor of South Bend
    IN, will (pending approval) be the next Secretary of the Department of Transportation (DOT), as
    nominated by Pres-elect Biden. PB ran on a strong infrastructure platform with a noted focus
    on climate change; given the rising ESG movement (see below) and rails’ emissions advantages,
    that’s a good thing. Both the AAR and the ASLRRA seemed pleased by the nomination. He
    might have enough of a following combined with Presidential interest (in infrastructure, in
    climate, in rails) to make DOT great again; contrary to popular belief, the position isn’t currently
    open (he will replace one Elaine Chao).

    • Tom Vilsack’s nomination to be Secretary of Agriculture, a position he held for all eight
      years of the Obama administration seems strangely controversial within the Democratic
      party – but is a solid choice and well-supported by Ag trade associations….
    • There are more shoes to drop (cabinet/sub-cabinet nominations) but so far, given Yellen
      at Treasury (“known to be a free-trader at heart” – NYT) and Katherine Tai at USTR who
      helped negotiate that USMCA, and the above, “businesses view Biden as ‘helpful’ on
      China” (WSJ); given that the administration just filed the first action under the USMCA
      (against Canada on dairy) I am sure all of our allies will agree, too. Mexico might fear
      being dragged in on labor reform. On the other hand, it is unlikely that the next
      administration trade officials won't be found (by the US Office of Special Counsel) in
      violation of the Hatch Act as Peter Navarro was last week. While I am no fan – at all – of
      Mr. Navarro, a huckster, the Act was not mine but the US law dating to 1939 named
      after a Senator (Carl) from New Mexico.

  • CN adds to its offline, Beast-Feeding (that’s Canadian for “businesses that support growth at our
    primary job, the railway”) collection by partnering with transloader Ray-Mont & Alabama
    Export Railroad (congrats to its’ CEO, Kate Luce) to create a new “high-tech” Logistics Park in
    Mobile, AL – the Park is starting with a facility for bagging & boxing plastic pellets (coming from
    nearby Louisiana) on the way to becoming a multi-commodity hub.


Traffic Update
We get traffic from a variety of sources – the weekly AAR numbers, and their excellent,
detailed monthly Rail Time Indicators; other sources are IANA for the full intermodal ecosphere and, on
a slightly delayed basis, RailInc’s short-line data (October volumes from the reporting carriers showed a
3.1% decline in volumes (or, half of the US Class One decline, showing the SL value-prop to good
advantage). Soon, I hope to use some interesting data coming from Michigan State University (Go
Sparty!), whose chart is at the bottom of this segment. RTI shows the real comeback of volumes on the upswing of what I have been calling the “shark’s tooth” – for North America, total volumes were up 3.8% - carloads were down 3.2% although 11/20 commodities showed an increase. The star was, of course, intermodal, up 10.7%. But the three countries all differed – Mexico was down 11.5% overall (carloads down 3.9% - only 6/20 up - but IM down 23% - yes 23%,
impacted by the now-ended blockades). The US showed an overall increase of 3.1% (IM +11.5%/CL -
5.8%; 9/20). The Canadians once again were the best pound-for-pound – overall up fully 10% - carloads
+5% (15/20! The first CL gain since February as RTI points out - and intermodal up 15.8%. IANA’s
intermodal numbers are a little different and more detailed – they show November up 8.6% (domestic
up 6% and international +11.8%). As Larry Gross points out in his “Intermodal in Depth”, that includes
eCommerce (what he calls “short trailers” were up 23%) – part of 12.4% increase in trailers (TOFC);
domestic containers were up 4.8%. Is that disparity a capacity issue? Boxes are much more sticky as we
all saw so clearly in 2018-19….


Growth Pivot? Or just Semantics? CSX has seemingly been on a roll in the recovery period, and to my
mind, starting with (really before but well summed up) CEO Jim Foote’s address at RT20, they have
really, er, pivoted from PSR 1.0 to….CFO Kevin Boone, in a recent analyst conference presentation, said:
“We want to change the growth trajectory of what we have been able to do in the past and get on a
new trajectory going forward”. OK, not exactly “Once more into the breach”, or “We’ll fight them on
the beaches….” – not even “Pivot to Growth” or “Service begets Growth”- but the intent is clear. I
hereby declare CSX entering PSR 2.0 (AKA “PHR”) whether they accept that or not! Kevin also said they
were preparing for the recovery/post-recovery period by being willing to spend in both Opex (for
example, to “backfill attrition”) and Capex, where they earlier defended their not pulling money from
the plan during the Covid-trough, and now “really accelerating their tech spend”. On that segment, it
will be interesting to see the future of “ShipCSX” vis a vis RailPulse….Meanwhile, UNP is behind CSX
somewhat, only natural given the time put into PSR 1.0 (CSX starting off a year before Union Pacific) – so
while UNP still points to the OR target (55) and CAPEX at/below 15% of revenues (as CEO Lance Fritz said,
also at an analyst conference) as “the need for incremental capacity is largely off the table” thanks to
PSR. But he did note that the new, streamlined UNP had “an almost limitless marketplace” for truck
conversion, and, separately, noted opportunities in grain, tomato paste, sweeteners, pipe, and (of
course) intermodal, noting the new Twin Cities IM terminal. Two other things from Lance (and I note
here that one thing C-19 has improved is the analyst conferences, heretofore repositories of “CFOreviewing last quarter again” platitudes):

  • UNP would consider buying short lines….so we have clearly seen a trend in this regard by PSR
    rails following Hunter’s old patterns
  • On ESG, specifically emissions, I really liked Lance’s statement that (as of March) they intended
    to set “science-based” targets!


Speaking of being on a roll, grain (maybe therefore in a roll) is booming due to export strength. Overall,
US & Canadian grain is up 4.3% YTD (Canada up over 8%) and was up 26% in November. That is led by
China, of course, in the last batch of soybean purchases before the seasonal switch to Latam product (and
the wheat demand shifts to the Baltic – although grain analysts think recent Russian export tax rules
allow for US export hope in the Spring, earlier than normal). Also to be watched are port strikes in
Argentina – and as always, the weather (“La Nina”, etc). The two-year low in the value of the $ is
helpful. The Chinese purchases, coming close to $20B, are still some 25%+ below their Phase One trade
agreement levels, to put it in perspective. There is a lot of gamesmanship going on, of course, But there
is still strong demand for corn.


Truck Tech Update – while I am still buzzing about the two-rails-investing in Tu Simple (and the rollout of
Rail Pulse), tech never sleeps. And it’s been interesting. The WSJ Heard on the Street noted that AV
tech “hype has faded considerably” in relation to the big story of the week:

  • UBER is essentially “paying a rival” to (WSJ, again) take its once-much ballyhooed AV Car
    unit. The NYT called it a “fire-sale end to a high-profile but star-crossed effort” – wow that’s a
    lot of hyphens in one short sentence. But you get the idea – the move reinforced the overpromised/under-delivered (I can do it too) aspect of the AV technology. But before rails
    celebrate (at least the 5 big ones that did not invest in Tu Simple), the buyer is Aurora, whose
    investors include Amazon, and who has been publicly discussing a move to focus on
    trucking. This move may well mean fewer dollars invested in “robo-taxi” R&D and more into long-haul freight AV.
  • Speaking of robo-taxis, Tesla just celebrated getting its one-millionth R/T on the road….just
    kidding. But they did say that would be the case (by YE2020) in 2017. So instead they
    celebrated getting the Mars rocket safely back to earth (kidding again – did you see that
    thing? Holy “Popular Mechanics 1052”, Batman!). OK, they actually did celebrate getting into
    the S&P 500. Really. And they did announce that they would be making their Class 8 trucks in
    Texas (as part of Elon’s war with California; he has threatened to move his Mars launches
    there). As of now, the Tesla Cl 8 (“RR Suicide”) has a range of ~500 miles and costs – they say
    now - ~25% more than a “regular” diesel truck.
  • Speaking of the holidays, Nikola is the gift (of humor) that just keeps on giving….


News Items

  • The Port of New Orleans announced a plan for a $1.5B container terminal with connections to
    most of the Class One railroads – now a plan is just that…and splitting that volume 5, 6, or 7 ways
    doesn’t add a lot to any railroad’s bottom line, but when I think of NOLA, aside from JazzFest,
    Abita and Trombone Shorty, I tend to think of the KCS and of CN; the latter has long discussed
    their interest in adding to Gulf port business (see Mobile, above).
  • America’s steel resurgence seemed to catch that industry by surprise (hot rolled steel prices
    rebounded to a 2-year high) but production is still down ~15% YTD….USX, meanwhile, is buying
    the 50.1% of mini-mill Big River Steel it didn’t own – is that a sign of a shift in region and
    product? Big River is also (and of course) located on the Mississippi River. This could have
    implications for rai, and for the TranStar short lines sale process….
  • Oil hit $50?
  • Australia v China is sure shaping up to be some bout….with implications for world trade and the
    global coal and grain markets. The former has taken the latter to the WTO courts over barley
    tariffs, and the latter is throwing a roundhouse punch back at Oz by banning their coal, a huge
    market. I am trying to help out the good guys by buying as much of their wine – also subject to
    Chinese action - as I can over the holidays, a big sacrifice (not). One winner in the global coal
    disruptions has been Teck, which is helpful to both Canadian carriers. And “La Nina” looks great
    for Aussie wheat, good for Watco!
  • Class 8 truck orders were up 200% in November – yes, that’s right, but it just represents the
    pattern distorting impacts of Covid, trade, etc
  • Big Box retailers appear to be doing well in the late stages of the pandemic but Best Buy publicly
    worried about the sustainability of the recent surge
  • FedEx didn’t do too badly in its just-announced Q3 – EPS up ~65% (beating expectations) and
    ground volume surged 29%. They and UPS are certainly under the spotlight this
    Pandemic/Holiday season among claims that they are holding to a schedule to improve their
    metrics but not “being flexible enough” to handle the surging business even if the delays/extra
    unplanned volumes (etc) were to cause operating problems….As the philosopher Steven Martin
    once said, “Well, excuuuuuuuuse ME!” By the way, this schedule adherence may fit well with
    domestic intermodal.
  • Deere and Maersk, on the other hand, raised 2021 expectations/guidance
  • TMS software company Loadsmart added intermodal to its TMS last month
  • Zim, the shipping company, has restored its’ short-sea “shuttle” service between Tampa and
    Mexico – should be rail business
  • RIP Jack Barriger IV, who spent some 38 years at the ATSF and was a key member of the
    “Lexington Group”


Bad Santa/Bad Lists: While ESG continues to gain traction, and CN & CP won A-level ratings from CDP
on disclosure, this came out: 3 US rails among the Top 5 worst-companies to work for in a new list (I do
not know this source): https://moneywise.com/a/the-worst-companies-to-workfor?fbclid=IwAR3YbcHsAND9ShgWGIVup6ulrns2xCIb_Z9Tn_owaf_WwTAvpC4XmYjtrJo – and no rail at
all made the WSJ Management Top 250 (250)! Amazon ranked #4, major rail shippers joined in starting
at around ~15, UPS made it at 110 and FDX at 117 – and even Con-Ed made it at #246. If any of you are
from NYC, you would understand the irony and frustration of that! On this issue, I think the water glass
is perfectly balanced – on the one hand, I think the survey doesn’t do justice to the way rail
managements have changed and adjusted to huge, fractious events (coal just being the most obvious);
on the other, it is a worrisome sign of how the business/financial world sees the industry (or, more
realistically, that it doesn’t see it at all).


On that happy note – Merry Christmas! (and a belated Happy Hanukkah!)

 

 

Anthony B. Hatch 
abh consulting
http://www.abhatchconsulting.com 
abh18@mindspring.com 
Twitter @ABHatch18