RRs - NRC Takeaways & Journey to MARS

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Greetings, and, again, Happy New Year!

On my way to MARS (Midwest Association of Rail Shippers) in Chicagoland – 1000 railroaders getting the privilege of hearing from 3 Class One rail CEOs (UNP, KSU, and CNI, the latter, JJ, in a fireside chat conducted by yours truly) as well as updates on CREATE, GBX, and technology (Commtrex and = this should be cool – Uber Freight) – see MARS Winter Meeting Agenda. Last week I was in San Diego for the National Railroad Construction (NRC) annual conference where I found there were 7 takeaways of value as we begin to peak into the year 2020. 

Below my top 6 from NRC in San Diego:

  1. Positive outlook!  NRC brought a record thousand or so railroaders, suppliers, and hangers-on such as myself to the Del Coronado – a great way to start the work year.  Surprisingly, to me, the overall tenor of the conference was positive and most contractors and suppliers thought 2020 would be a pretty darned good year.  Admittedly, their focus on the short lines and on passenger helps, but overall the mood “on the floor” was better than I had expected….

  2. DC will be important, Part One (see RailTrends 2019 takeaways slide, below).  The Rail Government Affairs panel was happy that 45-G (the short line ITC) was put to bed (for 2018-22) and held out hope to get that done on a  permanent basis as well as get the FAST act reauthorized – but the sense I got, especially from the AAR and the Class One reps (CN, BNSF and UP) was that given the election year, 2020 would be all about “stage setting” for the next (new?) administration and congress.  The action, they felt, would be focused on the….

  3. DC will be important, Part Two – the Surface Transportation Board.  The NRC featured two of the currently three (of 5) Board Members, VC Patrick Fuchs (our guest at RailTrends 2019) and Oberman (Sandhouse Xmas Luncheon) who were both eloquent as expected.  It is a smart, capable Board – which for rails has always been feared as a double-edged sword.  But Vice Chairman Fuchs made it clear that the hearings on “revenue adequacy”, as well as future discussions, constituted a long term project, not a near term threat (if misused).  That is, for me, “new news”….

  4. PSR is not “over” – and Wall Street is not the enemy (see letter to the editor).  I remain amazed how even current stakeholders are afraid of PSR (and remember, NSC, for example, only rolled out Top-21 for merchandise on July 1 and for Intermodal this year!), think “investors” act against the companies’ interest (rather than being the owners of said companies!). 

  5. Keith Creel, the CEO of the Canadian Pacific, argued with vehemence and eloquence against that silly argument, as well as making a few interesting observations, as always:

    • Keith sharply rebutted the “PSR is destructive” and “PSR is old-hat” narratives and exuded real confidence that his PSR would have a “good quarter – and a good year”….

    • But change is hard; the strongest believer in the example of the “GOAT railroader, Hunter Harrison, Keith stated that while CSX was ripe for change, and change is scary but often good, it (the PSR process) was run too fast….

    • And, as his own leader, he has other differences with EHH – after “re-engaging with labor” (as well as customers) after CP took a strike in 2017, he is proud that they have the best retention rates in the industry (as well as the best OR)

    • In discussing the nature of being listed in both the NYSE and TXE he noted that the mix on US and Canadian (and international) investors was interesting and even useful – and that Canadian investors tended to be longer-term oriented….

    • The future of the railroads will be tech-based (we know that, of course, but it needs constant reinforcement and repetition)

    • Most interesting of all, while he and not I) still believes in rail consolidation, Creel thinks that (almost) universal PSR adoption has actually served to, what he characterizes as “delaying the inevitable”.  For those scoring at home, Creel sees rail M&A now 10 years out, not 5 anymore….

    • Keith Creel will be the key-note presenter at Railtrends 2020; as Flounder said, “Oh boy is this gonna be great!”

  6. Other Class One presentations:

  • A group PTC/signaling presentation was interesting in discussing its data-mining potential, but unexpectedly, in the words of Trains’ David Lassen, “While installing PTC has been a lengthy, complex, and expensive process, signal departments are finding that the additional information the system provides is actually making signal systems more reliable”.

  • Norfolk Southern recommitted to the 16-18% (Capex as % revenue) range, noting that a lot of capacity is being freed up by reliable running, and highlighted an Advanced Train Control system with vastly improved rolling stock (and therefore shipper) visibility – a hint of something big to come, I think….

  • Union Pacific noted that their final Capex budget wouldn’t be finalized until February; they highlighted some new operations-related technology (tie and tie-plate replacement)

  • CSX said, as did most, that big capacity projects were in many ways done after a big period over the past few years – with the notable exception of the Howard Street (Baltimore) Tunnel, to start in 0221 and a new agreement with Virginia announced at year-end to work with passenger lines on the Long Bridge over the Potomac with the goal of taking off 5mm cars – and 1mm trucks- from the highway….

  • I couldn’t wrangle the CN presentation info from the clutches of the NRC but I expect we’ll learn more on Thursday morning in our Fireside Chat with JJ Ruest….

 

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Anthony B. Hatch
abh consulting
www.abhatchconsulting.com
abh18@mindspring.com