Questions for RailTrends PLUS....

Storage Yard (1)

Greetings to attendees and others on the eve of RailTrends;

Once again we will be graced with a power-packed lineup that with our usual good luck corresponds to the still-emerging issues of the day.  See most of you tomorrow!

  • It has been argued – and we will discuss – that “PSR is risking a regulatory backlash”.  In last weeks notes I covered some of what I categorize as “DC Issues” (that should, of course, include Ottawa and Mexico City) covering our first panel as well as the appearances of the CEO of the AAR (Ian Jeffries), the Vice-Chairman of the Surface Transportation Board Patrick Fuchs, and the Administrator of the Federal Railroad Administration Ron Batory – see attached for a brief discussion of regulatory and labor issues, and the lingering mistrust of PSR that is impacting regulatory pressures.  PTC discussion will likely be universal but especially important in the FRA and Wabtec presentations (on the latter, below).

  • How do we grade the various levels pf PSR:

    • TPSR/PHR: he Mothership, CN, and the first Starfighter, CP – whose CMO John Brooks has given the clearest examples of the life-stages of the PSR process (and the “pivot to growth”).

    • The first in the south: CSX (Mark Wallace, CMO, has lived all three – and CSX’s merchandise Trip Plan Compliance busted out of its narrow low-70s “trading range to 82.5% in October, so I expect Mark will be well-chuffed).

    • Those underway: UNP, NSC & KSU – how do they handle the need to be steady, methodical and collaborative for shippers and regulators versus the pressure to “do it all now” from investors?

    • Related: Where does future capital investment fit in?  the universe seems to be split into a few camps – the Canadians thinking long term, CSX and UNP stating that even current levels can be reduced and KSU & NSC somewhere in the middle….

    • We will also ask the obvious state-of-the-economy questions….

  • CN’s Mothership attracting some big waves:  CN’ JJ Ruest will be a day 2 speaker, and after an illness last year, we are delighted to have him back of course (NOTE- DUE TO THE CONDUCTOR/BRAKEMAN STRIKE IN CANADA JJ MAY NEED TO REMAIN IN MONTREAL ALTHOUGH THE SITUATION WAS DESCRIBED AS “FLUID”  - WE WILL KNOW MORE SOON).  CN has, through effort and expense, finished it’s two-year western capacity additions after the troubles (of too much growth – remember that being an issue?) in 2017.  But now, this week, he and they face an almost tsunami of headwinds and issues – starting with a strike, and (related to, in any way?) big headcount reductions as they match supply and demand (and as Canada’s growth gap to the US rails gets more narrow and CBR’s promise looks still delayed).  In addition, just this week, CNI’s CIO Michael Foster resigned to move back to the USA; he and his team had been a major portion of the CN Investor Conference in June.  COO Rob Reilly will take over on an interim basis, and the permanent head will report to operations, which makes sense as most of the demonstrated work was Ops-related….

    • But much of the hoped-for future use of data will be for visibility and commercial use (see short lines and below)

    • Will rails be able to plan future volumes well, or will they be cut short at the inflection point?

    • CN’s labor is different than the US group negotiations, but what is going on there and what lessons can we learn?

    • As the Mothership leader, how does CN see the intermediate to long term future in terms of growth and share opportunities?

    • Is there any change to their CAPEX strategy or ROIC targets?  Over the last six years, CNI CAPEX has averaged over 21% of revenues – and their ROIC has averaged 16%!

  • Wither carload?  Or withering carload?  Also ascribed, incorrectly in my view, to PSR is the notion of chasing away business, mostly so-called “loose-car”; the corollary to the notion of “saving the way to prosperity”.  It is true that rail merchandise traffic peaked waaaay back in 2006.  I would argue that PSR is merchandise-focused, at least at first (and, again, we can look northward for “PSR 2.0” inspiration).  But Rod Case of Oliver Wyman will turn his doom-machine to “Carload – The Railroads’ Canary” in what is guaranteed to be a major presentation (and the CMOs of the two biggest carload players in the US, UP and CSX, will also be presenting).

    • Are the carload volume numbers the result of purposeful activity, ignoring opportunities, cyclical impacts in manufacturing – or the continued secular changes in the North American economy?

    • If PSR was designed to improve merchandise business, where is the proof?

    • You can’t have rail carload without railcars – Dick Kloster will close out RT19 with his usual data-filled update, after a leadoff panel presentation by the sector’s trade association, the Railway Supply Institute’s President Mike O’Malley.

  • How is the short line boom unfolding, in terms of valuations and M&A – and in terms of providing the first/last mile switching & blocking & delivery work so important to PSR?  On the panel will be GWR, RJ Corman, Pan Am, RailUSA, Anacostia and Watco – and in the audience will be at least 15 short line executives including folks from Pioneer and Omnitrax, as well as come of the segment’s key new investors

    • What do the larger short line holding companies think of the M&A market (and is it a distraction from “doing business)?  We will exempt GWR’s President Mike Miller from that question….

    • Do the new infrastructure and PE owners offer stability and investment to the industry?

    • What is the status of the 45-G ITC?  Does it even matter anymore?  (we can also ask the CEO of the ASLRRA Chuck Baker about that!)

    • Is there a coming capital shortfall (as short line companies are 20 and 30 years removed from Class One control and spending)?  Is there capacity to help with network and bridges (via Ashley Wieland, President of the NRC)

    • How are various pilot programs on technology going (a recurring question) and how does PTC impact them?  That will be an underlying theme (see below).

    • What is the state of Class One-Short Line relations as they see it?  Is PSR working?  Are they being treated fairly in the process?

    • Do they see a big opportunity in the post-PSR merchandise business?  Or have the rails really chased it all away?

    • How does the economy look form ground level?

  • The current traffic troubles – see “Earnings Plus”, again, attached - go past carload (and bulk) to the supposed growth leader, intermodal.  Trucking expert Donald Brought and Intermodal Guru Larry Gross will join me for that discussion, which I am sure will be also a major portion of all of the Class One presentations.  In the interim, the American Trucking Association reported that October tonnage was up almost 2%, not a lot but in positive territory compared with IM.  And Roadrunner sold its intermodal (drayage) division.

    • Are rails now suddenly too expensive?

    • How much are the PSR changes and related de-marketing impacted the numbers?

    • But will it lead to better service?

    • Did they “blow” the best share opportunity of the past decade in 2018, leading to the volume collapse – only the second time since Staggers in a growing economy – this year?

    • Why are trucks showing volume growth when IM is in a tailspin?  Which trucking numbers are believable?

    • How much is temporary (trade/cyclical) and what is secular?

  • Will technology come to the rescue or the be the roadblock for rail?  All of the presenters will discuss this in some form, but the Short Line Panel and Ron’s FRA presentation will be perhaps even more focused.  Those two will be reinforced by:

    •  John Scheib, EVP, and Chief Strategy Officer, who truly electrified the crowd at RT17 in discussing rails, technology and regulation (John will be joined at RT19 if not in his presentation by another illustrious NS strategist).

    • Rafael Santana, CEO of Wabtec.  If CN is the PSR Mothership, then Wabtec+ GE is both the Steve-Jobs-in-the-garage and Thomas Edison of the rails’ technology past (which is more spectacular than given credit for) and future.

      • Will PTC be on time?

      • How is the battery-powered locomotive (on BNSF) testing?  Is that the future?

      • How can rails capture and use data, perhaps from PTC, better?

      • Can they keep data free as a modal advantage rather than just (an attempt at) a company one? 

      • Are rails focused enough – and spending enough – to stay ahead of other modes flush with Silicon valley cash?

      • How will all of this impact the labor situation, both in these negotiations and in the future?

      • Has the regulatory path been smoothed, or even been made (dare I ask) modally neutral?

  • Kansas City Southern CEO Pat Ottensmeyer, a longtime friend of RailTrends, will receive the “2019 Railroad Innovator of the Year” award – and deservedly so.  Pat will be joined in NYC by his Chief Innovation and Chief PSR Officers.

    • What is the status of their PSR efforts?  They had clearly the best overall 9-month performance south of the 49th parallel (and arguably north of it as well) – can they maintain the momentum?

    • How is Mexican trade and investment looking after the war-talk has moved to China?

    • Does “service (really) beget growth”?

Also:

  • The ATA’s house organ, “Transport Topics”, reports in its page-one headline (11/11) “Several Truckload Carriers Report Mixed Q3 Results”….well that sums it up, all right.  The same issue also reports that trucking inflation (or, “the operational costs of trucking”) was up 7.7% in 2018

  • From the “Where have they been?” Files - Former TCI stalwart in the CSX proxy fight of the last decade (the first big one), Rishi Sunak, now Mr. Sunak MP, will fill in for PM Boris in an electoral debate; he was described by the FT as “the apple of Boris’ eye” which back here in the States is called “Damning with faint praise”….

 

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