RT

Railtrends (1)

Greetings;

 

I am now out of my third quarantine of the pandemic (we’re fine – the old AOC/”abundance of caution") ... RailTrends was, in my own, humble (?) opinion, another smashing success.  Below are my reflections looking back at RT2020.  Thanks to my partners at Progressive Railroading/TradePress, the sponsors, the speakers (!), the Innovator of the Year Jim Foote, the attendees (OK, “listeners”)

 

First from the tweets (with punctuation etc re-applied!) i.e. the recent big news coming from the railway industry:

  • Two-Ocean Railway – CP and CEO Keith Creel are as good as their word – as promised at RailTrends (etc) CP signed up a major steamship line (Hapag Lloyd) to the port of St John NB, matching CN with Canadian Maritimes port access and creating a “hedge on China”; CP regained access to the port 18 months ago through the CMQ deal….CP already had access to Montreal, of course, though that port has size restrictions.  In fact, it was a strike at the POM that allowed for CP to have a trial run, if you will….
  • The big news - So it's true: CSX has reached a deal to buy the Pan Am. Details weren’t released (yet? Pending STB filing).  No word (yet) from NS, which made a pre-emptive appeal to the STB re: their Pan Am Southern  JV. It’s a big deal, but also a small deal ("less than 1% of market cap/revenues"); it’s also likely not cheap, and reasons (CSX’ need to own a market they already have some measure of access and control over) were initially unclear... But further conversations with locals and observers suggest there are opportunities on “both sides of the ball” (economies and synergies) as well as port access of a fashion (St John, again).  As we get to know this better it will be interesting to see if this is a “big railroad deal” (a la CP/CMQ) or can CSX retain.
  • The STB is finally staffed:  Primus & Schultz were officially confirmed to STB tonight - so my latest report (earlier tonight) is incorrect & there is now (or soon) a full complement of five STB Commissioners.
  • ABH Podcast - Jeff Berman of Logistics Management and I held a post-RailTrends fireside chat.
  • Mexican teachers back to school and off the tracks - The blockades against Mexican railways appear to be over - great news for KSU whose Mexican IM is running down ~15%. The 2-month blockade was by teachers - not rail-related (see CN in the winter) - but big collateral damage.
  • Have 2 RRs invested in AV trucking?  According to "Tech Crunch”: the investment in AV tech co Tu Simple stands out because of its size ($350mm) AND  the array of companies involved. Goodyear, UNP, CNI, trucker USXpress & retailer Kroger all participated in the round….This is really interesting and coming after the announcement of Rail Pulse (below) and the various other internal tech commitments and initiatives and big new hires (CN and UP – coincidentally?), is solid evidence that the rails are using their financial power to compete in the tech race….It also follows the pattern established by rails of making small outside investments starting with the so-called first internet boom at the start of the century; in this case, it’s fascinating that rails have invested in what is perhaps the leading player in the “existential threat”.  Is it like a sail-maker investing in Fulton’s steamboats?  Or is it a page out of Sun Tzu (keeping friends close….)

 

RailTrends 2020 Highlights – and there were a lot even if we missed the informal aspects of our annual event:

  • RT20- The DC/Ottawa/Mexico Trade Association Panel takeaway - lots of rail issues, of course, in the coming administration and legislation year, but we all need to be patient.  The (any) incoming administration, like the STB,  likely means a get-up-to-speed period, and staffing in transport isn’t as high a priority, history tells us, as perhaps it should be.  With the time needed to find, hire, and approve positions, expect lots of discussion little action until midyear earliest.   There are two upcoming legislative issues – the reauthorized FAST Act (which was extended for a year, naturally) – which is where in 2019-20 the infamous/ridiculous 2-man crew mandate was placed and therefore remains a threat....see below.
  • ESG is here to stay a recurring theme here, there (RR Q3 webcast), and everywhere is ESG. EVP Beth Whited of UNP spoke today on ESG. Others noted it was important - but ONLY after transport value (price/service). But it’s a growing and thriving investment form – see, for instance,  the big fund (remember them?) TCI's demands of CNI and CP (they submitted shareholder proposals on climate action pans) and it is investors that will drive this revolution; note that all of the rails devoted a slide, out of ~10, in their Q3 webcasts to ESG.  The AAR’s Ian Jeffries (see below) told RT20 that we should expect to hear more from rails on climate change in the future.  Also, a major cost-focus at the end of PSR 1.0 is fuel efficiency.
  • Short lines are the beating heart of rail service - and deal-making. No wonder they are in such demand! Our spirited panel talked deals on and off the rail line, on both sides of the plant's gate. Serious optimism.
  • The new "Rail Pulse" GPS based visibility/tech alliance made its long-awaited debut with a panel of 3/5 of its founding members (the first 3 of the JV - NSC/TRN/GATX/Watco/GWR.   R/P as of now has “control” ~20% of the North American railcar fleet and will start up by YE2022. I truly believe it can – and will – be a game-changer; see below….With US rails at 91.6% interoperable (from the FRA’s PTC report), change is coming….
  • The annual Analyst Panel shows healthy disagreement on the sustainability of the current intermodal boom and the rate at which PSR operating improvements turn into shipper-understood service improvements; I remain cautiously optimistic on both and my slides are attached (actually a longer version built for the annual Northwestern University Transportation Center’s Sandhouse Rail Group’s annual Holiday Luncheon, tomorrow.
  • Oliver Wyman retains its role as "paradigm-challenger" at RT20- this year by Adrienne Bailey showings OW’s deep dive into many shipper/industries, many of whom "prefer the truck experience". This presentation may have won the informal presentation-of-the-event award – it is attached.  As I tweeted at the time – “RRs cannot ignore!”

 

From the Commtrex Monthly “Ask the (please forgive me) Experts” segment:

1. How can the short line industry improve to attract more shippers to ship by rail? 

The S/L industry pays a critical role in new business development and retail and small shipper sales and marketing – and crucially as a buffer, or as one leading S/L manager puts it, a “shock absorber” between a PSR-driven Class one and the shipper.  This is the New Golden Age for the short line industry.

2. I am new to shipping by rail. What are some advantages of shipping by rail that trucking doesn't offer?

Rail is almost surely cheaper, and as/if they become more reliable through PSR (etc) they will allow for reduced inventory levels (thereby widening the total transport/inventory cost for shippers versus trucks).  They are also more fuel-efficient (total cost) and thereby more emissions efficient.  Finally, they are a surer source of capacity given the periodic TL tightness, driver shortages, lack of investment into the highway system, etc.

3. Will Rail Pulse, the new joint venture between Norfolk Southern, GATX Corporation, Genessee & Wyoming, Trinity Rail, and Watco, be a game-changer for the rail industry? If so, how?

I believe it will – it needs to reach critical mass, but it’s a huge step, covering roughly a fifth of the market if you will.  It is a huge diplomatic achievement if nothing else, and a great statement that the rail network must work together (rise or fall as one mode).  Providing true visibility for all of the stakeholders in the carload supply chain (rails big & small, shippers, car owners/OEMs) in a single source is almost a ticket to enter the supply chain game.  Data is king! 

4. What are the top 3 legislative issues that will be critical for rail for the next administration?

I am not sure we’ll get to legislative issues early in the administration – let's see how Georgia plays out.  Biden is clearly pro-rail, and he will restore stability to trade and investment, which is HUGE for rails and rail shippers.  His love for Amtrak is well known – which gives me an opportunity to congratulate Stephen Gardner, an RT-vet, for being named President of the carrier (cue the jokes on being named Captain of the Titanic in the open ocean, but this too shall pass).  Given the pandemic, we tend to forget how much damage was done to North American rail volumes by the trade wars – plural (NAFTA/USMCA, China, etc).  On a strictly legislative front, the STB Reauthorization will be important as will be the transport funding bill (what we used to call the “Highway Bill” but now is the FAST Act).  The FAST Act was extended to October 2021 – meanwhile the poster-child of infrastructure reform, the Ohio River bridge by Cincinnati, actually….caught fire! 

This year, as mentioned, the (Democratic) house attempted to legislate two-man crews – that is over-reach (it has been a negotiation since, literally, time immemorial, and it is counter to the drive to technology (by year-end with PTC the rails are – from an IT perspective – almost ready for full autonomy on railways and this race vs. AV trucking is….everything).  It makes no sense (except for politics).  DC will also see a full complement (5) of STB Commissioners….the AAR and the ASLRRA (and IANA, NRC, RSI, RSSI, REMSA, RTA, etc., etc.) will have lots to do in 2020!

 

 

Some write-ups of RT20 by key industry columnists (two from Berman/Logistics Management, one form Bill Stephens of “Trains”):

 

Finally, if 2020 hasn’t done enough: 2 Women Charged With Train Terror Near Canadian Border - Ellen Brennan Reiche, 23, and Samantha Frances Brooks, 27, were accused of tampering with (BNSF) train tracks to disrupt signals and possibly cause derailments, according to a criminal complaint. Read about it HERE.

 

Tomorrow – what else I missed while being quarantined and reflecting on RailTrends….

 

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