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The Class One railroads have taken quite a beating in the stock market over the last few months. Earlier this year I was reading investment advice suggesting that Union Pacific stock could be topping $130 a share in the near future. While I did roll my eyes at the $130 prediction, I'm very surprised to see the value of UNP and the other Class Ones dropping so sharply. The meltdown in the Chinese stock markets and fundamental changes in US energy markets seem to have driven investors away from railroad stocks. Clearly, the North American Class One railroads are going to have prepare for a future that is different from recent history. Coal traffic is fading, shale oil isn't a bonanza and there are soon going to be significant changes in the intermodal markets. The relative strength of the US dollar is also causing changes in the balance of imports and exports between the US and our trading partners. With all these changes in the freight business, does anyone see an opportunity for Amtrak to improved its system or even add new services in the near future?
I imagine CSX and NS are lamenting their lower coal volumes, but in the long term, the drop in coal will be replaced by new intermodal traffic arriving at deep water, PANAMAX-ready east coast ports. The change from coal to intermodal traffic might prove to be a net financial gain for the eastern railroads. Intermodal traffic generally flows from ports cities to large inland markets, similar to passenger traffic. Coal moves from mountains regions, where few people live, to large cities. Coal also does more track damage and generally moves slower than intermodal. Will there be room for more Amtrak or any of the proposed eastern or southeastern HSR systems on CSX or NS properties?
Rail traffic from Powder River Basin coal is also down. I was in Billings last week and noticed that the Montana Rail Link yard in Billings was still very full of oil tankers, but coal trains were hard to find. Will that open the door for passenger service from Billings west to Seattle or east to Chicago? At least the Empire Builder should be able improve its OTP with fewer oil and coal trains blocking the rails. But what other opportunities are there for passenger trains, other than timelier operations?
Posts: 831 | From: Seattle | Registered: Jan 2011
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Oh boy, Mr. Vincent, as I lick my wounds from last week's carnage (and I'm sure many another around here are doing same), I read your ominous words for the railroad industry's outlook. No wonder I have halved my positions in the sector.
Please let us not forget that any post-PANAMAX gains that the East Coast ports, and by succession CSX and NS realize in intermodal traffic, will be at the expense of the industry as a whole. Like it or not, a, say, Savannah-Chicago line haul does not equal an LA-CHI.
Likewise regarding oil, now that crude has touched $40bbl both at West Texas and Brent, there was a report last week in the Journal that Irving Oil in St. John NB has ceased sourcing crude from Bakken, and the resulting rail shipment, in favor of Middle East where of course the shipment is by vessel. Why all producers, especially the Saudis, seek to have this ruinous price war, simply escapes me. Just use the US airline industry as a model for for your own. Fare wars v. Fare control, what yields a better bottom line - and you Shieks need not worry about pesky bureaucracies looking over your shoulder, as have the US airlines, saying you are price fixing. After all, what else is OPEC?
Now coal, I'm not going to say it's back to the Dark Ages, i.e back to my 1970-81 railroad industry career, but here represents a commodity for where there is no reasonable and practical alternative shipping AND for which, when a spill occurs, there is no BOOM, you just sweep it up and move on with only a minimal shortage claim to settle.
Disclaimer: author holds long positions CSX UNP; formerly held same BNI KSU NSC.
Posts: 9980 | From: Clarendon Hills, IL USA (BNSF Chicago Sub MP 18.71) | Registered: Apr 2002
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It seems to me that a significant correction on the stock market is long overdue. Some predict a recession much worse than 1908, but who knows. With the stock market artificially propped up by the Fed via quantitative easing, it would seem a significant fall is inevitable.
I claim no knowledge with regard to prospects and viability of freight railroads, if the economic climate becomes moribund. But I would think that, in a real economic crises, the freight railroads might do well. The ability to ship food and gain commodities with efficiency and with favorable energy consumption makes me feel upbeat.
There is even some suggestions of using the railroads to ship water to drought-stricken states. I would favor a water pipe line, from the US and Canadian Northwest, but in an emergency it sounds like something to think about:
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Now to address Mr. Vincent's point suggesting that decreased freight would mean the roads would be receptive to handling more passenger trains.
I think the roads got Shanghaied during the early Amtrak era. They may even have allowed to happen; they are not about to let it happen again. Save Portland Spokane and Boston Albany, they've gotten rid of the politically inspired "expansions" that proliferated during the '70's and '80's and have contained things to less than the Basic System.
One Faustian pact with the Devil is quite enough.
Posts: 9980 | From: Clarendon Hills, IL USA (BNSF Chicago Sub MP 18.71) | Registered: Apr 2002
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California, Washington, and Oregon have a population of 49.7M based on 2014 Census estimates. That's 15.6% of the Nation.
Add in: AZ, NV, ID, NM, CO, WY, MT: Another 20.08M, or 6.3%
That to me means the West Coast ports should handle about 22% of national imports.
Texas has about 8% by itself, and can serve the remaining tiers of States West of the Mississippi, along with New Orleans.
Now, this is very simplistic planning, but if I'm a shipper, I'm going to look for the least cost/least time solution whenever I can find it. FAST/GOOD/CHEAP: I want all 3.
As far as Amtrak adding service: Pipe dream. Money talks, and Amtrak doesn't pay much money. If I, as a UP shareholder, hear that we held a hotshot container train paying the Road 50K for 3 day run over 5-6 paying 10K, I'm gonna be screaming at the BOD.
Posts: 1404 | Registered: Oct 2001
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