The Railroad Week in Review:
Week Ending March 4, 2000

The Wall Street Transcript ( looks into B2B e-commerce this week as one of the "most important areas for investors to focus on in moving forward, and it represents some of the greatest stock and wealth creation opportunities as well. The business itself looks like an exchange and resembles a place where you can essentially post and it's substantially greater than anything we see in [the consumer side] because the transactions among businesses are much larger in dollars.''

Consider this: Chemdex has signed up DuPont as a major player on the buyer side. They've signed up IBM to do the services. They've signed Ariba and TradeEx to perform the systems infrastructure and to help build the network and they are being funded by CMGI Ventures. This is the competition for the investors' dollars that are leaving the "old economy" stocks. Including the rails.

But isn't DuPont part of that "old economy" fold whose shares are taking a beating along with the rails? Take your block and mark it true, and while you're at it note DD was up $5 midday Friday. The B2B vendors need the Businesses with stuff to sell 2 other Businesses to make money. And if DD is using Chemdex, it's easy to see why BNSF is teaming up with soon-to-be launched and CN has turned to BCE Emergis and Ariba to manage its own supply chain.

According to the CN press release, "The BCE Emergis marketplace using the Ariba B2B platform electronically approves and aggregates corporate purchasing from each employee desktop and directs spending to preferred suppliers." As we've said here before, the Internet closes the info and time gaps between vendor and supplier. And what CSXT's John Sammon calls "laptop pricing" is no longer a question of IF but HOW SOON."

Rising oil prices continue to take their toll on the transport sector. For the year, the transportation index has lost about 21% while crude futures are up a third. This is truly adding insult to injury to injury. Rail stocks continue to fall in part due to the grouping of rails in the "old economy" (see above).

Another part of the blame can be placed on forward earnings estimates that continue to drift down. In this regard NS and CSX have bee particularly hard-hit whereas CN appears to have turned the earnings corner, although its stock price continues to languish. The view from here is that for rail stocks to rally two things will have to occur. Earnings estimates will have to turn firmly northward and the DDs of the world will have to regain their previous marketplace vigor.

Wisconsin Central's unaudited FY 1999 balance sheet is in. We've previously commented on WC's YTD performance figures (WIR 2/5/2000); however, balance sheet figures are instructive for what they tell us about the health of the enterprise. Most striking is the 40% reduction in LT Debt and a corresponding jump in ST debt. WC spokesperson Ann Thoma tells me most of the shift is "revolvers which come up for renewal later this year -- hence, classified as current." Aside from that ST debt remains in the $2 - 2.5 mm level, consistent with FY1998's $2.1mm.

The NIT League's Railroad and Ocean Transportation Committees and "Monterey Seminar" will convene Thursday, April 6 in Monterey, California. Speakers include UP's Ike Evans and Tim Rhein, Chairman, American President Lines. Senior management from BNSF and CN will give details of their proposal to combine their operations following which the committee will discuss the transaction to begin developing the League's position.

There will also be a discussion of the STB's four-day March hearing on consolidation of the rail industry and what it portends. Other important items on the agenda include a progress report on the League's rail service quality measurement project, an attempt to measure and publish transit times and reliability statistics across important corridors and commodities. Updates will be presented on STB Reauthorization, the Conrail transaction, and other League rail-related activities. Interested readers are invited to call the League at 703/524-5011.

The plot continues to thicken on the BNSF+CN front. On March 1 the NIT League filed comments at the STB arguing that, contrary to the railroads' wishes, all effects of the transaction -- even in Canada -- should be included in the application. The idea is to let the Board and the parties judge what effects are solely "Canadian" and what are the effects on U.S. transportation.

Meanwhile, CN's Paul Tellier told an audience in Vancouver BC that U.S. markets already consume 63% of the province's exports - and it's destined to become even more important. Canada-U.S.-Mexico trade is rising at 10 to 15% cent annually and the North American economy is becoming increasingly integrated along north-south lines.

To enhance the competitive postures of Canada and BC the BNDF+CN combo proposes new timesaving, single-line rail routes to U.S. markets and multiple Mexican gateways. The parties promise new, truck-competitive rail service for lumber shipments destined for U.S. markets along north-south Interstate Highway 5 corridor. And if goods flow is smarter and faster then logically better equipment cycle times will effectively increase the fleet size and improve equipment availability.

One would hope so. And one would also hope the STB Ex Parte 582 hearings next week get into car supply. The Conrail transaction was supposed to improve car utilization however that aspect of the merger appears to remain a work in progress. Recall the NIT League meeting in Phila not long ago where shippers said leased fleets were growing, not shrinking, due to increased cycle times. It's a vicious cost cycle, too, because as shippers' fleet leasing costs rise there is less money on the table for transportation rate increases.

Yet another word on the military model comes from a retired Army logistics colonel who's also a retired railroad executive. He writes. "I strongly disagree with the notion that the military does not recognize customer satisfaction as part of its thinking. Wasn't Norman Schwarzkopf a customer of Gus Pagonis? I think military transporters and logisticians have historically recognized units and soldiers as customers, customers who may be in truly life or death situations." And when le fromage is truly binding, there's no room for amateurs. Thanks, colonel.

More than 900 of our nearest and dearest friends departed the employ of NS on March 1 as part of an early retirement program. Active, vested non-agreement employees with at least 10 years of service and who will be 55 or older in 2000 were allowed to add three years to their years of service and three years to their age in calculating their pension benefits, which is a pretty sweet deal. God's speed, my friends, and thanks from all us shortliners for your good cheer and encouragement over the years.

--Roy Blanchard

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