The Railroad Week in Review:
Week ending April 22, 2000

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"Conversations among humans sound human. They are conducted in a human voice. Whether delivering information, opinions, perspectives, dissenting arguments or humorous asides, the human voice is typically open, natural, uncontrived." (Cluetrain clues 3, 4.)

Union Pacific is clearly doing the right things. Earnings for 1Q00 were up 42% over 1Q99 on 6% more revenues and only 3% more operating expense. Five of the six commodity groups posted revenue growth with three of the five in double digits (automotive, industrial, and intermodal). Several new service lanes have opened to both intermodal and carload business, the most impressive being carload perishables business out of LA to the east. Operated in conjunction wit CSXT, it offers nine-day service to the Bronx and ten days to Boston. Do shippers want it? Well, Sunkist, for one, is back on the rails after a five-year hiatus. Details at are worth a look.

Interestingly, this is the $6,000 boxcar we've been talking about here at WIR. The website,, is one helluva conversation, picking up nicely on the cluetrain thread. Want to know who the players are? There are resumes on the site. Rates and routes are there, equipment descriptions, help screens and even a CDN or "customer does nothing" section. Here, "CDN will allow a customer to shrink 'non-value' activities (copying, faxing, storing, and filing) and grow 'value-added' support (sales, problem resolution, and analysis)."

As for the numbers focus, the YTY comparison is shown on the attached Rule Maker spreadsheet [view HTML version | download Excel spreadsheet]. One of the benefits of going to this new "attachment" format in the e-mailed version of this newsletter is that it allows use of excel files which can be downloaded. Readers can then put the spreadsheets to use on their own operations and do some benchmarking. As the quarterly results of the other rails come in they can be posted to the right of the target rail for peer group comparisons. This I will do next week.

The STB's decision to deny requests that it stay its March 17 order on the merger moratorium has both its detractors and proponents. The fact of the matter is the congestion problems of today can be traced directly to yesterday's railroads moving to reduce "excess capacity" under the Staggers Act.

The preamble to the Ex Parte 582 hearings notes this concern specifically, and links it to forward fears that more mergers mean more rationalizations. Less track means fewer shipper options, and therein lies the rub. When I-95 is closed for repairs truckers have options. US routes 1, 13, 15, 17, 301 all offer reasonable alternatives. But when CSXT's "A" line is plugged that's all she wrote.

Merger mania eliminated the completing ACL and SBD routes, chopping the latter off at the last worthwhile industry north of Raleigh, NC. The only way to get between the two is to use NS tracks between Selma or Wilson and Raleigh. So, thankfully, the STB is saying, "Enough awreddy." Let's see how we can start saving lines from the Rails to Trails crowd.

Another of the STB's ExParte 582 concerns was falling rail profitability. Go back to 1995, if you will, and take that as your base year for comparison. How do the rails do when comparing average annual compound eps growth for five years? Not surprisingly, the small roads did the best, with Emons Transportation (Nasdaq: EMON) taking top honors at $29/9%. Next is Providence & Worcester (AMX: PWX) at 17.2% followed by Genesee & Wyoming, 16.6%.

RailAmerica (Nasdaq: RAIL) posted a 12.3% gain and Wisconsin Central (Nasdaq: WCLX) rose 11.2%. The best class 1 performance comes from Burlington Northern & Santa Fe (NYSE: BNI), up 10.7%. That was the only major rail in double-digits. All the rest saw small gains and even negative growth rates, not good for an industry that has to spend almost a billion capex dollars a year per class 1 carrier.

The telling point here is that even though the small railroads depend almost entirely on class 1 connections for their carloads they continue to grow. As we've noted in this space before, class 1 economies of scale and more reasonable manning requirements are doing wonders for productivity numbers, and cost ratios are getting down into class 2 and class 3 railroad territory. What's the difference, then?

Service, in a word. Regional and shortline railroads know their customers intimately and design daily service around customer requirements. They are true customer advocates, and make shipper concerns the small railroad's concerns. Yet the class 1s seem to have a hard time understanding this. Shipper service concerns continue to be the biggest bone of contention with the class 1s, net it seems at times nobody is listening. The carload business is there, as the small railroads have shown.

In what has to be especially good news for small railroads in rural areas, the Supreme Court has ruled that railroads cannot be sued for allegedly inadequate warning devices at rail crossings if the equipment installed was federally funded. To be sure, the ruling impacts carriers of all sizes, however one half-a-million dollar suit or award against a small carrier can literally be a killer.

Operation Lifesaver ( is striving valiantly to get motorists to heed crossing warnings and to encourage pedestrians not to take strolls down railroad rights of way. Yet each year there are many needless deaths and injuries because people did not stop look and listen. Perhaps this ruling will encourage small town constabularies to stop look and listen and issue the tickets to trespassers and careless motorists.

RailAmerica directors have approved the sale of some of the company's smaller railroads and its specialty truck trailer manufacturing business to raise an estimated $100 million which will be used to reduce debt. The company also said it rights plan had been amended to allow RailAmerica's largest shareholder, EGS Partners, to raise its holding of the company's stock to 25 percent of the outstanding shares from 19 percent.

Elsewhere, RailAmerica March 2000 total carloadings (including intermodal units) increased 775% to 106,154 from 12,126 in March 1999. Totals for 2000 include the recently acquired RailTex railroad properties (as of February 2000), the Toledo, Peoria and Western railroad (acquired September 1999), the former RaiLink railroad properties (acquired August 1999) and the Freight Australia railroad (acquired May 1999). On a "same railroad" basis, carloadings for March 2000 increased by 27%, though it must be said comparisons to prior periods are not meaningful due to the substantial number of acquisitions made by the Company during the past year.

What is meaningful, however, is the extent to which small railroads cam grow the carload base by expanding the franchise. Genesee & Wyoming (GNWR) has "an agreement in principle" to buy a 24.3% interest in Bolivia's Ferrocarril Oriental. The deal follows Genesee's Sept 1999 investment in Latin American Rail LLC, a joint venture with Unirail LLC. GNWR expects the investment to be made through a new subsidiary, Genesee & Wyoming Bolivia, with $7 million in cash and the assumption of $12.4 million of debt.

Wabtec Corp., the combined Westinghouse Air Brake and Motive Power Industries, missed its 1Q00 estimate by a penny. The reported 38 cents a share is a 16% drop from the 45 cents reported in 1Q99. Absent special charges of nine cents, it would have been up two cents plain. It won't get much better, either, as they expect 2000 results to mimic 1999. The revised outlook reflects a continued, weaker-than-anticipated demand for locomotive overhauls and aftermarket components, as well as the expected reduction in industry demand for new freight cars and locomotives.




--Roy Blanchard

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