The Railroad Week in Review:
Week ending July 15, 2000

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Most marketing programs are based on the fear that the market might see what's really going on inside the company. By speaking in language that is distant, uninviting, arrogant, they build walls to keep markets at bay. Cluetrain Clues 27, 28.

In last week's cover letter we hinted at taking a look at some NSC ratios which have improved enough over the year to warrant a second look. Then let's compare 2Q99 with 2Q00 in two weeks.





GTM/empl (mm)




RTM/empl (000)




RTM/train hour (000)




GTM/train hour (000)




GTM (billions)




RTM (billions)




What this says is that for a 50% increase in gross ton miles and revenue ton-miles resource productivity improved across these key measures by seven to 12 percent. It also says the mix between loaded and empty car miles remained about the same, so there was no large increase in empty miles due to the merger.

For 2Q00 vs 2Q99 system-wide average train speed rose to 20.0 mph from 18.2 mph, a 9.9% improvement. Cars on line dropped to 218,000 from 238,000 a year ago, down 8.4%, the good news here being that cars on which NS has to pay car hire were down 22% from a year ago. Lastly, system-wide terminal dwell time fell to 25.9 hours from 29.1 hours, 11% to the good. Stay tuned for the 2Q00 results TBA 7/26.

Canadian National Intermodal will implement Internet-based demand and supply chain planning solutions over the next year. Not surprisingly, intermodal is CN's fastest-growing business segment with YTD loadings up 14% over last year. The plan is for i2 Technologies (Nasdaq: ITWO) to shorten CN's response time to customer service requests and make the railroad that much more customer-friendly. Asset utilization will be improved as well.

Web-watchers know well that i2, Ariba (Nasdaq: ARBA) and Siebel (Nasdaq: SEBL) are among the leaders in "Customer Relationship Management" (CRM) support. Motley Fool ( ) columnist John Del Vecchio writes, "Enterprises are utilizing CRM applications to attract, retain, and leverage relationships with customers across all touch points in the organization. Richer marketing strategies and sales tactics predicated on better data, combined with superior customer service, can lead to increases in top-line growth and profitability."

James Foote, CN's senior vice-president, marketing and sales, said, "i2's solutions will enable CN to do business in the rapidly evolving e-Business world. CN's investment in this planning and logistics infrastructure is essential to meet its goal of increasing its market share." Others please take note.

Meanwhile, the Appeals court ruled Friday that federal regulators were justified when they imposed a 15-month moratorium on rail mergers in March. Some say the decision was a setback for the two rails, although with seven months now gone since the December merger announcement was first announced, it almost seems moot. Fact is, CN and BNSF have stated their plans to run scheduled service, and that includes local delivery. That's what everybody seems to want so maybe we ought to get on with it.

As if to underline the effects of the postponement, Friday's WSJ carried an op-ed piece from one Peter Holle of the Frontier Centre for Public Policy in Winnepeg. Writes Holle, "The STB's concerns are puzzling because falling rates and much greater operating efficiency have accompanied the pattern of railway mergers since deregulation. The real check on any efforts large railways may make to gouge their customers comes from their most rigorous competitor, the trucking industry…The STB's delaying tactics will serve no public interest. They merely revive what many thought was a dead culture of interference with market forces." For what it's worth.

The topic was very much alive at this weekend's 23rd Annual Cooperstown Conference. The conference meets in the spring largely to bring senior shortline and regional managers, representatives from rail labor, the federal government, and the class 1s together over topics of mutual concern. About 50 stalwarts braved central Pennsylvania's unsettled weather to converge on Hershey, site of this year's conference. Topics were wide-ranging, discussion was spirited, and we all ate entirely too much. But it was clear from the tone of the conference much work still needs to be done to bring varied interests into congruence. And truck-competitive rail performance is high on the list.

The KCS split is now history. On Wednesday it became final with the distribution of 223 million shares of Stilwell Financial to Kansas City Southern common stockholders. Stilwell Financial includes mutual fund families Janus Capital Corp. and Berger LLC as well as DST Systems Inc., a mutual fund processing company. Stilwell Financial is named after Arthur Stilwell, the insurance executive who built the Kansas City Southern railroad in the 19th century (though some of us recall "Stilwell" as the commuter coach used by the Erie into the 1970s). The new company will be traded under the symbol SV on the New York Stock Exchange.

KC Southern Industries' transportation businesses will trade under the symbol KSU. Now that the spin-off is complete, KC Southern Industries will undergo a reverse stock split, cutting the number of shares outstanding to 56 mm from 112 mm. That ought to put the railroad in the $12 per share range. From here it ought to get very interesting.

Larry Kaufman this week penned some thoughts regarding a connection between Carl Icahn's CSX interest and the STB merger moratorium. Said he, "Rail stock prices have been hammered recently, with most analysts believing the uncertainty of merger timing accounts for part of the decline. If the moratorium is overturned, many expect a UP-CSX union to be announced within months. With non-rail assets of perhaps $1 billion or more, CSX might bring a premium over current market price in an all-stock transaction of 25% or more. Icahn might see that as a decent short-term return on his investment.

"If further rail mergers are delayed, the lurking presence of Icahn could stimulate CSX management to sell off the non-rail assets, reduce debt and give the stock price a fairly quick boost. CSX rail operations probably have hit bottom and the new operating management is likely to produce slow but steady improvement, which also should drive the stock price off the bottom." Either way, the move could be quite beneficial to CSX owners near-term. The shares have been lurking in the low 20s for five months now.

From the English Welsh & Scottish Railway arm of Wisconsin Central comes word that Deputy Prime Minister John Prescott has indicated the government will embark upon the biggest rail investment program in 100 years. Speaking at the dedication of the 250th new Class 66 locomotive acquired by EWS in 24 months, the deputy Prime Minister said the program will provide capital support for new rail infrastructure. The capital investment in new track capacity will be targeted to support continued growth in the use of rail by freight and passengers. Now if only we could get the government in the US to do as much.


--Roy Blanchard

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