The Railroad Week in Review:
Week ending August 26, 2000

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Human communities are based on discourse--on human speech about human concerns. This community of discourse is the market. Companies that do not belong to a community of discourse will die. Cluetrain Clues 38-40.

The railroad message boards at The Motley Fool ( provide an interesting measure of community. Posters range from college professors to artisans to locomotive engineers to railroad executives, and each brings valuable insight to the dialog. Regarding e-commerce, we had this exchange:

I had written, "Having a scheduled plan in place lets BNSF focus on improving service offerings for carload customers. With a plan to measure against, they will be able to point to achieving specific improvement objectives, thereby adding more value to the transportation package. Recall Tom Peter's Rule which states quality is defined by the customer relative to the competition."

The response was, "I gather from your post, you think that BNSF's web-site is the answer to their problems. NOT! The answer is to have qualified employees that know how to get from point A to point D in the least amount of time in the safest time!"

The writer has it half-right, of course. Having "qualified employees that know how to get from point A to point D in the least amount of time in the safest time" doesn't do much good if there are no cars to pull because the trucks got it all. The other half is making sure there are cars for those employees to pull and E-commerce is part of the solution.

Speaking of Quality in the Eyes of the Beholder, Wisconsin Central again has won the highest rail carrier rating in Logistics Management & Distribution Report magazine's 17th annual survey. In its August 2000 issue, the magazine said WC was rated first among the ten railroads evaluated by 3,000 readers who ranked their transportation carriers for on-time performance, value, information technology, customer service, and equipment and operations.

Carriers are given the "Readers' Choice" award when their scores meet or surpass the average total weighted score for their mode. This is WC's twelfth consecutive Readers' Choice award, a record unmatched by any other railroad. The continuous wins show what can happen when Putting Customers First moves from abstract idea to the main corporate culture goal.

Union Pacific has launched its e-commerce Yard Sale program at Here's the lead: "Interested in moving consumer goods from Chicago to Oregon or Washington for only $1500 per boxcar...up to 3 trucks' worth of capacity? Order by September 10, and we'll send you a free briefcase just for giving us a try." Talk about asking for the order! What's more, the offer includes transloading product from truck to railcar (the truck ride is extra - sample mileage rates provided -- and UP will set it up).

As one might expect, the offer has restrictions and UP thoughtfully provides a calendar of available days. Since the available days changes, this is probably a capacity-balancing effort, something we have encouraged for some time. Transit times are shown as well, which means inventory planners can program load levels needed to use the Yard Sale option. UP's Warren Wilson assures me there will be further announcements this week. I'm staying tuned.

Rail Stocks this week lagged the market as the DJI was up 1% and the Naz up 2%. The Big Six ranges from flat (CN) to down 4% (NS). The Little Three did slightly better, KCS up almost two, FEC up less than a percent and WC off nearly 2%. Shortlines trading above $5 a share, now comprised of G&W, RailAmerica and P&W had the only winner - G&W up 8% to $19.50, the others essentially unchanged.

A possible driver for G&W stock is the continuous positive improvement over the past six quarters in revenues, operating income, and net income. Granted, the rate of grwoth has slowed somewhat, and we noted that last week. But what investors seek today is consistency in performance. It's what's driving he dot-coms to record heights, even companies like Ariba ( that have yet to turn a profit but both sales and operating income double by the quarter and that's good. It may just be that G&W has the right mix of domestic, off shore, Canadian, and Mexican business to maintain the even-handed performance.

It should also be noted that among the Large Railroads CP gets the nod for best YTD performance, up some 35% with the most recent bump coming since August 14 when a 16 mm share buyback was announced. That amounts to 5% of the public float. Moreover, CP has been very much in the public eye for the last week thanks to a pair of developments.

There is the agreement its fiber optics venture with Gateway Networks' plan to build a 3,000-mile fiber network across Western Canada using Canadian Pacific Railway's right of way. Then there are the ties to the Alberta's power-purchase arrangement auction through the PanCanadian Petroleum subsidiary. The fact that CP turned in positive earnings of $1.19 a share vs a loss of 32 cents a year ago doesn't hurt, either.

If you haven't read the NS response to the General Oversight comments filed August 3, you should. It's not a light read, weighing in at 71 pages plus exhibits. It's important to note, however, that the general tone of the 37 parties commenting on the initial oversight report (filed June 1) is generally positive. Says NS, "Most of the parties that filed comments do not ask the Board to modify any conditions or impose new ones, but have filed to advise the Board of problems or circumstances as they perceive them."

Also, some of the more strident parties filing for conditions in the basic transaction seem now satisfied with the way things have worked out. Even where negotiations are still in progress, where they proceed in good faith, NS readily says as much: "NS is indeed in negotiations with the parties, with whom NS has a valued relationship."

With the issues surrounding this most complicated of mergers now largely addressed, the railroads - large and small - can now turn their efforts to getting trucks off the highways. It ain't gonna be easy because trucks dominate the high-margin merchandise carload trade. However, all shippers want is consistent, cost-effective service. And as UP and BNSF have shown, getting past the merger travails puts you in position to start winning back market share. Third quarter results will be telling.

Wheeling & Lake Erie was one of the beneficiaries of the Conrail transaction, having negotiated with NS rights to get into Toledo. CN, recall, has been looking for ways to get closer to the US manufacturing heartland. Now, through an agreement with the WLE, CN will provide intermodal service to the five-year-old, 28-acre Neomodal Terminal at Navarre, Ohio.

Those who maintain that small railroads are less safe than large ones should take a look at the 16 properties winning this year's Shortline Safety awards ( Awards are the usual gold, silver, bronze, and copper and are presented to winners in four categories according to the number of total hours worked. The winners from smallest to largest are Texas & Northern Railway, Lone Star, Tex.; Columbus & Ohio River Rail Road, Coshocton, Ohio; Patapsco & Back Rivers Railroad, Baltimore, Md.; Belt Railway of Chicago, Bedford Park, Ill.

The WIR request for your thoughts on short, frequent fast freight trains still stands. Consider that every merchandise truckload on your local Interstate route is a short fast frequent freight. How can the railroads mimic that? Think outside the box: Suppose the railroad neither supplies the cars nor pays car hire. Maybe it doesn't even provide the locomotive. Finally suppose the entire train is presented to the railroad in a single O-D pair block. What are the pros and cons? What can and can't work and why?


--Roy Blanchard

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