The Railroad Week in Review:
Week ending December 2, 2000

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If willingness to get out of the way is taken as a measure of IQ, then very few companies have yet wised up. Cluetrain Clue #58.

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The stock market this week provided a thrilling ride and had a lot of investors asking themselves, "Where do we go from here?" Some are suggesting that there are opportunities away from the Big Name tech stocks and DJIA mega-companies. The Big Six rails did only so-so. The DJIA ended down a couple of percentage points. CNI, CSX, and NSC were up a few, the rest down a few. No bloodbaths, at least. Yet a bright line doth still shine, albeit from a smaller star.

The Motley Fool on Thursday treated readers to a delightful column under the heading, "Not so Obvious Winners" ( ).It put me in mind of some of our railroad friends, in particular Genesee & Wyoming (Nasdaq: GNWR). What began the year at eleven bucks a share hit $30 this week while the rest of the world was crumbling. We may even have a triple before the year is out. What's up?

A good idea may be had from a close perusal of the Form 8-K filed Nov 6, a text version ( of a presentation given to new investors. Note in particular successive increases in all the key ratios: revenues, operating income, earnings per share, free cash flow, EBITDA, net income. Note too the resumes of the management team. See where how and why acquisitions are being made. And take a gander at the double-digit average compound growth in many of these metrics.

Then you'll see why this hundred-plus year old industry can still produce not-so-obvious winners. Tickets on this train are still available.

Continuing WIR's roundup of economic harbingers for the coming year, we checked in with our friends at The Dismal Science website . Housing, they say, will be off as existing home sales level and the tightening economy crimps buyers' ability to trade up to the newer trophy homes. Strength in non-residential building will likewise "be muted by" our so-called soft landing. Carloadings of building products and aggregates will be the first casualties.

The National Association of Purchasing Managers (NAPM) index fell again in Nov, to 48.5. The index has drifted south all year from 57 in Nov 99 suggesting an over-all slowdown in the manufacturing sector. Tightening consumer spending will cause inventory level contractions and slower production in many industries. Chemicals (esp plastics) and metals carloadings are at risk. NAPM wraps all this in some good news: "The Fed's monetary tightening thus has succeeded in slowing inflationary pressures, and no additional rate hikes are needed." Maybe so, but today's carloadings are what pay the bills.

Lastly, the Consumer Confidence Index fell 11 points off its 2000 high to a Nov close of 133 (1985=100). This metric is an amalgam of everything from employment expectations - will I keep my job? - to vacation planning to new car purchasing. Dismal says the moderating level of consumer confidence doesn't necessarily mean folks expect the World to End. Just that it's not going to get much better for the time being.

To sellers of freight transportation, this means growth must come from a bigger slice of the total transportation market pie. The report above tells us purchasing managers are watching their Cost of Goods Sold, and that includes supply chain expense. Freight rates are only the tip of the iceberg. Ease of doing business with the vendor will rank higher than ever. How does your railroad score in this column?

On Wednesday Wisconsin Central mailed a letter to its stockholders urging them to reject the hostile consent solicitation by the Burkhardt Group. In part, the letter says, "[We have] spent the past year doing exactly what you should expect: examining available options with the aim of realizing maximum stockholder value."

The letter goes on to say that WC's financial advisors have contacted potential purchasers with respect to the sale of its North American operations. The company also notes that its financial advisors are actively pursuing the disposition of the WC's 23.7% interest in Tranz Rail Holdings Limited and its 42% shareholding in English Welsh & Scottish Railway Limited (EWS). Go to for more detail.

From the UK comes word that EWS has won a $25mm government grant - the largest ever - for a new rail link for direct rail access to Bristol's Royal Portbury Dock. Prospective rail freight traffic includes new cars, bulk coal, forest products such as paper, and containers. By way of review, EWS is Britain's largest rail freight operator, running more than 7000 trains a day. It moves more than 100,000 tons of bulk freight, intermodal, and Chunnel traffic each year. Present volumes are full 40% ahead of where they were in 1995 when EWS opened for business.

CSXT has a new president: Mike Ward. He's been with CSX for 23 years and really knows his way around, having served as executive vice president-operations, head of the Coal Business Unit, CFO, and architect of the Conrail merger plan. Indications are he's off to a great start.

The railroad has announced some new joint-marketing initiatives with the western carriers and expanded others. Domestic soybean traffic was up 61% with shippers praising CSXT for "improved turn times on trains." New through schedules are going in place to cut transit times and increase service reliability between points such as Selkirk and Waycross, making good on pre-merger promises for expedited north-south service. All of which means CSXT is looking for and finding new ideas to win that larger share mentioned above.

Norfolk Southern has embarked on another "voluntary early retirement program," this time open to 870 non-agreement employees aged 53 and above at the end of this year. Recall that earlier this year 900 of the 1180 employees 55+ to whom NS made a similar offer accepted the package.

NS Spokesperson Susan Terpay emphasized eligible employees come from all areas of the company, so it's hard to say whether one department will take a bigger hit than another. She did say, however, that department managers may encourage certain employees to stay on where there are specific critical skill sets at risk.

Shippers and shortlines say the most recent early retirement program took a toll on their ability to get prompt rate quotes and other customer service solutions beyond the reach of the NCSC in Atlanta. The good news from Norfolk is that Internet-based pricing will begin to roll out in 1Q01.


--Roy Blanchard

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