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CSXT held its annual shortline meeting in Jacksonville this week. The weather may have been chilly but the CSXT outreach to its feeder line partners was anything but. Like October's BNSF shortline meeting, everything that was said or done went to the theme of the session, which in this case was "Ready to Grow."
Shortlines now touch about 20% of the $6 bn (est. full year 2000) of non-intermodal freight revenue generated by CSXT, and the presenters took great pains to show how that share could well increase. All the commodity groups I spoke with still anticipate revenue growth in the GNP-plus range now baked into most projections, and that's good to know. But even better is how much of the growth is directly attributable to new business, and how shortlines are being positioned to participate.
CSXT has itself been a work in progress since the Conrail transaction began, and this was the third management team in as many years to greet the shortlines. This time, the high level of sincerity and obvious commitment was unmistakable. Frank Turner, President of the American Association Short Line and Regional Railroads, told me over breakfast the second day, "The energy, candor, and credibility of this meeting is better than I've ever seen in a dozen years of attending these meetings." He has a point.
It was clear from the outset that Mike Ward, newly tapped CSXT president, has rapidly assembled a team with a firm direction and is Ready to Grow the business. Shortlines would be well-served to take this outfit up on its invitation to get creative. The risk-reward equation has never been so favorable.
One of the complaints about doing business with the railroads is the difficulty in getting rate quotes. CSXT has just joined the growing number of class 1 carriers with "public prices" available on the internet. For example, CSXT (www.csxt.com) quotes $45.57 a net ton, 100,000 lbs min, paper products Rincon, GA to Philadelphia (an actual OD pair I'm checking for a client). The truck rate is right around $1.50 a mile for the 735-mile trip, making it $1102, or $50.11 per ton on a 22-ton truck. Advantage: CSXT.
More important, we're beginning to see multiple-carrier rates as well, and scrap paper is one of the first commodities to be so listed. Take Jacksonville, FL to Houston TX on BNSF. Routing is via New Orleans -- $1867.62 per car, no minimum weights, fuel charge included. The surcharge, BTW, floats up and down depending on the price of West Texas Intermediate Crude. Happily for the inquiring minds wanting to know, it's all spelled out on the CSXT website.
The Emons Transportation Group (Nasdaq: EMON) Annual Report for FY 2000 (ending 6/30/2000) arrived the other day and is an enjoyable read. EMON is one of the smaller publicly held shortline holding companies, however it has a management team that would be the envy of any railroad of any size. The Annual and the 10-K read together provide several object lessons in driving the main drivers of earnings, most notably revenue and expense. Read and reap.
Revenues for the year rose 10% YTY to $25.2 mm. This in environment where the class 1s are happy with half that rate of change. Operating expenses were up 10.8%, pushing the OR to 84.8% from 84.2%. But get this: absent the $600,000 increase due to higher fuel prices the OR would have dropped to 82.4%, and the net margin would have been a respectable 9.1% vs. 7.0% last year, rather than the 6.7% actually posted. Are double-digits just around the corner?
FY 1999 net earnings included a $1.1 mm tax benefit. To get apples-to-apples comparison, one must deduct the extraordinary item to make the previous year net income $1.6 mm vs. $1.7 mm in FY2000, up 6%. Not bad when you recall merger-related congestion on both NS and CSXT drove away no small amount of shortline business, and EMON was no exception.
CEO Robert Grossman reports, "Though we are still off in Pennsylvania service has been getting better and we need to regain customer confidence. We have a fair number of new business initiatives under way." Still more proof that shortlines need to be out beating the bushes for new business every day. It also helps to stay ahead of your customers' service needs. EMON is one of three of RR Donnelley's "Preferred Rail Carriers" (the other two are CN and BNSF).
Something else to gladden the hearts of the investment community is the aggressive share buyback program. Grossman notes in the Annual, "Our stock repurchase program is, at current prices, accretive, and will increase the intrinsic value of the outstanding shares. "Asked to comment on this, he writes, "The program increases liquidity by providing a consistent buyer for the stock. Thus we can enhance the value of the remaining shares by increasing book value per share and so EPS."
Lessons for shortline readers: (1) Push up sales while pushing down expenses. (2) Have a ready book of new business to replace the current customers who suddenly become ex-customers for reasons beyond your control. (3) Use increased net margins to enhance stakeholder value (and if you don't have shares to buy back at least spring for a new engine house coffee pot).
John Gallagher writes in Traffic World that October's controlled launch of the brand new BNSF FreightWise service (WIR 9/30/2000) was a winner. The test companies were a recycled paper supplier in Connecticut and an Ohio-based drayage company. The launch participants said the service was smooth, easy to use, and has the potential to be a very powerful marketing tool for carriers and suppliers alike.
There is still a lot of work to be done convincing the shipping public at large that one can manage a supply chain process in this detail on the Internet. The successful FreightWise test is one more step toward the day when there will be more believers than agnostics. Congratulations to all.
Correction: Last week the EWS traffic base was as mistakenly reported as 100,000 tonnes a year and 7000 trains a day. It should have read 100 million tonnes a year and 7000 trains a week. A tonne is a metric ton of 1,000 kilograms, 2,200 lbs. WIR regrets the error.
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