The Railroad Week in Review:
A major on-going expense too often given short shrift by shortlines is track maintenance. I use $5,000 per mile per year as a rule of thumb figure to keep class II track maintained to that spec (see 49CFR Part 213.9). Thus a shortline with 100 miles of track should be investing about $500,000 a year to cover routine maintenance. Another rule of thumb is 10% of ops expenses to MW for wages, material, and equipment. Still another benchmark is 100 cars per mile per year as a minimum for a shortline to be viable.
Now let's work the numbers backwards. Our 100-mile shortline should be looking at 10,000 cars a year. How much should each car contribute? We'll split the track money between operating expenses and capitalized improvements, so we get an operating budget of $2.5 mm per year. With a target operating ratio of 80, target revenues become $3,125,000, or $312.50 per car. At this point you can go back to the 10-k of the shortline you're considering as an investment and see how it ranks with its peers.
To put track in perspective, it ranks fourth among operating costs. Labor consumes about a third. Car hire and fuel a fifth each, and then track. Moreover, the cost of NOT doing track affects the other three. Let your track drop to class 1 from class 2 and your transit time more than doubles (25 mph is 2.4 minutes per mile; 10 mph is SIX). Fuel consumption in gallons per hour likewise takes a quantum jump. It'll take longer to do the same work so car hire and labor costs go up as well. The tendency for railroad costs to cascade is frightening, and no place more so than track.
The CR merger rebuttals are in, three volumes, five books in all. The volumes address the issues raised in the 15 "responsive applications" accepted by the STB and reported here 11/29, plus other comments and observations made during the filing period. Volume 1 is the applicants' argument in response, volume 2 is the verified statements supporting the rebuttal narrative, and volume 3 contains documents listed in volumes 1 and 2. The gloves have clearly come off, and for my money the rebuttals are a lot more interesting reading than the filing itself ever was.
For example, an Ohio River electric power generating facility claims it will lose second carrier access as a result of the transaction. Not only does the commentary disprove the 2-1 claim, it also notes that the facility has not taken any coal from one of the rail carriers in three years and that 90% of all coal comes by barge. "In sum," concludes the rebuttal, "[the generating facility] has failed to show it has suffered any harm as a result of this transaction." And that's pretty much the tone throughout.
The NIT League may have signed on to the Conrail merger but the Society of the Plastics Industry and the Chemical Manufacturers Association, early opponents of the NS-CSX plan, are still unconvinced citing concerns about post-sale service, rates and competition. According to Rip Watson in JOC, "Chemical and plastic shipments are important revenue sources for NS, CSX and Conrail, accounting for more than 10% of the $14 billion in rail revenue generated by those carriers last year." A spokesperson for SPI said the NIT concurrence fell short of where the chemical folks would like to be.
There's more to Norfolk Southern NS than trains, trucks and RoadRailers, you know. There's the Pocahontas Land Corporation. This wholly-owned subsidiary is based in Bluefield WV and last week acquired about 340,000 acres of mineral- bearing properties in WV and Illinois. The properties contain more than 300 million tons of recoverable coal, mainly of high-volatile steam quality, part of which is being actively mined. Pocahontas owns and manages more than 1.2 mm acres in six southeastern coal-producing states and has been doing so since1901. Nice work if you can get it, especially if your parent company also owns the railroad.
Bob Crawford's New York Regional Rail Corporation has won the support of its $4.75 mm rehab funding proposal in the form of a New Jersey General Assembly resolution. The project calls for $3.25 mm for improvements to its Brooklyn Terminal facilities, and $1.5 million would be invested in its Greenville Yard in Jersey City. Under the prescribed funding formula, the Federal Grant allotment would be $3.8 million and NYRR would provide the remaining $950,000.
Since we're talking ISTEA money, it still has to pass Congress. It is hoped the NJ resolution will help the federal bill, sponsored by Representatives Jerrold L. Nadler (D.L.- Manhattan, Brooklyn) and Robert Menendez (D.-Jersey City, Bayonne, Perth Amboy). The railroad anticipates the improvements car handling capacity will increase to about 75,000 cars a year from the current 38,000.
Wisconsin Central and LB Foster Class A were the only railroad stocks listed in Friday's WSJ recap of short interest. WCLX increased 6.3% to 2.3 mm shares, just shy of four days to cover. To put that in perspective, the short interest ratio winners range from 25 to 63 days, so it's not a big ratio at all. Foster lost all but 2% of its outstanding short sellers. It was surprising to see tiny Foster listed at all when larger players like RTEX or HRMN are missing. Guess no news is good news.
And that's all the news there was this holiday week. Thanks for your cards, letters and e-mails in 1997. I'm looking forward to serving you again in 1998. Happy New Year.
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