The Railroad Week in Review:
David Goode got rave reviews last week when he told the shortlines how Norfolk Southern (NYSE: NSC) was getting a handle on the problems brought on by the Conrail transaction. Citing an "era of increased partnership among all of us," he thanked the American Shortline and Regional Railroad Assn. (ASLRRA) members gathered at their annual meeting (this year in NYC) for their continued patience and support.
Though Goode noted that some of the temporary congestion relief measures taken by NSC and certain shortlines might even become permanent, he also cautioned that "we're not selling any rail lines we may need in the future." That certainly squares with what John Rebensdorf of Union Pacific (NYSE: UNP) said to his shortlines the week before (WIR (9/4/99). One thing the mergers have taught us is you never know what half-neglected branch line today will become a needed connector tomorrow.
Perhaps the best part of Goode's prepared remarks was at the end when he turned to ASLRRA President Frank Turner and said, "I hope that if you invite me back next year I'll have better news." Without missing a beat, Turner said, "David, you're on." Once the applause had died down, Goode offered to take questions one-on-one outside the hall. He was there for more than an hour, and that, judging from the comments I heard later on, was worth all the speechifying and assurances in the world. Thanks, David.
A feature story in Barrons this week highlights Canadian National (NYSE: CNI) and Canadian Pacific (NYSE: CP). "Canada's railroads once symbolized everything that was wrong about Canada's big government approach to commerce," the article begins. However the thrust is that profitability and the rails themselves are returning to the scene as forces to be reckoned with. CNI's share price has quintupled since the 1995 privatization. CP's share growth has been more modest, growing by only two thirds in the same period. However the article says with headcount and mileage down, the operating ratio on the mend, new power on order, and new traffic commitments on the books CP is poised for a turnaround. I sure hope so.
Yet another New Jersey hamlet has decided to take on its resident railroad over environmental concerns (WIR 9/11/99). This time it's the NYC bedroom community of Bogota (Buh-GOAT-uh, in local parlance) over the heavy use CSX makes if its main line through town. The borough has sued the railroad over a second track it is constructing there. The town fathers would rather CSX built it in the neighboring town to the south (what about those town fathers?).
For its part, CSX has said it needed the second track partly to alleviate the need to have idling trains waiting for their slots in Bogota, something which was already a sore point. Yet at the same time the railroad is enjoying resurgence in traffic as governments everywhere are pushing for more trains and fewer trucks clogging their roads.
What makes it even worse is that state taxes can even be a disincentive to add more tracks. New York, for example, collected more property tax from Conrail than any other state on its system. Even worse, the word on the street is that Conrail paid nearly half the school taxes for the communities along its southern tier line, now NS property. If anybody has words to the contrary, an e-mail would be welcome.
Hurricane Floyd blew in this week and rail repercussions were felt as far away as Chicago. Amtrak services to Grand Rapids and Indianapolis were canceled because the CSX dispatching facility in Jax shut down. Norfolk Southern closed facilities in Jacksonville, Charleston and Savannah in advance of the storm and removed most everything movable from its branch lines close to the shore.
CSX was particularly hard hit as it held trains bound for the southeast and customer service workers could not get to work after being sent home early to prepare for the storm. They even tried to send reinforcements to Atlanta to continue the work in that relative haven, but clogged airways and interstates killed that idea.
Here in Philadelphia, Friday morning's dog walk took us along the former B&O main on the east bank of the Schuylkill River. The water had clearly been several feet above the rail and there was so much debris on the track a highrail vehicle was accompanied by a backhoe to clear the way. This was about ten, and the water had so recently receded there were still bluegills swimming around in the puddles. Good thing CSX has the former PRR high line and the 26th St. viaduct to get to Greenwich Yard.
Some people never learn. They're still trying to beat the train at crossings in LA and this time the railroads have had enough. Commuter carrier Metrolink and the Union Pacific ran an officer-on-the-train ride-along in the Inland Empire Friday. Police and fire deputies got an engineer's view of the number of motorists and pedestrians risking death trying to beat the train.
The best part is that at the same time, other police officers were positioned in patrol cars along adjacent streets issuing citations to motorists who did not obey warning lights, bells and gates at rail crossings. They also tagged trespassing pedestrians. You've got to hope it works because California consistently leads the nation in the number of fatalities and injuries resulting from trespassing on railroad tracks.
Rail stocks continued their slide Thursday as corporate profit warnings and interest-rate jitters caused investors to pull some money out of the market. UNP took the biggest bath, off $1 7/8, followed by CSX and Florida East Coast (NYSE: FLA) shedding $1 3/16 and $1 1/4 respectively. About the only bright spot was MotivePower Industries (NYSE: MPO), up 16% to $11 1/4 after the company announced a $175 million maintenance deal with the Massachusetts Bay Transportation Authority. I remain on the sidelines here.
My friend and fellow rail-watcher Tony Hatch told the ASLRRA in a presentation on Tuesday the rails now lag the market considerably after beginning the 90s on a roll, beating the averages handily. Valuations are down, profits are ho-hum, and revenues aren't breaking any growth records. That was pretty much echoed in a chat that afternoon with JP Morgan's Jill Evans, who noted that the few rail bright spots are the small caps, but with small caps generally out of favor, rail small caps are hit with a double whammy. At this stage of the game the rails are pretty much for those with the loooong view.
Dan McShane of the Rio Grande Western, a privately held shortline company, writes, "I wanted to provide a point of clarification on the UNP purchase of the NEKM from RailTex. (I sold the NEKM to RailTex while I was still at the Union Pacific years ago.) The line was originally the Union Pacific's Branch Line to St. Joseph, Missouri, prior to the UP/MP/WP merger, not a MKT line.
"The UP served no industry in St. Joseph, and the bulk of the business that they handled there originated or terminated at industries served by the MP, and to a lesser extent BN. The MP accessed St. Joseph from the south over trackage rights on the BN from a connection at a jointly owned bridge over the Missouri River at Atchison, Kansas. It was determined at the time that the sale of the UP line made sense since the overhead business that the UP handled could be handled by the MP side of the operation, truly a merger benefit.
"The line sale was made as an attempt to preserve the line, which it did. Had the sale not taken place, I believe that there is a very good likelihood that some, if not all, of that line would have been abandoned before the Union Pacific would have made the decision to upgrade it and run empty coal trains on the West end of it. The sale truly preserved the infrastructure and this corridor for the UP." Say amen to that.
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