GLG News by Mr. Toby Kolstad, President
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Intermodal traffic gains may be problematic: too much too fast
July 14, 2010
Intermodal Rail Posts Highest Year-Over-Year Monthly Gain in 20 Years | www.truckinginfo.com
Intermodal loadings are surging faster than had been expected and are rising faster than they did during the first quarter when real GDP was expected to grow over 3% in 2010. It now appears as though 2010 intermodal loads will exceed those of 2008 but fall short of the record number of shipments recorded in 2006. Much of today’s movements are for retailers stocking up for the holiday shopping season; the Christmas rush begins early in the transportation sector.
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More troubles for railroad coal traffic
July 9, 2010
EPA proposes tougher air rules on power plants | af.reuters.com
The EPA has proposed rules that would force utilities in the East to significantly reduce pollutants in 2012. This will lead to the early closure of many old coal fired electric utility plants and higher utility bills for consumers in that part of the country. None of the new, more efficient and less polluting coal fired plants scheduled to start operating in the near future are in the East. For Eastern railroads, it will mean less coal traffic as utilities switch to alternate fuels in coming years.
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UP profits should set records even with slow economic growth
July 5, 2010
Union Pacific railroad builds U.S. economy | money.cnn.com
Like many of its North American railroad cousins, the UP reacted swiftly to the precipitous fall in traffic in 2009 by cutting costs and capital spending. With the help of some small rate increases, it maintained its hard won operating ratio of 76% and waited for traffic to increase. Traffic had fallen more than the economic contraction seemed to warrant, and it was a good bet that it would increase swiftly, even if it did not return to pre-recession levels.
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Kansas City Southern Railway Company is a case of permanent potential
June 24, 2010
Standard & Poor’s raises Kansas City Southern’s bond rating | kansascity.bizjournals.com
The recent Kansas City Southern Railway Company (KSU) swap of equity for debt was made possible not only by the company’s currently strong operating performance and recent traffic gains, but also by the perennial optimism of its shareholders. This small regional railroad has enjoyed the PE ratio of a high growth company long after it divested its highly profitable non-rail divisions several years ago. The future earnings needed to justify this PE ratio seem to be out of reach and out of sight.
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A no brainer: railroad profits to climb in the second quarter
June 15, 2010
Analyst says rails headed for strong 2Q earnings | finance.yahoo.com
Unlike many companies and industries, railroads report traffic levels by company and by commodity on a weekly basis to the American Association of Railroads (AAR). It is not too hard to extrapolate carloads to revenue and profits; from the data through the 22nd week of the year and halfway through the second quarter, the railroads are on pace to record a 2.3% gain over the first quarter and a 13% gain over the second quarter of 2009. Some companies like Norfolk Southern Corporation will do even better.
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Stock sale may signal something amiss at Trinity Industries
June 10, 2010
Trinity Industries CEO's $2.6 Million Sale | online.barrons.com
Timothy R. Wallace, CEO of Trinity Industries, made a wise move when he bought over 15,000 shares of his company in March of 2009 when it was selling for $7.18 per share. He should have bought more. He was one of many smart executives who bought shares in their companies when the stock market was crashing and pricing companies at less than their book value. He probably was also acting wisely when he sold over 100,000 shares recently at $23.65.
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Greenbrier hides shrinking marine backlog behind political smokescreen
June 4, 2010
Gunderson slashes marine production | www.bizjournals.com
The Greenbrier Companies recently tried to blame the city of Portland’s recent passage of an environmental plan for the Willamette River for its cutback of barge construction at its Gunderson Marine Division. CEO William Furman also blamed the soft barge market on the oil spill in the Gulf of Mexico. The only logical reason for the decision to lower the production rate is a declining backlog and the possibility of a total shutdown before another order is booked. Why all the hype?
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Railcar market continues to be misunderstood
May 26, 2010
Wilbur Ross mulls rail, real estate, casino investments | www.reuters.com
Wilbur Ross’s private equity firm recently purchased 4,000 railcars for around $230M and gave the management contract for the cars to Greenbrier, its rail industry partner. In a press release, Ross said that last year one third of all railcars were idle and that this year that figure has been cut in half. He is partially mistaken. While the real numbers may look better, the situation is much worse and a recovery in the leasing market for most car types is a long way off.
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Rail Traffic is signalling a “new normal”
May 18, 2010
Rail Traffic Recovery Continues | www.thestreet.com
Rail traffic fell so far during the second quarter of 2009 that record year-over-year gains were expected for the second quarter of 2010 even if traffic did not continue to increase beyond the levels recorded during the first quarter. During the past few weeks that is unfortunately what seems to be developing as rail traffic settles to the “new normal” levels for the economy. However, weekly postings by the AAR are expected to continue to show record levels of improvement, at least until June.
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New railcar delivery forecast may be too optimistic
May 11, 2010
Freight-car deliveries to gradually increase during next two years, EPA says | www.progressiverailroading.com
Some forecasters are predicting that new railcar production will climb back to normal levels within a few years. That is a hopeful goal, but the problems affecting two major car types that historically have accounted for 60% of the new railcar market may put it out of reach. Demand for coal and imported goods (not including oil) may take a little longer to recover than the forecasts envision.
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Railcars should continue to exceed early projections for profits in 2010
May 6, 2010
Norfolk Southern Beats on Revenues | finance.yahoo.com
All major US railroads reported outstanding gains in profits during the first quarter, although one was more dependent on increases in revenue per carload than the others. All reported operation ratios near 75%, well under the ratios posted last year but comparable to their performance in the fourth quarter. With coal traffic back to the “new normal” in the second quarter, the railroads should continue to outpace the earlier forecasts of both revenues and profits.
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Trinity stumbles in new railcar market
April 30, 2010
Trinity Industries, Inc. Reports First Quarter Results | finance.yahoo.com
Following the merger of Thrall Car and Trinity Industries in 2001, the market share of the combined companies plunged from 65% to 25% during the last recession. Trinity made great progress in recovering their lost share in the years before the Great Recession, rising to well over 40% in 2009. This year, however, they appear to have lost it all, with just 20% of deliveries and 23% of all new orders during the first quarter.
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GATX marine unit may be profitable this year
April 27, 2010
Cargo shipments on Great Lakes quadruple in March | www.fox21online.com
In recent years, 25% of GATX revenue came from bulk shipments on the Great Lakes moving in their American Steamship Company carriers. In 2009, those revenues fell to just 14% of total income. The 400% gain in bulk shipping during March, the start of the Great Lakes cargo season, suggests that revenues may rebound strongly in 2010 and that this division may return to profitability.
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EPA and popular opinion spell big trouble for Coal and RR coal traffic
April 20, 2010
Coal in for a Bumpy Ride and a Final Decline | www.huffingtonpost.com
Colorado recently passed a bill that will require a utility to install natural gas fired boilers. In Oregon, the single coal fired plant in the state will also be converted to natural gas within five years. In the East, the tragedy in underground mine and the recent court order restricting mountain top removal mining in the same region have also diminished the prospects for coal in the future. Nationally, this product accounts for over 40% of railroad traffic and over 30% of railroad freight revenues.
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CSX profits rise mainly on rate increases for coal shipments
April 14, 2010
CSX sees shipments up across the board this year | finance.yahoo.com
While CSX reported that shipments were up across the board, they were speaking in general terms but referring specifically to traffic levels during the first quarter of 2009. Compared to the fourth quarter of last year, intermodal shipments were down 5% as might be expected for this seasonal traffic and carload traffic was only up 1%, mostly due to the lackluster growth (2%) of coal traffic. Profits increased so much because average freight rates for coal movements increased 12% since last quarter.
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Great Expectations, but that’s all for the railcar builders
April 13, 2010
Greenbrier Q2 Hints At Rising Rail Demand | www.investors.com
Hope for the railcar builders springs eternal, but reality will eventually have to be considered. It is true that railroad traffic has rebounded from the depths to which it plunged last summer; that railcars that had been stored are being reactivated; and that railroad train speeds are decreasing, increasing the car cycle times and decreasing the number of loads per year that each railcar can handle. However, traffic has a long way to go before it reached the levels recorded a few years ago.
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UP must have had a very poor outlook for 2010
March 16, 2010
Union Pacific CEO sees signs of improved economy | www.themorningsun.com
Jim Young, CEO of the Union Pacific Railroad, recently stated that his railroad’s shipments are stronger this year than was anticipated; they must have anticipated a terrible year. Overall, UP shipments, as posted to the AAR, are up 6.5% over the levels posted during the 4th quarter, compared to 4.9% for their 3 other Class I cousins. More gains are expected later in the year as coal traffic increases after the utilities stop reducing their stockpiles.
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How does a 15% decline in traffic idle 30% of railcar fleet?
February 18, 2010
Railcars Return Slowly | www.joc.com
There are approximately 1.6 million railcars in North America, and various reports have shown over a third of them to be surplus to the needs of the railroad industry or its shippers during the past year. Traffic only declined 15% during the year, and there were only a few surplus cars before the recession began, so where did all the surplus equipment arise?
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Railroad intermodal traffic will increase this year; it really will!
February 9, 2010
Stacked for Growth | www.joc.com
Railroad executives love reporters who serve up softball questions, like the one about their billions in CapEx expenditures in 2010, which is about the same percentage of revenue as in the past, or about their fast trains without mentioning how they are primarily due to low traffic levels. As for their efforts to increase intermodal business this year, they almost cannot fail, given the depths of the decline in the summer of 2009 and the gains that have already been posted since then.
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NS needs to have its vision checked; most of its markets are unchanged
February 2, 2010
Norfolk Southern Executives: Seeing Improvement In Most Core Markets | money.cnn.com
Notwithstanding the recent news release that business conditions are improving in most of the railroad's core markets, the weekly numbers released by the AAR for January show traffic gains in only one are area (automobile and auto parts traffic) over last year’s numbers for the same weeks. However, the usual bounce from the holiday lows is still in progress and there may be some wishful thinking that the numbers will go even higher.
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