Mr. Toby Kolstad

GLG News by Mr. Toby Kolstad, President

Union Tank Car will probably remain independent

December 27, 2007

Analysis of:Berkshire Hathaway to Buy $4.5 Bln Marmon Stake | uk.reuters.com

Berkshire Hathaway announced that it had agreed to purchase Marmon Holdings, Inc. from the Pritzker family. Union Tank Car Company, the oldest railcar lessor and tank car builder in the nation, is owed by Marmon and has been the subject of rumors during the past year regarding a possible sale of the company. Until the purchase by Warren Buffet’s company was announced, the divestiture by Marmon of some or all of its holdings was a distinct possibility. It now appears as though Union Tank Car is no longer for sale.

Freightcar America seems to be grooming itself for a sale

December 20, 2007

Analysis of:FreightCar to Close Pa. Plant | biz.yahoo.com

Freightcar America announced that they were closing the production facility in Johnstown PA after failing to reach an agreement with the unions at the facility to restructure their agreement. The company said that the costs would amount to $34.3 million and would be subtracted from the fourth quarter results. Orders are down and production in 2008 looks likely to be less than deliveries in 2007, so the company should have no problem meeting all their current commitments with deliveries from their other plants. If the estimated costs of closing this facility are correct, then this company looks very attractive as a takeover target in 2008.  

Railroads will fare better than most companies, and very much better than trucks in 2008.

December 14, 2007

Analysis of:Railroads will fare better than trucks next year in a continuing soft economy, Fitch Ratings says | www.progressiverailroading.com

A Fitch Ratings report has predicted that railroads, although likely to face weak traffic demand in 2008, will fare better than trucks because grain and coal volumes should increase over the rails and the vaunted “pricing power” of the railroad companies will remain in force. So what else is new, and why go to the trouble of stating the obvious? Railroad earnings next year are almost sure to increase over 2007 levels since volumes will climb and rates will increase. Most other industries should be so lucky in what appears to be setting up as a “down” year.

Railroad tank car production to decline in 2008 at Union Tank

December 6, 2007

Analysis of:Union Tank Car plans layoffs | www.post-trib.com

Union Tank Car announced that it is reducing its production rate at two of its three manufacturing plants effective immediately. Moreover, it is possible that production will also be reduced at the Alexandria LA. The company has indicated that demand has been falling and that the production, which had been increased to accommodate the surge in orders for ethanol cars, will now be reduced to normal levels. The question which should be asked is what happened to the 33,000 backlogged orders at the end of September?

Another wave of railroad mergers is not going happen, anytime!

November 30, 2007

Analysis of:U.S. Railroads Face Pressure to Merge, CN Chief Says (Update2) | www.bloomberg.com

Hunter Harrison predicted that there will be investor pressure on the major railroads in the US to merger and that a large transaction will occur within the next five to six years. Hedging his bets just a little, he further said that these developments would not involve the CN, at least not until 2009 when he will retire. Big news! It will take at least until 2009 to get the CN/EJE merger approved by the Surface Transportation Board. The STB signaled that it disapproved of large mergers such as the CN and BNSF proposed a few years ago, and there has been not sign that they have changed their mind. There would be great opposition from many parties to any further consolidation in the railroad industry.

Railroad tonnage and carload gains should put railroads on the road to recovery in 2008

November 26, 2007

Analysis of:Rail Traffic Up in Week Ending Nov. 10 | www.aar.org

The American Association of Railroads (AAR) reported that US carload traffic during the week of Nov. 15 was 5.1% higher than the similar week in 2006 and that intermodal traffic was only down 0.8% . Carload traffic began to improve at the start of the fourth quarter, but this was the first time since midsummer that intermodal traffic looked anything like last year. However, not all of the railroads are enjoying the traffic gains; most carriers are still handling less traffic than last year. The Union Pacific seems to be the only railroad reporting significant traffic gains over 2006. (Both Canadian railroads are reporting more traffic this year than last during the fourth quarter.)

CP is improving its operating ratio the old fashioned way; increasing business and lowering costs.

November 16, 2007

Analysis of:Canadian Pacific building momentum for 2008 | biz.yahoo.com

CP Rail recently announced that their third quarter operating income had increased over 7% compared to the same period in 2006 and that its operating ration had improved from 74% to 73%. Although most of the other major, Class I railroads in North America had reported similar results for the 3rdquarter, CPR stands out for the way they achieved the same result. Unlike the other railroads, including the Canadian National Railroad (CN), CPR had strong traffic gains in all sectors. Moreover, while all of the other carriers reported significant freight rate increases, CPR’s revenue per carload in the third quarter of 2007 were very similar to the numbers reported during 2006.

Counter cyclical earning potential for WABTEC

November 7, 2007

Analysis of:Wabtec Railway Electronics to develop vital PTC pilot for NS | www.progressiverailroading.com

Wabtec announced that they had been awarded a contract by Norfolk Southern (NS) to develop a positive train control (PTC) system. PTC is the first change in the basic method of controlling train operations since the current system was first established in the late 1880s. Previously, the BNSF had awarded a contract to Wabtec to install an Electronic Train Management System (ETMS) on its lines after the Surface Transportation Board (STB) had approved of a system that Wabtec had developed and tested for NS and BNSF. Wabtec is also working with Union Pacific (UP) on a similar EMTS project that has not yet been given installation approval by the STB.

Trends give a brighter picture then the current railroad traffic numbers

October 25, 2007

Analysis of:Rail Traffic Off in Most Recent Week | www.aar.org

For 41 weeks, the AAR has reported that the weekly railroad carload totals were less than they were in the same week one year ago, and for most of that time, that railroad ton miles were less than the same week in 2006. The story actually began on January 12thof this year when the weekly totals turned south after heading higher for almost every week in 2006. It didn’t make sense in view of the growth being reported for the GDP, especially for the 3.8% jump recorded for the second quarter. Numerous studies, over many different time periods, for many different modes of transportation, and in many different countries have shown an almost identical relationship between GDP and ton mile growth (or contraction). So why are truck companies, railroads, and barge lines all reporting less ton miles in 2007?

Downturn of railcar cycle confirmed by latest quarterly ARCI report

October 18, 2007

Analysis of:Rail-car backlog, orders and deliveries nosedive in third quarter, ARCI data shows | www.progressiverailroading.com

The railcar builders association, the ARCI, reported that in the third quarter, only 8,121 new railcars were ordered, bringing the total orders for the year to roughly 31,000 cars. Moreover, deliveries decreased to 15,032, bringing the year to date total to 48,296. At Rail Theory Forecasts, we had predicted last fall that the total deliveries for 2007 would only reach 61,500 cars, compared to the 74,000 units delivered in 2006. Our preliminary forecast for 2008 in much lower, and the third quarter data appears to support out early prediction.

Don’t anticipate greater profits soon from Greenbrier’s venture into tank car manufacturing

October 15, 2007

Analysis of:Greenbrier to build 11,900 cars for GE, enter North American tank-car manufacturing market | www.progressiverailroading.com

Greenbrier’s surprise announcement that it will build new tank cars in the future for GE Rail Services was a bold and badly needed development for that railcar builder, but don’t anticipate much profit growth in the near future from this new venture. Demand for Greenbrier’s main car types, double-stack intermodal cars, lumber flatcars, and general purpose boxcars are still falling and Greenbrier’s railcar deliveries in 2008 should fall below their depressed count for 2007. Moreover, Freightcar America (RAIL) and American Railcar (ARII) are both testing new intermodal cars which will claim some of the market share from Greenbrier when demand for that car type recovers.

Railroad carload traffic is showing signs of improvement

October 1, 2007

Analysis of:Rail Traffic Up in Most Recent Week | www.progressiverailroading.com

For most of this year, the week to week comparisons of carload and intermodal traffic in 2006 have been negative; but for the week ending September 27, 2007, the number of carloads reported was slightly higher than those reported for the same period in 2006. While the weekly comparisons have varied widely during the past year, ranging from -8% to +2%, with the overall average to date equaling -3.3%, the trend since Mid-April of this year has be up. Although there will be negative comparisons to last year in the weeks ahead, it appears as though there will probably be more weeks of growth (only 3 so far in 2007, including the last).

Railroad Pricing Power is starting to be tested in Congress

September 24, 2007

Analysis of:Senate Judiciary Committee passes rail ‘antitrust enforcement’ bill | www.progressiverailroading.com

A Senate bill involving railroad regulatory matters, S.772 introduced on March 6, 2007, was recently approved by the Judiciary Committee and sent to the full Senate for consideration. Ostensibly, the bill would give other government agencies some regulatory control over railroad mergers, which would short circuit the lasses faire approach of the Surface Transportation Board (STB) since it evolved from the former Interstate Commerce Commission (ICC). If this is all the bill contained, it would probably benefit railroad stock holders by handcuffing management on future mergers; but there are other provisions regarding freight rates which are really the reason d’etre for the legislation.

CN’s new Prince Rupert business will be too small to measure for a long while.

September 14, 2007

Analysis of:Container Port Opening Big Boon for CN Rail | biz.yahoo.com

The new intermodal terminal on Canada’s West Coast will begin operation this fall, and CN hopes that traffic will be diverted from other West Coast ports to its less congested facility and rail lines. It sounds good in theory, but there are several other West Coast ports with good highway and rail connections that are trying to break the lock that the Los Angeles/Long Beach terminals seem to have on West Coast imports. Unlike the other ports, Prince Rupert has little to offer but another way to get to the US Midwest.

DM&E was a good buy for CP Rail, although a bit pricy.

September 7, 2007

Analysis of:CPR, DM&E reach $1.5 billion merger agreement | www.progressiverailroading.com

CP Rail announced that they will purchase the DM&E railroad for $1.5 billion, plus an additional $1.0 billion in the future if an extension is completed into the Powder River Basin coal area by 2025. The DM&E is a conglomerate of a number of bankrupt and abandoned rail lines that was assembled during the past 20 years into the largest regional railroad in the US. Although it has gained fame for its attempts to extend its lines into the western coal fields of the PRB, it owes it current prosperity to the ethanol industry. This traffic, plus a connection to a former rail partner may be the reason for CPR’s purchase, more than the possible coal traffic that the PRB might offer.

BNSF railroad franchise has few faults and all the right markets

August 30, 2007

Analysis of:Railroads and Trucks: Together for the Long Haul | biz.yahoo.com

BNSF recently thanked the trucking companies and their drivers for diverting trailer and container traffic from their highway corridors across the West to BNSF rail lines. This partnership between BNSF and the trucking industry began in 1989 with an agreement between J. B. Hunt, a Midwest Trucking company, and BNSF, a large Western railroad. At first it seemed more like a marriage of convenience for the two competitors than a true joint venture, but driver shortages and a boom in West Coast imports have allowed both companies to profit from the combination. This however, is just one of the success stories at BNSF, which is why Warren Buffet finds this company so attractive.

Railroad “pricing power” may be driving off railroad business

August 17, 2007

Analysis of:Diversions from rail and rates on the rise | www.progressiverailroading.com

A recent Bank of America survey of railroad shippers revealed that 66% of them were contemplating diverting some of their railroad traffic to other modes of transportation. In reporting the results of the study, a bank analyst commented that railroads that are “pulling too hard on the pricing lever” might be driving off business — perhaps permanently. In justifying past rate increases, railroad have commented on the competition they faced from other modes when they seemed to have a monopoly on rail transport. Maybe they should listen to their own advice.

American Railcar Stumbles

August 15, 2007

Analysis of:American Railcar Industries sets revenue, rail-car delivery records | www.progressiverailroading.com

Although they had record revenues and railcar delivery totals, American Railcar was not able to increase their profits much above the same period in 2006 when they shipped 18% fewer railcars. Management explained that their production facility at Paragould Arkansas, which produces covered hopper railcars, was operating at less than full capacity, and that the types of tank cars, which are built in Marmaduke, Arkansas, were different than in the past and that the margins were lower on the recent mix of cars. The railcar market in the future looks less promising than the recent past and some cost cutting may be necessary to get margins back to past levels.

Watch out for the hype on Freightcar America

August 13, 2007

Analysis of:The Long Case for Freightcar America | biz.yahoo.com

Freightcar America is suffering from a dearth of coal car orders that is likely to last at least a few more quarters. After averaging over 6,500 cars per quarter during 2005, a downward trend in demand for coal equipment started during the first quarter of 2006 and has averaged less than 2,800 cars per quarter for the last seven periods. Industry production backlogs have steadily fallen as deliveries outpace demand for new cars. The situation will eventually improve for the builders, but not because demand for coal will suddenly jump or a surge in 25-year-old cars will have to be replaced. Demand for new cars will resume when the surplus of cars created during the past few years Is efficiently absorbed into the system.  

New railcar plant to rekindle competition

July 31, 2007

Analysis of:National Steel Car to construct plant in Alabama | www.progressiverailroading.com

National Steel Car Ltd has been producing railcars in Canada for many years, and has enjoyed the support of the two Canadian Class I carriers. Although it has a US sales force, orders from US customers have been hampered by the location of the plant in Hamilton, Ontario, high Canadian labor costs, and recently, a strengthening Canadian dollar. National has produced most car types and has competed with all US railcar builders, although not very successfully. All that may change with the opening of its new plant in Alabama in 2009; the “friendly” railcar competitors in the US will have to admit a not-so-friendly rival from up North.

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