GLG News by Mr. Toby Kolstad, President
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
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DM&E has its first financial evaluation and it’s not good
March 5, 2007
FRA says nay to DM&E’s federal loan request | www.progressiverailroading.com
The FRA recently refused to guarantee the $ 2.3 billion loan needed by the DM&E Railroad to extend its lines into the
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February 23, 2007
New railcar rolls out | www.roanoke.com
Freightcar America (FCA) rolled our the first of 1,200 stainless steel/aluminum (hybrid) body coal cars for Norfolk Southern (NS) in Roanoke VA this week, building the car in a recently opened shop where NS used to build their own coal cars. The cars will replace aging cars in the NS fleet and will operate between the mines and the export terminals on the East Coast that are served by NS. That’s about the only good news that FCA will report for a while this year as its backlog of orders for coal cars shrinks. There is no other car type in its design portfolio that might allow if sales force to replace the missing coal car orders.
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Can railroad rates keep rising?
February 16, 2007
Transport Sector Rides the Rails in 2007 | biz.yahoo.com
So Bear Stearns thinks that the railroads are about “mid-cycle” (his term.) But what does this mean: halfway up or at the top and about to start on the downward side again? Edward Wolfe said that the reason for the current strength is a “more diversified freight mix and greater operating efficiency.” He is partially right but mostly wrong on his interpretation of the railroad traffic and operating statistics. A closer look at the numbers and a comparison with historical trends shows the current increase in profits is all due to increasing freight rates. Since rates have been rising for over 24 months, it might be time to pause and ask if the railroads can keep increasing their prices without giving any better service for the money.
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Needed: Well Defined Government Energy Policy for Ethanol
February 13, 2007
GM Exec Wants More Ethanol Availability | biz.yahoo.com
The spokesperson for GM was right when she said that it would cost more than $150 in parts to allow cars to use either straight gasoline or E-85, an 85% gasoline/ethanol mixture. Moreover, the US automakers are also right to be skeptical about making investments to produce flex-fuel cars if there is not some type of guarantee that the infrastructure (make that E-85 storage tanks and pumps) will be in place to fuel the cars. There are many alternatives being considered for reducing the
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Railcar leasing business is red hot
February 2, 2007
GATX Rail boosts ’06 fleet utilization rate to 99 percent | www.progressiverailroading.com
GATX Corp. (GTM) announced that the utilization rate for their fleet of railcars (i.e., the percentage of units actually under lease and earning revenue) was up 1% in 2006 from the 98% rate achieved in 2005. Most railcar leasing companies think they are doing well anytime rates are above 95%, so the 99% utilization rate posted by GATX was outstanding. In addition, GATX said that lease rates climbed 19% for cars up for renewal and that net earnings increased 50% over the same period in 2005. Earnings should continue to improve during the next several years for this and other railcar leasing companies if they all don’t get too ambitious or if too many newcomers using borrowed money don’t try to join the parade.
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Economics of ethanol are changing
January 22, 2007
Plant Loses Money Without Tax Credit | www.dtnethanolcenter.com
The growth in ethanol production looked unstoppable last summer when gasoline prices were above $250 per gallon and corn prices were below $2.32/bu. Entrepreneurs building 110 million gallon per year plants expected to recover their investments within 18 months when net profits were over $1.00 per gallon, including the $0.51 per gallon federal subsidy. It was even noted that without the subsidy, the per gallon profits were sufficient to warrant new plant construction. Things have seemed to change, with gasoline now selling for around $2.00 per gallon and corn selling for over $4.00/bu. Now the federal subsidy is needed to justify just running the existing plants and is not enough to stimulate more ethanol capacity. But don’t we have enough capacity already? More biofuel production should be based on a new national energy policy, and maybe that is what will be coming to a gasoline station near you very soon.
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Agreement offers solution to tank car lessors, (TRN, GMT, GE)
January 18, 2007
FRA, private-sector partners to develop federal design standards for stronger chemical-carrying tank cars | www.progressiverailroading.com
A committee of companies, the Union Pacific Railroad, Union Tank Car, and Dow Chemical, representing their respective industries, agreed to a procedure under the auspices of the Federal Railroad Administration (FRA), to address the safety issues relating to tank cars, especially those handling Toxic Inhalation Hazardous (TIH) Gases. The announcement was overshadowed by the news of a derailment on CSX that resulted in a massive fire and release of hazardous gases. What was not said was that the railroads, mainly the Union Pacific, had relented and abandoned their demand that tank car owners replace all pre-1989 TIH cars within five years.
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Wabtec (WAB) scores a big one.
January 16, 2007
Regulators Approve BNSF Operation System | biz.yahoo.com
The Federal Railroad Administration (FRA) has given its approval for the BNSF Railroad to proceed with a complete network installation of the Wabtec designed PTC (Positive Train Control) system that has been undergoing field tests on 135 mile stretch of railroad in
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Let the markets sort out the problems with supply and demand for ethanol
January 12, 2007
No easy answers to ethanol dilemma | www.journalstar.com
The concerns voiced by Mr. Guebert and his farm correspondents were reflected in the price of corn on the future’s market many weeks earlier. There doesn’t appear to be enough corn to supply the ethanol industry, the corn sweetener industry, the animal feed industry, and the exporters trying to sell surplus US corn production overseas. And that is how the market system will sort out the problems of supply and demand for the ethanol industry. Do we want a committee of governmental bureaucrats trying to come to a consensus on corn allocations, subsidies, transportation directives, and investment incentives to solve the problems he enumerates?
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CSX: 2006 will be tough to repeat
January 10, 2007
The Year in Review: CSX Rolls On | biz.yahoo.com
CSX achieved some impressive results through the third quarter that are correctly attributed to their pricing power in 2006. Overall volume grew only slightly during the year, .6% through the first 9 months, but revenue increased 12% and operating earnings were up 31%. This is even more impressive considering that the two traffic segments that grew, coal at 4.5% and intermodal at 2.1%, are traditionally the lowest rated commodities handled by the railroads. Shipments of chemical, automotive, and forest products, historically highly rated commodities, were all down in 2006. Things will be different in 2007, and not for the better.
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Railroad pricing…. power or perception
January 5, 2007
Railroads Ride Pricing Power Into 2007 | biz.yahoo.com
Analysts are reported to be expecting the railroads to repeat their 2006 performance in the coming year because they think the railroads can continue to raise revenue through freight rate increases. A Bear Stearns & Co. analyst thinks that railroads may have as many as 30% of the long term contracts still “unpriced” (sic) and ready for large rate increases and fuel surcharges. There is grudging acceptance that volumes may not grow as much this year as in 2006, but pricing will keep revenues trending up.
This forecast should be labeled the optimistic forecasts, right next to ones labeled negative that involve a recession, and most likely where the railroads see meager growth rates for both traffic and freight rates.
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More bad news for the railroads
December 15, 2006
Coal | www.eia.doe.gov
The EIA has projected that coal production will decline in 2007 for the first time since 2003. Regionally, they are projecting that output from Appalachian and Interior mines will decline 4% while production grows 0.9% in the West. Along with estimates that consumption has actually declined this year but will grow 2.7% in 2007, the EIA states that increasing imports, excess stockpiles from 2006, and declining exports will all contribute to the decline in production. Railroad traffic and the demand for new railcars will both suffer if these predictions are accurate.
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Spin masters and Coal Movements
December 11, 2006
Railroads Struggle to Meet Coal Demand | biz.yahoo.com
According to this AP report, the railroads are struggling to move the production of the coal companies in the Powder River Basin (PRB). If they cannot handle the traffic in the high demand of winter, electric utilities might have to buy fuel on the open market and pass the higher costs on to consumers according to Jim Owen, with the utility trade group Edison Electric Institute. The article recounts the recent history in the PRB where derailments and track work kept traffic from growing as fast as the public utilities would have liked. At the end of the article however, industry analyst Donald Broughton of A.G. Edwards & Sons was quoted and accurately portrays the situation as “just good old-fashioned negotiating" on the part of the utility industry.
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ATA and Global Insights predict same old same old for 2017!
December 6, 2006
Trucking Continues to Dominate Freight Movement | home.businesswire.com
The Trucking industry released a report they sponsored from Global Insights which basically says that things will change very little in freight transportation during the next 10 years. Specifically:
- Trucks will pick up a 0.6% market share based on tonnage and 0.8% based on value by 2017.
- Railroad’s share of the tonnage moved in the nation will stay almost flat, picking up 0.2% market share by 2017.
- Railroad intermodal traffic, while growing very fast over the next 10 years, will still only account for less than a 1.5% market share by tonnage.
The press release did not give all the details, but it can be assumed that some straight line projections were made from recent trends. Although Global Insights has perhaps the largest economic database outside of the Federal Reserve, their analyses have never been much more then extensions of current trends.
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Norfolk Southern: profits are up but……tomorrow is another day
November 28, 2006
U.S. railroad stocks are picking up steam | money.cnn.com
Shawn Tully, a Fortune editor-at-large, must be either a rail fan (a foamer in the current vernacular) or a history buff, because the view is always back down the track and not towards the road ahead. In his Nov. 7 article, he waxes about the rise in railroad stock prices and how these companies are finally coming into favor because they are perfectly suited for the coal and container traffic that is currently running a full tide. He singles out Norfolk Southern Corporation and how they managed to increase revenue 54% over a period where their cost only increased 35%. He ends by pitching a new book by Rush Loving entitled "The Men Who Loved Trains". But all that was yesterday; tomorrow is another day.
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Not enough corn, ……then let them eat cake!
November 20, 2006
Corn Prices Climb as Ethanol Demand Rises | www.kcrg.com
Corn prices started climbing in September from around $2.20/bu to almost $3.50/bu in recent weeks. This is the time of year when farm prices usually start falling as elevators and farmers have to sell their stocks to make room for the new harvest. Not so this time around, and the price of corn is having ripple effect on other commodities such as sorghum, wheat, and soybeans. Evidently, buyers of those grains and oilseeds don’t want their farm suppliers convert to corn production. It looks like buyers are beginning to question whether there will be enough corn to go around. A corollary question might be whether ethanol producers can afford to pay $3.50/bu for corn.
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November 13, 2006
ARI overcomes production shutdown, sets earnings and backlog records in third quarter | www.progressiverailroading.com
American Railcar (ARII) reported that although tornado damage hurt production at their tank car plant during the third quarter, their earnings more than tripled, and their backlog of unfilled orders climbed to over 18,000 cars. Adjusting for the lost production between May and August at the tank car facility, the company’s backlog represents over two years of production at the current rate of output, which will most certainly climb over the next few months and years. These prospects are very different than the outlook just a few years ago.
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All that glitters………….; it might be too good to be true
November 6, 2006
Greenbrier boosts rail-car backlog, increases earnings in FY2006 | www.progressiverailroading.com
Greenbrier (GBX) announced a strong earnings performance for their 2006 fiscal year which ended on August 31st, and they highlighted their backlog of 14,700 cars in August compared to 9,600 cars at the same time last year. The growth in profits was remarkable given the 13.6% decline in new car deliveries. The company is investing in new railcars for its leasing business and buying shops and companies to grow the railcar repair business in order to diversify their business. However, it will be another tough year for the new railcar manufacturing side of the business, since much of the backlog involves cars ordered in a multiyear contract for delivery after 2007, and many cars that the company built on spec during its first fiscal quarter of 2007 remain unsold and in storage.
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Was the announcement of a possible order in 2008 just a spoonful of sugar?
October 27, 2006
FreightCar America Selected to Supply TXU Generation Coal Car Requirements | biz.yahoo.com
Freightcar American (RAIL) announced that it has been selected by TXU to supply up to 7,650 coal cars to supply the new coal fired generators coming online in late 2008 and 2009. It noted that TXU already has 520 Freightcar built coal cars and that more cars will be delivered to TXU under a prior agreement in the near future. Freightcar
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Markets will dictate the use energy resources, not central planners with political agendas.
October 24, 2006
The Myth Of Alternative Energy | www.countercurrents.org
Peter Goodchild does a very thorough job of trashing every alternative source of energy to petroleum. After labeling it the perfect fuel, he ends his short essay with the warning that the quest for alternative sources of energy is not merely illusory; it is actually harmful. Of course his real point is that the end is near and we should prepare for it (although he neglects to mention how, other than mass suicide.) The industrial revolution enabled the population of the world to rise from 1 billion to 6.5 billion souls; when it runs out of gas one day, there will be no alternative to sustain the Earth’s population. History is full of such Luddites, including Thomas Malthus, who prophesied that the world’s population was expanding faster than the supply of food (notwithstanding the movie “Solient Green”, the feat would be truly remarkable even if his logic were correct). Fortunately, the citizens of the
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