Mr. Toby Kolstad

President, Rail Theory Forecasts

GLG News by Mr. Toby Kolstad, President

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.

October 19, 2006

Analysis of:Ethanol boondoggle | www.ethanol-news.com

Even though and perhaps because Republican legislators and President Bush favor increased production of ethanol, academic pundits and investigative journalist have taken the position that more fuel is consumed making ethanol than is produced by the hundreds of distilleries that are popping up around the Midwest. Mixing in a few truths that everyone finds objectionable, such as the subsidies to a few large agribusinesses, these experts hope most people will look beyond the facts that they are not providing and start campaigning to terminate the biofuels industry. Taken to the extreme however, their arguments would justify stopping most farming activities in the U.S. since the energy costs outweigh the export revenue, especially for corn which accounts for over 50% of US agricultural exports by tonnage.

CSX Has higher earnings, but leveling freight rate might be signaling that the party is over

October 19, 2006

Analysis of:CSX earnings up on strong demand | biz.yahoo.com

CSX posted higher earnings for the third quarter based on freight rates that were higher than last year and some insurance coverage from Hurricane Katrina. CEO Michael Ward attributed growing volumes and continued strong pricing to the strong third quarter results. However according to the carload numbers included in the quarterly report, traffic grew 1.8% over the third quarter of 2005, 0.31% for the year to date over the same period last year, and actually declined in the third quarter compared to the second quarter of 2006. Moreover, freight rates are higher than last year, but they are almost level to the rates in effect during the second quarter. Earnings in the future might not grow as fast as during the past two years.

Running repairs for railcars is a low margin but safe business for Greenbrier (GBX)

September 15, 2006

Analysis of:Greenbrier Purchases Assets of Rail Car America | biz.yahoo.com

Greenbrier recently acquired four more railcar repair shops and some other businesses in their recent purchase of Rail Car America Inc. for $34million. Greenbrier already owns 12 repair shops around the country, two in locations very close to the RCA shops that it just acquired. In addition to these repair operations, Greenbrier runs a railcar wheel operation, supplying refurbished (turned) wheels to railroads and railcar repair shops in North America. The business is steady, but margins are low in this very competitive industry.

KFx coal would decrease need for DM&E

September 11, 2006

Analysis of:DM&E marches toward expansion | www.argusleader.com

DM&E will actually move 3,000 cars of Powder River Basis (PRB) coal sooner rather than later. KFx Corporation could not get the UP or BNSF to haul coal for test burns by Eastern companies that only use small quantities of coal, so they will have to truck their product from their plant in Gillette, WY to Rapid City SD for movement by DM&E rails to points east. Doesn’t DM&E know that the KFx coal will actually reduce the need for another carrier in the PBR?

Tank car project may avert showdown between railroads and car owners

September 8, 2006

Analysis of:Dow Enters Railcar Venture | pubs.acs.org

Dow Chemical, Union Tank Car, and the Union Pacific Railroad are trying to make railroad tank cars safer. Since 2002, there have been three railroad accident involving tank cars releasing toxic gases that caused fatalities. Initially, an effort will be made to determine the forces acting on the railcars during a derailment. If a mathematical model can be constructed, it will be used to create better tank car construction standards in the future. Even if this study cannot model the complex forces involved in a tank car derailment, the program is already a success in that it has probably diverted a very expensive and nasty fight between the railroads, their chemical shippers, and the tank car owners.

Future of Powder River Basin coal is never certain

September 7, 2006

Analysis of:Coal keeps US economy burning | news.bbc.co.uk

Coal fired generators produce just over 50% of the electricity produced in the US, and there is enough coal to produced electricity at the current rate of production for another 250 years. In the Powder River Basin (PRB) in Wyoming, rich coal seams lie just a few feet beneath the surface in a barren landscape ideally suited for mining and industrial operations. The only drawback to the PRB is also its main attraction to mining companies: its remote location sometimes creates transportation problems. There are only a few rail lines that access the PRB, and when there is a problem on these tracks, coal deliveries can sometimes be delayed. The utilities want the railroads to build more lines in the region, but the railroads a proceeding with caution, and for good reasons.

Employee turnover will lower labor costs of railroads

September 7, 2006

Analysis of:U.S. railways set for massive staff turnover | www.theglobeandmail.com

The US railroads are hiring new employees at a blistering pace and they are using the latest technology to train and equip these new railroaders. Locomotive engineers are learning to run trains on simulators before they sit behind the controls of a real locomotive, and they are being taught the efficient way to control a train rather than the easy way of power braking that the “old heads” like to use. These new engineers will hopefully use less fuel and have fewer derailments than their predecessors; but they will also earn less than the employees that they are replacing. Moreover, the same statement can be made regarding all new train and engine employees.

New route will lead to fewer trucks and more intermodal traffic for railroads.

September 7, 2006

Analysis of:Federal Highway Administration to release federal funds for ‘Heartland’ double-stack container corridor | www.progressiverailroading.com

Some funds from the transportation funding package passed last year named (SAFTEA-LU) will be devoted to improving the rail lines between the Eastern seaboard and the Midwest so that double stack container trains can operate in a more direct route between Hampton Roads, VA and Columbus, OH. The $95 million in federal pork will shave 300 miles from the current rail route and decrease transit times by almost half a day.

Steady traffic growth will be no problem for railroads

September 6, 2006

Analysis of:Railroad Industry Expects Record Volume | biz.yahoo.com

Surface Transportation Board began requesting the railroads to furnish traffic projects in 2004 (not 2003 as stated in the article) after what seemed to be congestion problems caused by inadequate planning. This year, most companies are projecting growth rates during the second half of the year between 3-5% and are stating that they should be able to handle the additional traffic. Stating the obvious has never been a problem for railroad management.

Union work rules and expensive pensions have doomed Freightcar America’s Johnstown plant

September 6, 2006

Analysis of:FreightCar workers: Uncertainty has hurt morale | www.tribune-democrat.com

Although Freightcar America (FCA) is recording record profits, they are also seeking some benefit concessions from their union to make the Johnstown plant more competitive. The United Steelworkers union is contending that the plant’s costs are higher than the other FCA facilities because management is scheduling more labor intensive cars for the Johnstown facility and has stopped investing in the plant. A labor contract was signed in November of 2004, just before the company’s IPO in April of 2005, and is not up for renewal until next November (2007). Management is ready and able the plant if the concessions are not granted.

Railroads and utilities are playing a political game.

September 5, 2006

Analysis of:U.S. rails seek ways to haul more Wyoming coal | www.washingtonpost.com

There is an ongoing debate regarding the ability of the railroads to meet the transportation demands of their customers, including the coal and utility companies involved with coal from the Powder River Basin of Wyoming. The railroads argue that they are taking the necessary steps to handle the additional traffic, but utility companies complain that they are not getting enough coal and that at least one carrier is temporarily refusing to provide service to new utilities. The dispute has the earmarks of a political campaign to influence legislators who might be inclined to reconsider the deregulation of the railroad industry, something that would not benefit either side in this conflict.

A good combination for ethanol

August 14, 2006

Analysis of:Refiners and Ethanol | www.thehj.com

Marathon Oil Corporation and The Andersons, Inc. plan to form a partnership to invest in new ethanol plants in the future. Marathon has much experience in blending Reformulated Gasoline using ethanol and The Andersons is a diversified company with many different interests related to the distribution of grain products, including corn. Ethanol has been made from corn for many years and after MTBE, an additive used to oxygenate gasoline, was banned by 21 states due to concerns about the public health, it has been used by some gasoline distributors, including Marathon, for its oxygenating properties. But ethanol now can stand on its own as an alternate fuel to gasoline, and gasoline distributors are expected to seek out suppliers of this fuel to supplement their gasoline supplies.

New railcar boom for some builders

August 11, 2006

Analysis of:American Railcar Industries, Inc. Announces Construction of a New Flexible Railcar Manufacturing Plant and New Railcar Orders | biz.yahoo.com

American Railcar (ARII) announced that it plans to expand its production facility at Marmaduke Arkansas. The existing plant at this location which is configured to produce tank cars, was damaged by a tornado in April and has only recently been restarted and is also being expanded to produce and additional 1,000 cars per year. The new facility will be tooled to produce several car types, including tank, covered hopper, and intermodal railcars and will have an annual production capacity of 2,500 cars. In addition, ARII announced that it has secured two multiyear orders for 4,000+ total cars for delivery starting in 2008. These orders are in addition to the 12,790 car orders backlogged as of June 30, 2006.

Should concerns about inflation affect railroad freight rates and stock prices

August 9, 2006

Analysis of:US rails say will thrive even if U.S. economy won't | investing.reuters.co.uk

Rail industry enthusiasts are claiming that the market is discounting railroad stocks (which are currently selling at a P/E’s between 13 and 16) because of fears of an economic slowdown. Repeatedly using the word “renaissance”, they claim the economic fortunes of the railroads are no longer tied to the national economy and that there are trends and factors that will favor railroads in the future: (1) high fuel prices will let railroads capture more market share from trucking companies; (2) more freight rate increases are in the pipeline; and (3) imports will keep rising. All their statements are true to some degree, but the devil is in the details and therein may lie the reason the railroad stocks at actually prices appropriately.

Trinity’s railcars are back in fashion

August 4, 2006

Analysis of:Trinity Industries Earnings Jump | tools.thestreet.com

Trinity Industries (TRN) reported earnings that were 66% above what analyst had expected. Moreover, unlike the other car builders that have recently reported (GBX and RAIL), Trinity reported that their backlog of orders rose to 29,300 cars from 27,777 at the end of the first quarter. Trinity is a diversified company, with railcar activities accounting for approximately 60% of there operations. All of their other business units, which are also related to steel fabrication projects, reported strong growth in earnings.

With gasoline at $3.00/gal, ethanol producers may need it all

August 4, 2006

Analysis of:Asia: U.S Has Enough Corn For Fuel, Export Demand | www.cattlenetwork.com

A US Grains Council representative assured Asia countries that there will be enough America corn both to meet the ethanol production required by the Bush Administration and to supply enough corn to meet the demands of foreign markets. Three factors will allow corn supplies to meet the growing demand: (1) increased yields, 1.96% more bushels/acre per year; (2) increased plantings, 10% more acres; (2) substitution of DDGs from ethanol producers for feed corn used by US dairy and beef herds, estimated to amount to 25 million tons in 2010.

Railroad profits growing on freight rates, not efficiency, except for CSX.

August 3, 2006

Analysis of:The Pricing Is Right for CSX | www.fool.com

CSX posted another strong quarterly performance, increasing profits by 12% over the same period last year. The profit gains were due to freight rate increases and also improvements in its operation efficiency. CSX carload traffic did not increase much during the quarter, but neither did that of the other rail carriers. Industry pundits are questioning whether profits will continue to rise in the future, given the lackluster growth in carloads and the potential resistance to future increases in freight rates.

Another bird brained idea to restrain railroad rates

August 3, 2006

Analysis of:Burns changes tactics in battle between railways, shippers | www.greatfallstribune.com

Senator Burns is one of several legislators in Washington DC to respond to the complaints of constituent railroad shippers with a proposal that will supposedly limit the railroads ability to either continue to raise their freight rates or maintain the rates currently in place. His bill addresses the 10 year old “bottleneck” ruling of the STB whereby one railroad may decline to participate in a joint line move with another carrier if it can provide a single line move from origin to destination for the shipper. Senator Burns thinks this will introduce more competition and thereby restrain the growth in freight rates. What he fails to answer is how his bill will allow the nation’s rail carriers to earn rates of return greater than their costs of capital and justify any expansion in the future.

Highway service vs. railroad costs

August 2, 2006

Analysis of:Shift freight from trucks to trains | seattlepi.nwsource.com

It is every transportation planner’s dream to put traffic where it can be most efficiently handled. Whether in creating mass transit systems to relieve the rush hour traffic gridlocks, or putting freight traffic on railroads to reduce the growing highway congestion as populations and cities expand, these dreamers have cited numerous statistics like how one train replaces 500 trucks to justify their proposals. Unfortunately, their statistics can also be used by private companies wishing to grab their share of the federal largess, in this case, a 25% tax credit for infrastructure improvements. The question for the public and for investors to answer is whether the federal money will actually achieve the planner’s dreams.

It’s service, stupid!

August 2, 2006

Analysis of:One-man train crew plan raises security fears | www.thestate.com