GLG News by Mr. Toby Kolstad, President

Bio fuels can and will cap the costs of petroleum.

August 2, 2006

Analysis of:A Competitor For Ethanol? | www.forbes.com

Bio-butanol is being touted as a possible replacement for ethanol. It can be used in 100% concentrations as compared to the 10-15% maximum concentration for ethanol and it gets better gas mileage than ethanol (currently rated at 66% of that of regular gasoline). BP and Dupont started working together on bio-butanol in 2003 and plan to have a demonstration plant up and running in 2010. They claim that their product can be competitive with gasoline even if crude oil prices come back down to $30-40/barrel.

Another federal pork barrel for the railroad industry!

August 1, 2006

Analysis of:Freight-rail tax credit bill enters Senate | www.progressiverailroading.com

Senator Trent Lott introduced a bill to give the railroads a 25% tax  credit for certain types of capital expenditures designed to improve and expand the country’s rail capacity, ostensibly to enable them to handle more freight that would otherwise move over the nation’s highways. Freight traffic is forecasted to increase 67% by 2020 according to Ed Hamberger of the AAR, and more investments are needed to handle the new traffic. He further implies that we have handled the increased traffic in the past with new highways and that this will be a suboptimal way of handling growth in the future. It sounds logical, but railroads will expand as they must without federal help, and trucking companies will retain market share regardless. The new bill will be a temporary patch to an old problem of transportation subsidies.

The growth of the Ethanol Industry is just beginning!

July 26, 2006

Analysis of:Sector Preview: Ethanol | www.businessweek.com

There are very few public companies that produce ethanol, and only one that has been around for very long, agribusiness giant Archer Daniels Midlands Co (ADM). The other two, VeraSun Energy Corporation (VSE) and Aventine Renewable Energy Holdings Inc. (AVR), are recent IPO’s and have not yet issued a quarterly report. The industry is expanding rapidly, pushed by a farm-lobbied Congress and an energy-conscious Bush Administration, and fed by strong investor interest on Wall Street. Nevertheless, analysts are already questioning the long term viability of this nascent industry, worrying about demand exceeding supply and rising corn costs narrowing margins. Most new industries go through growing pains and surprising developments, but it is too early to worry about capacity and demand for this product.

Second quarter results look very good

July 21, 2006

Analysis of:ARCI data: Car deliveries climb, orders and backlog fall in second quarter | www.progressiverailroading.com

The ARCI reported that 18,190 new railcars were ordered during the second quarter and characterized the total as a 50% decrease from the first quarter and the first period in which orders have declined since last year. They also reported that deliveries had increased 5% form the first quarter and that the order backlog had declined. Progressive Railroading’s use of adjectives to describe the relationship between the results of the second quarter and previous periods could have been better, although a review of the detailed statistics might lead one to suspect that things might be cooling off a little in the car building industry. But aggregate numbers do not apply to specific builders.

Do we need another railroad in the PRB?

July 19, 2006

Analysis of:Coal rush and Midwest rail | www.therockinghamnews.com

The DM& E Railroad has been engaged in an effort since 1998 to gain access to the coal mines in the Powder River Basin (PRB) of Wyoming. They have secured permission from the Surface Transportation Board (STB) and have been negotiating to purchase the required rights of way for their new tracks and to gain the approval of the cities along their lines for increased traffic flows. They estimate that they will need loans totaling $6 billion, including $2.5 from the Federal Government to allow them to begin hauling coal out of the PRB. Their efforts are currently being blocked by the Mayo Clinic in Rochester MN which claims that the heavy coal trains will prevent the delicate surgeries that are routinely performed at that hospital.

Europe claims another American car builder

July 19, 2006

Analysis of:Trinity Industries Provides Information on Potential Sale of European Rail Business | biz.yahoo.com

Trinity Industries (TRN) stated that they are negotiating the sale of their European rail business, assumed to be mostly related to their production facilities in the Romania. Although the news release said that no material financial impact is to be recorded from this transaction, the terms and conditions of the sale have not been fully resolved. The transaction is expected to take place in the third quarter. This is the second car builder to stumble in a European venture.

Do we need another debate about deregulation?

July 13, 2006

Analysis of:Railroads’ prices decline since 1985, GAO reports; rates not fair for chemical shippers, ACC says | www.progressiverailroading.com

A recent study by the GAO found that the railroads had not increased their freight rates between 1985 and 2004. The railroad industry is citing the study in their opposition to two bills in congress seeking to re-regulate the industry. These bills have been sponsored by congressmen who are upset by the recent rise in railroad freight rates and the apparent helplessness of the shippers who have no viable rail competition or are captive to one carrier. Neither side in the argument wants to talk about the principles of free market system or about the cooperative nature of the relationship between logistics companies and freight shippers. Shipper groups such as the American Chemical Council (ACC).

Railroad Industry: Renaissance or Recovery

July 13, 2006

Analysis of:The Railroad Industry: What's Different This Time | biz.yahoo.com

All of the major railroad companies, NSC, CSX, UNP, and BNI, are reporting record profits and continued traffic gains. Their publicist are touting the strength and future prospects of the coal industry and the role the railroads are playing in supplying the energy needs of the country. In addition, they point with pride to the growth of their intermodal traffic as one of the reasons for their increased profitability. Like little boys with new toys, they beam with infinite pride in the new rail lines that are being constructed, the new locomotives that are being purchased, and the new computer systems that will supposedly help them run more efficiently in the future. But much of what is being said has been true for many years. What’s really happening now?

Good news for Freightcar America, but not enough to maintain deliveries

June 20, 2006

Analysis of:FreightCar America Lands Coal Car Order from Norfolk Southern | biz.yahoo.com

Freightcar America (RAIL) announced that Norfolk Southern Railway Company (NS) has committed to purchase 1,600 coal cars for delivery in 2007. The order includes 400 aluminum rapid discharge hopper cars and 1200 rotary gondola cars with a combination steel and aluminum body which will allow the bottom of the car to be heated when the coal contents freeze. The cars will be built at the Roanoke shop that Freightcar America purchased from Norfolk Southern in 2004 and where NS used to build their own steel coal cars.

Railroads are fixing their problems with coal delivery rates.

June 16, 2006

Analysis of:Union Pacific Moves Record Amt. of Coal | biz.yahoo.com

The Union Pacific Railroad reported that it had hauled a record amount of coal (5,304 coal trains) during the first five months of this year. During the month of May, they moved 1,090 coal trains from Wyoming's Powder River Basin (PRB), which represents a 20% improvement over the same period in 2005 when derailments hampered train operations in the area. The UP and BNSF are adding additional tracks to their jointly owned line through the PRB to facilitate the flow of traffic as production of coal in the region expands.

KCS will need to do more to make their NAFTA RR Grow

June 12, 2006

Analysis of:KC Southern expands rail service on intermodal corridor | www.kansascity.com

The KCS Railroad announced a new intermodal train that will soon offer daily service between the Port of Lazaro Cardenas and Jackson, Mississippi. The trains will operate on a six day schedule to Jackson with a 7^th  day arrival in Atlanta though their joint line service with the NS Railroad across the Meridian Speedway. It was mentioned that Schneider National Inc. will provide the initial container cargo through the port for this train, which will also provide intermodal service to Mexico City, San Luis Potosi, and Monterrey, Mexico. KCS officials had recently touted the expansion of the port during 2006 as an answer to the capacity constraints of the U.S. West Coast ports, noting that Lazaro Cardenas was actually closer to many Midwestern cities than U.S. ports that are currently handling the Asian trade.

Railroad equipment may play a major roll in future of ethanol industry

June 9, 2006

Analysis of:BNSF has plans to ship ethanol | www.dfw.com

The BNSF announced plans to establish an ethanol distribution terminal in the Dallas - Fort Worth area to where ethanol will be transported from the distilleries in the Midwest for the gasoline distributors in the metropolitan area. BNSF further stated their plans to ship gasoline back to the Midwest in the same tank cars to minimize empty car transportation expenses. Contrary to some published reports, the railroads have not played much of a role in the ethanol industry to date, since most of the product has been produced in the Midwest and distributed to local gasoline distributors by truck. The BNSF project will be one of many new railroad ventures for serving this industry. With refineries finally ending their use of MTBE, ethanol will have to be distributed on a national basis. With almost all the ethanol distilleries are located in the corn-belt, railroads will be the only economical means of transporting the billions of gallons of this product to the East, West, and Gulf coast states. To meet the projected demand, producers will have to double the industry capacity in the next few years, and the continued trend to site plants in the Midwest may not be the best decision to minimize transportation and railcar expenses.

Railroad operational problems are best solved without political guidelines

June 5, 2006

Analysis of:Railroad system should be more responsive, senator says | www.siouxcityjournal.com

Senator Johnson (D-S.D.) seems to want to take the railroad industry back to the days of regulatory oversight, without offering any solutions to the problems he lists or how they might be implemented. He correctly summarized the sentiments of many of the regulated utilities in the country that complain of poor railroad service and ever increasing railroad freight rates. He incorrectly linked the railroad traffic problems to potentially higher electric rates that consumers may see this summer. The coal dust problems on the joint trackage line used by the BNSF and UPRR to serve the coal mines in the Powder River Basin will soon be history, but the political fallout may plague railroad management for quite a while.

Railroad supervisory and personnel management techniques are stuck in the 19th century.

June 5, 2006

Analysis of:Railroads scramble as workers set to retire | today.reuters.com

Effective January 1, 2002, the Railroad Retirement Board allowed railroad employees who were over 60 years of age and had 30 years service to retire with full benefits. This rule was enacted at a time of relative stability in railroad operations and a few years before the time when a great many railroad workers would qualify for retirement under existing rules. The bulge in retirements was due to work rule changes dating from the late 1980s relating to the size of train crews. As a result of these changes, railroads had a surplus of middle aged employees and very little need to hire replacement workers for many years. The situation began to change in 2002 with the 60/30 rule, and the need for new employees grew even more with the surge in traffic in 2004. Railroad management used the labor situation to explain why their trains were running slower, even though the same operational problems were affecting the Canadian railroads which did not have a 60/30 rule causing early retirements.

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