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CSX Corp.’s container cargoes have increased about 10 percent for two straight quarters as eastern U.S. railroads invest billions in a business that threatens the trucking industry’s most lucrative shipments.
CSX and smaller Norfolk Southern Corp. are expanding yards, bridges and tunnels to make room for more cars carrying containers that can move by rail, highway or water. The upgrades will help blunt the impact of falling coal volumes and meet demand from trucking customers for an alternative to rate increases driven by higher fuel prices.
Shippers may save 15 percent to 20 percent when they send goods via so-called intermodal service using rail rather than by truck alone, with savings varying with the route and length of haul...
...Railroads are pushing intermodal service as a way to improve shippers’ speed and efficiency. Containers can be taken from a ship or truck at an intermodal terminal, stacked on special flatcars -- sometimes one atop another -- and hauled by the hundreds on one train to another terminal. Trucks then carry the boxes from that site to a warehouse, factory or store.
Class I railroads, the largest in North America, reported shipments of 3.92 million intermodal units in the second quarter, according to data from the American Association of Railroads. That’s an increase of 6.7 percent from the three months through March and 5.1 percent from a year earlier. Only total commodity carloads were higher.
Oil Prices
Before 2004, when oil prices were lower, a 600- to 700-mile intermodal rail shipment wasn’t worth it for many customers... Those shippers opted to send their goods via truck instead.
“Fast forward to oil being $80, $90 a barrel and highway diesel being a lot more expensive, you start to see more and more interest in those shorter lengths of haul...”
The domestic container cargo business at CSX, the biggest eastern U.S. railroad, has been growing 6 percent to 7 percent a year for the past four to five years, Chief Executive Officer Mike Ward said in a telephone interview.
Investments in the National Gateway and a northwest Ohio terminal are positioning CSX to vie for about 9 million truckload opportunities longer than 550 miles (885 kilometers), the distance at which the Jacksonville, Florida-based company says it can start to compete with truckers.
Huge Market
The Gateway is a project raising the height of tunnels and bridge clearances to accommodate rail cars with double-stacked containers traveling from mid-Atlantic seaports to the Midwest. The routes parallel interstate highways such as I-95 from North Carolina to Baltimore and I-70 from [Baltimore] to northwest Ohio.
“There’s a huge market to go after,” Ward said, referring to intermodal operations. “The pie is so big we can all have a nice big slice and enjoy ourselves. That’s why you are seeing us expanding terminals, as is Norfolk Southern.”
CSX’s intermodal shipments increased 9.6 percent to 484,000 in the second quarter, on a year-to-year basis, compared with growth of 11 percent to 471,000 in the previous three months...
Its intermodal cargoes still lag behind Norfolk Southern, which saw them increase 3.3 percent to about 659,000 in the second quarter and 1.9 percent in the previous three months.
New Yards
Both railroads have been raising clearances on routes and building new yards to take advantage of the growth. Norfolk Southern, based in Norfolk, Virginia, budgeted $2.4 billion for property additions this year.
The railroad is buying land for intermodal yards, laying down double track and making other facility improvements geared toward a high-capacity route from New Jersey to Louisiana that will compete with trucks along several major interstate highways, the railroad said in a filing.
CSX plans to invest $2.3 billion this year, with more than half expected to go toward infrastructure enhancement, Lauren Rueger, a spokeswoman, said in an e-mailed statement.
The company “continues to see record domestic intermodal volume” driven by customers switching from highway to rail, Rueger said.
The competitive threat to trucking, along with challenges from higher fuel prices and a shortage of drivers, is reflected in investor valuations of the two industries.
‘Losing Share’
The Standard & Poor’s 500 Railroads Index has climbed 12 percent in 2012, with CSX gaining 9.2 percent and Norfolk Southern advancing 2.6 percent...
Trucking “companies that have not embraced intermodal risk losing share,... It’s not going away unless capacity in the rail industry is so tight they can’t provide a quality service.”
Shipment volumes in long-haul trucking, which typically generates more revenue per load than shorter trips, declined on a year-to-year basis for the first three quarters of 2011... Gains in the first half of this year have been less than 10 percent.
Truckers that move into intermodal, such as J.B. Hunt Transport Services Inc., based in Lowell, Arkansas, and Swift Transportation, are benefiting from the need for drivers to pick up rail shipments and carry them on their final leg.
‘Tremendous Opportunities’
J.B. Hunt, which has arrangements with most major North American rails to transport truckload freight in containers, gets more than half its revenue from hauling the container cars. In the second quarter, the company’s intermodal revenue grew 13 percent compared with revenue from trucking, which fell about 3 percent...
FedEx, UPS
Intermodal service has garnered high-profile customers such as FedEx Corp. and United Parcel Service Inc., which pay railroads for long-distance transportation before putting their packages on trucks for final delivery to customers.
UPS typically uses intermodal for ground deliveries traveling more than 750 miles...
The company’s growth in intermodal has helped improve container car rail service by pushing the carriers to be on time and more efficient
“The rails see this as an opportunity to take the service to other shippers... They can walk through shipper’s doors and say ‘We’re doing this for UPS, we can do it for you.’”
http://www.bloomberg.com/news/2012-08-16/csx-stacks-boxes-higher-for-10-gain-threatening-trucks.html
OAO Russian Railways is planning to spend 259 billion rubles ($8.3 billion) in the next three years on locomotives to defend a market that billionaire investors such as steel magnate Vladimir Lisin are seeking to enter.
Russian Railways Chief Executive Officer Vladimir Yakunin is resisting government plans to reduce state dominance in the industry and to sell a stake in the company itself. Lisin last month bid to wrap up his purchase of Russian Railways’ biggest cargo unit, accounting for 40 percent of its railcars, in a transaction that was part of the privatization plan.
“Russian Rail clearly doesn’t want to part with a source of cash flow like locomotives after losing control over freight,” Kirill Kazanli, an analyst at Citigroup Inc. in Moscow, said by phone. Locomotives earn back their purchase price “significantly” faster than railcars do, he said.
Prime Minister Dmitry Medvedev’s government is targeting proceeds of 260 billion to 270 billion rubles from state asset sales next year, following 223 billion rubles of sales this year, Economy Minister Andrei Belousov said on Oct. 25. That is less than the 300 billion-ruble plan approved by the Cabinet in June. Last year, before Vladimir Putin resumed the presidency after Medvedev, such sales reached 121 billion rubles.
With the shaky global economy eroding valuations, some of the asset sales may be delayed. The sale of a stake in OAO Sovcomflot, the owner of the world’s largest number of tankers, was delayed from this year to next as overcapacity drove down prices and squeezed valuations. Yakunin has opposed a government proposal to offer a stake of Russian Railways as early as next year, this month calling for a delay of four to five years.
Locomotive Revenue
Russian Railways, which owns all the country’s national rail lines, increased its three-year investment program to 1.1 trillion rubles this month for fleet and infrastructure upgrades, while fighting to maintain the revenue streams provided by its control over the locomotive market. One goal is to convince the government that the company can meet the country’s transportation needs and keep private investors out, said Andrey Rozhkov, an analyst at IFC Metropol in Moscow.
The premium investors demand to hold Russian Rail’s bonds due in April 2022 over the country’s sovereign debt of similar maturity grew to 128 basis points, or 1.28 percentage points on Nov. 13, the widest in almost four months, as the company plans to borrow more to fund investments.
Rising Ratio
Investors have reacted negatively to Russian Railways’ plans to increase its ratio of debt to earnings before interest, taxes, depreciation and amortization to 2.2 from 0.56 in 2011, said Igor Golubev, a bond analyst at Nomos Bank in Moscow.
Russian Railways, based in Moscow, kicked off the expansion last week by confirming a deal to purchase 221 engines from Siemens AG (SIE)’s Russian venture with Sinara Group by 2016 and awarding the venture an order for 675 more from 2016, worth 2.5- billion-euro ($3.2 billion). Putin and German Chancellor Angela Merkel attended the signing ceremony.
The government is supposed to be opening the locomotive market to non-state investors this year under a development program for the freight market to 2015 published on the Economy Ministry’s website. The measure was part of Russia’s plan to create more competition in the market and attract private investment.
“Liberalization of the locomotive park has stalled as Russian Railways tries to convince the government to keep private investors out of the market,” Rozhkov said by phone.
Run Down
More than 97 percent of Russia’s locomotives belong to Russian Railways, according to Sergey Maltsev, CEO of freight operator Globaltrans Investment Plc. (GLTR) “The park is catastrophically run down, which hurts hauling capacity,” Maltsev said. A full revamp would require the purchase of 1,000 engines a year to 2015, he said.
OAO Freight One, the Moscow-based operator that Lisin bought from Russian Railways, is ready to invest as much as 100 billion rubles in five years to buy locomotives, Oleg Bukin, the CEO of the unit, said in April.
Lisin’s fortune of $15.5 billion places him 46th on the Bloomberg Billionaire Index of the richest people in the world.
Russian Railways plans to buy more than 770 locomotives annually under its three-year spending program, compared with a total of 2,200 in the previous five years.
With engines contributing about 35 percent of its revenue last year, Russian Railways has no incentive to share the market, according to analyst Rozhkov. About 30 percent of the cost of moving freight in Russia is payment for engines, compared with 50 percent for infrastructure use and 20 percent for railcars, he said.
Rental Rates
Non-state operators may be squeezed after investments swelled fleets. Average rental rates for boxcars in Russia have fallen to 1,100 rubles ($35) a day from 1,400 rubles in the second quarter on oversupply and Russian Railways’ low prices, business newspaper Kommersant said yesterday, citing unidentified people familiar with the market and estimates by INFOline-Analitika.
Operators have spent 850 billion rubles to purchase new cars since 2003, when they first received the right to operate their own fleets, the press service of the Market Council, which represents private operators, said Nov. 19.
Investors are continuing to push for access to the lucrative market. Russian Railways isn’t moving fast enough, even with its expanding purchases, to replace worn-out engines, said Globaltrans’ Maltsev, who also is president of the council.
“Without market mechanisms in this sector, it’s impossible to solve the problem,” he said.
http://www.bloomberg.com/news/2012-...-locomotives-as-tycoons-encroach-freight.html
Amtrak’s plan to replace its fleet of Acela trains provides an opportunity for Siemens AG, Mitsubishi Heavy Industries Ltd., Hitachi Ltd. and others who want to compete with Bombardier Inc., the supplier of equipment used since the service’s start.
“There’s not that many companies that build the trains,” said Andy Kunz, president and chief executive officer of the U.S. High Speed Rail Association, a Washington-based group whose members include Bombardier, Alstom SA, Siemens and Patentes Talgo SA. “But the handful that there are would all be ready to bid.”
Replacing the Acela, which can operate at speeds of as much as 150 miles per hour, may be Amtrak’s biggest equipment purchase since it bought the original trains in a contract valued at $1.2 billion when signed in 1996. Amtrak doesn’t have a cost estimate because it’s at “the very beginning of this process,” Steve Kulm, a railroad spokesman, said.
Montreal-based Bombardier worked with Alstom, based in Levallois-Perret, France, to build the 20 Acela train sets that consist of locomotives integrated with passenger cars. “We would love to work with Amtrak on their next generation of trains,” Maryanne Roberts, a Bombardier spokeswoman, said in an e-mail yesterday.
Bullet Trains
The 12-year-old Acela, which operates between Washington and Boston, is by far Amtrak’s fastest and most profitable service. It produced about a fourth of the taxpayer-supported railroad’s $2 billion in ticket revenue for the year ended Sept. 30. About 3.4 million passengers rode Acela trains during that period.
Amtrak’s decision to buy new trains comes as it develops long-range plans to offer service as fast as 220 miles per hour (354 kilometers per hour) in the Northeast, an effort it has said will cost $151 billion. The railroad doubled its share of air-rail travel between New York and Washington, to about 75 percent, between 2000 and 2011 after the Acela was introduced and airport security became more time-consuming after the Sept. 11 terrorist attacks.
In announcing the fleet replacement yesterday, Amtrak said it scrapped a plan to buy 40 Acela passenger cars from Bombardier and lengthen each train set by two cars to increase capacity.
“What we really need to do is replace the Acela with new equipment,” Amtrak Chief Executive Officer Joseph Boardman told a congressional committee in Washington. “I told our folks they need to get this done by the time I’m 70, and I’ll be 64 next year.”
Increased Demand
The Washington-based railroad is already buying new equipment for its slower, long-distance train services, replacing cars made as long ago as the 1940s. In July 2010, it announced a $298.1 million contract for 130 passenger cars with the U.S. unit of CAF, based in Gipuzkoa, Spain. Three months later, it said it would spend $466 million on 70 new electric locomotives made by Siemens, based in Munich.
In a fleet plan issued in March, Amtrak estimated the lifespan of Acela trains to be 20 to 25 years.
“By the time they get to be replaced, they’ll be 18 to 20” years old, Kulm, the Amtrak spokesman, said. “It’s not that the equipment is wearing out; it’s that the demand has increased.”
Amtrak gets rid of passenger rail cars too quickly, said Michael Weinman, an operating officer at Amtrak in the 1970s, said in an e-mail. He is managing director of PTSI Transportation, a consultancy based in Rutherford, New Jersey.
Car Retirement
“Only Amtrak insists on retiring cars prematurely, and has gone through 1,000 or 2,000 fine cars, simply scrapping them and never maintaining them,” Weinman said. “This should be considered fiscal imprudence, as they are the stewards of the taxpayer largess which was used to pay for these vehicles.”
Amtrak has continued to work with Bombardier despite a series of mechanical and design failures in the early years of Acela service that embroiled the companies in litigation. Its start was delayed almost a year and twice, in 2002 and 2005, Amtrak parked the entire Acela fleet to fix cracks in brakes and shock absorbers.
Other defects included the passenger cars being four inches too wide to use tilting mechanisms that allow for higher speeds while rounding corners [ WTF ??? ], and restroom doors that “frequently trapped passengers from exiting the toilet,” author Frank Wilner wrote in “Amtrak Past, Present, Future,” published this year.
Wilner has worked as a spokesman for the United Transportation Union and as chief of staff for the U.S. Surface Transportation Board, which regulates rail rates and mergers.
Old Technology
Amtrak abandoned its plan to buy more Acela passenger cars after its inspector general questioned the “high dollar value and Amtrak’s plan to award a sole-source contract,” according to a Dec. 4 report.
“They were too expensive,” Boardman said.
The cost of replacing the Acela will be higher than the fleet’s original cost because of rail safety regulations imposed since 1996, Tom Simpson, president of the Washington-based Railway Supply Institute, said in an interview.
Those include higher standards for crashworthiness of passenger rail cars and a requirement for technology, known as positive train control, that can automatically stop a train before a collision.
The Acela is built with technology that dates back 15 years so it makes sense for Amtrak to look at newer options, David Gunn, Amtrak’s president from 2002 to 2005, said in an interview.
‘Best Face’
The Acela is heavier than bullet trains in Europe because it was built to stringent U.S. crash standards, he said. That’s necessary in part because U.S. passenger and freight trains share tracks, even on the Amtrak-owned Northeast Corridor.
Because just two rail tunnels lead into New York’s Penn Station, the only way to get more passengers on the popular service is to add rail cars, and the Acela was built to operate at one length, Gunn said. Maintenance facilities in New York, Washington and Boston won’t accommodate longer trains, he said.
“You can create a longer Acela, but it would create a bunch of additional problems,” Gunn said. “If you were going for new equipment, you wouldn’t just dust off the Acela.”
While Acela trains can travel as fast as 150 miles per hour (241 kilometers per hour), the limitations of tracks and tunnels along most of the route dictate that they move more slowly. Seventeen are in operation on weekdays with trains leaving Washington and Boston, and New York in both directions, about hourly.
Replacing the Acela rather than making the trains longer could delay getting additional capacity on the popular route, Ross Capon, president of the National Association of Railroad Passengers, a Washington-based advocacy group, said in an interview.
“My concern is, when all is said and done, the additional capacity will be farther in the future,” Capon said. “I just wonder if it’s trying to put the best face on a bad situation.”
http://www.bloomberg.com/news/2012-12-13/amtrak-plans-to-replace-all-high-speed-acela-trains.html
Other defects included the passenger cars being four inches too wide to use tilting mechanisms that allow for higher speeds while rounding corners [ WTF ??? ],
The width of the passenger cars is critical when trains tilt. If they are too wide, passing trains on a section of curved track could foul each other and cause a derailment.
In practice, it probably isn't actual contact that is likely, but encroaching on the safety margin between tracks.
The loading gauge, or maximum car size, on railroads was dictated by a safe distance between trains on adjacent tracks. That gauge was set before trains were made to tilt, and therefore tilting trains have to be narrower than standard to allow sufficient safety margins.