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Rail News Home Rail Industry Trends

July 2011



Rail News: Rail Industry Trends

In confidence, we trust - by Pat Foran (Context, July 2011)



— by Pat Foran, Editor

In Confidence, We Trust

Through 2011's first 25 weeks, U.S., Canadian and Mexican railroads posted modest year-over-year increases in carload traffic, and better-than-modest intermodal numbers, according to Association of American Railroads data. And for U.S. roads, secular intermodal growth and continued recovery in industrial end-markets should continue to drive traffic growth in the year's second half, according to Robert W. Baird & Co. Inc.'s "Domestic Truck, Intermodal and Rail Trends" report for June. Even more encouraging are the words emanating from more camps within Class I country. They're talking big-time growth and prepping for it. Take CSX Corp.'s "Grow to 65" initiative, the subject of our July 2011 cover story.

The "65" plan — i.e., to reduce the operating ratio to the mid-60s by 2015 — features "global growth" (CSX execs' term) as a primary component; "profitable" growth (hauling more traffic in eastern U.S. markets); and a drive to boost shareholder value (a 12 percent to 14 percent gain in operating income, and an 18 percent to 20 percent increase in earnings per share between 2011 and 2015), as Managing Editor Jeff Stagl reports. During the next five years, CSX vows to commit $1.8 billion to $2 billion in capex annually, or about 18 percent of total revenue. The plan is ambitious, as are the goals, but CSX strategists aren't playing small ball here. With "Grow to 65," they're trying to knock one out of the park, as Chairman, President and CEO Michael Ward suggested to Stagl. And along the way, the Jacksonville, Fla.-based contingent reasons, the railroad will become a better service provider for it.

In another corner of the continent, the brain trust for another Class I also is thinking "growth," as well as what it will take to get better at this thing called "railroading." At Mexico City-based Ferrocarril Mexicano S.A. de C.V. (Ferromex), one aim is to top last year's record $1.1 billion in revenue. Although a disastrous grain crop will make it tough to achieve the goal (grain is far and away the railroad's top revenue-producing commodity), Ferromex number-crunchers still project $1.3 billion in revenue this year. In the meantime, they're pushing to become more service-centric and investing in the railroad accordingly; the 2011 capex budget represents about 24 percent of revenue. Best of all: Ferromex execs aren't wondering if they'll achieve their growth goals. They know they will. As Chief Operations Officer Lorenzo Reyes Retana told me: "Going forward, the challenge is to keep up with the growth that we know is coming."

It's been a while since Class I execs have talked this confidently with us about "growth" and their hoped-for capacities to handle it. "Confidence," I know, isn't exactly quantifiable; it can be an "in the eye of the beholder" thing subject to false positives. But for me, it's a bigger-picture indicator of what's possible — and, at times, what's probable. It's off the data charts, of course, but traffic and other statistical trends don't always tell us what's happening, or where rail is headed. Percentage increases or decreases don't tell us much about heart, soul, vision or commitment.

But enough rambling. In short: I'm encouraged by what we see/hear from CSX and Ferromex. And I expect to see/hear similarly encouraging expressions of confidence from other rail stakeholders in the months ahead.

USDOT Seeks Applications for 'TIGER III'Ggrants

It's official: There will be a third round of TIGER grants. On June 30, the U.S. Department of Transportation (USDOT) announced the availability of $527 million in Transportation Investment Generating Economic Recovery (TIGER) discretionary grants for surface transportation projects. In the FY11 budget President Obama signed in April, $527 million was directed to USDOT for "critical" investments in the nation's transportation infrastructure.

Grants will be awarded on a competitive basis for projects that "will create jobs and have a significant impact on the nation, a region or a metropolitan area," according to a USDOT prepared statement.

Primary criteria include contributions to the long-term economic competitiveness of the nation; improving energy efficiency and reducing greenhouse gas emissions; improving the safety of U.S. transportation facilities; and improving the quality of living and working environments of communities through increased transportation choices/connections.

States, cities, local governments, and other partnerships and groups will have until this fall (USDOT hadn't issued a filing deadline as of press time) to prepare their applications.

The previous two TIGER rounds provided $2.1 billion to 126 transportation projects in all 50 states and the District of Columbia.



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