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Rail News Home Rail Industry

January 2007

Rail News: Rail Industry

Capex 2007: NS, CPR and CN to spend more; CSX and UP about the same


By Jeff Stagl, managing editor

In keeping with the old adage “you have to spend more to get more,” at least three Class Is are increasing their capital spending budgets this year to add capacity and acquire more rolling stock.

For the fifth-straight year, Norfolk Southern Corp. will spend more. NS’ 2007 budget will total $1.34 billion, a 17 percent increase compared with 2006’s $1.15 billion budget. NS will spend $884 million on roadway projects and $401 million on equipment.

Projected roadway spending includes $610 million for rail, crosstie, ballast and bridge programs, including $73 million on capacity expansion projects; $47 million for communications, signal and electrical projects; $41 million for maintenance-of-way equipment; and $16 million for environmental projects and public improvements, such as grade crossing separations and crossing signal upgrades.

The equipment budget includes $321 million to purchase 53 six-axle locomotives and upgrade existing power; buy 1,300 new higher-capacity coal cars and acquire 739 freight cars as leases expire; and rebuild 388 multi-level automobile racks.

Canadian National Railway Co. is budgeting more dollars, too. The Class I will increase 2007 capital spending 4 percent to $1.4 billion, or about 20 percent of annual revenue, compared with the 2006 budget.

CN will spend more than $700 million on maintenance-of-way projects and more than $175 million on capacity projects, such as siding extensions and double-stack clearances on the B.C. North Line to accommodate container traffic from the Prince Rupert Intermodal Terminal, which will open in second-half 2007.

In addition, CN is budgeting more than $300 million for equipment, including the acquisition of 65 locomotives, and additional freight cars and intermodal equipment.

“This [spending] reflects our key priorities — plant quality and safety, building capacity and speed, accelerating growth potential and improving productivity across the board,” said CN President and Chief Executive Officer E. Hunter Harrison in a prepared statement.

Meanwhile, Canadian Pacific Railway projects 2007 capital spending to total between $765 million and $775 million, an increase of about 6 percent compared with 2006’s $730 million budget.

CPR will spend $540 million on rail, tie, ballast and signal system upgrades; siding extensions and construction; buildings and equipment; and land acquisition.

The railroad also is budgeting $130 million for locomotive acquisitions and overhauls, $52 million for information technology upgrades, and $35 million for automotive and intermodal terminal expansions and maintenance.

At CSX Corp., total capital spending increased from about $1 billion in 2005 to $1.4 billion in 2006 primarily because of several capacity projects (see more on CSX). This year, the Class I is budgeting a similar $1.4 billion to complete additional capacity projects and acquire more rolling stock.

Union Pacific Corp., which budgeted $2.8 billion this year, also will spend a comparable amount in 2007. But in 2008, the railroad’s budget will decrease to an estimated $2.7 billion because the Class I has increased spending the past few years to upgrade infrastructure in the face of escalating traffic.

“[An] uptick in capital spending that began in 2004 is directly related to supporting increased demand for our services,” said UP President and CEO Jim Young during a speech at last summer’s UP Historical Society convention.

BNSF Railway Co.’s capex budget information wasn’t available at press time.


For Penta, it’s a wonderful life, post-Katrina
New Orleans supplier rebuilds hurricane-hammered headquarters, surpasses ’06 sales target

By Pat Foran, editor

A year ago, the people at Penta Corp. were still picking up the pieces of their professional and personal lives in Hurricane Katrina’s wake (October 2005, page 16). Now, they’re picking up the sales and product development pace.

“We’ve had a pretty good year,” says Bobby Chandler, director of sales and operations for Penta, which manufactures products that control private communications networks.

Neither “pretty” nor “good” were in Chandler’s vocabulary in late-fall ‘05. A tornado tore off the roof of Penta’s one-story building in Harahan, La., leaving up to a foot of water inside and destroying the carpeting and underlying sheet rock. Penta’s well-protected servers and computers weathered the storm, but mold lined the 20,000-square-foot facility’s walls.

“It was a mess,” Chandler says, adding that the repair estimates were “in the millions” of dollars. “We had a lot of cleaning up to do.”

Penta President Rawley Penick rented a makeshift office in Baton Rouge and the company was back in business in less than a week.

“We took care of ourselves, from a business point of view,” Chandler says, adding that Penta didn’t look to FEMA for help. “We were insured properly, and Rawley backed it up with corporate finance.”

Back in Harahan, employees and family members did most of the clean-up work. Contractors completed the reflooring and reroofing, as well as wall and ceiling repairs. The work wasn’t quite complete when employees returned on Dec. 12, 2005. But Harahan was home.

“Some customers took a wait-and-see attitude — would we be able to be there for them, with everything they saw on TV?” Chandler says. “That’s one reason we fought to get back into this building. Once we did, it gave our customers confidence.”

Working side by side — testing hardware and software, shipping products and reconnecting with colleagues — also did wonders for employee morale.

“It was just a pleasure to have that again,” Chandler says, adding that the rehab was completed by March 2006. “The people here get along a little bit better now.”

They also still miss the employees who opted not to return — to Penta or New Orleans. At least three people lost everything they owned. (“They just couldn’t come back,” Chandler says. “They had had enough damage.”) Before the storm, Penta employed 32. As of late ‘06, 28 worked for the company.

“Some of the people we lost, we haven’t replaced,” Chandler says. “We decided to see how we would do with the people we had.”

They’ve done very, very well. By late fall, Penta had surpassed its ‘06 sales goal. Chandler predicted the year would be one of Penta’s best — and not just in terms of sales. Development and roll-out of a new switching system product that “got set back a bit by the storm” also was well received, Chandler says.

Another reason ‘06 will go down as a banner year: The Gulf Coast experienced what Chandler termed an “almost nonexistent” hurricane season.

“We couldn’t have asked for anything better,” he says.



Haz-mat security on feds’ slate
DHS, USDOT divisions propose rules on rail chemical moves Last month, two federal agencies proposed rules governing hazardous materials security via rail.

The Department of Homeland Security’s Transportation Security Administration (TSA) proposed a rulemaking that would require railroads to establish security protocols for transferring Toxic Inhalation Hazard (TIH) materials-carrying cars in “high threat” urban areas and appoint a rail security coordinator to share information with the federal government.

The TSA would create a tracking system to determine the location of TIH-carrying cars and have the authority to impose fines up to $10,000 per violation per day. The administration is accepting public comments on its proposed rulemaking until Feb. 21.

“A toxic emission from an attack against a chemical facility or hazardous chemicals in transit is among the most serious risks facing America’s highest threat areas,” said Homeland Security Secretary Michael Chertoff in a prepared statement. “We’re going to take a significant percentage of that risk off the table.”

However, railroads — which are required by federal law to carry hazardous materials — don’t own the tank cars used to move chemicals and were the first to develop an industry-wide security plan post 9/11, said Association of American Railroads President and Chief Executive Officer Ed Hamberger, adding that the association hadn’t yet reviewed the DHS’ proposed rulemaking.

Securing rail haz-mat shipments will continue to require “active involvement and close cooperation” among all logistics-chain players, including shippers, private tank-car owners and chemical users, he said.

“We have worked closely with the DHS, TSA, FRA and Congress to take concrete steps to bolster security along our nation’s railroads, including increased security of information systems, increased inspections of cars, and a ... 24/7 operations center that links railroads with the appropriate national intelligence agencies for tracking, information sharing and analysis,” said Hamberger.

Nonetheless, officials at the American Chemistry Council (ACC), which represents shippers’ interests, believe the DHS’ proposed rule is necessary to boost security.

“These rules represent an important step toward formalizing the voluntary agreements already in place [between shippers, carriers and the federal government] that were designed to enhance the security of transporting chemicals by rail,” said ACC President and CEO Jack Gerard. “We look forward to working with the DHS on this issue as the rulemaking process moves forward.”

Meanwhile, the U.S. Department of Transportation’s Federal Railroad Administration (FRA) and Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed a rule that would require railroads to perform a safety and security risk analysis to determine the optimal route for moving hazardous materials, including explosives, radioactive substances and other toxic chemicals.

Railroads would need to compile annual data on route segments, and the total number and type of hazardous materials moved on each route, then use the information to analyze each route’s safety and security risks. In addition, shippers would be required to securely store hazardous materials en route and ensure a railroad informs the final receiver within a specified time period that a haz-mat car has been delivered.

“We want to leave nothing to chance when it comes to the safety and security of the communities that are close to railroad tracks,” said U.S. Transportation Secretary Mary Peters.

The FRA and PHMSA are accepting public comments on the notice of proposed rulemaking until Feb. 20. The agencies developed the rule in conjunction with the TSA. 


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