Railroad earnings Q1 2018: Curious & Curiouser – By Tony Hatch
Who’da thunk it? Despite railroads' well-publicized service issues, their first-quarter earnings matched a strong market’s 20 percent year-over-year (YOY) gain. While the major railroads didn’t hit the broader market’s 80 percent rate of beating consensus estimates, they came so close (4-1-1 so far). And — curiously — it was those with the most famous service issues (CSX) or the most inexplicable ones (Union Pacific and, especially, Norfolk Southern) that were the leaders in “beating the Street” earnings estimates. It’s enough to make one wonder: Is the high (operating and capital) cost of service even worth it? Ah, but that’s a short-term answer — for while we know some of the operating costs from congestion (some $43 million for UP and up to $52 million for NS), only one railway system (Genesee & Wyoming) attempted to assess the cost of equipment slowdown on the volume side ... and no one has attempted to analyze the opportunity (and reputational) cost at a time of true share gain prospects.
Service versus earnings? Let’s set CSX aside for a moment — CSX essentially has declared that its “apology tour” is o-v-e-r, and in fact is supporting its 53 percent YOY earnings increase; and its 500 basis point (bps) reduction in the operating ratio (OR) to Group Best (let that sink in) by far. CSX also was the only major railroad to report an increase (only 4 percent but still, an increase) in velocity. NS, playing the Joker in this movie, showed the second-best earnings jump (31 percent) and OR reduction (130bps), but the worst system velocity: -16 percent, a point worse than the much-lamented CN! Yet, NS still showed a 3 percent volume gain, led by domestic intermodal, the most service-sensitive commodity of all! Overall, with that 20 percent average earnings gain, a flattish OR and 3 percent volume gains came despite a 6 percent decline in network velocity (for simplification reasons, and because the service issues are ones of fluidity, I am using “velocity” as a service proxy — all of the metrics deteriorated).
Why did this happen? That’s the 15 percent to 23 percent question (the numbers being the range in percent of revenues dedicated to capex by the major rails). One carrier essentially said it was due to OR obsession; the recent reduction in non-PTC capex must have played a role (and the benefits of the tax cut seem to be mostly going to more share buybacks). For CSX, it was self-imposed (Precision Scheduled Railroading) and mostly over. For CN, it was extreme growth last year ... which points to the evergreen problem of demand planning. But for the others? Who knows? Intermodal growth and spending on crews/training, power and rolling stock and network “pinch points” all combine to show the way out, but I would be more confident if I knew what led to the problems in the first place.
There is almost too much demand — for the current network conditions. But network conditions are improving. Will it be in time? All of the rails point to improving conditions over the next three quarters. The driver shortage and highway congestion, combined with steady but broad economic growth, have combined to create one of the best share opportunities in years or even decades — even as service sensitive business takes up a higher percentage of rail revenues and that of the overall economy (Amazon has now passed UPS as the leading intermodal shipper on some rails). This is the time for rails to make a stair-step forward in share and reputation, with the side effects of pushing back political and regulatory threats. The downside is not only the biggest lost opportunity in a generation (with technology threats in on the horizon and trade issues unresolved), but increased political/regulatory threats, likely starting with truck size and weight. The race is on.
Siemens and Alstom announce “merger of equals”
It’s official: Siemens AG and Alstom SA have signed a Memorandum of Understanding “granting exclusivity to combine mobility businesses in a merger of equals.” The combination is largely viewed as a move to remain competitive in a global market in which Chinese rolling stock manufacturers have gained considerable market share. Based on how the merged company, “Siemens Alstom,” will be structured and named, Siemens is the lead company, with 6 of 11 board members.
The Wall Street Journal broke the news that the two companies were in merger talks on Sept. 23. At the time, Siemens had been in talks with Canada’s Bombardier, Inc. about merging their railway businesses. Siemens did not comment on whether its discussions with Alstom meant talks with Bombardier had stalled. Whether a deal with Bombardier is still in play is not known. Bombardier Transportation announced on Sept. 25 that the company’s Management and General Works Council signed a general company agreement formalizing the transformation strategy for its German sites that will result in 2,200 job losses.
Following is the official announcement from Siemens and Alstom, released Sept. 26 at 3:55 EDT:
Today, Siemens and Alstom have signed a Memorandum of Understanding to combine Siemens’ mobility business including its rail traction drives business, with Alstom. The transaction brings together two innovative players of the railway market with unique customer value and operational potential. The two businesses are largely complementary in terms of activities and geographies. Siemens will receive newly issued shares in the combined company representing 50% of Alstom’s share capital on a fully diluted basis and warrants allowing it to acquire Alstom shares representing two percentage points of its share capital.
“This Franco-German merger of equals sends a strong signal in many ways. We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term. This will give our customers around the world a more innovative and more competitive portfolio,” said Joe Kaeser, President and CEO of Siemens AG. “The global marketplace has changed significantly over the past few years. A dominant player in Asia has changed global market dynamics, and digitalization will impact the future of mobility. Together, we can offer more choices and will be driving this transformation for our customers, employees and shareholders in a responsible and sustainable way,” Kaeser added.
“Today is a key moment in Alstom’s history, confirming its position as the platform for the rail sector consolidation. Mobility is at the heart of today’s world challenges. Future modes of transportation are bound to be clean and competitive. Thanks to its global reach across all continents, its scale, its technological know-how and its unique positioning on digital transportation, the combination of Alstom and Siemens Mobility will bring to its customers and ultimately to all citizens smarter and more efficient systems to meet mobility challenges of cities and countries. By combining Siemens Mobility’s experienced teams, complementary geographies and innovative expertise with ours, the new entity will create value for customers, employees and shareholders,” said Henri Poupart-Lafarge, Chairman and Chief Executive Officer of Alstom SA. “I am particularly proud to lead the creation of such a group that will undoubtedly shape the future of mobility.”
The new entity will benefit from an order backlog of €61.2 billion, revenue of €15.3 billion, an adjusted EBIT of €1.2 billion and an adjusted EBIT-margin of 8.0%, based on information extracted from the last annual financial statements of Alstom and Siemens. In a combined setup, Siemens and Alstom expect to generate annual synergies of €470 million latest in year four post-closing and targets net-cash at closing between €0.5 - €1.0 billion. Global headquarters as well as the management team for rolling stock will be located in Paris area and the combined entity will remain listed in France. Headquarters for the Mobility Solutions business will be located in Berlin, Germany. In total, the new entity will have 62,300 employees in over 60 countries.
As part of the combination, Alstom existing shareholders at the close of the day preceding the closing date, will receive two special dividends: a control premium of €4.00 per share (in total = €0.9 billion) to be paid shortly after closing of the transaction and an extraordinary dividend of up to €4.00 per share (in total = €0.9 billion) to be paid out of the proceeds of Alstom’s put options for the General Electric joint ventures of approximately €2.5 billion subject to the cash position of Alstom.
The businesses of the two companies are largely complementary. The combined entity will offer a significantly increased range of diversified product and solution offerings to meet multi-facetted, customer-specific needs, from cost-efficient mass-market platforms to high-end technologies. The global footprint enables the merged company to access growth markets in Middle East and Africa, India, and Middle and South America where Alstom is present, and China, the United States and Russia, where Siemens is present. Customers will significantly benefit from a well-balanced larger geographic footprint, a comprehensive portfolio offering and significant investment into digital services. The combination of know-how and innovation power of both companies will drive crucial innovations, cost efficiency and faster response, which will allow the combined entity to better address customer needs.
The Board of Directors of the combined group will consist of 11 members and will be comprised of 6 directors designated by Siemens, one of whom being the Chairman; 4 independent directors; and the CEO. In order to ensure management continuity, Henri Poupart-Lafarge will continue to lead the company as CEO and will be a board member. Jochen Eickholt, CEO of Siemens Mobility, shall assume an important responsibility in the merged entity. The corporate name of the combined group will be Siemens Alstom.
The envisaged transaction is unanimously supported by Alstom’s board (further to a review process of the preparation of the transaction by the Audit Committee acting as an ad hoc committee) and Siemens’s supervisory board. Bouygues fully supports the transaction and will vote in favor of the transaction at Alstom’s board of directors meeting and at the extraordinary general meeting deciding on the transaction to be held before July 31, 2018, in line with Alstom board of director decision. The French State also supports the transaction based on undertakings by Siemens, including a standstill at 50.5% of Alstom’s share capital for four years after closing and certain governance and organizational and employment protections. The French State confirms that the loan of Alstom shares from Bouygues SA will be terminated in accordance with its terms no later than 17 October 2017 and that it will not exercise the options granted by Bouygues. Bouygues has committed to keep its shares until the earlier of the extraordinary general meeting deciding on the transaction and July 31, 2018.
In France, Alstom and Siemens will initiate Works Councils’ information and consultation procedure according to French law prior to the signing of the transaction documents. If Alstom were not to pursue the transaction, it would have to pay a €140 million break fee. The transaction will take the form of a contribution in kind of the Siemens Mobility business including its rail traction drives business to Alstom for newly issued shares of Alstom and will be subject to Alstom’s shareholders’ approval, including for purposes of cancelling the double voting rights, anticipated to be held in the second quarter of 2018. The transaction is also subject to clearance from relevant regulatory authorities, including foreign investment clearance in France and anti-trust authorities as well as the confirmation by the French capital market authority (AMF) that no mandatory takeover offer has to be launched by Siemens following completion of the contribution. Closing is expected at the end of calendar year 2018. The transaction was prepared under the review of an ad-hoc committee.
Seneca Group LLC Selected to Perform USTDA Definitional Mission to Mexico for Surface Transportation Projects
Washington, DC – The Seneca Group LLC has been selected by the U.S. Trade and Development Agency to perform a Definitional Mission to Mexico covering several surface transportation modes. USTDA is an independent federal agency that provides grants to public and private project sponsors in middle and lower income countries to carry out feasibility study, technical assistance, or pilot projects. USTDA grant-funded projects should support economic and development goals of the host country and clearly create potential for future exports of U.S.-origin goods and services. Typical USTDA grants are several hundred thousand dollars; grant awards over $1M have been made.
Richard Sherman of Seneca will be traveling to Mexico several times as a part of this Mission, which will be carried out through September. He will be working with a range of potential sponsors in Mexico, including federal and local agencies, to develop project concepts in four areas: railroad at-grade crossing safety measures, municipal bus transit information systems, maritime port information technology and cybersecurity, and technologies for monitoring highways and analyzing and identifying causes of road accidents.
Mr. Sherman (and USTDA) welcome inquiries from U.S. suppliers of goods and services in the identified sectors. Seneca is particularly seeking input from providers of systems, technologies, materials and services related to railroad at-grade crossings and port cybersecurity and operations. He will be pleased to discuss his Definitional Mission activities with interested suppliers, and can arrange to meet with their employees or representatives when he is in Mexico.
CSX has a new CEO.
The Jacksonville, Fla.-based railroad in a release said it has agreed to a deal with hedge fund Mantle Ridge LP to name E. Hunter Harrison as chief executive, effective imediately, and to nominate people for five seats on its board.
The agreement comes after a report March 3 that the sides were nearing a deal but still negotiating terms.
Harrison, 72, a past Railway Age Railroader of the Year who presided over a radical revamping of Canadian Pacific, will get a four-year contract. Harrison, Mantle Ridge founder Paul Hilal, and three others were appointed to the CSX board. The hedge fund had earlier sought six seats.
Investors flocked to CSX shares when news of Harrison’s interest first broke, adding $10 billion in equity to CSX in a matter of weeks.
But some industry observers questioned whether CSX, while far from a basket case, was really in need of an intensive makeover.
On Feb. 21, CSX announced that Chairman and Chief Executive Officer Michael Ward and President Clarence Gooden will retire, effective May 31. The company at the same time announced that its was eliminating 1,000 management positions. In addition, 800 CSX employees have accepted voluntary buyout/retirement packages. Wityh the hiring of Harrison, Ward will become a consultant to the railroad, also effective immediately.
CSX initially balked at the Mantle Ridge proposal, which called for a total compensation package for Harrison of more than $300 million, including $84 million to reimburse Mantle Ridge for buying out Harrison's severance with Canadian Pacific, and a stock option equal to 1% of CSX common stock, at the time valued at $159.5 million.
In addition to Harrison and Hilal, CSX said that Dennis Reilley, Linda Reifler and John Zillmer were named to the board of directors.It added three incumbent CSX directors intend to complete their service at or before the conclusion of the 2017 annual meeting, bringing the board to 13 members. CSX’s current Presiding Director, Edward J. Kelly III, will become Chairman of the Board and Hilal will become Vice Chairman.
Most Class Is Cut Capital Spending for 2017
By Jeff Stagl, Managing Editor, Progressive Railroading
The seven Class Is have announced their capital spending programs for 2017 and the year-over-year scorecard shows five plan to spend less, one has budgeted more and one has allocated the same amount.
Canadian Pacific is allocating 1.25 billion Canadian dollars for its capital expenditures (capex), up 6 percent compared with its 2016 budget. About 70 percent of the spending targets basic replacement and maintenance work, with the balance budgeted for initiatives designed to boost productivity and service reliability.
Because the Class I has more than 400 locomotives stored, it won’t need to acquire new units for the next several years, CP officials believe. But some 2017 capex funds are earmarked to modernize the locomotive fleet and improve its reliability.
At Norfolk Southern Corp., the 2017 capital spending plan of $1.9 billion matches last year’s capex. The funds will help the Class I maintain the safety of its network, enhance service, improve operational efficiency and support growth opportunities, NS officials said in a press release.
The 2017 budget includes $930 million for roadway maintenance, $290 million for locomotives, $240 million for ongoing positive train control (PTC) work, $170 million for facilities and terminals, $110 million for technology and similar initiatives, $80 million for infrastructure, and $50 million for freight cars.
Among the five other Class Is that are budgeting less for capex this year, Union Pacific Railroad's $3.1 billion program is down 11 percent compared with 2016 capex of $3.5 billion. More than half of the 2017 budget targets work to harden infrastructure, replace older assets, and improve the network’s safety and resiliency. In addition, $300 million is allocated for ongoing PTC implementation.
UP previously had planned to acquire 100 locomotives in 2017 as part of a prior purchase commitment, but this year's capital plan now includes about 60 locomotives, with delivery of the remainder delayed until 2018.
BNSF Railway Co.'s 2017 capex of $3.4 billion has dropped nearly 13 percent from 2016's $3.9 billion, in part because the Class I has invested a lot of capital in network improvements and growth during the past several years. This year’s budget includes $2.4 billion to replace and maintain the core network and related assets; $400 million for expansion projects; $400 million for locomotives, freight cars and other equipment; and $100 million for PTC.
At CSX, capex has declined to $2.2 billion from 2016's $2.7 billion, which included $307 million in payments for locomotives that were purchased under seller financing and delivered in 2015. More than half of the funds will be used to maintain infrastructure to help ensure a safe and reliable network. Equipment investments are down significantly from the prior year due to the completion of the locomotive purchase commitment.
The 2017 budget also includes about $270 million for ongoing PTC work. The Class I has spent about $1.8 billion on PTC through 2016 and now pegs the total cost of implementation at about $2.4 billion.
For CN, CA$400 million is allocated for PTC work in 2017 as part of capex totaling CA$2.5 billion. In 2016, the Class I's capital spending was set at CA$2.9 billion. The 2017 budget includes CA$1.6 billion for basic track infrastructure work.
The remaining Class I — Kansas City Southern — has reduced capex by about $30 million year over year and expects to spend $550 million to $560 million in 2017. General and maintenance spending is down because of infrastructure improvements made over the past several years, including the completion of the Monterrey-to-Nuevo Laredo track upgrade in Mexico last year.
Although no money is set aside for locomotive purchases — KCS has no plans to acquire any in 2017 — there are dollars allocated for PTC work. But PTC spending is expected to drop substantially starting in 2018.
KCS plans to keep enhancing capacity across its network in 2017, led by a continued investment in Sanchez yard in Nuevo Laredo, Mexico, and additional mainline siding capacity projects. The yard expansion is expected to provide additional capacity and improved mechanical facilities in 2017. In addition, work at the Sasol support yard facility in Mossville, La., will continue and is scheduled for completion in late 2017.
Outlook 2017: AAR's Hamberger weighs in on regulatory challenges in the year ahead
Congressman Bill Shuster of Pennsylvania, the Chairman of the House Transportation and Infrastructure Committee, once said, "Transportation is the lifeblood of the American economy and our way of life."
I couldn't agree more.
Privately owned freight railroads, which invested $30 billion in 2015 alone, are an essential part of an integrated transportation network that together moves 54 tons of freight per year for every American.
In fact, the freight-rail industry serves nearly every industrial sector. From the steel products used to construct everything from automobiles to skyscrapers to the 8,000 plus parts used to assemble wind turbines, our industrial nation would not be possible without the support of a rail network built to safely and efficiently carry the load.
"Forces are undermining freight rail's ability to generate revenues and continue record private investments," Hamberger says.
Freight railroads provide firm footing for businesses large and small. And that is made possible because smart and sensible regulations in play today allow the rail industry to earn the revenues needed to invest in infrastructure and equipment.
Yet just as a new administration and Congress arrive in Washington, forces are undermining freight rail's ability to generate revenues and continue record private investments.
The U.S. economy has and continues to undergo big market shifts, and this has triggered massive changes to the industry. The rail industry's single most important commodity, coal, is at its lowest level since 1980. Not only will the lost revenues be extremely difficult to replace, but the loss of this once-stable, once-profitable traffic means our rail network has become inherently less stable. Rail traffic levels for a number of other commodities and intermodal are down because of weakness in the broader industrial economy, as well.
At the same time, a set of proposed rules being considered by the Surface Transportation Board (STB) would undercut an efficient freight-rail system while blindly ignoring the dramatic consequences of these substantial market changes. One particular rule would force carriers to turn their traffic over to competitor railroads, which would significantly compromise network efficiency, and in turn reduce investments.
Railroads have long proved to be nimble, but the success of the industry cannot continue unless all government agencies strive for transparent, empirically driven rules that consider the cumulative effects of regulation. We are heartened that, like the freight-rail industry, many want the STB to resist any further rulemaking until a full five-member Board is seated.
In addition to ensuring regulatory reform that unleashes freight rail's full potential, the industry welcomes the opportunity to work with the new administration on five areas to help advance sound policies that extend well beyond railroads:
1) Tax Reform
We need a simpler and fairer tax code, reducing the corporate rate to a globally-competitive level to broaden the tax base, enhance U.S. economic development, promote growth and reduce debt.
2) Regulatory Improvement
Regulations should be supported by cost-benefit analysis and geared toward today's innovation economy. Too often government makes rules in a vacuum and without an eye toward the future. Policies can become quickly outdated when reacting to the issue of the day, which can sometimes compel overreaction. We must make the process more transparent and collaborative.
3) Infrastructure Investment
Elected officials must halt the practice of transferring money from the general fund to the Highway Trust Fund. Policies should require highway users to pay for their fair use of infrastructure and put in place sustainable and realistic plans that will improve transportation and create jobs. The gas tax can no longer sustain the Trust Fund and we should transition to a truly equitable system such as a weight distance fee.
4) Comprehensive Energy Plan
America needs a comprehensive federal energy plan that enables local solutions that keep costs down and job gains up. We must embrace traditional resources such as coal, ethanol, crude and natural gas, as well as alternative sources like wind and solar.
5) Fair and Open Trade
Trade today supports 40 million quality jobs and railroading spans the North American continent. We must ensure that current and future agreements are fair and put American workers first, but we must not turn our backs on the free trade agreements that have brought prosperity to American workers.
With a new administration in place, lawmakers have an opportunity to ensure that policies are rooted in data and recognize the market realities of today, not the past.
Hamberger is President and CEO of the Association of American Railroads in Washington, D.C.
President-elect Donald Trump has named Elaine Chao as his choice for U.S. Transportation Secretary. Chao is a former Deputy Transportation Secretary and a former Labor Secretary, and wife of Senate Majority Leader Mitch McConnell (R-Ky.) since 1993.
Chao served as Secretary of Labor under President George W. Bush from 2001 through 2009, the longest tenure in the position since World War II and the only Bush Cabinet member to serve all eight years of his Presidency. She was also the first Asian-American woman to serve in a Cabinet position. According to The New York Times, “While enjoying the praise and admiration of her colleagues, she also invited scorn from organized labor, whose leaders accused her of being too cozy with business interests.”
Chao also served as Deputy Secretary of Transportation under President George H.W. Bush from 1989 to 1991. In 1986, she became Deputy Administrator of the Maritime Administration. From 1988 to 1989, she served as chairwoman of the Federal Maritime Commission.
After she left the Bush Administration in 2009, Chao “remained quietly active in politics,” said The Times. “She has always been a close and, by many accounts, savvy adviser to her husband, immersing herself in even the most minute details of his campaigns, like who had donated and who had not.” Chao is a Distinguished Fellow at the conservative Heritage Foundation, whose retired economist Ron Utt is a member of Trump’s transition team, advising him on transportation. Railway Age Capitol Hill Contributing Editor Frank N. Wilner describes Utt as a person “among whose favorite piñatas was Amtrak public subsidies.”
At DOT, Chao would have a principal role in helping Trump get an infrastructure spending bill passed through Congress and start government-backed projects, “a role likely to be complicated by her relationship with McConnell, who will also be a critical player in any infrastructure bill negotiations,” according to a CNN report. She wouldn’t be the first Transportation Secretary with such a conflict. Elizabeth Dole served as DOT Secretary in the Reagan Administration from 1983 to 1987 while married to Sen. Bob Dole, Majority Leader from 1985-1987.
“The nation’s rail industry welcomes the President-elect’s selection and looks forward to working with Ms. Chao on the many critical surface transportation issues key to U.S. economic growth and prosperity,” said Association of American Railroads President and CEO Ed Hamberger. “We know based on her prior tenure at the Department of Transportation that she has a full appreciation of the vital role freight and passenger rail play in America. On behalf of the AAR and member railroads, we congratulate Ms. Chao.”
Chao was born in Taiwan, and moved to the U.S. as a child. She is the eldest of six daughters. Her parents are Ruth Mulan Chu Chao, a historian, and Dr. James S.C. Chao, who began his career as a merchant mariner and later founded Foremost Shipping, a successful shipping company in New York.
In January 2015, Chao resigned from the board of Bloomberg Philanthropies, which she had joined in 2015, reportedly because of its plans to significantly increase support for the Sierra Club’s “Beyond Coal” initiative, a campaign to promote renewable energy. Beyond Coal has received at least $80 million from Bloomberg Philanthropies. According to the Capitol Hill newsletter Politico, early in the George W. Bush Administration, an energy task force convened by Vice President Dick Cheney advocated the construction of 200 new U.S. coal plants. The Beyond Coal campaign prevented 170 of the 200 plants from being built.
JAXPORT’s $30 million Intermodal Container Transfer Facility (ICTF) has officially opened for business.
The ICTF facilitates on-dock rail service to JAXPORT’s North Jacksonville seaport terminals: the Blount Island Marine Terminal and the TraPac Container Terminal at Dames Point. The direct transfer of containers between vessels and trains speeds up the shipment process, and representatives say shippers will now have access to improved options and efficiencies.
The facility was constructed with $20 million in funding from the state of Florida and $10 million in federal Transportation Investment Generating Economic Recovery grant funds.
The rail that connects to CSX Transportation’s main line allows for two unit trains per day. Ceres Rail Services manages the terminal’s daily operations.
The ICTF is one of many major capital projects at JAXPORT intended to serve global cargo customers, increase efficiency and contribute to Northeast Florida’s economy.
Railroad reregulation is not what Congress intended
On the heels of the first presidential debate, Americans remain critically focused on how best to stimulate the U.S. economy. Both Secretary Clinton and Donald Trump continue to promote massive infrastructure investments, even if funding mechanisms remain vague.
“Broken roads, unsafe bridges, antiquated water systems, power grids, flood controls, ports and aviation facilities – all threaten America’s economic health and quality of life,” writes political commentator Ron Faucheux. “Everyone agrees this is a problem. But, where will the trillions of dollars come from to solve it?”
Thankfully, one section of our nation’s infrastructure – privately owned freight railroads – do not face such difficult decisions. Buoyed by smart public policies linked to partial deregulation in 1980 that put railroads on equal footing with the rest of the private sector, freight railroads invest an average of $26 billion annually in recent years. According to Towson University’s Regional Economic Studies Institute, these investments significantly impact the U.S. economy, supporting 1.5 million jobs across the economy, generating $33 billion in taxes and producing $274 billion in economic activity in 2014 alone.
So it is troubling to see the Surface Transportation Board (STB) move forward on reregulatory efforts through several proposed rules, including so called “reciprocal switching” and commodity reregulation. Given past precedent and the potential for widespread disruption in the rail network, regulators should abstain from such efforts. Congress, which just reauthorized the STB for the first time since its creation, must exert its will as well, and ensure the STB is operating as Congress intended.
Reciprocal switching, or more accurately, forced access, would upend longstanding precedent. It would force railroads to switch traffic to competitors without any suggestion that the incumbent railroad failed to offer competitive services, or has otherwise engaged in any sort of unreasonable behavior.
A rash of new switches could possibly advantage a few, but in the aggregate it would strain a 140,000 mile network and degrade services for the majority of customers. “Forced access would slow rail shipments across the network, injecting increased complexities and inefficiencies into the network,” says transportation expert Anthony Hatch.
Perhaps more pertinent, this regulatory effort could greatly cut into capital spending by the railroads. Past analysis by the Association of American Railroads found that a similar proposal could affect an estimated 7.5 million car loads of traffic, placing nearly $8 billion in revenues at risk.
Reduced revenues mean reduced money for investment in the rail network and reduced demand for businesses like that feed the rail network, such as suppliers and technology companies. These are generally high-paying and high-skilled manufacturing jobs in our communities. Continued investments are critical not only for maintaining a safe and efficient rail network, but for job creation.
The government dictating what a private business can do with its property and operations is antithetical to the free market and should be soundly rejected by a Congress that has never advised the STB to embark on this path.
A separate commodity regulation would subject five commodity groups to STB economic regulation for the first time in two decades. This would come despite the fact that railroads face strong competition for the service from trucks and without any evidence that the transportation markets are different today than in past decades. Most alarmingly, these commodity groups did not petition for a rule change.
The railroad supply community plays an integral role in maintaining the world’s safest, most efficient and highly competitive freight railroad system. Along with the railroads, suppliers are concerned that the STB has interpreted its reauthorization as a signal that Congress wanted the independent agency to regulate more.
A transparent and efficient STB is crucial in maintaining a proven regulatory structure and America’s impressive transportation network. But the STB’s recent trend of imposing regulations first, and discovering the consequences later, is no path forward.
The STB should stop this wayward path now, before the U.S. economy pays the price.
Eleven projects across six states and the District of Columbia will receive grants from the Federal Railroad Administration (FRA) to assist in the implementation of Positive Train Control (PTC).
FRA awarded $25 million to the projects, as appropriated by Congress for Fiscal Year 2016, but received 30 eligible applications requesting $90.6 million, nearly four times the appropriated amount.
FRA notes that many of the awards will help railroads achieve interoperability among the different PTC systems that railroads are deploying.
"Every dollar we invest in implementing Positive Train Control as quickly as possible is money well spent because ultimately it means fewer accidents and fewer fatalities," said FRA Administrator Sarah E. Feinberg. "Today's grants inch us closer to a safer rail network with PTC."
In 2008, Congress mandated PTC implementation on the mainlines of Class 1 railroads and entities providing regularly scheduled intercity or commuter rail passenger transportation over which any poisonous or toxic by inhalation hazardous materials are transported or over which intercity or commuter rail passenger transportation is regularly provided. Last October, Congress extended the original PTC implementation deadline from Dec. 31, 2015 to at least Dec. 31, 2018.
FRA awarded grants in the approximate amounts below to the following entities:
Metrolink – California – $2.4 million to develop, test, and deploy a full-feature service desk management suite of software applications that will allow each railroad to create, track, manage and share PTC system and asset trouble tickets internally within the organization and with interoperable railroad partners.
Sonoma-Marin Area Rail Transit (SMART) District – Calif.–$3 million to install PTC and integrated new grade crossing warning systems on the 2.1-mile passenger rail extension between downtown San Rafael and Larkspur, Calif.
Caltrain – California –$2.88 million to conduct two test procedures for the field integration and functional testing of Caltrain's Interoperable-Incremental Train Control System (I-ITCS) that will allow Interoperable Electronic Train Management System (I-ETMS) equipped tenants to seamlessly operate on Caltrain's tracks.
Amtrak –District of Columbia –$2.64 million to put in place authentication technology to fully secure the PTC wireless communication and data transmittal between a train's point of origin and targeted receivers on the Northeast Corridor.
American Short Line and Regional Railroad Association (ASLRRA) – District of Columbia –$2.5 million to create a Crew Initialization Back Office Server System (CI-BOS) hosted service to assist small railroads tasked with implementing PTC, particularly systems that interoperate with Class 1 railroads.
Providence and Worcester Railroad Company (P&W) – Massachusetts –$965,832 to acquire and install eight Advanced Civil Speed Enforcement System (ACSES) PTC onboard units for P&W's locomotives utilized on Amtrak's Northeast Corridor.
Twin Cities & Western Railroad Company – Minnesota –$1.1 million to implement and test PTC systems, including a contract with a back office service and interoperability message software provider, initial activation and licensing fees of hosted back office systems, and two PTC equipped locomotives.
Missouri Department of Transportation – Missouri –$3 million to jointly partner with the Terminal Railroad Association of St. Louis (TRRA) for an Interoperable Electronic Train Management System (I-ETMS) implementation project on the Missouri side of TRRA's territory.
North Carolina Department of Transportation – North Carolina –$771,070 to equip five converted Cab Control Units with Interoperable Electronic Train Management System (I-ETMS) and conduct testing on the Piedmont corridor or within any adjacent rail territory of NCDOT's rail partners (Norfolk Southern Corporation and Amtrak).
Capital Metropolitan Transportation Authority – Texas –$3 million to implement Enhanced Automatic Train Control (E-ATC) that will overlay the existing wayside signal system and enhance onboard, wayside, and control office equipment and software to create a functional PTC system in the Austin area.
Fort Worth & Western Railroad – Texas –$2.56 million to install PTC on-board equipment and 220 MHz radios on nine locomotives in a phased installation, develop a crew initialization back office server, and train necessary personnel to operate and maintain the PTC system.
ASLRRA will use its $2.5-million grant to support the development and implementation of a back-office product that delivers PTC and is available to all shortline and regional railroads.
Linda Bauer Darr, president, ASLRRA, explained the challenges faced by smaller railroads:
"The implementation of PTC is one of the most complex and challenging projects to be mandated for the U.S. Rail System, particularly for our 460 shortline members, who often do not have the technology staff and expertise, but have a complicated roll to play, integrating with multiple Class I systems," said Darr. "This grant will enable us to rapidly move forward with providing an affordable solution for small railroads."
The National Transportation Safety Board (NTSB) unveiled its 2017-2018 Most Wanted List, implementing a new two-year cycle as opposed to the annual one previously used.
NTSB Chairman Christopher Hart explained the two-year cycle will help the board focus its "advocacy efforts on sustained progress."
"We will take stock at the one-year mark, note what progress has been made and decide what additional improvements are needed," said Chairman Hart.
Chairman Hart noted that 2017 will mark NTSB's 50th anniversary and while much progress has been made in transportation safety, he cited increased highway fatalities as one statistic that served as a reminder that "safety is not a destination, but a continuing journey, and our efforts to improve safety must never stop."
This installment of the Most Wanted List includes 10 action items NTSB will focus on in 2017 and 2018:
Reduce Fatigue-Related Accidents
Prevent Loss of Control in Flight in General Aviation
Improve Rail Transit Safety Oversight
End Alcohol and Other Drug Impairment in Transportation
Increase Implementation of Collision Avoidance Technologies
Expand Recorder Use to Enhance Safety
Require Medical Fitness
Strengthen Occupant Protection
Ensure the Safe Shipment of Hazardous Materials
With the exception of "Prevent Loss of Control in Flight in General Aviation," the rail industry is concerned in all other NTSB action items. The list includes a call to implement Positive Train Control, ensure the safe movement of hazardous materials via rail, increase monitoring and oversight of rail transit safety, eliminate operator distractions, expand the use of data recorders and strengthen occupant protection.
Additionally, a trio of action items focuses on worker health including an item that calls for policies to ensure personnel are medically fit for duty, making sure personnel receive adequate rest to reduce fatigue-related accidents and an end to alcohol and other drug impairments in transportation.
The new list is substantially similar to the 2016 list, but where NTSB had separated collision avoidance technology implementation in highway and rail applications as two items in 2015, they are combined into a single item in the new list. "Ensure the Safe Shipment of Hazardous Materials," was added to the list this year.