Archive for June 2015

Uber as the urban transit market new competition

Adapted from a Bloomberg, Jun 23, 2015 report.

there arevInbelive huge economic implications as the UBER urban transportation model.  That model threatens competition from Limos to Taxis and even buses.

The Bloomberg report talks about the politics of urban transportation in Portland Oregon. But beyond that lies huge implications for urban transit in general.

Uber’s made a name for itself by barging into cities and forcing politicians to respond. It started in 2010, providing swanky rides at the tap of “an app”. A customer pushed a button on their smart phone, and a car showed up

The company has since expanded to take on lower-cost taxi service in more than 300 cities across six continents. The company value of Uber is now an astonishing ~ $40 billion.

uber is an economic ride sharing model with custom features. It is a new class of urban transit provider called “transportation network companies.”

Almost no regulations exist to oversee this exact new transit service model. The state of Colorado passed the first USA “ride-sharing legislation” about a year ago. Bloomberg reports that since then, about 50 U.S. jurisdictions have adopted ordinances recognizing Uber. The regulations try to secure ground rules for these new “transportation network companies.”

Each government, whether municipal or state, goes through its own process to craft rules. The officials generally codify the insurance coverage, background-check policies, and inspection protocols. But often, Uber already has in place rules that reflect a vast international commerce model that they wrote well before local jurisdictions could react.

To protect its membership, Uber built one of the largest and most successful lobbying forces in the USA. “With a presence in almost every US statehouse, Uber has 250 lobbyists and 29 lobbying firms registered in capitols around the nation That is “at least a third more than Wal-Mart Stores” have. That doesn’t count municipal lobbyists. City officials in Portland Oregon “say they’d never seen anything on this scale.”

The City of Portland’s has a very progressive transit services mixture. “People can bike in protected lanes, ride the bus or MAX trains (one of the nation’s busiest light-rail systems), or tool around in Smart cars from car-sharing company Car2Go.”

But there are holes, especially for residents living far from downtown, the disabled, and late-night partyers. The city’s taxis have been known to fall short of demand. Portland has fewer cabs per resident than most comparable cities, and drivers take home just $6.22 an hour, according to a 2012 survey.

The taxi companies didn’t hold traditional political power as major campaign donors or lobbying forces, but their furor succeeded in resisting, or at least delaying, change. It took a nasty four-year battle for a group of largely immigrant drivers to get permits in 2012 to start Union Cab, a driver-owned cooperative.”

“Uber first targeted Portland in 2013, when it wanted to introduce its luxury car service, UberBlack. It couldn’t legally operate because a city ordinance required black-car trips to be reserved an hour in advance, the legacy of a 2009 agreement that carved out separate markets for hire cars and taxis.”

The Uber model threatens some part of that Portland structure. Even a segment of the subsidized bus riders can be drawn to an Uber service segment with a much more reliable Phone App call service.

Bloomberg reports the following as some of the market segment descriptions of Uber services. Uber’s policy group has its own team of data scientists. They show: — in San Diego, 30 percent of uberX rides start or end near a transit station. — in Chicago found wait times were consistent across the city, regardless of area income. — Uber drivers make livable wages, as in more than $16 an hour.

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Uber is clearly a new competitive force in the urban markets. How will this all “shake out”?

To read the entire article, go to http://bloom.bg/1FAI5RA Sent from my iPad

Los Angeles Metrolink Goes “live” With PTC Train Safety

Los Angeles administrators early on embraced the mission to convert to higher safety PTC systems and now in mid year 2015 have gone “live”.

Meanwhile, many other US commuter railroads complain that they might need more than a thousands extra days to make their legislatively mandated train safety upgrade fully operational ( by this year’s) end.

See more discussion at: http://mobile.metrolinktrains.com/index/newsDetail/id/983

LOS ANGELES Metrolink has launched its Positive Train Control (PTC) in Revenue Service Demonstration (RSD) across the entire 341-mile network the agency owns.  They did so earlier this month.

Metrolink thus becomes the first commuter railroad in the USA to have PTC running during regular service on all of its hosted lines and remains on track to become the nation’s first passenger rail system to have a fully operational, interoperable, and certified PTC system in place.

Metrolink began operating PTC RSD on the last of Metrolink’s hosted rail system on June 14. RSD simply means trains in revenue service or in Metrolinks case, with passengers on board.

The Rail Safety Improvement Act of 2008 (RSIA) set a federally mandated deadline of December 31, 2015 for PTC implementation. PTC involves a Global Positioning System (GPS)-based technology capable of preventing train-to-train collisions, over-speed derailments, unauthorized incursion into work zones and train movement through switches left in the wrong position.

The NTSB has consistently included PTC in its lists of most wanted safety technologies for more than 40 years.

Across its 512 route-mile network, Metrolink also operates on track owned and dispatched by the Union Pacific Railroad, BNSF Railway and the North County Transit District (NCTD) in San Diego County.

Metrolink provides nearly one million passenger boardings a month throughout its system.

The FRA has authorized Metrolink to operate PTC RSD using Wabtec’s ™ Interoperable Electronic Train Management System (I-ETMS)

Parsons Transportation Group, Inc., a business unit of Parsons Corporation, is the primary contractor managing Metrolink’s ™ PTC program.

The current cost for developing, installing and deploying PTC on the Metrolink system is estimated at about $216 million. Approximately 85 percent of the funds come from state and local dollars.

Among the metrics for the Metrolink PTC program are these:

the design and installation and then testing of a full deployment with a back-office server (BOS) system and new PTC-compatible computer-aided dispatch (CAD) system.

— installed on-board PTC equipment on 57 cab cars and 52 locomotives

— Out on track, they installed signal communication devices at 168 wayside locations, and implementing a six-county specialized communication network to link the wayside signals, trains and a new central train dispatch center.

The Metrolink Dispatch and Operations Center (DOC) is located in Pomona California.

GE Railcar-Leasing Business Lures Suitor – WSJ

Sumitomo Mitsui Financial Group Inc. is interested in buying General Electric Co.’s U.S. railcar-leasing business, people familiar with the matter say. This from the Wall Street Journal Asia edition.

It is cited as the latest example of Japanese financial institutions looking for significant purchases in the U.S.

China companies could also be a buyer.

GE Capital Rail Services could be valued at roughly $4 billion some report.

GE Capital Rail Services leases and manages boxcars, tank wagons and other railroad freight equipment in North America.

SMFG—Japan’s second-largest lender by market value, after Mitsubishi UFJ Financial Group Inc.—has been expanding in leasing. It bought Chicago-based railroad-leasing firm Flagship Rail Services from Perella Weinberg Partners LP for roughly $500 million in 2013. The latter is now called SMBC Rail Services.

People familiar with SMFG’s thinking said the bank considers rail leasing to be a higher-margin business that can supplement its lower-margin core lending business at home.

For more, see: http://www.wsj.com/articles/japans-sumitomo-mitsui-eyes-ges-u-s-rail-leasing-business-1435031754 Sent from my iPad

Botswana – South Africa heavy-haul rail project almost ready | reports IRJ

This railway news report is focused on the expected physical construction of new railway. That is the SUPPLY side story.

The rest of the technical story will be found in the depth of the awaited economic feasibility study.

Is the shifting global market DEMAND going forward going to require the added transport supply? Reports from Independant market analysts like Goldman Sachs suggest a much lower market demand for coal.

Can this new Botswana project compete in a slowing growth market and still pay off the railway future debt?

On the supply side, the report says: The new railway line would ultimately be part of a new 560km heavy-haul railway linking Botswana and South Africa’s Waterberg coalfield with Lothair, near Ermelo, where it would meet the planned 146km Swazilink line. This would create a new route via Swaziland for coal traffic and general freight to both Richard’s Bay and Maputo in Mozambique.

The expected market demand is for about 100 million annual coal tons?

Is that a realistic market forecast based on current economic due diligence? Let’s see what the promised feasibility report says when it is released.

http://www.railjournal.com/index.php/africa/botswana-south-africa-heavy-haul-study-nearly-complete.html?channel=538

Competition for met coal sales to China in the summer of 2015

Reuters data http://mobile.reuters.com/article/idUSL3N0Z823E20150622?irpc=932

China’s imports of coking coal fell 24.2% to 14.7 million tonnes in the first four months of the 2015 from the same period last year.

Australia has about a 50% share of China’s imports Yet, shipments dropped 26.2 percent in the first four months as China’s steel production has fallen.

China’s imports from Mongolia increased by 9% to 4.5 million tonnes. It could have been higher if only Mongolia had a working export railway by now.

The next two largest coke coal suppliers are Canada and Russia. This year their shipments to China fell 14% and 39% respectively.

My technical observations.

MONGOLIA FUNDAMENTAL PROBLEMS as a COMPETITOR

The Mongolia customs price in northern China is about $46 a tonne as of April 2015. To that has to be added the rail cost to reach eastern Chinese steel producing markets. That adds a lot to the price given Mongolia’s poor rail infrastructure. It has zero heavy haul rail capability.

The quoted price from competing sources are $105 to $106 from Australia ~ $110 from Canada, ~ $93 from Russia mines Price to Japan Third quarter contracts for delivery from Australia to Japan were settled at $93 a tonne for premium hard coking coal, according to two people familiar with the negotiations says Reuters.

Back in 2012, the price was $330 a tonne.

The contract price tends to influence the spot price.

However, sellers need to price to a more reasonable long term contract rate to survive periodic economic down cycles.

Economics of a MODERN rail box car (wagon)

From multiple recent news sources.

The railroad box car is threatened with economic extinction.  At least in North America.

No longer the most used piece of shipper equipment. Far from it, Here are a few marketing metrics.

Only THREE PERCENT of North American rail traffic moves in the older technology boxcars.

Shippers paid a noticeable approximate $6 billion in rail freight rates to move their products. That is ~8% of North American industry’s total railway revenue, (according to AllTranstek LLC).

Today, a modern engineered boxcar model would be built at a size of about 60 feet lengthwith an axle load rating of about 33 metric tons per axle when loaded to a maximum weight of 286,000 pounds. Today, that new boxcar can cost between $125,000 and $135,000 if bought in North America.

The older boxcars rent out at between $450 and $700 a month based on their original purchase price on ongoing maintenance costs. But the new boxcars will have a rate closer to $1,000 according to a report by Richard Kloster, senior vice president of AllTranstek.

The shrinking boxcar rail fleet. // WSJ report

News in the 21 June 2015 Wall Street Journal . http://www.wsj.com/articles/why-railroads-cant-keep-enough-boxcars-in-service-1434879182

“Why Railroads Can’t Keep Enough Boxcars in Service” by  BOB TITA

He writes about the  shrinking supply of boxcars—once the ubiquitous symbols of U.S. railroads and a rolling bellwether for the economy. Fewer boxcars are causing a freight-hauling crunch for the industries that continue to use them. The number of boxcars in service in North America fell by 41% in the past decade to just under 125,000 last year as 101,600 cars were scrapped and only about 13,800 replacement were added. That downsizing accelerated a decades long shift…

Unanswere questions include these. Who needs them? Why?

Why not simply shift from boxcar to intermodal container?

The market is complicated.

I pointed out the pattern of this shrinking fleet in March.

Bloomberg reports negative China steel growth.

From Bloomberg, Jun 18, 2015

“Chinese steelmakers are deepening the first production cuts in a quarter century”…

As manufacturing steel production drops, there are economic signs to look for.

Possible “dumping” of finished steel.

Stockpiling of Chinese imported iron ore and coke.

More investor uncertainty about emerging nation blueprints for new mines, ports, and railways.

To read the entire Bloomberg news report, go to http://bloom.bg/1GTU0PI

Crude steel output will shrink as much as 2 percent this year, according to the China Iron & Steel Association. That is the first contraction since at least 1990.

A recent up tick in raw material costs for steel and a collapse in steel prices has pushed the Bloomberg Intelligence China Steel Profitability Index to the lowest in almost seven years.

To understand more about the prospects for adding more to the supply side of global trade, we need to know even more about the market demand side.  As China’s growth slows…    …so too will the need for more and more imported resources from greenfield projects.

So which greenfield projects will still be needed?

Editorial humor on taxpayer plight as Eskom struggles to keep the lights on

Humor can be good for the soul.

My take away as an economist is that givernment monopolies are hailed by politicians as a way of protecting the people.

Too often these givernment monopolies instead become a burden to the people.

Regardless of your and my politics, the people need a better deal and a solution.  We can all agree on that.

if it fails, who will secure Transnet Rail’s needed train direct electric locomotive power? Who is in charge of that railway piece of the puzzle?

 

http://thecasualobserver.co.za/wp-content/uploads/2015/03/Eskom-burdening-the-taxpayer.jpg

Eskom the shrinking monopoly business’ – THINK ABOUT SIMILAR CASE STUDY OUTCOMES

Headlines this week show that local South African businesses are fed up with ESKOM.

We economist saw what happens in such scenarios twice before. To me as now an older guy, it first occurred when the PENN Central Railroad and 6 other USA eastern railways were declared to be so poorly performing as to be ruled unreorganizable under then prevalent bankruptcy laws… …and before the struggling freight rail could be reborn — truck market share zoomed from under 50% to more than 80% in many market lanes.

The WOW AFFECT was that rail lost all sense of former assumed monopoly position to the trucks and never really recovered in the high value business segments.

A current (2015) Bookings Report confirms that while rail is still important on long distance urban area to urban area fright moves… — the truck is really KING.

Rail freight is NOT COMPETITIVE in many urban to urban US markets and lanes anymore.

Where rail freight was reborn, it was structurally and service wise extremely different and much smaller. Literally, millions of rail jobs disappeared and hundreds of thousands of kilometers track were abandoned.

Although today profitable in North America, it is nowhere near the former market share leader in freight.

The second WOW case is the global example of how many of the incompetent telephone monopolies in the space of about one generation were displaced by the cellular phone business. Once the King Rex of phone conversations, the land wired phone utilities became the dying dinosaur.  The rapidly innovating highly service delivery new entrant mobile phone companies came in and within a decade or two killed off much of the land line dinosar’s market share.

Now come electric utilities like ESKOM.  The former electricity Kings of the Hill in marketing terms because the politicians said so with the monopoly law… … Now across South Africa being replaced as fast as possible by the customers who can pay for any solution in the present crisis.

Some customers are adapting via a non regulated “switching” to solar and or to alternate diesel or natural gas generators. Here the scenario is that the base load clients give up hope by voting with their wallets for an alternate supplier… They do so because they can afford to.

In fact, many are so commercially desperate that “they must switch”.

This electricity resourcing change in ways pretty much looks like the rail versus truck and land line versus cell phone case history all over again. If true, the ESKOM story could quickly become a classic Harvard Business School curriculum course.

We can argue that if ESKOM takes another four to five years to find a working rescue plan, they may see by that time a loss of highly prized base load business customers. If they lose a core of the customers most able to buy power to enable repayment of future ESKOM debt, how will that play out politically?

What might it mean for coal to central power station mines and railway links as perhaps a fifth to nearly a third of the former coal core energy sales disappear?

Thinking out of the box like this brings up WOW changes that could ripple though the nation’s economy. It is not inevitable.  But it is possible.

For more on how business leaders are thinking, log onto: http://www.timeslive.co.za/thetimes/2015/06/18/Eskom-strangling-business