Railway Renaissance! Maybe not as challenges come from re-sourcing thermal coal

As a Middle Ages historian in college, I can tell you that the Renaissance period had its ups and downs.

The modern North American so called Renaissance Rail Freight Period has challenges also. Loss of potential thermal coal traffic market share is one such challenge.

Next time you are at a rail conference, look for a due diligence balance in the railway future discussion.

Renaissance Challenge #1 is to rail thermal coal markets and routes… The Bloomberg news has an excellent report on the changes coming in the U.S. Coal by rail market. Here are a few highlights:

“Coal Left Fighting Over America’s Last Plants as Rules Mount” — a report by Tim Loh and Mario Parker – Aug 2, 2015

One theory is that various states will fight to Steal Markets from one another & therefore rail coal train corridors could significantly change. We saw such massive rail routes changes in the 1970’s to 1990’s period as the Powder River traffic literally exploded as a new rail market.

Now comes a new cycle fight. One example is the fight for resourcing origin markets between the Illinois Basin producers and the Wyoming Powder River area. Illinois miners may try to “take 60 million tons of Powder River Basin’s market” says one source, Robert Moore, CEO Foresight Energy LP in St. Louis.

This geographic resourcing is particularly interesting since the rail regulators at the STB in ashington typically ignore source competition as an economic variable.

Amidst this, the pending Clean Power Plan rules will seek to cut coal-fired electricity by 90 gigawatts. The Energy Information Administration reported earlier that this cut would come out of about 292 gigawatts of coal-fired generation capacity that was in line during in 2014.

New replacement thermal coal power station in the next decade or two? Unlikely.

The railroads will therefore fight for a diminishing share of the coal energy market over possibly much shorter average lengths of haul as states fight for resourcing.

No one knows how this will play out even if there is a Rail Renaissance under way.

What is the calculated financial risk impact on the big 6 North American rail companies from such new sourcing + route shifting + power station energy changes?

To read the entire Bloomberg article and its authors’ story focus, go to http://bloom.bg/1N2BchP

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