Archive for Intermodal

Competition. Gaining competitive advantages as the new player.

Lessons for railroaders in fighting against trucks for freight market share. i

Weaker player can often win.

By innovation that changes the rules, the smaller force can more than ofen win.

The lesson is from a close reading of the competition phenomenon in a book authored by  Malcolm Gladwell in 2013.  Titled: David and Goliath: Underdogs, Misfits, and the Art of Battling Giants.

Suppose you were to total up all the wars over the past two hundred years that occurred between very large and very small countries. Let’s say that one side has to be at least ten times larger in population and armed might than the other.

How often do you think the bigger side wins?

Most of us, I think, would put that number at close to 100 percent for the big guys. A tenfold difference is a lot.

But he found that the larger force only won about two-thirds to three quarters of the time.

A political scientist Ivan Arreguín-Toft did the calculation a few years ago. His big versus little sample came up with was 71.5 percent of the time the big guys won.

Still– about a third of the time, the weaker country won.

INCREASING THE ODDS

Arreguín-Toft then asked the question slightly differently. What happens in wars between the strong and the weak when the weak side … refuses to fight the way the bigger side wants to fight.

Perhaps like the American revolutionary generals, they used a lot of unconventional or tactics. (Read more about that in the book First Salute).

CHANGE TACTICS, and the weaker party’s winning percentage climbed from less than a third to about two thirds (63.6 percent for those who want more precision).

Railroads in North America in the past won in select markets by changing their tactics against more numerous highway network and numbers of trucks.

Longer, heavier axle loading and double stacked container train TECHNOLOGY INNOVATION converted the Chicago-LA 2,000 mile long origin/destination 70% truck market share for high value truck load commodities to a 70% rail share over about a decade.

Want proof?  Check my calculations by reviewing ICC footnotes in railroad merger cases back in 1992 period.

The western railroads worked selectively to change its intermodal business model between 1984 1990.  It worked. The change was largely technology driven.  some culture change too.

Meanwhile, the European rail industry so far has not followed this model change.  Three decades after the North Americans took on the bigger truckers by changing the rules, the Europeans and South African railroads have not yet learned the lesson.

Smaller market size railroads can win more than half of the time.  But it takes innovative leaders to do it.

Here is how BNSF is growing // with a shift to Stack Trains

Much of the world operates railroads that lack the necessary vertical clearances and the standard 1435mm heavy axle track gauge that allows for double stacking international goods in huge containers.

The World counts containers as 20-foot long boxes. In North America the standard is a whopping 53 feet long box.

Thirty years of big train progress in North America has given the Mexican to Canada rail companies the market ability to sustain self financed rail growth as coal shipments drop in the modern world

What is your railroad doing to adapt?

This story is found in a Bloomberg report.

Railroads are already winning more of this so-called intermodal business here across North America. Rail shipments of containers grew 15 percent over the last decade That offset the traffic losses as other cargoes, such as coal and ores have dropped in some cases by 11 percent to as much as 20 percent in the eastern US coal area.

Intermodal traffic is actually growing on the US railroads by about double GDP and also by about twice the rate of truck over the highway mode. Even with a somewhat slower US economic growth this year— intermodal rail freight is up 2.3 percent in 2015, the Association of American Railroads reports.

But persuading shippers to switch still isn’t always easy to do. It has to be significantly cheaper per trailer or container mile if rail rather than by highway in order for it to be a better transport deal for shippers.

Shippers decide. Not politicians. At least in the US markets.

It is strictly a matter of economics. While it might be cheaper by ton-mile to send freight by rail, it generally takes just a bit longer in time and a bit more in distance rather than by straight trucking from origin to destination.

There is also a cost of transferring containers onto the trains and then back to trucks for final delivery.

All of this geography of intermodal makes it difficult to compete with direct trucking on trips of less than about 600 miles here in North America. That is confirmed in an interview with Larry Gross, a partner at FTR Transportation Intelligence. Trucks are more punctual and flexible. They generally will always be quicker than by a truck to rail to truck intermodal substitute.

For more about the successful private BNSF rail investment report, log onto:    www.bloomberg.com/news/articles/2015-10-07/buffett-bets-on-rail-superhighway-to-beat-trucks-as-coal-fades

Update on Ethiopia’s Light Rail System as it starts operating // Sept 2015

Multiple reports confirm the start of light rail service in the capital of Ethiopia on 20 September 2015.  The start of service on Line #1 is actually relatively close to the promised service date.  Funding approved in 2011 assumed a two year construction timeline.

The 16.9 km north-south Line 1 line links Minelik Square with Kality and has 23 stations. A 17.4 km east-west line from Ayat to Tor Hailoch is also due to open soon. The two routes share a 2.7 km section between Lideta and Stadium.

This light rail service which includes elevated sections and tunnels, runs from Addis Ababa’s main industrial area on its southern fringe, through the trading district of Merkato to the historic center of Piazza.

I had a chance to review the affidavit Addis Ababa light rail construction process in the capital back in the summer of 2013.  Project construction and the logistics handling of imported rail materials was well organized by the Chinese company.  The track ballast section and some early rail laying were substantial as to the engineering design and initial construction delivery of product in the field.

One of the tunnel projects was a huge physical undertaking.  Well done when I inspected it.  No question that the Chinese companies can build rail projects very well according to plans.

PLANTING THE C”AN DO” FLAG IN FRONT OF AFRICAN RAIL PLANNERS

The east-west light rail line skirts the African Union’s headquarters.  This location marks a great advertising opportunity of the Chinese capabilities with this line placement in front of the African wide headquarters.

Both light rail lines are built by China Railway Engineering Corporation (CREC).

CNR Changchun (now part of CRRC Corporation) has supplied a fleet of 41 low-floor vehicles, which have a maximum speed of 70km/h.

DEAL FINANCING TERMS

China is financing 85% of the $US 475 million project. It is a loan. Not a grant.

The government agreed to borrow the funds in June 2011 from the Export-Import Bank of China.  The to be paid back rate was at the 6-month Libor interest rate plus 2.6 percent and a grace period of three years.  This from Ethiopian Finance Ministry data.

State-owned contractor China Railway Engineering Corp. was the recipient of the export financing.

The financing of the remaining 15% is arranged from other sources by the Ethiopian government.

ON-GOING MAINTENANCE

The 39-station network will be maintained by CREC and Shenzhen Metro Group under a $US 116m five-year contract.

The Ethiopian client for the continuing rail service is the Ethiopian Railway Corporation (ERC).  The ERC rail company is a government corporation with a very small staff.

TRAIN OPERATIONS

The first three to five years of light rail train operation will also be by the Chinese and not the ERC.

At one point back in 2013 the Ethiopians sent out a global request for a  consultant team to build up the Ethiopian internal organization into becoming a world class operating management team.  Then they could take on train operations management themselves.  But that internal skill building process so far appears to not have happened.

Instead of internal managers inside the  Ethiopian Railways Corp, the light rail service will be run day to day by Shenzhen Metro Group.  For at least five years.

LIGHT RAIL TRAFFIC FORECAST

The light rail total system may eventually carry 60,000 passengers an hour, according to project manager Behailu Sintayehu.

Passenger FARES will be subsidized

The maximum one-way fare on the network is about $US 0.29 to $0.30 (cents).

The light rail line operating costs is projected to be about 1.5 billion birr a year to run. Fare box revenues will not cover all of that annual operating cost.

“The government is subsidizing this transportation system. This is not for commercial purpose, it’s for the public” said a local official source to reporters.

Sources also reported that the subsidy to allow such low passenger fares will in the long term have to come out of “expected” freight operating profits from the not yet completed new standard gauge international railroad line.

This cross subsidy practice might be a logical strategy if trucking companies subsidized the passenger buses on highways But they do not.  In the long term of daily rail to truck competition, this creates an advantage for truckers.  It is incredible how state planners historically are blind to this integrated transportation fact of competition economics.  The Ethiopians are no exception to such economic flaws in policy thinking. As the become better trained in economics, this may change their thinking.

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MORE INTEL about this light rail system

THE LONG DISTANCE LINE

The freight and intercity passenger train new railway construction underway will connect the Ethiopia capital city with the port of neighboring Djibouti.

Service there may begin sometime in 2016 say current reports from Bloomberg.

Trains on this inter-nation line might also be operated by a Chinese contractor instead of by the local Ethiopia rail organization.  Too early to tell yet. There is no published report on the success or timeline of building such skills inside the Ethiopian Rail Corp organization.

The long distance line will be standard gauge (1435mm) track.  But not 33 metric ton or doublestack container train capable.

The Ethiopians have settled for a lesser freight train capacity that they received from the Chinese builders rather than adopting the North American commercial and engineering big train technology standards — and having the Chinese contract companies modify their engineering build to standards. The result will give the Ethiopian rail company a rail freight haulage capability equivalent to a 40 to 50 year old post WW-2 North American operating performance. This means missing their chance to become the best of class within the African world of freight railroads.

POWER SUPPLY

Electric power to supply these light rail and intercity train sets in a more dependable manner is to come from the Chinese financed Gibe III hydropower dam’s reservoir set for operation in 2016.  The reservoir has started filling, with its 1,870 megawatts capable of almost doubling Ethiopia’s generating capacity. This will presumably allow for a dependable service day to day performance using straight electric locomotives rather then modern diesel-electric locomotives.

MISSED DOUBLESTACK CONTAINER OPPORTUNITY

With electric power from overhead wires catenary systems, the overhead clearance for doublestack container trains could be restricted.  This overhead wire electric system as currently designed as to height above the top of the rails is another rail marketing (commercial business competition) flaw that could have improved.  How? By increasing the wire height to more than 6.7 meters above the top of the rail.  That would allow doublestacking container trains to have a far superior cost per container advantage in direct competition with highway trucking.  In the US that rail rate advantage can be as large as 50 cents to $1.40 per container moved kilometer.

These simple manmade engineering design changes would have given the resulting rail line a superior economic advantage against long haul trucking.

Should Transnet wander off on global and African project consulting? Or first fix the domestic needs?

Transnet’s Africa announced it management plan to offer consulting service outside of its domestic market.  This may be a flawed corporate strategy.  Lets discuss.

21 September 2015

TRANSNET’s announced plan to increase its international revenue by consulting in other countries.  Good or Bad Idea?

Some say that the diversion of skilled managers could increase or mask its domestic  weaknesses.  It is not yet world class at its domestic markets.  Good?  Yes.  But probably not world class.

Transnet acting CEO said last week that the state-owned freight and logistics company intended to increase its revenue from international business to 25% by 2025 from 4.2% currently. Most of this would be from business on the continent and opportunities in the Middle East he suggests.

A local transport economist Andrew Marsay retorts that Transnet is not yet “intrinsically viable” at performing in its critical home market.  The company should focus on restructuring itself to become more viable in SA, rather than looking abroad for solutions, he asserts.

Transnet’s general freight business today does not yet fully cover BOTH its rail operating and capital costs.

There are some who believe that much rail business is subsidised by other Transnet  business units such as the ports or the pipeline sectors.

Transnet instead need to focus on examining how to fully implement its 7 year plan to obtain a lion’s share of the general cargo business against trucks.  The planning period to obtain a stated objective of as much as 80% general cargo share is about half over and the truck share is from most independent reports actually at  better than an 80% share.

BENCHMARK

We as Conrail managers  faced this dilemma in its corporate history. We elected to avoid what some saw as potential consulting and rail operations markets in 1994 European markets with their so called open access — in favor of executing domestic at home projects with far less risk and higher potential operating income growth.  Looking back, it was a good choice. By working at home we managed to improve our company rail operating ratio from 84% to 79.9%.

At the same time, we rolled out a very strong truck competitive doublestack market share. In some long distance lanes, we managed to earn a 40% or better share with bog train technology.  With interline container train service between the West and East Coast, we managed to get a 75% estimated market share against long haul trucking.

THAT is a WOW impact for a freight railroad.

Wandering off to Europe would have been nice.  But no where near as profitable.

What do you think Transnet?  Where is you WOW impact gong to come from?

Can you accomplish such WOW market truck to rail general cargo share shifts with fewer skilled people because of some wandering off to other overseas ventures?

http://www.bdlive.co.za/business/transport/2015/09/21/transnets-africa-plan-masks-local-failings

Technical hurdles as CSX pushes towards intermodal growth with No U.S. Master Rail Plan

An 11 year plan. 7 years just to get permitting and financing in place. ====================

The Virginia Avenue Tunnel in Washington DC. is a $400 million project. CSX broke ground on in May.

The Virginia Avenue Tunnel is a critical project in the CSX broader $850 million National Gateway initiative. It is a public-private partnership between CSX, six states and the nation’s capital city. National Gateway is in effect a multiphase, 11-year undertaking to move more freight by rail between selective East Coast ports and the Midwest states. CSX is the plan developer and leading champion.

The entire Gateway Project involves double-tracking some CSX existing routes and increasing the vertical clearance for some tunnels and bridges. A CNBC report by Morgan Brennan for CNBC points out that seven of those years have been dedicated to permitting and complying with regulations. (@MorganLBrennan)

Interestingly, this is a private rail company strategic plan. The government agencies are helping finance and modify or delay the project with regulations and permits. But the government is not the leader.

WHY? CSX is looking to quadruple its rail freight carrying capacity in the 110-year-old single-lane Virginia freight rail tunnel. The tunnel is about one mile long underneath part of the city of Washington, D.C. Technically, a second parallel track will be added to allow two trains to pass at the same time. The vertical clearance height will also be increased to allow for double stacked container trains. To increase the vertical height, the tracks will actually be lowered. Today, CSX trains are restricted to the less efficient single-level intermodal train operations.

A change to double stack can have a 35% or better productivity. Reports indicate that the most challenging part of this engineering feat will be to construct these changes while the tunnel continues to allow some two dozen trains to pass per day.

The entire $850 million National Gateway initiative mirrors a similar bold move completed earlier by the Norfolk Southern for 1) its Norfolk to Ohio double stack corridor project and 2) its Shenandoah Corridor public-private partnership plan.

IN CONTRAST

In much of the rest of the world, these kind of plans are created by the government. In the U.S. business model, it is the reverse process. Private investor lead companies are the lead champions.

The entire North American double stack container train revolution was initiated in 1983 by a commercial deal between American Presidents Lines the ocean carrier and the Union Pacific railroad. Later on, various state and local governments joined in with the private railroads to expand the stack train network.

The federal government has also gotten involved. But there is no giant federal and state government master plan at work. And yet, more than 20% of the U.S. network is today stack capable.

Even without a government master plan, the United States (and Canada) are the world leaders in modern doublestack container train movements.

Ocean container carrriers contintinue to ignore business over capacity lessons learned decades ago by N. A. freight railroads

http://worldmaritimenews.com/archives/165836/drewry-ordering-big-ships-starting-to-backfire/

https://www.linkedin.com/grp/home?gid=147538&trk=my_groups-tile-flipgrp

Also see report in the JOC

A toxic mixture of overcapacity, weak demand and aggressive commercial pricing is threatening liner shipping industry profitability for the rest of 2015, according to global shipping consultancy Drewry.  The report is published in multiple news sources, includingvLinkedin.

Drewry’s forecast that container shipping carriers might record profits of up to USD 8 billion in 2015, has been revised. The  consultancy believes that they should be lucky to break even this year with some lines expected to return to red by the end of 2015.

Drewry estimates that this year average global freight rates will decline at their fastest pace since 2011, when the fall in industry unit revenue was as great as 10%.

It points out that second quarter spot rates in the four main East-West head haul trades have been falling by 32% year-on-year.

Neil Dekker, Drewry’s director of container shipping research said: “There are not enough good homes for ships of over 8,000 teu where they can be placed without doing some damage to the supply/demand balance.”

The orderbook is starting to get out of control, with another 1.14 million teu added since January.   … investment pans backfire as ” virtually all major head haul trades are plagued by overcapacity”.

Can China finance Eurasia Railway One Belt & One Road Strategic Plan?

The mid year 2015 Chinese stock market fundamentals and the overall Chinese structural debt may put a crimp in this debt financing of proposed rail/road foreign projects.

This cited Journal of Commerce report remains extremely optimistic about China’s willingness to write the necessary big foreign investment checks.

Time will tell. Time is always the acid test of any strategy.

Even if financed, these Chinese sponsored rail projects may not see the first trains until well after my death.

But the maps look “cool”.

See the map and JOC story at http://www.joc.com/international-trade-news/investment-floods-china%E2%80%99s-one-belt-one-road-strategy_20150703.html?mgs1=b66dkpfYOY

South Africa Consumer Confidence Index Slumps to 14-Year Low

From Bloomberg, Jul 2, 2015

Consumer confidence in South Africa dropped to the lowest level in 14 years in the three months through June. The consumer confidence index slumped to minus 15 in the second quarter from minus four in the first three months of the year according to FirstRand Ltd.’s First National Bank unit.

The sub-index sentiment on the economy’s outlook hit the lowest level since the 1992-93 recession.

Will investors continue to support aggressive mining and rail projects in such a statistical environment?

What is the Strategic Plan B for infrastructure when confidence drops?

“Business as Usual” is now a bit riskier.

Who will step up and lead the change?

Is the current maket demand driven Transnet Rail set of commercial assumptions still valid?  If not, how do leaders change to meet the new competitive reality? Who has such an experience to help adapt to the new railway commercial market changes?

To read the entire article, go to http://bloom.bg/1KuWF3C

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

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.