Archive for Railways

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

Another Bridge Too Far Rail Scheme? // Europe into N. Am. Via Russia!

siberiantimes.com/business/investment/news/n0160-plans-for-new-transport-route-unveiled-to-link-pacific-with-atlantic/

We may have missed this probable last great rail plan proposed earlier this year.  But it is still on the Internet for all to read.

// Plans for new transport route unveiled to link Pacific with Atlantic

By The Siberian Times reporter23 March 2015

“New cities and industries could be created from construction of high-speed railway and motorway routes spanning whole of country”reads the story line.

At a meeting of the Russian Academy of Science, the head of the Russian Railways Vladimir Yakunin presented the idea for the Trans-Eurasian belt Development (TEPR).  That was back in th Spring.

Politicians fostered the concept  “as a powerful and versatile transportation corridor that would join up to other networks and reach from the Atlantic to the Pacific, via the heart of Siberia and the Far East.”

Me?  I think it is a really bad idea.

The suggested plan has zero published economic feasibility supporting it. Just a lot of political leaders and academics. No shippers are clamoring to use the route? Why pay for the suggested long land route rail services where super sized container ships are far cheaper?

It reads like “Just another great plan, wrapped In golden chain” so to speak.

And it’s lead RZD rail supporter is no longer in that promoting job as the summer ends.

The admitted rough capital cost estimate from supporters is in the TRILLIONS of dollars.  Yet back in the spring, without documentation, Mr Yakunin of RZD insisted to reporters that the economic returns would outweigh these investments.

Viktor Sadovnichy, rector of the Moscow State University, said the network would help the Far East and Siberia feel more in touch with the rest of the world.

Or is the entire scheme simply economic nonsense?

So far, no one is advancing the cash to build it. It is just another wish list railroad idea. Investors should beware.

Amtrak’s blue ribbon Chicago report // Incredable $800 billion annual harm estimate. // What is a logical economic estimate?

Sometimes news headlines are so absurd. Is this a misprint or a economist’s big error?

A Blue Ribbon Panel convened by Amtrak is recommending co-located train dispatchers, improved operating practices, and capital improvement projects to help relieve rail gridlock in and around Chicago.

www.railwayage.com/index.php/passenger/intercity/blue-ribbon-panel-how-to-unclog-chicago.html?channel=492&Itemid=502   This is one reporting source.

The claim according to multiple sources is that improvements are needed to prevent an estimated $800 billion in nationwide economic impacts resulting from the annual congestion.

BILLIONS?     8 HUNDRED BILLIONS?

That has to be a misprint. Or a colossal economic miscalculation.

THINK ABOUT IT

$800 billion is the capital cost to build about 130 or more Panama Canals

That is about nine to nine times the market value of the Union Pacific Rail company.

Or about 40 times the annual operating expenses of the very large BNSF railroad.

Is no one looking at these relatively easy economic comparisons?

There may indeed be economic net benefits to support more Chicago CREATE joint public/private economic benefits. But this inflationary statement is not the way to make “the pitch.” ==============================

The panel that oversaw the study was chosen by Amtrak President and CEO Joe Boardman. It reported its findings with two university and policy groups on Oct. 1, 2015 in Chicago.

The panel released a study it commissioned from Frost & Sullivan and MSY Analytics which shows that the massive delays to passenger and freight rail traffic in the Chicago Gateway create an economic vulnerability of up to $799 billion every year…

As an economist, I find that number unjustifiable. And I cannot find the published documentation to support it.

If you assumed a half billion to maybe one billion annual economic harm, that might be believable.

What do you think?

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.

S. Africa Rail Gauge Conversion Policy Change Announced by Government

Sep 22, 2015 report…

South Africa now has a government transport policy to plan out a widening of the country’s existing railway tracks to international standard gauge. The geographic scope covers as much as 20,000 kilometers (12,427 miles) of track just in South Africa.

This scope would take decades to physically complete. It might cost as much as 1.5 trillion rand ($110 billion),

Cape Gauge existing track width between the inner sides of two rails is 1067mm as a design. Standard gauge design width is 1435mm.

South Africa Transport Minister Dipuo Peters announced the policy to reporters on Tuesday. The gauge conversion would bring the network in line with about 60 percent of other countries, boost capacity and reduce transportation costs, she said.

In response, Transnet Acting Chief Executive Officer Siyabonga Gama said that while the company supports a move to standard gauge, the policy “needs further investigation” to determine its viability. “We did an assessment and we found out that if we had to create 15,000 kilometers of track, we would need up to 1.5 trillion rand,” he said in an interview after the announcement. “It would be a very expensive exercise.”

STRATEGIC FLAW

The assumption is so far that almost all tracks would be converted to 1435mm. Economically, it is more likely that only the strategic high traffic volume density routes and some feeder lines would financially justify the expense of conversion. .

The economic benefits come from more stable train operating wagon movements and possible high clearance doublestack container train economics. Containers stack two high on rail cars cut the expense by as much as 35% to 45%. Stack container trains have been operating successfully in the United States for 30 years. Two decades!

Stack trains cannot physically be operated on Cape Gauge or Meter gauge tracks.

Regardless of the eventual network size, the project could take decades to fully complete. A place to start might logically be between one of South Africa’s premier container sea ports and the Johannesburg regional market.

Meanwhile, much of Africa’s rail planning is already focused on standard gauge 1435mm track for all new railway projects. Ethiopia and Kenya just as two eastern African examples.

Minister Dipuo Peters strategic announcement is simply acknowledging a prudent rail modernization approach for South Africa.

Bravo!

To read the entire article, go to http://bloom.bg/1KxjCiS Sent from the Bloomberg iPad application.

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

Maybe as many as 15 Years of Weak Crude and other energy prices

“WHAT IF:

What if the world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase?” 

How does this professional assessment of future markets cause you as a railroad or freight carrier to change from Plan A to maybe Plan B or even Plan D?

 

From Bloomberg, Sep 17, 2015

A glut of crude may keep oil prices low for the next 15 years, according to Goldman Sachs Group Inc. That is a very long period.

This strategic commodities report cites in part Jeffrey Currie in an interview at Lake Louise, Alberta.

Goldman’s long-term forecast for crude is at $50 a barrel, he said. He also observed that “the risks are to the downside given what’s happening in the other commodity markets and the macro markets more broadly.”

Lower iron ore, copper and steel prices as well oil and natural gas –PLUS weaker currencies in commodity-producing countries — have reduced costs for oil companies, according to Currie.

The world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase,” with shale fields as an important source of output, he said.

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

A proposed inland Australian rail freight line MIGHT NOT make economic sense –

The proposed 1,700 Kim’s of new freight railway has a capital cost estimate to build it.

IF BUILT, then it has all kinds of job creation and “soft” society economic benefits that surround the project scope like an angel’s halo.

However, there is no published traffic mix forecast. There is no train operations projected income statement for the generalized scope of possible future rail business.

There is instead a “build it, and they we come” conceptual expectation. The “they” being shippers.

There is no information about commercial rates and the shippers ability or willingness to pay those rail rates.

But there is an acknowledgement that the government will have to write the checks to pay for the capital cost.

In summary, there is very little due diligence as to the economic feasibility of this inland route as an investment. This is the kind of planning that made the recently built north-south Australian rail building project a financial disaster.

I suspect that none of these Australian inland rail proponents could ever hold a job working as rail planners for the big profitable North American rail companies like Canadian Pacific or Union Pacific.

What do you think of the projects financial feasibility prospects?

http://www.macrobusiness.com.au/2015/09/an-inland-rail-freight-line-makes-economic-sense/ Sent from my iPad

China Trainmaker CRRC Plans to Double Overseas Sales in the next 5 Years

From Bloomberg makret analysis on Sep 10, 2015. —

New York’s aging subway system is an irresistible draw for Yu Weiping, vice president of CRRC Corp.

New York’s aging subway system is one of multiple US transit systems that are an irresistible market draw for Yu Weiping, vice president of CRRC Corp.. I

CRRC has a market strategy that hopes to double overseas contracted sales to as much as $15 billion in the next five years.  It has been targeting emerging markets in Africa, Latin America and Southeast Asia — often with sales pitches from Premier Li Keqiang– as it seeks to project influence in developing economies.

Mr Yu said he spends two-thirds of his time annually abroad looking for deals, as CRRC seeks to go global.

For now, the Springfield Massachusetts new assembly plant for transit rail sets is a showcase for the targeted company’s U.S. expansion.

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

Mongolia Ovoot mine – A long Shot? Or Now Better Odds? //The Australian

“We were out there with a stranded asset and now we’re the centrepiece of an international rail corridor — it couldn’t have gone any better,” Mr McSweeney told The Australian. He is the Aspire executive chairman. He voices a strong positive outlook that with recent ministerial agreements that there is now a stronger guarantee of rail financing to service the otherwise isolated northern mine.

as of early September, what do you think as a possible investor?

There are plenty of long-term rail corridor high level ministerial agreement rail corridors around the globe… … most of which lack commercially attractive financing. They are often described as a “wish list” of new projects.

A broad gauge line between Russia and Vienna is one of many such grand designs that are unfunded. Adding capacity to the existing single track un-signaled Russia-China 1,100 km long UBTZ rail line is another now more than a half decade long delayed “wish lists” of freight projects. These and other examples refortify the economic logic that “Political support is not the same as monetary investment”.

At capital costs of $2.5 million to $4 million a kilometer (over relatively flat rural terrain), these proposed rail projects generally require as much as 20 to 30 million net tons of bulk cargo annual movement in order to earn sufficient operating profit to pay off the railroad construction debt and interest capital costs.

Passenger trains? They generally around the world don’t cover their annual operating costs from passenger revenues and almost never cover their share of allocated capital debt and interest payments. Talking about adding passenger capability is only adding costs — not profits.

When finally available for this suggested Mongolian – Russian project, a detailed independent operational and market feasibility report should provide clearer due diligence evidence of these rail corridor prospects. Without that independent assessment, it is prudent for investors to beware.

The current mine projections may be either true or false. I suggest that investors consider the entire opportunity and risk profile.

As one example, Russia RZD has very high capital rail rehabilitation and domestic rail requirements previously announced as strategic initiatives. Where in priority of RZD rail company cash flow do these Mongolian corridor capital needs fall compared to competing RZD domestic Russian rail corridors?

For added background, see: http://m.theaustralian.com.au/business/mining-energy/aspires-ovoot-mine-to-benefit-from-china-russia-trade-corridor/story-e6frg9df-1227516860479