Archive for Corporate Management

Management advise of the day. From Warren Buffet. // BNSF’s owner

Here in brief is a warning about how even a world class railway can deteriorate.

The “ABCs of business decay” include: arrogance, bureaucracy, and complacency.”

“When these corporate cancers metastasize, even the strongest of companies can falter.”

Wise thoughts for many of the world’s railway leaders living on their past corporate reputation.

… ======

Source: Bloomberg business notes, published by Noah Buhayar and Lily Katz

– 24 Feb.2015

Cheers! Jim Blaze

Restructuring Overview // opinion column from India on India Railways

Bravo!

A gutsy but professionally focused opinion column points out why modernizing the vast but bureaucratic Indian Railways may be a hopeless task.

It’s about politics and the self preservation of jobs and management roles while facing objections from other land users. It is not just a technology fix that is needed.

Here are just a few points that illustrate the issues.

1) BROKEN MARKETING TACTICS

The government has so far lacked the will to increase passenger fares because it is an unpopular suggestion. Instead, they hike up the cost of freight transport to subsidize passenger rides. What India gets as a result is a vicious cycle: Companies (shippers) choose to transport goods via highways because doing so by train has become too expensive and inefficient. That results in a lack of the expected cash flow freight subsidy funding needed to make rail improvements for passenger rail. And to the extent possible by bus or auto, the rail commuters leave the railways for highways.

2) CUT UP THE RAILWAY INTO MORE BUT SEPARATE ORGANIZATIONS

One ever popular policy suggestion is to minimize the Ministry of Railways power by making the Indian Railways two independent organizations—one responsible for the track and infrastructure and another for operating the trains. But some do not see that restructuring happening anytime soon. Furthermore, it did not work out well when tried in the UK. Why would it work in India?

It might be better to just fire everyone in charge today and hire an all new monopoly provider.

3) TAKING FOREVER

“If nothing changes, it will take them 100 years just to build the Dedicated Freight Corridor,” say some professional observers. For example, the government hasn’t even started looking at people and land relocation plans in urban area for an alternative, high-speed railway network.

Heck, the Dedicated Freight Corridor execution is already about a decade delayed. That is about the professional in charge lifetime of the current leadership generation (at about 10 to 15 years as the top people in an organization).

TICK TICK TICK The clock is ticking.

So little is happening.

Read the column at: www.citylab.com/commute/2015/10/what-it-will-really-take-to-fix-indias-railways/408664/ Sent from my iPad

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

Mind numbing, jaw bone breaking numbers

A Bloomberg commodities index that tracks returns from 22 raw materials has fallen 50 percent since a 2011 high

Down BY HALF!

Not by a crummy 3% to 5% . Or even Ten percent

By a jaw breaking 50% range.

Who is getting fired for these numbing numbers? Where was the due diligence? ————

What did your strategic plan assume?

To read the entire Bloomberg report, go to bloom.bg/1MKPHrc

Interesting leadership observations offered to the railroad industry

Those who were at the keynote Railway Interchange 2015 address by retired Navy SEAL Robert O’Neill heard this leadership message.

Mr O’Neill held the crowd’s attention with his humor and stories of war, including headline making raids that resulted in the rescue of Captain Richard Phillips in April 2009…

His message to attendees about the topic of success & leadership was one that translates from the theater of war to the operations of an office or a railroad:

Never quit. That is his personal mantra.

O’Neill touched on several main points when developing a “never quit” attitude. 1) developing people skills, 2) knowing the difference between over planning versus being prepared, and 3) removing emotion from the decision-making process.

His advice — to keep moving forward through challenges

To recognize that all stress is self-induced

To recognize that failure is a great learning tool.

He also noted that keeping a sense of humor helps.

Lessons there for all of us

Caterpillar projections to investors. // Looks gloomy market wise

Caterpillar is reorganizing only four years after making its biggest acquisition ever, spending $7.5 billion on Bucyrus International Inc.

The company faces what it says is the first four-year sales decline in its 90-year history.

In a Bloomberg report: Caterpillar `Bites the Bullet’ as Oil Rout Compounds Mining Pain the metrics are presented.

The last time Caterpillar Inc. cut thousands of jobs, a mining slowdown was to blame. Now the main culprit is oil, as slumping prices batter drillers.

The investigative reporter Sonja Elmquist wrote on Sep 24, 2015 that the world’s most valuable machinery producer by market cap announced a plan to cut as many as 10,000 jobs, or 9 percent of its workforce, through 2018 as the effects of crude’s collapse ripple through the industry.

The measures — including the second reduction in sales guidance in two months — represent the biggest round of cuts since 2013, when the company reduced its headcount by 13,000 as sales to metal producers declined along with prices.

According to Bloomberg Intelligence. “They’ve finally opened up the manila envelope that says ‘doomsday’ on it and they’re executing the plan that they hoped they would never have to execute,” Sameer Rathod, a San Francisco-based analyst at Macquarie, said by telephone.

No one is sure yet as to the shape of the long term market recovery timeline.

The company will cut as many as 5,000 workers this year and another 5,000 by 2018. It reduced a 2015 revenue projection by $1 billion and said sales are expected to drop 5 percent next (2016)…

SHARES WAY DOWN    —

Caterpillar at the time of the announcement fell about 6.3 percent to a five-year low of $65.80.  The stock has lost 28 percent this year, the biggest annual drop since 2008.

As a comparison, the MSCI Emerging Markets Index has fallen 18 percent in 2015 while the Dow is down 9.8 percent.

The company’s consolidation plan may affect more than 20 plants…

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

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

Signs that China may try to enter foreign rail markets by buying local established rail company vendors

From Bloomberg, Sep 9, 2015

Bombardier rejected an offer by Beijing Infrastructure Investment for 60 percent to 100 percent of Bombardier Transportation, Reuters reported earlier.

Reuters cited an Aug. 14 letter outlining the bid.

Louis Veronneau, vice president for mergers & acquisitions, rejected the proposal…

The approach was made by Beijing Infrastructure.

This type of acquisition would make Chinese sales into North American and European markets easier. But after an acquisition, much of the building content work could shift to China while still using the bought vendor brand name.

Montreal-based Bombardier is as an alternative planning an initial public offering of the rail unit during the fourth quarter of this year.

It is trying to reduce debt swelled by the development of the CSeries jet.

In July, Bombardier also denied a report that it was in merger discussions with Siemens AG over the unit.

Beijing Infrastructure’s reported offer gives Bombardier Transportation an enterprise value of $6 billion to $7 billion…    …a “reasonable valuation range” for the unit in an eventual IPO according to Canaccord Genuity analysts David Tyerman and Tao Ding says a Bloomberg report.

The Chinese meanwhile are exploring other opportunities to acquire North American rail companies.

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

BRAZIL — more signs of severe economic recession from a Bloomberg report

The reported numbers are from a story authored by Christiana Sciaudone

August 17, 2015

“In the midst of its deepest economic and political crisis in a generation, Brazil is contending with a business climate so punishing that major projects across numerous sectors are being frozen or shrunk, while small businesses slash prices and shift focus.”

“Political instability is enormous, and it’s paralyzing Brazil,” said Eduardo Fischer, co-chief executive officer at homebuilder MRV Engenharia & Participacoes SA, in an Aug. 5 interview.

In Brasilia, the nation’s capital, “decisions and actions that need to be taken are being delayed, questioned or defeated, and nothing happens.”

Multiple economists are predicting that the Brazil economy will contract about 2 percent this year,.

National unemployment is at a five-year high.

Brazil’s real is the worst-performing major currency in the world this year.

The airline has seen corporate demand drop by as much as 40 percent.

Embraer, the best-selling regional jet aircraft manufacturer had been counting on new products to boost revenue…    … and is also awaiting payment of $370 million…  Its production of new models can be expected to see a year long delay…  or longer.

Brazil’s auto manufactures also have watched demand plummet, with sales down 20 percent in the first half of this year compared with the same period in 2014…

Both GM and Volkswagen AG are temporarily shuttering local factories and putting workers on leave.

Long ago announced new Brazilian railway projects…  …can expect more delay and uncertainty in this economic climate.

So far, the recently announced BRICS new development bank is offering no solutions.  And a once promised Brazilian foreign aid to Ethiopia railways looks to be unofficially “unlikely”.

Much of this was predictable if proper due diligence has occurred during the many project reviews.  The signs of risks were there.

For a full report — log onto http://www.bloomberg.com/news/articles/2015-08-18/from-planes-to-cafes-brazil-s-economy-on-hold-as-crisis-deepens