Archive for Uncategorized

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.

Signs of crude oil by rail market US share changes out towards 2017 // Forecast Volatility

This from a selective assessment from a Bismarck Tribune news report. //

As of the end of June 2015, the most recent figures available, shipments of Bakken crude oil from North Dakota via rail and pipeline were essentially equal: 47 percent by rail, 46 percent by pipeline. The rail shipments market share have gone down substantially since the peak in late 2014 says Justin Kringstad, director of the North Dakota Pipeline Authority.

The ability to make an economic forecast of oil by rail volume has demonstrated a MARKET VOLATILITY of about 25% within a half year period in 2015.

Expectations by various experts of future crude oil by rail may have to be tempered.

The data shows that the estimated rail export volumes of crude by rail leaving North Dakota peaked around 850,000 barrels per day at the end of 2014.

By June of 2015, the ND oil origin shipments by rail had dropped nearly 25% to around 640,000 barrels in the past 6-months.

Regardless of current 2015 market trends, the top year for future oil by rail out of North Dakota “might be” the year 2017. Given the global price of energy factors, it is difficult to predict. What do you think?

For more, see: http://bismarcktribune.com/news/state-and-regional/oil-shipments-by-rail-drop-as-pipeline-shipments-increase/article_6a02aa9b-55c0-5a28-8743-f2bc8b670e85.html

MARC replacing electric locomotive commuter fleet with Tier-4 diesels

Tier 4 compliant diesel-electric commuter locomotives seen as more efficient than straight electric locomotives. Diesels will run under the electrified catenary wires of the Northeast Corridor between Perryville MD and Baltimore starting around 2017. The MTA plans to ask Maryland’s Board of Public Works for permission to piggyback on an Illinois DOT contract with Siemens to acquire the locomotives, for an estimated $58 million.

Amtrak, which has been maintaining MARC’s electric locomotive fleet since 1983, will no longer be able to provide the service as of June 2016 because it has retired its own HHP8 locomotives and is phasing out its AEM7s as new Siemens ACS-64 electrics enter service.

The Charger locomotives, which are based technically on the Siemens Eurosprinter, Eurorunner, and Vectron locomotive platforms, feature a 4,400-hp-rated 16-cylinder Cummins QSK95 diesel engine. The QSK95 complies with U.S. EPA Tier IV emissions regulations.

MARC’s four EMD/ASEA-produced AEM7s, like Amtrak’s, are approaching 30 years in age. Its six-unit HHP8 fleet, also like Amtrak’s, is only about 15 years old but has suffered from reliability and availability problems. According to a report in the Baltimore Sun, MTA says that replacing the electric fleet with diesels will improve MARC’s service reliability…” The existing electric locomotives operate only on MARC’s Penn Line (Northeast Corridor).

MARC’s electric fleet has a reported reliability rating of between 40% and 50%.

MARC’s diesel fleet, most of which was replaced about five years ago with 26 MP36PH-3C units from Wabtec subsidiary MotivePower Industries, has a reliability rating of 85%.

MARC’s Charger diesel locomotives are expected to be delivered by late 2017.

For more details, go to: http://www.railwayage.com/index.php/passenger/commuter-regional/marc-replacing-electric-locomotive-fleet-with-high-speed-diesels.html?channel=55&utm_source=WhatCounts+Publicaster+Edition&utm_medium=email&utm_campaign=RGN+8.13.15&utm_content=+MARC+replacing+electric+locomotive+fleet+with+high-speed+diesels Sent from my iPad

Transnet 7 year capital plan. Is it behind schedule?

Transnet Expects Capital Expansion To Cost R336.6 Billion

South Africa’s State-owned logistics firm Transnet expects its capital expansion plan will now cost R336.6 billion. This is an increase from R312.2 billion estimated year ago.

Transnet is 4-years into a 7-year plan to expand railways, pipelines and ports in South Africa. The increase is partly due to higher costs as the rand loses value against major currencies.

Reports are that in the first 3 years, Transnet spent R92.8 billion.

So at about 43% of the 7 year timeline, the capital plan is at about 27% of the 7 year target. Will the pace of Transnet’s capital execution quicken in the face of the 2013-17 expected global commodities slowdown?

What is your opinion?

Reports are that Transnet now channels about 45% of its investment into maintaining existing assets and the rest to increase its capacity.

Recent government reports confirmed that there is quite a bit of differed rail maintenance to catch up with.

According to published sources, Transnet’s total capital expenditure spending over the last 3-years now stands at R92.8 billion with the rail mode accounting for 74% of the total spent.

Morgan Stanley’s “coined” Fragile Five Now looks like “The Troubled 10” as currencies drop in value

In a special report, Bloomberg points out that regardless of which economic list you use, Brazil has taken the worst currency hit with the real down more than 24% against the dollar this year and almost 34% since 2013.

South Africa has also taken a huge currency hit.

The bad news is that there is not much hope for a recovery lead by a Chinese trade based recovery plan. And the expected increase in the U.S. currency rate will likewise hurt.

(See Bloomberg, Aug 16, 2015)

Citigroup G-10 Currency Strategy Head Steven Englander discusses China and emerging markets. Forget the “Fragile Five.” These days, strategists at Morgan Stanley are worried about what could be called the “Troubled Ten.” To read the entire article, go to http://bloom.bg/1PtkTMm

Once considered a core economic strength, now dependent commodities trading ties make these nation’s susceptible to a slowdown in the world’s second-biggest economy. China.

Missing from the list but also hit hard with recent currency devaluation for other reasons is Russia.

Since the economic geo-politic phrase was coined in 2013… the Brazilian real, together with Turkey’s lira, South Africa’s rand, the Indian rupee and Indonesian rupiah, have suffered as rising global interest rates make it more difficult for the countries to finance their current-account deficits.”

How do you see this correcting?

NY governor Cuomo balks over new Amtrak tunnel to N.J. — Who Pays How Much for It?

“It is always seems to be about who writes the check.”

The existing Amtrak tunnel connecting New York City and New Jersey is a century old and in disrepair. Electrical wires corroded by Hurricane Sandy’s floods prompted hours-long delays last month that highlighted the tunnel’s condition and previewed what could become a chronic problem if nothing is done.

Yet Cuomo, a Democrat, sees little light ahead in this tunnel project. He balked at an invitation from U.S. Transportation Secretary Anthony Foxx to meet with him and New Jersey’s Gov. Christie to discuss the construction of a new tunnel, saying there was “no reason to meet now.” He told reporters recently that the outlook for the tunnel was “not especially bright.” If that’s true, then it’s bad news for millions of commuters, not just the 200,000 people who ride trains through the tunnel each day. Amtrak estimates that the existing tunnel – which has a single track in two tubes, one for either direction – has a life expectancy of about 20 years. The repair option of Closing one tube for a year of repairs would reduce the number of trains using the tunnel from 24 to six per hour at peak times, forcing tens of thousands of people onto ferries, buses, or cars…

A new tunnel would likely take a decade to build. There are several reasons offered by Cuomo as to why he is reluctant to start up the tunnel-boring machine. He said the project wouldn’t work unless Washington committed a sizable investment. An earlier tunnel proposal included $3 billion in federal funds, but was axed by Christie in 2010. 2) Cuomo says the feds are promising only “loans.” Instead of grants.

“If the federal government is serious that this is critical, which it is . . . we need federal funds,” Cuomo said last week. “They need to put their money where their mouth is.” New Jersey governor Christie has said he would support a new tunnel project if part of the cost were borne by the State of New York or New York City, neither of which pledged funds for the previous one. Cuomo’s tunnel stance is a departure for a governor who has seemed to revel in taking on big infrastructure projects. He used federal loans to finance the $3.9 billion Tappan Zee Bridge. Last month, he joined Vice President Biden to announce a $4 billion plan to rebuild LaGuardia’s cramped terminals.

There are several key differences between those projects and the tunnel, Cuomo noted. Private airlines will cover roughly half of the cost of the new LaGuardia. And while the Tappan Zee is a state bridge — it is also an essential part of the the State Toll Road System.

Governor Cuomo differentiates by stating that the new rail tunnel would be owned by Amtrak and used for only Amtrak and New Jersey trains. “It’s not my tunnel,” he told reporters last week. “Why don’t you pay for it?”

I saw this sort of “it’s not our traffic or trains” attitude back in 1998 while interviewing NY State legislative aids in Albany. From up the Hudson River, the view of the NEC and the tunnels is different. Very different.

As for the tunnels connecting to the Long Island rail system — yes that is seen differently from Albany political offices.

Read more at http://www.philly.com/philly/news/new_jersey/20150816_Cuomo_balks_over_new_Amtrak_tunnel_to_N_J_.html#Yh2oY6W1fgotytPs.99 http://www.philly.com/philly/news/new_jersey/20150816_Cuomo_balks_over_new_Amtrak_tunnel_to_N_J_.html

Markets guessing as steel prices keep changing — trend is down.

From Platts report.. By Tom Balcerek | July 15, 2015

Market conditions changing as the supply/ demand real world relationship change.

Good Economics 101 lesson

Sent from my iPad

Long term trend clearly has been falling prices. Sheet steel suppliers in the U.S. are struggling in the face of a 30% price drop from a year ago.

The bellwether sheet product, hot-rolled coil, is selling for about $465 a short ton ex-mill. Yes, that price in mid July was up about $25/short ton from two months ago.

But that contrast with transaction prices around $660/st a year ago.

US sheet mills have filed unfair trade cases against coated sheet imports and many believe dumping and/or subsidy cases against cold-rolled coil imports will soon follow.

With steel prices falling, so too will rail traffic.  Both raw materials like iron ore and scrap.  As well as finished rolled and flat steel product movements.

Does a Management Vacuum Hobble South Africa’s State-Owned Companies?

Published in Bloomberg, Aug 13, 2015

Rudderless and cash-strapped. Inadequate, Unstable is the assertion.

“To a large extent the ability of South African industries to compete globally is influenced by the effectiveness of our SOEs,” Mark Cutifani, the CEO of Anglo American Plc, said in a July 30 speech in Johannesburg.

“We are being constrained by expensive, yet inadequate and unstable electricity supply and by capacity limitations on state-run rail links.”

While a panel appointed by President Jacob Zuma in 2010 to review their performance recommended a strategy overhaul, new rules for appointing board members and a clearer funding approach for state companies, the government took no immediate action and the management oversight of several of them has deteriorated.

SAA, which last made a profit five years ago and is surviving on government guarantees, has had five CEOs in the past three years. Eskom, battling to plug a 191-billion rand funding gap, has had six CEOs in a decade. Its last permanent leader was replaced in March after six months in the job, while the chairman resigned two weeks later.

Governance Failure

Keeping the companies under state control has given the ruling African National Congress a greater influence over the economy and the appointment of key personnel. The management flux is “a huge governance failure,” Lumkile Mondi, an economics lecturer at Johannesburg’s University of Witwatersrand who served on the state review panel, said.

Transnet may be the exception provided it can adapt in these troubled times.

Are the above assertions true or false?  What do you think?

To read the entire article, go to http://bloom.bg/1J3ezpJ

Among the companies China’s Rescue Fund Is Buying to End the Stocks Rout

From Bloomberg, Aug 9, 2015

China Securities Finance Corp. has quickly become one of the most influential investors in the Chinese stock market, with $483 billion of firepower and the potential to add $322 billion

Here’s a look at some of the biggest CSF positions tracked by Bloomberg, all of which the agency has initiated or increased since June 30

They include rail

1) China Railway Group Ltd. * CSF’s holding: 10.4 billion yuan ($1.7 billion)

* Company description: One of China’s largest railway construction contractors

* Return since June 30: -2.1%

* Price-to-earnings ratio: 28

* Market capitalization: 275.1 billion yuan

2) China Railway Construction Corp. * CSF’s holding: 9.1 billion yuan

* Company description: Railway construction contractor

* Return since June 30: 7.2%

* Price-to-earnings ratio: 18

* Market capitalization: 211.7 billion yuan

To read the entire article, go to http://bloom.bg/1PeQ4e

Emerging Markets were a long term “dog’. // Many new rail projects now “suspect”

Too little emerging market due diligence…

There is an excellent market recap analysis by Bloomberg — on Aug 5, 2015

Emerging markets and the BRICS nations were to be the darlings of investors as growth became slower in the developed world.

Massive new and expanded Railways and ports were to be built around the promoted high growth prospects.

Warnings that the prospects might not be as rosy as predicted were shrugged off. Too often it seems due diligence was overlooked. Now those high prospects require a Strategic Plan B.

“Today, after heady runs and abrupt reversals, most of the BRICs — as well as most emerging nations — look like big-time losers say many of those interviewed by Bloomberg.

The history of emerging markets is a history of booms and busts, but the immediate future may hold something more prosaic: a malaise.

Investors today confront what could turn out to be a lost decade of returns, with four or five more meager years ahead.

It was only 14 years ago Wall Street fell in love with the BRICs, the tidy acronym for four (5 with South Africa) large emerging economies that, to many, looked like sure winners. …

The MSCI Emerging Markets Index nearly quadrupled between 2002 and 2010 .

But now in 2015 that pattern looks to some like it was an anomaly.

“Very few emerging markets historically have ever been able to make it to the developed countries,” said Sharma, head of emerging markets at Morgan Stanley Investment Management Inc. “This is a return to normalcy.”

Currency Rout… “All told, developing-nation currencies have fallen to their lowest levels since 1999, and bonds denominated in those currencies have wiped out five years’ worth of gains.”

“Since 2009, the MSCI index has fallen 10 percent while developed markets have soared about 50 percent” reports Bloomberg.

Looking ahead, 14 of 23 major emerging-market currencies are forecast to decline against the dollar by the end of June 2016, according to data compiled by Bloomberg.

Forecast earnings for companies in the MSCI index have fallen to their lowest since the end of 2009.

Plans for massive new resource hauling freight railroads are ‘on hold across Africa and in Asia and Australia.

To read the entire article, please go to http://bloom.bg/1SPNlh1 Jim Blaze