Archive for May 2015

Under transparency common sense, regulators agree to keep intelligence coming towards responders

After a near month long controversy, the US DOT regulators agreed not to weaken the disclosure of hazardous train movement data to the state emergency responders. It could have easily been done by the commercial rail executives, but was not.

Morning headline in the Philadelphia Inquirer reads ” U.S. won’t weaken oil-train public disclosure rules”. This federal policy reversal comes within two days following a hard hitting Inquirer editorial on the subject. PAUL NUSSBAUM, INQUIRER STAFF WRITER

Posted in paper on Saturday, May 30, 2015 image:

Responding to congressional and public criticism, federal regulators said Friday they would not weaken rules requiring certain disclosures about trains transporting crude oil and other hazardous materials.

The Inquirer reported this week that new oil-train rules issued May 7 – to go into effect in October – by the U.S. Department of Transportation would end a 2014 requirement for railroads to share information about large volumes of crude oil with state emergency-response commissions.

Oil-train safety in Philly will NOT be kept secret

The DOT pre-existing rule “will remain in full force and effect until further notice while the agency considers options for codifying the May 2014 disclosure requirement on a permanent basis,” the agency now says.

DOT admits that “transparency is a critical piece of the federal government’s comprehensive approach to safety”

The federal DOT agency said it supported “the public disclosure of this information to the extent allowed by applicable state, local, and tribal laws.”

U.S. Sen. Robert P. Casey (D., Pa.) told the news press that he was pleased by the agency’s decision. “First responders who risk their lives when trains derail deserve to know what chemicals they could be dealing with when they get to the scene,” Casey said.

Sent from Jim Blaze’s iPad

The Economist With Disruptive thinking about decision making and the value of a life

Economist Richards Thaler is today the president of the American Economic Association, and a perennial candidate for the Nobel. To his fellow economists, Thaler’s way of thinking during his career has been wildly disruptive compared to classical economists.

Selected observations: from the book: “The Economist Who Realized How Crazy We Are” By Michael Lewis


“The biggest upheavals have come in industries in which managers have always made decisions more or less by gut instinct: political campaigns, health care, military campaigns, professional sports.”

The obvious cause of the turmoil is the availability of ever-cheaper computing power: People looking for an edge in any business can now gather and analyze all sorts of previously unobtainable or unanalyzable data.

But does more data trump the expertise of managers?

People (even experts) and industries (even old ones) can make big, systematic mistakes.

There’s now a fairly long list of intellectuals responsible for the spread of this subversive idea. Somewhere near the top of it is the economist Richard Thaler, who has just published an odd and interesting professional memoir, “Misbehaving.”

Thaler is the president of the American Economic Association, and a perennial candidate for the Nobel. His rise may be just another example of the power of human misjudgment. Or he might be onto something. Either way, he’s been wildly disruptive.

The author Michael Lewis had a book out on Thaler’s career as an economist.

It’s interesting because it tells the story not just of Thaler’s career but also of the field of behavioral economics —

That is the study of actual human beings making decisions rather than overview of rational optimization as classical economic theory.

For a surprisingly long time behavioral economics wasn’t much more than a bunch of weird observations made by Richard Thaler, more or less to himself.

What he calls his “first heretical thoughts” occurred in graduate school, while writing his thesis. HOW TO VALUE a LIFE? Thaler set out to determine how to value a human life — so that, say, the government might decide how much to spend on some life-saving highway improvement.

Or a railroad on PTC.

Thaler collected behavior evidence that people answer this value of life question implicitly, every day, when they accept money for a greater chance of dying on the job. “Suppose I could get data on the death rates of various occupations, including dangerous ones like mining, logging and skyscraper window washing, and safer ones like farming, shop keeping and low rise window washing” reports Thaler. “The risky jobs should pay more than the less risky ones: otherwise why would anyone do them?” Using wage data, and an actuarial table of mortality rates in those jobs, he was able to work out what people needed to be paid to risk their life.

Thaler calculated that the current implied value of an American life is $7 million.

In addition to calculating the market’s price for a human life, Thaler got distracted by how much fun he might have if he asked actual human beings how much they needed to be paid to run the risk of dying. He began with his own students, telling them to imagine that by attending his lecture, they had exposed themselves to a rare fatal disease. “There was a 1 in 1,000 chance they had caught it. There was a single dose of the antidote: How much would they be willing to pay for it?” Then he asked them the same question, in a different way: “How much would they demand to be paid to attend a lecture in which there is a 1 in 1,000 chance of contracting a rare fatal disease, for which there was no antidote?”

The questions were practically identical, but the answers people gave to them were — and are — wildly different. People would say they would pay two grand for the antidote, for instance, but would need to be paid half a million dollars to expose themselves to the virus.

“Economic theory is not alone in saying that the answers should be identical,” writes Thaler. “Logical consistency demands it. …”. To an economist, these findings are somewhere between puzzling and preposterous. They were so different in value that when Thaler showed them to his thesis professor “he told me to stop wasting my time and get back to work on my thesis.” It did not fit the professor’s view of reality and hus fundamental training. So he wanted to ignore it.

Instead, Thaler began to keep a list of things that people did that made a mockery of economic models of rational classical thought about making choices. There was the guy who planned to go to the football game, changed his mind when he saw it was snowing, and then, when he realized he had already bought the ticket, changed his mind again.

There was the woman who drove 10 minutes to a store in order to save $10 on a $45 clock radio but wouldn’t drive the same amount of time to save $10 on a $495 television.

the early 1970s, when Thaler was a student, his professors didn’t argue that human beings were perfectly rational. They argued that human irrationality didn’t matter, for the purpose of economic theory, because it wasn’t systematic. It could be treated as self-cancelling noise.

Mr Lewis cites other interesting experts — some of whom concluded “that people responded very differently when a choice was framed as a loss than when it was framed as a gain”.

Tell a person that he had a 95 percent chance of surviving some medical procedure and he was far more likely to submit to it than if you told him he had a 5 percent chance of dying.

So what could we learn from this about selecting which big mine resource and railway projects to invest in?

For more — go to Michael Lewis at

“WHERE IS THE BEEF” as Swaziland proposed rail is still delayed?

A proposed Swaziland rail freight project is still being discussed three years after I was first asked to examine it at a USTSA conference in South Africa.

Proponents are holding another conference about it. But the required economic feasibility assessment report needed to get investors to write checks to fund it — is still missing.

In a news report today that you can read at — — many will gather to hear papers delivered. “Multi-billion rail link under spotlight at SARA conference” The news report is by Nomthandazo Nkambule

The proposed multi-billion rail line will be discussed during the Southern African Railways Association (SARA) in South Africa. The line is championed by Swaziland Railway and Transnet Freight Rail. They would operate the rail service.

Funding still remains uncertain.

A detailed market assessment of how much traffic would use the proposed new route and an economic projection of the traffic’s ability to cover all of the operating and capital costs of the investment is “still missing”.

Until this due diligence assessment is available, investors will not write a check.

The due diligence has to assess customer commitment to use the project as the iron ore and coal resource super cycle appears to be declining according to multiple Independant experts.

If no customers (commodity buyers rather than sellers) show up for the conference and speak out, that would be a bad sign for the rail investors.  The railway capital project loan has to be paid back from rail earnings from the traffic bought by the commodity buying customers.

A conference like this may not be worth attending if the ultimate customers of the proposed rail project are not attending.

I have seen too many rail projects were everyone except the paying customer (user) is interviewed and listen to as to her or his requirements. In the profitable North American rail business model, everything about a capital plan revolves around the using customer.

Sent from Jim Blaze’s iPad

Tanzania — another nation betting on high ore and coal exports to back railways

Too many expect to prosper by building their rail policy on the now sputtering resource super cycle. Tanzania is the latest with a Plan A flawed strategic assumption.

Tanzania ministries continue to articulate building their railway projects in the face of mounting evidence of fundamental market demand/supply changes you have read in my economic blog themes.

There appears to be little due diligence about the ore and coal based traffic railway mix they are using in searching for railway infrastructure investors.

The headline in Bulk Materials April news reports says “Tanzania seeks rail funding” The government of Tanzania has apparently appointed Rothschild to secure funding for its three planned new railways. Two of the three rail projects are designed to facilitate coal and iron ore exports.

This seems to ignore the changing market dynamics of a long term over supply for those commodities.

Tanzania planners do realize that they will require a large commercial loan investment scheme to finance their rail. The price tag at this conceptual level of planning is admitted to be a whopping estimated US$14 Billion. That is the equivalent of about three Panama Canal upgrade projects.

Today at a design level we can describe as a high level concept feasibility, the cost variability of their capital estimates could be only about 60% or so accurate. Sometimes more accurate. But unlikely. That suggests a critical need for more due diligence risk assessment.

Before investors write check for checks for such projects, they want a 15% of so level of feasibility confidence.

Here is what is missing.

There is no publicly available and transparent railway projected future Income Statement feasibility report. The ability of the proposed Tanzania railroad to pay all of its operating expenses from its future revenues and then have sufficient net earnings left to pay future bond interest and principle is a great unknown at this point.

Instead they have a nicely stated conceptual grad plan discussions available as a MARKET SUPPLY factor  — yes.  But so few financial and marketing details. Only the engineering capital cost number is out there. That suggests “risks”.

In North American terminology, maybe that is why the project term “scheme” is being used in some of the project promotion literature. The economic use of a project scheme wording suggests risk in the US use of the English language.

NEVERTHELESS… the published news reports suggest rumors that some lenders have been found and are willing to consider commercial loan terms of about 20 years for the Tanzania rail project. Have those investors done their due diligence on the ability of the bonds to be paid off if the super resource cycle of the past decade of China steel consumption shifts?

No one is publicly saying so far. At least not is reports that I globally scan.

The current economic  assessments of global commodity consumption out towards 2025 by independant analysts like Citigroup and Goldman Sachs (see my previous reports) suggests a new Plan B set of assumptions should be considered before investing.

Comments by leading regional ministries do not suggest they are thinking that way yet. Instead, Transport Minister Samuel Sitta told some reporters that “We are in competition with the Port of Mombasa… so we need to be efficient.”

That is probably an understatement.

Fortunately, he can still get due diligence help before the project execution begins.  A solid market assessment and projection of possible financial returns against that market DEMAND side could be done in about four months time.

To read the news report, go to: Sent from my iPad

Long term ten year challenge of lower iron ore prices for rail planners

From Mongolia to South Africa and Brazil to West Africa the “go go” former strategic outlook for big new rail and port projects that bet on iron ore NEED SERIOUS DUE DILIGENCE rethinking.

This is an economic message I have been beating the drum about with my customers, friends, and readers for the past three years.

Only the strongest and lowest cost per ton-km railroad supply chains will be the sustainable economic competitors if the Citigroup strategic projections are correct

That translate to big train heavy axle technology if you as a rail and port logistics chain want to be winners going forward. Who is up for this challenge? ————-

From a Bloomberg report on May 26, 2015 “Global iron ore demand will contract over the 2020s as steel consumption growth in China peaks, according to Citigroup Inc.”

This independent due diligence estimate marks a long-run price forecast for the raw material by 32 percent.

To read the entire article, go to

Here is below added background from a multiple of sources on this subject from my previous experience and files.

1) Global iron ore demand will contract as steel consumption growth in China peaks over the next decade according to Citigroup Inc.

2) The long-run deliver iron ore price estimate was cut to $55 a metric ton from $81 as the world’s major mining companies will add overtime to the global over supply. The expert prediction is by analyst Ivan Szpakowski. He suggests that from 2016 to 2018, prices may average $40.

3) SUPER CYCLE REVERSE “The next decade is shaping up to be a complete reversal of the past decade,” Citigroup said.

4) Marginal higher cost per ton producers and supply chains are the ones most threatened In this commercial scenario, the marginal producers will likely falter Small train higher operating cost railways won’t cut it in that kind of global competition shift. This will particularly impact planners who continue to hold onto rail design plans that use light weight less than 33 metric ton axle loads and short trains.

As one specific example, Mongolian Gobi rail planners need to wake up and adjust to a Plan B big train engineering design that some of us suggested in 2006. Twenty five or less tons per wagon axle just will not get the job done against stronger global supply chain comoetition.

5) “Perhaps the greatest structural challenge facing the iron ore market is the rolling over of Chinese iron ore demand, driven by declining domestic steel demand and rising scrap availability,’ the bank said. ‘ ‘As a result, despite growth from other emerging markets, we forecast a decline in global iron ore demand over the 2020s.’’

6) New Growth Predictions out towards 2025 Demand for seaborne iron ore in China will likely slump to 982 million tons in 2025 That marks a decline from the revised expected high market demand that will likely peak around an estimated 1.2 billion tons in 2020 according to this Citigroup forecast.


Long supply chains feeding ore towards China and India by seaborne delivery to ports by rail will over the next decade see a drop over the period.

7) In the short term, prices for the ore at a 62% content at Qingdao will likely see periods of up and down movement. As an example, iron ore recently was paying around $47 a dry ton in April for delivery but then rose to about $63 a ton this week reports Bloomberg. Most suppliers need to get paid more than $90 in order to be financially sustainable as unsubsidized iron ore businesses.


‘‘The two lowest-cost producers per ton of iron ore are Rio Tinto and BHP”… Other sources like Goldman Sachs have previously reported this. These two giant mone companies have a pipeline of extremely low-cost mostly brownfield capital projects “that should see their combined production exceed 900 million tons by 2025”. These two source suppliers would under these calculations account for “roughly 70 percent of global import demand,” Citigroup predicts.

For the other 30%, including a big chunk from VALE, the other grand projects may struggle to see if their logistics chains can compete.

This fundamental predicted market demand and supply model means that a bunch of rail and port blueprints around the world “need a Plan B”.

Are they holding or to their old Plan A or adapting?

Those who reach out for help and change will be the ones to prosper.

What do you think?

Sent from Jim’s iPhone

Rail Competition: “Always keep your eye on emerging competition vs. rail”

Competition for the Bakken crude by rail trains may change the pattern.

There is an interesting technical report today that shows how a possible Canadian crude new pipeline investment might within three or so years change the pattern of using crude oil trains to reach eastern seaboard US and Canadian refineries.

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Oil-train safety kept secret is Headline News Business Report in Philadelphia

"Industrial" by woodleywonderworks from via Creative Commons License

Read the front page business section of the Philadelphia Inquirer Sunday. The railroad/hazardous materials secrecy theme is still being hammered by news media.

Is secrecy really possible with such huge train movements?

Ironically, by trying to play “the secret card” with responsible state and local emergency responders that would have keep that intelligence close, the story line about actual repeating train moves has been pretty much been fully vetted as to routes by the free press.

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Implications from report showing coal decline in US. Impact on rail freight?

Reports show that tougher coal burn environmental regulations could further weaken an already financially hurting US coal industry. It would also, if true, subtract a great deal of US profitable rail hauled coal business.

To read the entire Bloomberg article, go to


Here area few of the important points made in the analysis.

1) Electricity generation from the domestic coal fuel could drop as much as 90 gigawatts a year.

2) Twice the decline analysts had previously predicted

4) ~ 292 gigawatts of coal-fired generation capacity available in 2014

5) Most of the coal-plant closures would occur by 2020

6) Sooner if natural gas remains highly price competitive

7) The Environmental Protection Agency’s proposal might cut carbon emissions from all U.S. power plants 25% below 2005 levels by 2020.

8) EIA analysis predicts that US coal production will decline 20%  by 2020 and 32% by 2035 versus a business-as-usual case.

9) Recent market price changes have already shown a customer change use pattern without the legislative push.

Coal fired power plants generated ,~ 37% of the country’s electricity in February 2015.  In contrast, coal had generated over 50% in 2007.

Bloomberg reports that the market capitalization of the publicly traded U.S. coal companies has dropped to about $19.4 billion this year. This market capitalization had been about $78 billion in 2011.


Both CSX and Norfolk Southern have already een a significant drop in their eastern rail coal traffic. In the past, some USA rail companies earned as much as 35% or more of their profits just from rail coal transport. Some strategic rail planners saw that as a market weakness. Some as early as 15 years ago.


To adjust for the coal traffic shifts, companies like Norfolk Southern have been trying to market more intermodal truck competitive cargo. Unit trains of coal are in some ways being replaced by high vertical clearance double stacked container trains. These rail companies are shifting traffic mix by reaping the benefits of engineering and train technology investment in plant heavy haul infrastructure since about 1984.

Investments in higher vertical rail freight route clearance projects and heavier axle allowed track/bridge structures are paying off in North America. This reflects a “grind it out” strategic change by managers over three decades.

This well executed railway market strategy in North American has not yet been adopted by most of the rest of the world’s rail managers. Too often, international rail freight managers and government planners have not adapted to such commercial competition forces. They have ignored much of the commercial engineering advanced by North American railroad leaders. #########################################


Are the US railroads adapting fast enough as coal volume drops?

Are these rail market shift patterns to be repeated on the railways from Mongolia to South Africa, and Brazil to India? Do these nations have a rail strategy to adapt to the market shifts?

Which are already showing a strategic shift and investment towards more efficient big train mixed non coal traffic? Which are still in denial?

More than 60% of megaprojects mines face cost overruns –. LIKELY for rail also

WHERE IS THE DUE DILIGENCE on these ambitious project feasibility cost estimates?

This was a timely report on the internet business news

A 60% rate of large project cost over runs reported from a after the fact due diligence review.

What executives were “watching out for the investors’ interests”?

Where was the pre-project due diligence review?

As exuberance over China “go-go” growth cools down now to more realistic levels, some formerly free wheeling mine executives are probably going to be reassigned or worse.

Likely a similar fate awaits many project rail planners.

The cited EY study below is not focused on the supporting railway projects. But this significant mining failure implies similar rail project cost over run impacts from Mongolia to South Africa and from Mali to India.

Mongolia’s rail plan execution failure out of the Gobi Desert TT fields is probably a close parallel to this report’s conclusions. Almost now a decade in only partial construction, the Mongolian project is a similar “failure to execute” on time and on budget. But here, the blames rests on government rather than executives.


How can so many screw up so badly?

COSTS as identified in the EY evidence were on average 60% or more over the initial predictions.

Who did the original diligence checking?

Where was the investor/banking over sight?

60% is what most of us who are economist refer to as the conceptual level accuracy of costs. That is terrible for an actual post project delivery audit..

60% is a flunking grade if judged logically.

60% suggests that there was never a serious project feasibility assessment of the market and economics.

Will this lesson learned be used by project leaders going forward now that feasibility may be even more difficult if the resources super cycle is behind us?


The report title is: ‘Opportunities to Enhance Capital Productivity’

Here are a few highlights.

1) EY found that “an average budget overrun of 62% was reported on the 108 megaprojects investigated.”

2) “The projects considered were at various stages across the investment and project delivery life-cycle.”

3) “The projects were geographically diverse and related to the development of copper, iron-ore, gold, coal, nickel and other commodities.”

4) Cumulatively, “the projects represented global investment of $367-billion.”

5) “An estimated 50% of projects were reporting schedule delays even after remedial acceleration initiatives had been applied.”

The study spokesperson at EY is its global mining and metals advisory leader Paul Mitchell.

Mine company leaders now admit to their shareholders that with the good old high growth China days behind them… … the project managers need to be much more precise with their due diligence in order to achieve the promised investment margins. There is now a lot less room for error.

The report cites that total capital expenditure for the subject projects examined “have dropped from $142-billion in 2012 to an estimated $96-billion this year”.

For more details, please go to the Mining Weekly report from an Earnst Young special study at:

How would you score the report card based on the E&Y report?

Sent from Jim’s iPad

COMPETITION. There is ALWAYS some form of completion versus rail

There is always some form of competition. That’s a lesson many of the world’s railway leaders too often forget.

And many government planners and rail regulators sometimes never understand this concept.Now, we see an illustration of these competitive forces here in the United States.

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