Archive for June 2015

Delayed Swazi Rail project — discussion held in Africa

Part of the rest of story not covered in the speeches.

Requires a bit more due diligence to attract private investor real interest.

The basic news report found here:     From a 19/06/2015 report by Nomthandazo Nkambule

SO far, Swaziland has injected only E100 to E150 million in the multibillion proposed rail link spearheaded by Swaziland Railway and Transnet Freight Rail (TFR).

Speaking in an interview after the opening session of the first Southern African Railways Association (SARA) 2015 board meeting, Swaziland Railway CEO Stephenson Ngubane said this amount, amongst other things included environmental impact assessment.

The proposed line that would start from Lothair in South Africa and run to Sidvokodvo. Ngubane said the project has seen a pre-feasibility and a feasibility study so far. No solid funding yet. They are still looking for calculated project financials that might demonstrate ability to pay expenses and capital debt from projected freight revenues.

The Minister of Public Works and Transport Lindiwe Dlamini also spoke. Dlamini concludes that “Railways are the engines of economic growth, they enabled industrialisation in the past and they are even more relevant today.”

However, there is a logical mistake in that assumption. The mistake is that most industrialization railways were built to compete against horse and wagon and waterways. Swazi railways competes against trucks. That is a huge difference! Competition matters.

To beat the truck, the proposed new railway will have to employee big train technology. Will it?

Mongolian Coal plan to Suppy the two Koreas may be a “boutique” market at best

Some news reports with grand headlines look more like political posturing than great commercial breakthroughs. What is the full story behind a press release?

This is the latest headline grabber, “Mongolian Coal Firm Signs Four-Nation Deal Including North Korea”.

The story was picked up by multiple news agencies, including Bloomberg as reported by Michael Kohn

investors may require additional Independant due diligence about the rest of the story.

Here are a few professional observations based on my six years coverage of Mongolia’s railway exporting problems. The essential theme is that “distance matters”.

Getting to the Pacific Ports via the round about Russian connecting eastern Trans SIBERIAN rail route is physically possible. But at the distance involved, it may be a bad logistics route when costs per ton-km are calculated.

Plus, there may be too many SIBERIAN coal mine origins along the long route path to compete with these remote Mongolian origins. In the long run, Mongolian origins at best will likely be a marginal provider. If the route is too long. Is there enough volume to “show the flag”. Yes. Long term profit sustainable? Not unless the rail freight rate is priced as almost a donation.

Why would RUSSIA RZD “donate” scarce track access paths for !omgolian origin shippers that compete for export sales with a siberian mines? Geo-Resource politics might be a complex reason. Who can say?

From a publicity stand point, yes it appears that arranging the circuitous route can be “hailed as a major achievement” as stated to the news media by Batbaatar Bandan, the company’s chief executive officer. “For Mongolia to have four-country cooperation, I think it is historic,” he said at the signing of a memorandum of understanding. Note: this is a MOU. That is not a contract commitment.

The company would sell the coal to Mongol Sammok Logistics Co., a new joint venture between South Korea’s Sammok Shipping Co. It is also an arm of the Mongolian government says one source.


The coal has to moved more than 4,000 kilometers (2,500 miles) by train to the North Korean port in the city of Rason, via Russia. And then it has to rely on friendly rates and reliable train operation between the North and South Korean governments in order to cross North Korea into South Korea Sounds a bit risky.

Yes, they will likely move a trial load. But that proves little about long term reliable and sustainable route profitability. The shipper, Sharyn Gol, claims to reporters that it is “in a position to export several hundred thousand tons of coal per year.” From a due diligence view, that is a rail volume “niche market”.

Some claim a possible annual volume at some unknown future time of perhaps 300,000 metric tons of exports a year. But there is no pricing agreement yet.

Investors should probably check for “the rest of the story”. ———

The alternative is to take up the Chinese offer to use the China rail network via the Mongolian southern proposed rail gateways to reach the CHINESE Pacific ports and then use ocean barge or ocean ship to reach the Korean markets. That commercial offer was made almost a year ago by China and as of this point in the summer of 2015 appears “dead in the water”. There were limits I believe as to which rail inland gateways could be used, but all of the southern routes out of Mongolia are far shorter to reach the Pacific ports versus going through RUSSIA.

And distance does matter as a logistics cost. The Mongolians have collectively as a nation been wrestling with this rail access issue for almost a decade.

More evidence — This from PwC — of the global resource mine slowdown

Management consultants PwC have published another report about global trends in the mining industry.

Mine 2015 examines the 40 largest mining companies in the world.

Here are some tidbits.  Those 40 companies as a group are market valued today at about $800 billion. That represents a halving of their value calculated four years ago.

The report has the interesting name “The gloves are off”.

Pone take away is the mining Shareholders are literally “ticked off” about the estimated $27 billion in corporate write offs because of poor investment decisions made by overly aggressive managers between 2006 and 2013.

Under pressure from shareholders, many of the top 40 companies cut capital spending 20% in 2014. Many of the so called greenfield projects are the ones taking the biggest hit. The company exploration budgets have been particularly cut.

Over the last 2 years, “the majors cut back their exploration spending by more than half to about $4.9 billion in 2014. The drop was from about $6.3 billion spent in 2013 and $12 billion spent in 2012. This is consistent with trends reported by multiple otyerbnewscsources.

The report makes note that the so called junior miners in this list of 40 has witnessed the worst in terms of their ability as a market group to raise greenfield exploration capital.

Obviously, many of the supporting rail and port projects have also been hurt, suspended, or dropped.

Contact PwC for more details.

US Intermodal Rail growth versus truck growth may be slowing after five years…

Intermodal Rail growth from truck may be slowing after five years…

A report in the JOC suggests that U.S. shippers are finding it more and more difficult to rationalize shifting their cargo from highway to rail.

Why?  Questionable service reliability and accelerating intermodal rates are to blame, according to intermodal analysts and a recent shipper survey.

For more details see

And contact Reynolds Hutchins at


A few highlights from published sources:

A Wolfe Research survey of roughly 600 shippers, intermodal share gains have slowed to their lowest level in nearly five years.

In the first three months of 2015, shippers diverted 1.3 percent of their volumes from truck to rail, down nearly 19 percent quarter-over-quarter. On the flip side though, shippers moved 1.6 percent of their rail volumes to the highways during the last quarter.

The Wolfe Research found that this is the second straight quarter that shippers have indicated a net freight diversion from rail to truck, after four years of the exact reverse pattern.


Over the past six months, the Cass Intermodal Price Index — a measure of “all-in” intermodal costs including rates and fuel surcharges — has risen more than 4 percent.

In the period, U.S. contract truckload rates rose only half that at ~ 2 percent, according to the Cass Truckload Linehaul Index.


CSX Transportation reported total intermodal volumes were up only 1.2 percent year-over-year in its first quarter.

Norfolk Southern Railway, reported intermodal gains, up 5 percent. Further west,

BNSF Railway reported port congestion among other factors had pulled down its intermodal volume roughly 5.5 percent for the quarter.

Over the longer term, a number of experts still expect railroads “to take market share from trucks” is the conclusion from Wolfe Research in its latest report.

The railroads continue to aggressively invest capital to improve track capacity and deploy more train equipment and train crews.

BNSF, for example, has trumpeted reports of significantly improved intermodal service and performance metrics. According to BNSF, since the fourth quarter of 2014, BNSF intermodal has experienced overall improvement with velocity up 6 percent since the beginning of November and on-time performance up nearly 20 percent since the middle of that month.

Log onto the Journal of Commerce for their complete report.

Forecasting next months 2nd quarter rail earnings — Try doing this for government owned rail companies

Here is an example of an average analyst making 2nd QUARTER PROJECTIONS OF PRIVATE INVESTOR HELD RAILWAY FINANCIALS in the case of Union Pacific.

Only in North America is there such transparency.  Well, maybe in a few other places. But not many.

In this case, an analysis like Michael Hooper is reporting seeing massive declines in certain categories of US railroad freight, especially coal.  So he asks, what is the likely report by union Pacific going to look like to an investor about 30 days from now?

He begins by observing that UNP’s coal volumes are down ~ 28% Q2 to date. Grain is down 21% in the quarter, crushed stone and gravel down 14%; petroleum  down 6%. The only gainers so far this quarter are primary forest products, up 7%; chemicals up 1%; motor vehicles up 9%; waste up 3%… to name a few.


If an assumption allows for an overall 2% pricing adjustment from a year ago; and if trends remain the same for the rest of June; then Union Pacific’s revenues will likely be down about 4%. His calculation.

Under that set of assumptions, UNP’s revenues in Q2 might decline by about $240 million. In turn, that might calculate to $5.76 billion of second quarter revenues –, slightly less than the average Wall Street analysts’ estimates.

But the rail company net profit margin may be the same at about 21.% for the 2nd quarter. Why?  Because UNP management is cutting variable costs.

Using this process, Michael then calculates the expected earnings per stock share.  Lot of maybes. But interesting to see how almost any analysts can see transparently the likely rail corporate income statement future outcomes.  By accessing public data.

Try doing that in South Africa, Senegal, Mongolia, or many other places were the citizens are the shareholders in the railroads. Cannot be done there with the government monopoly railways. Way too secretive in most of those organizations. In many, you might see the results about a year after they occurred.

For more about Michael’s analysis technique, go to:

Michael Hooper, “Thoughtful Investor”

Rail transit agencies and states will have to pay more to maintain the NEC rail infrastructure

Will the federal government pay up also? No one is sure.

But from the small states like DELAWARE and RI to the larger ones like PENN and Mass, the local will have to pay a lot more then they had been used to.

Major points by Paul NUSSBAUM in The Inquirer June 18, 2015 report include these:

Northeast states and transit agencies – including SEPTA and NJ Transit and DELAWARE – are being asked to pay more to maintain the rail corridor between Washington and Boston that they share with Amtrak.

The new cost-sharing plan for the Northeast Corridor is due to take effect Oct. 1

The states had 6 years to get ready for this change.

The state’s actually move more people on commuter trains each day then Amtrak does.

The 457-mile NEC corridor sees 710,000 commuter-rail passengers and only 40,000 Amtrak passengers each day.

The majority of the 2,000 daily trains are local state run commuters.

In 2008, congress ordered the multiple rail corridor users to devise a formula for sharing costs that historically have been divvied up in more than 50 separate contracts. “There hasn’t been any uniformity to how those costs are shared. Some are overpaying and some are underpaying,” says Toby Fauver, a Pennsylvania deputy secretary of transportation who co-chaired the committee that created the new cost-sharing plan.

That committee is part of the Northeast Corridor Infrastructure and Operations Advisory Commission. The commission is composed of one member from each of the NEC states (Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware, and Maryland) and the District of Columbia, four members from Amtrak, and five members from the U.S. Department of Transportation.

Hard to believe that 18 can agree unanimously on anything!

In December 2014″, the commission voted, 17-1, to approve a new cost-sharing policy, designed to spread the burden for spending $425 million a year over the next three years for maintenance and some limited upgrades on the corridor.

These costs would rise to $530 million a year.

NOTE: The NEC Commission has no way to compel the states to pay more.

Payment disputes might be taken to the federal Surface Transportation Board.

Under the formula, SEPTA payments to Amtrak will increase from $38.4 million this year to $52 million next year.

For NJ Transit, the cost would be more than $100 million a year.

Massachusetts is upset at its bill of $32.6 million for a 38-mile section of the NEC that it, not Amtrak, owns.

Massachusetts is also skeptical that the federal government will uphold its obligation to add $125 million in new funding for the corridor annually for the next three years, then boost its contribution to at least $400 million a year above current levels.

Massachusetts’ fears might be well-founded as the U.S. House approved a proposed budget for Amtrak this month that will cut Amtrak’s funding by 17% (or $242 million).


The corridor’s infrastructure improvement needs are expected to cost about $18 billion over the next five years  Only about $7.5 billion is funded under current plans.

Collectively, the NEC states contend that “it has been the longstanding position that the federal government has primary responsibility for eliminating the backlog of deferred maintenance to restore the infrastructure to a state of good repair”.

Will Senators from Wyoming and Idaho and others states with no direct NEC benefits agree?


Selective comments:

One associate Ted observes that the NEC States tried to roll back this PRIIA provision, assumed they would succeed and then did nothing of consequence reference a strategic plan as to the possible increase in their rates.

Another friend observed that “The crunch time is approaching. Politicians have to face up to the true costs of commuter service, just like they have to face up to true costs of Interstates, bad bridges, and regular highways. Everyone wants something for nothing.

Review of South Africa’s electricity fall from prominence to the current 2015 shortage of power

Interesting history from African investigative reporters

Transnet Rail depends upon a lot of electricity to power its South African trains. Maybe a good tactic in the old days. But faced with massive power shortages, maybe not a good Plan A anymore.  Plan B would use more diesel-electric high efficiency low pollution locomotives.  Will it come to that?


Founded in 1923, the South African monopoly utility was known as the Electricity Supply Commission before changing its name to Eskom in 1987. It built its first hydropower station in 1925 and commissioned its first two coal-fired plants two years later.

Dozens more facilities followed over the next six decades, turning Eskom into the world’s fourth-largest power utility.

Expansion peaked in the 1970s and early 1980s when about 20,000 megawatts of power, or almost half of Eskom’s current 2015 capacity, was installed.

Here is a summary of the history of its rise and then fall found in:      Primary writer is

Eskom’s expansion was curtailed in 1985, as sanctions were instituted against the apartheid regime, foreign loans dried up and the economy stagnated, along with electricity demand.

By the time the new National Congress took the government reigns in 1994, the utility’s reserve margin, or the amount by which generating capacity exceeds peak demand, was more than double the international norm of 15 percent. That looked good. Very good.


The emerging politics of state energy focused then on connecting the more than 40 percent of households and tens of thousands of schools and clinics in black areas to the electricity grid. The broadening of access to power coupled with resurgent growth as the economy opened up and began to consume Eskom’s excess capacity.

Alarm Bells Ignored?

“In the 1980s and early 1990s, Eskom had a huge degree of autonomy,” says Anton Eberhard, a professor at the University of Cape Town’s Graduate School of Business,. “That gradually got eroded. There was a time when the government stopped Eskom from building new power stations.”

The first alarm bells were sounded publicly in 1998, when the Department of Minerals and Energy released a policy paper warning that the country could run short of energy by 2007 and a decision on expansion would be needed by the end of t1999.. It advocated allowing private investment in the industry.

“With no imminent crisis in sight, the government took no immediate action” writes the BizNews author..

In 2001, the utility was named company of the year at the Financial Times Global Energy Awards in New York. All of its 78 production units were considered to be in good working condition.

Low Prices – low investment and maintenance

Potential investors in the power industry were deterred by some of the world’s lowest electricity prices and the bankruptcy of Enron Corp. in the U.S. In 2003 South Africa placed its privatization plans on hold.

“Eskom looked like a stable company” providing cheap electricity as the timeline headed towards 2004.

In late 2004, the government awakened to the looming energy crunch as economic growth and power demand surged, and Eskom announced it would spend 50 billion rand ($4.1 billion) on expansion over five years. In 2005, the five-year investment budget was more than doubled to 102.8 billion rand.

Nationwide Blackouts

The first power cuts struck the Western Cape province in late 2005, when a generator at the nation’s sole nuclear plant near Cape Town was damaged by a loose bolt. The coastal city and Johannesburg experienced further blackouts in 2006.

In May 2007, Eskom approved its biggest five-year investment program yet — the construction of the Medupi and Kusile coal-fired plants and 11 other generation projects, worth 203.6 billion rand. The targeted completion date was December 2015. S

South Africa’s then president apologized to the nation for poor planning say news reports. And by October 2007, countrywide rolling blackouts began.

The crisis intensified and a national electricity emergency was declared in January 2008 as the grid neared collapse, shutting most mines and factories for five days.

“We underestimated the scale of demand,” Alec Erwin, who served as South Africa’s public enterprises minister from 2004 to 2008, said in a May 22 interview at his Cape Town home. “Our planning was two or three years behind.”

Maintenance Deficit as the government prepared for the 2010 soccer World Cup

Blackouts were suspended in February 2008 as Eskom brought more of its idled plants’ units back into service and delayed maintenance to comply with a government instruction to ensure power supply wasn’t disrupted in the run-up to the staging of the 2010 soccer World Cup.

Eskom’s CEO resigned in 2009.

2014 and the OUTAGE RETURNS

The outage reprieve lasted until last year, when a lack of upkeep took its toll on Eskom’s plants.

In 2015, just 49 of its 121 generating units were in good working order, 32 were in poor condition and the balance were somewhere in between. Kendal, Eskom’s biggest facility at 4,166 megawatts, has six units.

Regular breakdowns ensued. Load-shedding, as scheduled blackouts are known in South Africa, has taken place on average every third day this year.

Rating Cuts

Moody’s Investors Service cut its rating for Eskom to non- investment grade, or junk, on Nov. 7 last year.

Standard & Poor’s followed suit in March 2015.

With the Medupi and Kusile plants running four years behind schedule, Eskom has limited scope to boost output and the new CEO Molefe is focusing on optimizing output from existing plants.

The government, admits that it expects power shortages to persist for two to three years.

The state monopoly currently supplies about 95 percent of South Africa’s power.

On a few days this fall, power available for its customers was well below the 60% market demand.  Industries that depend upon power to employ workers and generate GDP growth are suffering.  Once a leading BRIC high GDP annual growth nation, South Africa’s GDP this year may grow by less than a 2% to 2.5% range according to some sources.

Will the trains still receive power on a priority basis as a fellow state monopoly?  Should they?

Many leading private business companies have already turned to independent power sources because their business can no longer depend on the Eskom network. How will Transnet rail respond to the national energy crisis?


GREX acquires SENSR Monitoring Technologies to offer complete track and bridge inspection service

SENSER competes with Atlanta based LifeSpan Technologies in using remote sensors to measure bridge and possible track movement under load.

The deal expands GREX services to its growing customer base. Many are rail companies.

More details can be found selective reports, including:

Essential highlights as I see the business.

Georgetown Rail Equipment Company (GREX) acquired SENSR Monitoring Technologies. It is setting up new wholly owned subsidiary, SENSR Monitoring Technologies, LLC (SMT).

SENSR develops and sells special monitoring equipment and has created an internet-based “health monitoring system” for measuring and managing structures movements by remote connections.

GREX says that its business plan is to expand its current advance infrastructure products and monitoring systems to include monitoring functions with SENSR on: Railway bridges, highway bridges, wind turbines, And even oil derricks.


Like its Atlanta based competitor, the SENSR products will facilitate the monitoring of these structures to better analyze what level of deterioration exists in them today and what might assist in prioritizing repairs or replacement options.


The SENSR team, including founder Chris Kavars and Les Davis, will be part of the resulting business efforts. GREX President and CEO Wiggie Shell will also be chairman of SMT.  The management team believes that its sensor product “can revolutionize the structural monitoring industry”… ——

Part of the business move came from a concept looked at by one of the large engineering consulting groups. But GREX appears to be the innovator with this deal.

As an economist, I see this offering a WOW technical change to heretofore a largely visual inspection regime.

These modern sensors create much more data driven certainty to inspection reports. GREX competitors for inspection service offered to railroad clients include Progress Rail, RailWorks, and Herzog to name a few. None appears yet to offer bridge and infrastructure movement sensing technology of this GREX type.

My blog readers will recall an earlier published piece on how these. modern sensing and recording devices can detect precise bridge movement conditions that can then be used as data points to determine immediate bridge repair requirements versus deferrable conditions. The level of analytical reporting condition confidence is an order of magnitude much higher with this innovation.

These innovative sensors can significantly alter perceived railroad company capital budget requirements by supplementing visual inspection procedures that historically gave “a range of uncertainty” to the customer.


Read more

Washington WMATA — FTA cites safety lapses in report today

The FTA conducted a very large safety audit of the Washington transit system.  The results were released today.

The US DOT FTA found serious safety lapses in Metrorail’s Rail Operations Control Center, which schedules and conducts maintenance work, manages abnormal and emergency events, and ensures the safety of trains and personnel on the right-of-way. In key areas,

WMATA is not effectively balancing safety-critical operations and maintenance activities with the demand for passenger service.

“These are serious findings that strongly indicate that, despite gains made since the Fort Totten accident, WMATA’s safety program is inadequate,” said U.S. Secretary DOT Anthony Foxx.

FTA conducted the Safety Management Inspection (SMI) late this winter and into early spring as part of its new safety authority established by the Moving Ahead for Progress in the 21st Century Act (MAP-21) in 2012. The SMI evaluated WMATA’s operations and maintenance programs, safety management capabilities, and organizational structures to assess compliance with its own procedures and rules, existing federal regulations and FTA Safety Advisories…

The SMI report includes 54 safety findings: 44 for Metrorail and 10 for Metrobus.

FTA is issuing a Safety Directive to WMATA identifying required actions for each of the safety findings.

FTA is requesting the WMATA Board to determine what changes to its Fiscal Year 2016 budget may be necessary to effectively implement the corrective actions.

Are North American Freight Car Orders heading towards down cycle as crude oil production sags?

A previous near consensus 86,000 car forecast earlier for this year is dropping.

80,000 to 84,000 level may now be more more likely.  Or lower?

Tank cars, frack sand cars, and coal cars most likely to fall off the pace based on current spring railroad traffic reports.

From Bloomberg, 16 June

The agency reports that Greenbrier Cos. fell the most in almost seven months after Stifel Financial Corp. analysts estimated that railcar demand will be hurt by a decline in oil prices.

To read the entire article, go to

Stifel estimated production will be 84,000 railcars this year, less than transportation consultant FTR Associates’s outlook of 86,000.

History shows us how volatile the year to year North American rail car market can be as this SUPPLY SIDE changes to reflect DEMAND SIDE economics.