Rail Carload Traffic
2008 and beyond
A presentation to The Sandhouse Gang by
Michael W. Blaszak, January 28, 2008
Rail Carload Traffic
•
•
•
•
•
•
•
Overview and Definition
Traffic Trends 2000-07
Railroad Performance Initiatives
The Short Lines’ Role
The Freight Car Fleet
Rate Outlook
Conclusions and Questions
Overview and Definition
• “Carload Traffic”
for purposes of this
presentation
includes railroad
freight shipments
that are neither
intermodal nor
handled in unit
train service
– About 42% of total
carloads
Overview and Definition
• Carload traffic has been declining for many
years
• Trends in the North American economy point
to continuing decline
• Nonetheless, this traffic remains profitable
• How can the railroads manage this declining
business segment to maximize profits?
Traffic Trends 2000-07
Railroad Traffic 2000-07
– 14.5% since 2000
– 60.9% since 1990
Source of all traffic data:
www.aar.org
1765
1750
1774
1756
1721
T o n -m ile s (b illio n s )
• Measured in tonmiles, total railroad
traffic has grown
1800
1700
1650
1610
1600
1550
1558
1564
1534
1500
1450
1400
2000
2001
2002
2003
2004
2005
Calendar Year (52/53 weeks)
2006
2007
Traffic Trends 2000-07
Railroad Traffic 2000-07
20000000
18000000
16000000
Carloadings
14000000
Total carloads
12000000
All other
10000000
Grain, coal, stone, coke
8000000
Intermodal
6000000
4000000
2000000
0
2000 2001 2002 2003 2004 2005 2006 2007
Calendar Year (52/53 weeks)
• Measured in carloadings, though, total railroad
traffic has declined during the 2000-07 period
Traffic Trends 2000-07
• Freight traffic
handled in unit
train quantities =
generally up
• Freight traffic
handled in single
or low multiple car
quantities =
generally down
Traffic Trends 2000-07
• Declining: Metallic
Ores
– Closure of major basic
steel producers
– Shift of auto and
appliance production
offshore
– New pelletizing
technology
concentrates iron
content
– High natural gas costs
impact production
Traffic Trends 2000-07
M etallic Ores
900000
800000
818145
760202
712615
Carloadings
700000
698420
600000
500000
400000
374524
376437
300000
355598 335396
200000
100000
0
2000
2001
2002
2003
2004
2005
Calendar Year (52/53 weeks)
2006
2007
Traffic Trends 2000-07
• Declining:
Nonmetallic
Minerals
– Florida phosphate
production
decreases 33%
– Potential
development of
huge Saudi
deposits could
erode export levels
Traffic Trends 2000-07
Nonm etallic Minerals
450000
418774
400000
379445
360156
350000
385655
395139
377986
317024
300000
312365
250000
200000
150000
100000
50000
0
2000
2001
2002
2003
2004
2005
C alend ar Y ear ( 52 / 53 weeks)
2006
2007
Traffic Trends 2000-07
• Declining: Primary
Forest Products
– Flat to declining
U.S. lumber
production
– Katrina aftereffects
– Profitability issues
Traffic Trends 2000-07
Primary Forest Products
300000
275852
Carloadings
250000
244664
200000
192422
189292
174208
164044
150000
140719
123905
100000
50000
0
2000
2001
2002
2003
2004
2005
Calendar Year (52/53 weeks)
2006
2007
Traffic Trends 2000-07
• Declining: Pulp,
Paper and Allied
Products
– Internet destroying
newspaper market
– More consumer
packaging made
offshore
Traffic Trends 2000-07
Pulp, Paper & Allied Products
600000
514079
500000
470170
433987
451153
446494
444765
400000
425344
391967
300000
200000
100000
0
2000
2001
2002
2003
2004
2005
C a l enda r Y ea r ( 5 2 / 5 3 we e k s )
2006
2007
Traffic Trends 2000-07
• Declining: Motor
Vehicles and
Equipment
– Severe decline in
domestic-based
manufacturers’
market share
– Transplant parts
suppliers often site
near customers’
plants
Traffic Trends 2000-07
Motor Vehicles & Equipment
1400000
1294927
1212103
1200000
1262059
1231264
1187911
1162363
1091745
1033544
Carloadings
1000000
800000
600000
400000
200000
0
2000
2001
2002
2003
2004
2005
Calendar Year (52/53 weeks)
2006
2007
Traffic Trends 2000-07
• Growing:
Petroleum
Products
– Increasing demand
– Railroad marketing
initiatives like
BNSF’s Fuel by Rail
program
Traffic Trends 2000-07
Petroleum Products
340000
333610
330000
Carloadings
320000
319478
310000
300000
308264
301726
296559
295750
296891
290000
289413
280000
270000
260000
2000
2001
2002
2003
2004
2005
Calendar Year (52/53 weeks)
2006
2007
Traffic Trends 2000-07
• Growing: Waste and
Scrap Materials
– Limited landfill space
in coastal urban areas
Traffic Trends 2000-07
Waste & Scrap Materials
540000
529930
520000
513528 513528
Carloadings
506620
500000
497783
496682
480000
466129
460000
458580
440000
420000
2000
2001
2002
2003
2004
2005
Calendar Year (52/53 weeks)
2006
2007
Traffic Trends 2000-07
• No Clear Trend:
Chemicals
– Traffic declined in
2005 and 2006 (flat
production, rate
increases)
– Traffic grew in 2007
due to ethanol
– Is the ethanol boom
over, or just
beginning?
Traffic Trends 2000-07
Chemicals
1580000
1569735
1560022
1560000
1540000
Carloadings
1520000
1538086
1523220
1520816
1500000
1519225
1497401
1480000
1460000
1444391
1440000
1420000
1400000
1380000
2000
2001
2002
2003
2004
2005
Calendar Year (52/53 weeks)
2006
2007
Traffic Trends 2000-07
• No clear trend:
– Grain Mill Products
– Food and Kindred
Products
– Lumber and Wood
Products
– Stone, Clay & Glass
– Metals and
Products
Railroad Performance Initiatives
• Given that carload
traffic as a whole is
in a state of
decline, how can
the railroad
industry handle
this business more
efficiently?
Railroad Performance Initiatives
Railroad
1Q2007
(mph)
1/2008
(mph)
BNSF
21.8
24.2
CP
24.1
23.0
CSXT
19.2
21.8
KCS
23.9
23.0
NS
19.9
20.9
UP
20.5
22.1
Source: www.Railroadpm.com. Note:
CN does not report this data to RPM.
• Run manifest trains
faster?
– Increases productivity
of assets
– Reduces fuel efficiency
– Increases track
maintenance
– Not much change (CP
reported 24.4 m.p.h.
average manifest train
speed in 2001)
Railroad Performance Initiatives
• Improved Operating
Plans
– CSXT One Plan
– UP Unified Plan
– CN Precision
Railroading
– Common goals: meet
customer
requirements with
most efficient use of
resources
Source of quote: NSC 8-K for
February 27, 2003
• Norfolk Southern
Thoroughbred
Operating Plan
– “ . . . with more
predictable train
operations, terminals
can allocate track
space with a higher
degree of certainty
about the track space
required, and the
duration that the
track is occupied.”
Railroad Performance Initiatives
• Reduce time in
terminals?
– Better management
improves equipment
utilization
– CP reported terminal
dwell time of 27.2 hours
in 2001
– Difficult to make
measurable progress
without significant
investment in terminals
Railroad
1Q2007
(hours)
1/2008
(hours)
BNSF
24.3
23.0
CP
24.0
22.6
CSXT
24.5
23.9
KCS
24.7
26.2
NS
22.3
25.7
UP
25.3
25.3
Source: www.Railroadpm.com. Note:
CN does not report this data to RPM.
Railroad Performance Initiatives
• Terminal Investment
Examples
–
–
–
–
–
BNSF Argentine Yard
NS Conway Yard
CP Bensenville Yard
UP Roseville Yard
CN Johnston Yard
Railroad Performance Initiatives
• CN SmartYard
– “SmartYard takes
information from different
existing CN systems,
combines the data, and
then provides the best
sequence for processing
the cars. It continuously
adjusts to constantly
changing conditions of the
yard inventory and CN's
network . . .”
– Reduced dwell time at
MacMillan Yard by six
hours
Sources: www.cn.ca;
interview with Mark Hallman
Railroad Performance Initiatives
• Norfolk Southern
LOPA
Source of quote: NSC 8-K for
February 27, 2003
– Local Operating Plan
Adherence--metrics in
TYES car inventory
management system
– “LOPA evaluates
adherence to our work
orders and indicates
the extent to which we
provide service by
pulling cars from, or
placing them at,
customer sidings. “
Railroad Performance Initiatives
• BNSF AIM Program
– “Assess. Improve. Maximize.”
– "BNSF is ‘reshaping’ the carload network to
increase delivery consistency and asking
carload customers to play a part as well by
examining their own operations and
infrastructure for the purpose of identifying
opportunities for growth, efficiency and
reliability. Feedback from the meeting revealed
that customers embrace AIM and are excited
about the changes it will bring, not just for the
carload network, but system-wide." -- BNSF
Group Vice President-Industrial Products Dave
Garin, in a prepared statement on BNSF’s
Customer Advisory Board meeting in Seattle,
October 30, 2007.
Railroad Performance Initiatives
• Local freight train
service has not
changed in many
years
• AIM concentrates on
making the “first
and last mile” of
each carload
movement more
efficient
Railroad Performance Initiatives
• AIM began in
January 2007
• Goal is to
collaborate with
every BNSF
carload customer
to find ways to
make local train
service more
efficient and
reliable (delivery +/one hour from
plan)
Railroad Performance Initiatives
• AIM relies on customer cooperation
– Most industry tracks are owned by
customers beyond clearance point of
switch
– Inadequate facilities result in additional
switching events, require yard storage
capacity, and interfere with main line
movements
– The big question: will customers spend
capital money to help BNSF provide
better service and reduce its costs?
Railroad Performance Initiatives
• What might happen if
customers don’t
cooperate?
– UP will enforce policy
against switching
customers without
track agreements
– CSXT will turn down
requests for new
sidings that need to be
switched off main track
Railroad Performance Initiatives
• Transloading
– Combines rail
efficiency with
trucking flexibility
– Allows railroads to
reach off-line
customers
– Reduces switching
expense
Pictured: Wind generator
parts transload, Iowa, Chicago
& Eastern, Bruening, Iowa
Railroad Performance Initiatives
• Logistics parks—wave of the future?
Railroad Performance Initiatives
• First logistics park:
ATSF in Alliance,
Texas (1990)
• BNSF Logistics Park
Chicago (2002)
• Many projects under
development
Left: Sketch showing Gardner,
Kansas logistics park, to open in 2008
(source: www.gardnerkansas.com)
Railroad Performance Initiatives
• Logistics park
advantages
– Improved switching
productivity
– Concentrated train
operations
– Highway interface
• Logistics park
disadvantages
– Land cost
– Distance from market
– Profit sharing with
developer
The Short Lines’ Role
• 545 United States short lines
– 55 in Canada
• U.S. Railroad Mileage (2006)
– Class 1 Railroads: 94,801
– Class 2 and 3 Railroads: 45,689
– Total: 140,490
• Freight Revenue (2006)
– Class 1 Railroads: $50.3 billion
– Class 2 and 3 Railroads: $3.7 billion
Source: www.aar.org
The Short Lines’ Role
• In 2006 short lines
handled 10.6
million cars to
about 12,000
locations
– About 25% of all
U.S. rail traffic
originated or
terminated on a
short line
The Short Lines’ Role
• Short line
advantages
– Economical
operations
– Access to more
than one Class 1
connection
– Generally located in
lower wage and
land cost areas
The Short Lines’ Role
• Short line
disadvantages
– Limited geographic
scope
– Small size=scant
purchasing power
(offset to some
extent through
holding companies)
– Condition of track
and bridges
The Short Lines’ Role
• Short Line Railroad
Investment Act
– Tax credit for track
upgrading (2004)
– Investment needed
to handle 286,000
lb. cars
– Expired December
31, 2007
– No action by
Congress on
extension
The Freight Car Fleet
• Railroad-owned car
fleet shrinking for
decades
1400000
1200000
1168114
1000000
750404
800000
600000
475415
440552
400000
120688
102161
200000
0
Class 1
Railroads
Class 2 and Private Cars
3 Railroads
Source: AAR Railroad
Facts; www.aar.org
2006
1980
– More efficient
operations
– But still insufficient
productivity
– Desire to get assets
off balance sheet
The Freight Car Fleet
70000
60000 55821
48000
46292
50000
34260
40000
32183
30000
17736
20000
10000
08
20
07
20
06
20
05
04
20
20
03
20
02
20
01
0
20
Progressive Railroading
74943
68567
62800
80000
00
Source: Railway Supply
Institute (rsiweb.org);
Freight Car Deliveries
20
• Freight car
production rises
and falls in
response to
railroad traffic
levels
Note: 2007 and 2008 data are estimates.
The Freight Car Fleet
• Tank cars: the
manufacturers’
lifeline
– Virtually all
privately owned
– Regular investment
by lessors and
shippers
– Ethanol shipments
driving demand
(22,500 new tanks
projected for 2007)
The Freight Car Fleet
• Covered hoppers:
demand dropping
fast
– Cement and roofing
granule traffic
declines with
housing
– Grain traffic flat to
down
• DDG shipments less
than expected
The Freight Car Fleet
• Gondolas: always a
low priority
– Used primarily for
scrap
– Old cars are good
enough
– 1,000-2,000 cars/year
produced
The Freight Car Fleet
• Centerbeam
flatcars: housing
slump shelves
orders
– About 1,700 new
flatcars expected in
2007
The Freight Car Fleet
• Boxcars: the
vanishing mainstay
– Decline of paper
traffic damps
demand
– About 500
deliveries expected
in 2007
The Freight Car Fleet
• Railroad cars: a long-term investment
– Cars built before July 1, 1974—40 years in
interchange service
– Cars built on or after July 1, 1974—50
years in interchange service
– Rebuilt cars may be given an additional 40
years of life not to exceed 65 total years
(subject to FRA approval)
Rate Outlook
• Railroads have been improving profits
in the stagnant rail carload market
primarily by raising rates
• Because carload shipments generally
move by rail because truck transport
is impractical or uneconomic,
shippers have had few short-term
alternatives to paying the higher rates
Rate Outlook
2004
Class 1 Freight Revenue
(billions)
2005
2006
$39.1
$44.5
$50.3
$0.02354
$0.0262
1
$0.02840
Average tons/carload
61.3
61.0
60.9
Average tons/train
3126
3115
3163
Revenue/ton mile
Source: www.aar.org
Rate Outlook
• Upcoming: more of the same
– Contracts being renegotiated as they
expire
• UP 1Q08 analysts conference call: 6%
revenue increase expected for year on flat
volume
– Movement to tariff rates for some
commodities (coal), which railroads can
change easily
– Effect of economic slowdown?
– Reregulation?
Conclusions and Questions
• The railroads’ carload freight business,
as a whole, is declining
– Some segments declining faster than
others
– Pockets of growth
• Prospects for reversing the broad trend
are dim due to structural change in
North American economy
Conclusions and Questions
• Railroads have had some success in
improving the efficiency of carload
service
– Better measurement
– Better management
– Targeted investment
– Question: how much will railroads and
their customers continue to invest in the
business?
Conclusions and Questions
• Railroads have improved the
profitability of carload service primarily
by raising rates
– Will this strategy continue to work in a
period of flat economic growth—or a
recession?
– At what point do rate increases push
marginal customers offshore—or out of
business?
Conclusions and Questions
• The future?
– 2000-07 trend: losing 167,278 carloads a year
Rail Traffic Projection
18000000
16000000
Calendar Year
14000000
12000000
10000000
Total non-intermodal
8000000
Carload commodities
6000000
4000000
2000000
0
2007 2008 2009 2010 2011 2012 2013 2014 2015
Carloadings
Conclusions and Questions
• Questions?