Fred Frailey Blog

Fred Frailey's first Darwin Awards

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As you know, Englishman Charles Darwin (1809-1882) was a naturalist who popularized the idea of survival of the fittest. Those species who could evolve and deal with change survive, he said, while those that cannot perish. These two awards honor his memory.

First, to the docks at the Port of Los Angeles. The 800 members of Local 63 of the International Longshore and Warehouse Union are perhaps the highest paid clerical workers in the world. To shuffle paper, they are paid $165,000 to work eight and a half months of the year, getting the remaining weeks off. And they have job guarantees.

Still, they are not happy. They rejected an offer from the port that would raise their salaries to $195,000 and this week began picketing one of the nine piers. Other ILWU workers honored the picket signs, and in a wink the strike spread to the other piers and to the adjacent Port of Long Beach.

For self-destructive behavior, this is right up there with the bomber pilot who says “I wonder what this button does?” and pushes it. Container ships were diverted to Oakland and to ports in Mexico. The credibility and reputations of the two ports were battered. And forget efficiency. One wonders what Matt Rose, the CEO of BNSF Railrway, thinks of all this. BNSF and Union Pacific are heavily dependent upon these two ports remaining competitive. After all, in just two years an enlarged Panama Canal will open and efficient deepwater ports on the East Coast will be wooing the ships that now call on the West Coast. The Los Angeles Times says up to 100,000 cargo jobs in Southern California are threatened by the Panama project.

Not even a year ago, a video produced by the Jobs1st Alliance showed dock workers and managers saying together, “Beat the Canal.”

So long, farewell, been good to know you, Local 63. Even if the strike wraps up quickly, the damage has been done.

Now on to the second Darwin Award.

It’s profits are slumping, as is its stock price. Plus, its biggest commodity handled is falling off a cliff. Meanwhile, the economy is barely growing, and unless a miracle occurs in Washington, D.C., at year’s end taxes will rise for most Americans, meaning a recession could be right around the corner.

So what does Norfolk Southern do? Why, it publicly celebrates this week an $18 million investment to upgrade its Lamberts Point export coal transload facility in Norfolk! This would have truly been a landmark achievement 20 or 30 years ago. But with coal loadings off 13 percent during the first three quarters of 2012, compared with 2011, you’ve got to wonder if NS just shot itself in the foot.

In fairness, capital investments of this sort are planned far in advance. Plus, it could be that the export business for Norfolk Southern is holding up better than the loadings for U.S. customers. And NS spokesperson Robin Chapman, unbowed, fires back: “Coal is and will remain an important business for Norfolk Southern. Long after the current economic crises settle down, we expect the worldwide demand for coal to be strong for many years to come, and we are committed to providing superior service to our export coal customers. These upgrades were necessary to maintain that capability.”

Still, the timing couldn’t have been worse. And because the work didn’t start until August, it’s not as if NS didn’t know the coal business was going to the dogs.

Railroads: Be careful what you brag about. These are my first Darwin awards for self-destructive acts, but surely not my last. — Fred W. Frailey

  • First one, definitely. Second one: despite recent trends coal is still a large part of the railroad reality and will be for the foreseeable future. But look at the other large capital investments Norfolk Southern is or has undertaken in recent years: The Heartland and Crescent Corridors. These have little to anything to do with King Coal. Railroads have the difficult dance: the illusion of balance. Domestic intermodal is growing and we all know it. Coal is not going to be nice and just "go away" anytime soon. The $18 million spent "at home" in Lamberts Point is paltry in comparison to other undertakings but well spent to maintain that "balance."

  • D.Carleton said it quite nicely, so I have nothing to add.

  • Mr. Frailey your comments remind me of a recent story in the NY Times on the long shore men working at the Port of New York and New Jersey.

    They interviewed a port worker who said that his archaic and generous benefits where fairly earned because unlike the Wall Street brokers across the river he didn’t spend all day at a desk. He said this despite spending his entire shift indoors at a computer consul, complete all the modern office comforts from rolling chair to the coffeemaker.

    The main jest of the article was that unless outdated work rules were changed, the port could lost business to other east coast rivals.

    As for coal, it may be down now but who knows what the future holds. Clearly most of the current fall in demand comes from the natural gas boom, but gas companies have over expanded and created a glut of supply, which while great for utilities is hurting the drillers very badly.

    Without the cheap gas, new EPA rules would have little effect on demand. Once we get out of the glut, gas prices will increase, the question is by how much?

    Certainly coal exports for NS would be hurt by cooling economic growth in Europe and China. Perhaps NS just made a bad bet, like opening the Empire State Building in the Great Depression. Perhaps once the global economy recovers, the enlarge coal export facility will be fully utilized.

    Since NS serves the Appalachian coal region, maybe the fall in coal traffic is also because mining coal here, in mountain top removal or tunneling, is very expensive than digging it out of the ground like the mines in the Powder River Basin. The coal seems are very thin, compared to other regions.Their coal may be more expensive than buying coal from other places like Austrailia.

    Are UP and BNSF seeing any fall in coal traffic from the Mountain West? Getting a coal dock in the Pacific Northwest would greatly aid their bottom line, by accelerating exports of coal to Asia. The more markets the better.

    From what I have read in the papers China, India, and even Germany will continue building new coal fired generating stations. There was a nice interview in the WS Journal with the CEO of Southern Energy who explained that his company was still going with an “all of the above” strategy that included new gas, coal, and nuclear plants.

    It seems like to me that King Coal will be with us for some time to come.

  • A little logic can go a long way.  Coal probably never again will move in the volumes it has in recent years.  That only means the railroad that is most efficient and competitive will be the one that moves the most coal.  NS has increased the capacity of its Pier 6 export facility in Norfolk.  This may truly qualify it for the Darwin "Award, as it is acting in its long-term interest.

    BNSF and UP in the West are in virtually a different industry.  Powder River Basin coal is low-sulfur and meets current clearn air requirements.  The utilities that burn it have long-term contracts with the mining companies and the two railroads that access the Basin.  Coal shipments are down in the west, but not nearly as much as in the east, where the market relies to a much greater extent on spot buying rather than contracts.  I believe there is some export coal going out through the Pacific Northwest ports.  At least it is my understanding that BNSF has access to an export facility.  UP always has been able to reach a Los Angeles bulk commodity (coal) terminal.

  • What D. Carleton said.

  • There was a very good book on coal published a few years ago, “Big Coal: The Dirty Secret Behind America’s Energy Future” by Jeff Goodwell, a NY Times reporter.

    Because of the Shale Gas Revolution it is a bit outdated, its main point was that while coal was associated by the general public as a relic of the 19th Century (like railroads!), in fact coal and not nuclear or renewables was the future of energy. The author in his after word quipped that his fear was that the book’s premise could be made obsolete by a technological break thru, which wasn’t of course cold fusion but hydraulic fracturing.

    But natural gas is difficult to export, and for many other growing nations coal is still the future. As Rail Pundit pointed out coal from Powder River is perfectly suited for this future.

    But I think that in Appalachia, where we have been mining coal for now almost two centuries, may suffer the same fate as the coal industry in the United Kingdom. They still mine coal in Britain, but nowhere near what they use too, leaving behind a scared industrial landscape of fallen towns from Northumberland to Wales.

    Mine owners in Appalachia blame organized labor, environmentalists, the EPA, and OSHA for their troubles, but I think it really is geology that is giving them the squeeze. As the coal which is left becomes harder (and more expensive) to mine, more and more operators are going to have to make hard decisions.

    Not only is Powder River coal low in sulfur, but its seams are hundreds of feet thick, and on the edges of the basin it exists pretty close to the surface. Out east the coal seams may only be a few feet thick, you have to remove a lot of rock to get to it. Building mine shafts is expensive and dangerous, and mountain removal is an environmental disaster, especially for the local watershed.

    Add to this the price pressure from natural gas, these factors may bring the end to many mines and power plants sooner than would have occur without the fracking boom. But still without the gas, the writing has been on the wall all along.

    Now we all know how important coal was to the health and survival of railroads like the N&W and C&O compared to the Penn Central. So how will NS and CSX adjust if that gravy train of coal over the next few years shrinks sighificantly?

    If I was them, I would hope for the best and plan for the worse. Diversity and efficiency is the key to financially health railroad. I think that Mr. Frailey’s article on the Kansas City Southern made this point, as well as the ongoing battle within the CP.

  • I re-read the NewsWire story on the Lamberts Point upgrade, and I noticed in describing the work they used the word "overhaul" a lot.  It sounds like some work needed to be done just to maintain.  Also the electricals were modernized which should make it more efficient.  Additionally I understand that a significant amount of the coal that goes thru the facility is met coal, which has a different market dynamic than steam coal, although it is also down at the present with a European steel downturn.

    As an alternative, is there a PR fluff award?

  • Darwin award number 1 reminds me of another recent story involving a strike as I'm sitting here going through Twinkie withdrawals...

  • Good points MidLand Mike,

    Here is a story link to “Norfolk Southern finishes upgrade at Lamberts Point” by By Robert McCabe in the The Virginian-Pilot.

    It does state that the facility primarily handles metallurgical coal, including shipments to China. Clearly the cooling Chinese economy would have an economic effect on this piece of infrastructure.

    The story said that the upgrade cost $18 million and was completed on schedule over a 90-day period beginning in August. Well, at least it wasn’t a half-billion; it actually seems to be a very reasonable price to me, about equal to a few miles of double-track or major bridge renewal.

    The article also stated that coal accounted for nearly a third of NS’s revenue. With old coal fire plants being replaced with new gas plants in the USA, and perhaps with coal mining facing a terminal decline in its region of the country, NS seems to have its work cut out for it in future decades.

  • Someone should ask those port clerks if they ever heard of Twinkes and Wonder bread.

    Fred, I told you a long time ago that coal was not dead and not dying.   NS is betting their money on it and I would not want to bet against them.  Coal exports are a BIG DEAL and will get larger with the passage of time.  And, with the crazy greenies in Washington and Oregon trying to block new coal export plants the ones already exporting will do nothing but get larger.  Overseas countries want to buy and they WILL buy our higher quality coal.

    Tom Stamey

  • Even in the days of rigid regulation by the ICC, met coal was like manna from heaven.  My understanding is that railroads - mostly N&W and SOU - had virtual rate freedom for export coal.  While their domestic steam coal rates were controlled, they were able to make some real money in the export market.

  • Regarding the point that Appalachian coal is dying not because of environmental restrictions but because of its own rising cost:  I remember what happened when the Clean Air Act amendments of 1990 became law.  It meant sudden death for much of the Clearfield District in western PA.  Its high-BTU but relatively dirty coal was, under the new standards, now unwelcome in upstate New York utilities except in minor amounts mixed with other coal.  Conrail had been upgrading the Buffalo Line below Olean, NY and the ex-Erie between Olean and Hornell to handle Clearfield coal, but immediately halted work.  For more than a year the new ties lay there along the old Erie in sight of the parallel highway, then they were gone.  At the same time Conrail moved to acquire all of the Monongahela Railway, perfecting its grip on Mon coal, which still complied following passage of the 1990 amendments.

    No doubt there were those who rationalized that the Clearfield District was plagued with high costs, and even more who said good riddance anyway, but the honest assessment is that its demise was premature unless passage of the legislation just happened to coincide with fundamentals that were not apparent to Conrail, whose strategy, from the company's standpoint, was impressively alert.

  • Yeah, because Hostess was raped by management it's exactly the same!

  • Despite having great oil reserves we choose to import.  Now, despite our vast resources of coal and a new political climate, we will export that away.  And I am sure China, India and other countries will gobble our coal up with zeal.  All the while, we listen to our windmills whirl.

  • I want to nominate the individual who left the New Jersey transit trains in a location where they were severely damaged by SANDY dispite many days of weather warnings concerning the severe flooding expected.

Fred Frailey's first Darwin Awards