News Wire: CN expands locomotive fleet as traffic surges

749 views
8 replies
1 rating 2 rating 3 rating 4 rating 5 rating
Moderator
  • Member since
    January, 2011
  • From: Wisconsin
  • 658 posts
Posted by Brian Schmidt on Wednesday, December 06, 2017 10:26 AM

NEW YORK — Canadian National, alone among the big Class I systems, is expanding its locomotive fleet to handle a surge of traffic and anticipated growth to come. CN is struggling to keep up with stronger-than-anticipated volume amid crew short...

http://trn.trains.com/news/news-wire/2017/12/06-cn-locomotives

Brian Schmidt, Associate Editor Trains Magazine

  • Member since
    April, 2011
  • 548 posts
Posted by LensCapOn on Thursday, December 07, 2017 9:05 AM

Rumor has it that CSX has some units sitting and ready to unload....

  • Member since
    October, 2016
  • 143 posts
Posted by Saturnalia on Monday, December 11, 2017 11:17 PM

LensCapOn

Rumor has it that CSX has some units sitting and ready to unload....

 

Indeed...a sizeable portion of the Dash8s have been sold back to GE, some scrapped, some patched into GECX and heading for CN...

  • Member since
    March, 2013
  • 710 posts
Posted by SD70M-2Dude on Monday, December 11, 2017 11:39 PM

Saturnalia
LensCapOn

Rumor has it that CSX has some units sitting and ready to unload....

Indeed...a sizeable portion of the Dash8s have been sold back to GE, some scrapped, some patched into GECX and heading for CN...

Yep, some of those ex-CSX Dash-8's are starting to show up.  CN has also leased a number of ex-BNSF (nee ATSF) SD75's, now numbered in the PRLX 200 series.  Some still wear the warbonnet scheme, albeit patched and very faded.  

The best lease units are the CitiRail ES44AC's (CREX 1500's, 25 units) and GECX ET44AC's (12 units).

And then of course there are the two EMD SD70ACe-T4 (EMDX 1605 and 1606) demonstrators, currently based out of Edmonton. 

Greetings from Alberta

-an Articulate Malcontent

  • Member since
    December, 2007
  • From: Georgia USA SW of Atlanta
  • 8,328 posts
Posted by blue streak 1 on Tuesday, December 12, 2017 10:17 PM

If a RR increases its traffic above a certain point does -----Are more locos needed than the increase in trafic would indicate ? 

Example --  RR trafic increases from 100 units (  tipping poing ) to 110 units.  Does that mean RR would need 115 loco units instead of 110 ?

Probably more complicated as just some divisions would hit the tipping point ?

  • Member since
    May, 2003
  • From: US
  • 2,139 posts
Posted by PNWRMNM on Wednesday, December 13, 2017 5:46 PM

In general, the aggregate horsepower or tractive effort should be roughly linear as traffic increases or decreases, IFF the railroad is not capacity constrained. If the railroad is capacity constrained, delays attributable to meeting other trains will rise much faster than the change in traffic. The reason is that the number of meets on a single track main line increases as the square of the number of trains per day. As actual train count approaches theoretical capacity, the ability of the system to absorb disruption drops precipitously. That will increase train delay and delay means longer trip times which means more equipment than the linear increment needed to handle the traffic. Recall Fred's recent trip on the Canadian which is treated like freeloading passenger trains should be treated.

Mac

  • Member since
    December, 2007
  • From: Georgia USA SW of Atlanta
  • 8,328 posts
Posted by blue streak 1 on Wednesday, December 13, 2017 8:13 PM

PNWRMNM
That will increase train delay and delay means longer trip times which means more equipment than the linear increment needed to handle the traffic.

Mac  

Thanks Mac.  So the RR will increase profits fast but expenses faster.  That will cause the operating ratio (OR) higher even though RR will have more profits per share of stock.  This is another example of too much reliance the all mighty OR .

  • Member since
    May, 2003
  • From: US
  • 12,719 posts
Posted by BaltACD on Wednesday, December 13, 2017 10:07 PM

blue streak 1
 
PNWRMNM
That will increase train delay and delay means longer trip times which means more equipment than the linear increment needed to handle the traffic.

Mac   

Thanks Mac.  So the RR will increase profits fast but expenses faster.  That will cause the operating ratio (OR) higher even though RR will have more profits per share of stock.  This is another example of too much reliance the all mighty OR .

Railroads have a metric for trains being delayed waiting on power.  There is a level of delay that is acceptable on a system wide basis.  If some trains aren't be delayed for power then it is presumed that there is too much active power and some should be deactivated.  This is not a metric that is adjusted daily, but one that is managed over a period of time.  

Another metric that is maintained is the horsepower hours accounts with other carriers.  With all the run through trains between carriers, sometimes it is beneficial to 'trap' another carrier's power on line for a period of time to tide one through a short term power shortage.

Congestion increases equipment turn around times and thus adds to the power needed on the property during the period of congestion.  The metrics of terminal dwell, line of road speed and total cars on line all are indicators of congestion when the raise above traditional levels.

         

Never too old to have a happy childhood!

  • Member since
    May, 2003
  • From: US
  • 2,139 posts
Posted by PNWRMNM on Wednesday, December 13, 2017 10:18 PM

Streak,

Your conclusion, below, is not supported by the evidence I provided which had nothing to do with profits.

Lets start with some definitions: Net Railway Operating Income = Revenue - Expenses.

Net income = NROI - Interest - Income Taxes

Net income is what can be used to pay dividends or buy back stock or reinvested in the business. Yes there are other cash flow items, but lets keep it simple.

Revenue is not "profit". First question is what is the revenue that some incremental traffic will generate? Second is what are the marginal costs incurred to handle that traffic. Only when we know these, can we know what the Contribution Margin is, that is the additional NROI, most of which should fall to net income.

Your increased locomotive costs due to congestion are a component of operating costs, but there are many other congestion cost components. Congestion costs can be reduced by capital investment, say making every other siding 12,000 feet at a cost of $5 million each. Doing that will reduce operating costs, but increase capital costs, making the difference between NROI and net income greater as capital investment increases.

Management's real dilema is where should available cash go? Choices are dividends, stock buyback, early retirement of debt, or capital investment in the railroad. The last choice will always be investment in the fixed plant to support growth for two reasons. First, it is impossible to liquidate the investment without a big loss. Fixed plant investments are very illiquid. Second, issue is how long this traffic will last? These are both elements of risk.

How does BNSF managment feel about all the second main track across North Dakota to handle the Baaken Oil tidal surge of traffic which has now retreated? Will it come back? Did they invest too much?

The other item you talked about is the Operating Ratio. Economic theory says that a business should take all volume up to the limit where marginal revenue is equal to marginal cost, that is has an operating ratio of 100%. The problem is that the railroad has a bunch of fixed costs in track, signals, in fact the entire physical plant, the costs of which have to be recovered but are not included in the operating ratio. I suspect, as a wild a$$ guess. that a calculated OR of about 80% is the MR = MC point.

Lets assume that the company now has an OR of 65% and that no traffic with an OR or 80% or greater will be sought. How do we feel about a proposed move with a 70% OR. At first blush we should take it since MR is greater than MC, and total profits will increase, but OR will tend to increase.Obviously we must include congestion costs as part of the operating cost.

A second look would ask what capital investments do we have to make. If none, great. If there is investment then need to convert that lump sum into an annual charge which is based on our hurdle rate. Lets assume that is 15%, the traffic has an expected 10 year life and capital investment is $10,000,000 in cars, locos, sidings, who knows what. That will be in the ballpark of a 20% annual charge or $2,000,000 per year.

What is the revenue requirement at 70% OR? Solve for Revenue. R = 2,000,000/.3 or $6,666,666. The .3 is the contribution margin after operating costs. In this case a $5,000,000 per year, 10 year guaranteed traffic is not attractive, and the railroad should not take it. Each significant piece of traffic should get this type of analysis.

The point is that we outsiders do not know either revenue or costs of particular traffic at the customer/move level so there is not much point in quessing or projecting. I think those "they ought to _____" statments say more about the biases of those making unsupported statments than the goodness or badness of decisions when no one knows the facts of the matter.

Mac

 
PNWRMNM
That will increase train delay and delay means longer trip times which means more equipment than the linear increment needed to handle the traffic.

Mac  

 

Thanks Mac.  So the RR will increase profits fast but expenses faster.  That will cause the operating ratio (OR) higher even though RR will have more profits per share of stock.  This is another example of too much reliance the all mighty OR .

 

[/quote]

Join our Community!

Our community is FREE to join. To participate you must either login or register for an account.

Newsletter Sign-Up

By signing up you may also receive occasional reader surveys and special offers from Trains magazine.Please view our privacy policy

Search the Community