FYI RE: CRANBERRIES. Grown in Massachusetts, R.I., NJ, WI, and I think WA among places.
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greyhounds MP173 Would those possibly be inbound loads of cranberries from the upper east coast? Arent cranberries grown in Maine? Maybe I am all wrong on this one. I could be wrong too. But they grow a lot of cranberries in Wisconsin. Me thinks it's outbound juice.
MP173 Would those possibly be inbound loads of cranberries from the upper east coast? Arent cranberries grown in Maine? Maybe I am all wrong on this one.
Would those possibly be inbound loads of cranberries from the upper east coast? Arent cranberries grown in Maine?
Maybe I am all wrong on this one.
I could be wrong too. But they grow a lot of cranberries in Wisconsin. Me thinks it's outbound juice.
FYI: Cranberries are also grown in Maine, Massachusetts, Michigan, Minnesota, New Jersey, Oregon, Washington; additionally, some are grown in the Canadian provinces of British Columbia, New Brunswick, Ontario, Nova Scotia, Newfoundland and Quebec. However, Wisconsin production totals more than half of all U.S. production.
http://www.wiscran.org/user_image/pdf_files/CranProduction08.pdf
MP173 I am not so sure on the short haul aspect of intermodal. Perhaps the dynamics of the logistics industry, plus future cap/tax implications will take the trucks off of the highways and on the rails. What is your opinion of the future of Triple Crown type service? That could possibly make a go of it, but wont service be limited to typically one departure daily due to limitations of the equipment with standard railcars? ed
I am not so sure on the short haul aspect of intermodal. Perhaps the dynamics of the logistics industry, plus future cap/tax implications will take the trucks off of the highways and on the rails.
What is your opinion of the future of Triple Crown type service? That could possibly make a go of it, but wont service be limited to typically one departure daily due to limitations of the equipment with standard railcars?
ed
The length of haul at which rail intermodal becomes truck competitive is dependant on the relationship of several cost factors. It's also dependant on volume. If there are only two truckloads a day on a given lane, rail is not a viable option.
But, if the volume is there, then:
Rail intermodal has cost elements not present in truckload over the road. For simplicity we'll limit these to drayage and the terminal costs. These are not presnet in truckoad OTR. Offsetting these added costs are the tremendous savings present in rail line haul. When the savings from rail line haul overcome the added costs of drayage and operating the terminal, rail intermoal is competitive. Heck fire, it can even be dominant such as on the Chicago-LA lane.
There are a couple ways to do this. First, simply have enough line haul miles to overcome the added costs. This is what has been done. Rail intermodal dominates on the Chicago-LA lane because the additional drayage and terminal handling costs are relatively insignificant on this 2,200 mile run.
The railroads have largely chosen this path of least resistance because there was no reason for them to do otherwise. If they can fill up their network with long haul freight they're happy. They used to be able to do that. Maybe they will be able to do that again. But I don't see a return to such a happy, carefree state anytime soon.
The other way to get truck competitive is to reduce the terminal and dray costs so that fewer line haul miles are needed to overcome them. This takes work. But it is possible. If the railroads need the business, they'll eventually do the work.
One great way to reduce the killer drayage costs is to get trucking authority (and acquire people who know how to run a truck company.) A dray from Moline, IL to Chicago on freight to Memphis will kill you, unless you can haul a load of freight from Chicago to Moline. This would spread the dray cost over two loads.
A second way is to put low cost intermodal terminals in places like Moline. This is where your reference to RoadRailer makes great sense. The problem with RoadRailers, and similar concepts, is that they have been envisioned as seperate, stand alone, intermodal systems. After some experiences trying to market RoadRailer services, it became very evident to me that the technology's niche was as an adjunct to the intermodal system. Not as a stand alone intermodal system.
A RoadRailer terminal costs very little to build (dump some white rock on an unused side track), and is inexpensive to operate. Putting them in places such as Moline will eliminate high dray costs. But, they have to be used as a feeder/distributor system to an intermodal network with limited OD pairs
It'll work. It won't work everywhere. But It'll work in enough places to make it worthwhile.
RWM:I see your point. One should not measure the success or difficulties in implementing a merger based on a 1983 perspective vs 1995 vs 1998, etc. That is what is difficult for one to understand without knowing the insides of an industry or an individual railroad.
Further, in addition to the time differences and the resulting complexities, there are the individual railroads, connections, rationalizations (if any), personalities, etc to deal with.
I cannot imagine the magnitude of details involved in a merger, even with considerable planning involved there is always the unforeseen factors that evolve.
A complex merger such as Conrail/NS+CSX seems almost impossible, when looked at 10 years gone. Perhaps there was more to the UP/CNW merger than met the eye.
greyhounds Ulrich Yes..the regulatory framework was different back then..I believe the trucking divisions were unionized as well and for alot of reasons became uncompetitive with others in the market as deregulation took hold. Also..so much else has changed since then.. TOFC was more important back then.. there was no double stack.. free trade was in its infancy and traffic was still primarily east-west and not north south as it is today. CN is probably also realizing that as a transportation company (as opposed to just a railroad) they are leaving alot of business on the table. Most loads...75% of all loads...move 500 miles or less from origin to destination. That's business that CN as a railroad can't touch...but that CN as a multimodal carrier can handle via a logistics/trucking division. All in all a smart move and in my opinion long overdue. Well, I'm going to disagree with Ulrich again. But first, It wasn't that long ago that the UP bought a rather large LTL trucker, Overnight. It was like they spent a lot of money for something, then they didn't know what to do with it. When they bought it I thought they were really on their way, but they did literally nothing with this wonderful asset. Eventually, they sold it off for about half of what they paid for it. Overnight is now part of UPS. Rail ownership of trucking operations was greatly restricted under regulation. For no good reason except that the regulators didn't know what they were doing. When partial deregulation occured the rail owned truck lines, such as Santa Fe Trail, were smaller regional carriers with no real future. They folded rapidly, as did many other regional truck lines. It was amazing to watch the carnage. Regional truck lines such as Gordons, System 99 and A.P.A. (one of the best in the business) died like flies when their regulatory protection was removed and they entered a competitive enviornment. (Even some of the larger truckers couldn't adapt to a competitive environment. Consolidated Freightways is gone, as are Carolina, P.I.E., Preston, etc.) One of the great economic drivers of the late 20th Century boom was the logistics efficiencies produced by the dregulation of transportation. A truck line had to be one of the most efficient or die, and a lot of them died. It was good for the nation, good for the people, but very hard on regional motor carriers. Back to my disagreement with Ulrich. Rail intermodal can compete with trucking at 500 miles. I've done it. At the ICG we didn't have long hauls for intermodal. Chicago-New Orleans is 900 miles, but the volume on that lane was about 10 loads per day. We had no choice but to get down and fight it out for Chicago-Memphis (500 mile) traffic, and we did. We were even successful marketing (and profiting from) Memphis-New Orleans business, which is only a 400 mile line haul. There is no magic number of miles where rail intermodal does or does not have the ability to compete with over the road trucking. The difference between the ICG and a railroad like the UP or BNSF is that they have had little incentive to go after 500 mile freight. Until the current economic unpleasantness developed they had much bigger fish to fry. Niether one was going to waste terminal or track capacity on Chicago-Twin Cities freight when they needed that capacity to handle the containers flooding in through the west coast ports. One current question is: How long will this slump last? If it ends relatively soon, the rail carriers will not change. There will be no incentive for them to do so. If it drags out, as I think it will, they'll eventually get hungry and look to develop business in the less than 500 mile range, such as Chicago-Twin Cities. The UP has a lot of locomotives stored. Putting them to work earning some cash hauling intermodal between Chicago and the Twin Cities might not seem like such a bad idea after all. That's enough for now. CN's entry into the trucking business, under the guidance of E. Hunter Harrison, can help make their intermodal service profitably competitive at much shorter distances. It will be interesting to see if they do it. BTW, I commute to and from work on I-94 north of Chicago. I see a "whole lot" of CN containers pulled by CN tractors on that Interstate. Either the folks out in western Canada drink a whole lot of Ocean Spray Cranberry Juice or those containers are moving on relatively short hauls to places like Memphis, Toronto, etc. (Who knew Ocean Spray was produced in Kenosha, WI until Zardoz, IIRC, told us?)
Ulrich Yes..the regulatory framework was different back then..I believe the trucking divisions were unionized as well and for alot of reasons became uncompetitive with others in the market as deregulation took hold. Also..so much else has changed since then.. TOFC was more important back then.. there was no double stack.. free trade was in its infancy and traffic was still primarily east-west and not north south as it is today. CN is probably also realizing that as a transportation company (as opposed to just a railroad) they are leaving alot of business on the table. Most loads...75% of all loads...move 500 miles or less from origin to destination. That's business that CN as a railroad can't touch...but that CN as a multimodal carrier can handle via a logistics/trucking division. All in all a smart move and in my opinion long overdue.
Yes..the regulatory framework was different back then..I believe the trucking divisions were unionized as well and for alot of reasons became uncompetitive with others in the market as deregulation took hold. Also..so much else has changed since then.. TOFC was more important back then.. there was no double stack.. free trade was in its infancy and traffic was still primarily east-west and not north south as it is today.
CN is probably also realizing that as a transportation company (as opposed to just a railroad) they are leaving alot of business on the table. Most loads...75% of all loads...move 500 miles or less from origin to destination. That's business that CN as a railroad can't touch...but that CN as a multimodal carrier can handle via a logistics/trucking division. All in all a smart move and in my opinion long overdue.
Well, I'm going to disagree with Ulrich again. But first,
It wasn't that long ago that the UP bought a rather large LTL trucker, Overnight. It was like they spent a lot of money for something, then they didn't know what to do with it. When they bought it I thought they were really on their way, but they did literally nothing with this wonderful asset. Eventually, they sold it off for about half of what they paid for it. Overnight is now part of UPS.
Rail ownership of trucking operations was greatly restricted under regulation. For no good reason except that the regulators didn't know what they were doing. When partial deregulation occured the rail owned truck lines, such as Santa Fe Trail, were smaller regional carriers with no real future. They folded rapidly, as did many other regional truck lines. It was amazing to watch the carnage. Regional truck lines such as Gordons, System 99 and A.P.A. (one of the best in the business) died like flies when their regulatory protection was removed and they entered a competitive enviornment. (Even some of the larger truckers couldn't adapt to a competitive environment. Consolidated Freightways is gone, as are Carolina, P.I.E., Preston, etc.)
One of the great economic drivers of the late 20th Century boom was the logistics efficiencies produced by the dregulation of transportation. A truck line had to be one of the most efficient or die, and a lot of them died. It was good for the nation, good for the people, but very hard on regional motor carriers.
Back to my disagreement with Ulrich.
Rail intermodal can compete with trucking at 500 miles. I've done it. At the ICG we didn't have long hauls for intermodal. Chicago-New Orleans is 900 miles, but the volume on that lane was about 10 loads per day. We had no choice but to get down and fight it out for Chicago-Memphis (500 mile) traffic, and we did. We were even successful marketing (and profiting from) Memphis-New Orleans business, which is only a 400 mile line haul. There is no magic number of miles where rail intermodal does or does not have the ability to compete with over the road trucking.
The difference between the ICG and a railroad like the UP or BNSF is that they have had little incentive to go after 500 mile freight. Until the current economic unpleasantness developed they had much bigger fish to fry. Niether one was going to waste terminal or track capacity on Chicago-Twin Cities freight when they needed that capacity to handle the containers flooding in through the west coast ports.
One current question is: How long will this slump last? If it ends relatively soon, the rail carriers will not change. There will be no incentive for them to do so. If it drags out, as I think it will, they'll eventually get hungry and look to develop business in the less than 500 mile range, such as Chicago-Twin Cities. The UP has a lot of locomotives stored. Putting them to work earning some cash hauling intermodal between Chicago and the Twin Cities might not seem like such a bad idea after all.
That's enough for now. CN's entry into the trucking business, under the guidance of E. Hunter Harrison, can help make their intermodal service profitably competitive at much shorter distances. It will be interesting to see if they do it.
BTW, I commute to and from work on I-94 north of Chicago. I see a "whole lot" of CN containers pulled by CN tractors on that Interstate. Either the folks out in western Canada drink a whole lot of Ocean Spray Cranberry Juice or those containers are moving on relatively short hauls to places like Memphis, Toronto, etc. (Who knew Ocean Spray was produced in Kenosha, WI until Zardoz, IIRC, told us?)
Good points...and you're right...short haul intermodal can work in some cases. I would think the limiting factor from a cost standpoint would be the cost of the trucking at each end. Here in Toronto the cost of picking up a container and bringing it to the rail could easily cost $250.00...and costs are probably of the same magnitude in other large cities. However, these drayage costs may be significantly less where large volumes are concerned and where shippers and receivers are located near rail facilities.
No...don't necessarily disagree...good point in fact.
MP173RWM:One of the great educational aspects of this forum has been the realization of how this industry truly works. It is a seriously complex network. You and others have done an excellent job making those of us interested in the true business side of the industry aware. Also, the Conrail Commodities book did the same, particularly with the description of the intermodal schedules. Airlines and railroads have a number of similarities in their systems/networks. Literally one customer (actually about 20) on September 11, 2001 had profound affects on the system for years. Ok, I will buy in to the SP merger and the Conrail/NS+CSX would have been a nightmare to unscramble...but what about UP/CNW? If there is a merger that should have been a slam dunk, that was it. Or am I missing something? edit: Further what happened in 12 short years between the UP/MoPac/WP takeovers and the UP/CNW merger that caused the problems? It seems the MoPac merger would have been a little tough to digest. Jenks had a heck of a railroad, with considerable information systems in place which UP integrated, but were there problems in 1982/83? ed
RWM:One of the great educational aspects of this forum has been the realization of how this industry truly works. It is a seriously complex network. You and others have done an excellent job making those of us interested in the true business side of the industry aware. Also, the Conrail Commodities book did the same, particularly with the description of the intermodal schedules.
Airlines and railroads have a number of similarities in their systems/networks. Literally one customer (actually about 20) on September 11, 2001 had profound affects on the system for years.
Ok, I will buy in to the SP merger and the Conrail/NS+CSX would have been a nightmare to unscramble...but what about UP/CNW? If there is a merger that should have been a slam dunk, that was it. Or am I missing something?
edit: Further what happened in 12 short years between the UP/MoPac/WP takeovers and the UP/CNW merger that caused the problems? It seems the MoPac merger would have been a little tough to digest. Jenks had a heck of a railroad, with considerable information systems in place which UP integrated, but were there problems in 1982/83?
Among other things that happened was the implementation of massive information management systems to control billing, car distribution, car inventory management, crew calling, payroll, material management, etc., and the disappearance of the clerks and many mid-level and line-level managers. When we talk about "considerable information systems" of 1982-1983, they were very simple compared to what was in place 15 years later.
Integrating information systems is not fun.
I need to make sure you understand that I am providing a nuanced answer to your question. There is no black-and-white answer, i.e., one cannot answer the question by laying all the blame on management nor can one answer the question by laying all the blame on the situtation. What I'm trying to do is point out that if we look at mergers as a time series from 1950 to 1995, the later we get into the series the more difficult it becomes to execute any merger without having serious difficulty, and the difficulty level is greatly influenced by the physical condition of the partners, the amount of overlap, and the need for immediate efficiency gains, not just the quality of the management.
RWM
Greyhound, as you know, my 1980's were spent in the LTL industry. It was brutal watching the carriers drop. There was not a lot of job security. Terminal managers, salesmen, drivers, dockmen would jump from carrier to carrier.
One of the really interesting mergers that dropped flat was Smith and American in the mid 80's. Both were excellent regional carriers. Smith covered the Chicago - Southeast area like a blanket and American was really strong from Chicago - Midwestern states (Dakotas, Mn to Texas). Both carriers had well in excess of 5000 trailers.
So, their merger basically blanketed the nation from the Southeast to the Southwest, draw a line from the Atlantic to Denver. Within a year of the merger....GONE, bankrupt. That was repeated with hundreds of carriers. Now you have YRC that is hanging on....barely. Imagine if you will Roadway, no make that ROADWAY, the no debt, all cash carrier of the 1980's, the absolutely finest long haul LTL carrier, barely hanging on.
Operating authority was suddenly worthless and written down to $0.00. Union based carriers with strong networks found it difficult to compete with the Conways and Overnites that exploded on the scene.
Union Pacific made a huge error in purchasing Overnite. The logic was, load the trucks and run them to Chciago, then intermodal to the west coast. OOPS. Didnt work. I never saw an outside corporation come in and purchase an LTL carrier and make it work. Those carriers basically needed the ownership involved on a daily basis with all aspects of the business.
UlrichBusiness owners and/or manage very seldom create anything of lasting value that transcends the businesses we run. You may be a great leader and a great manager...but none of that will matter to anyone once the business is gone. Look at some of the great business leaders of the 50s and 60s...Langdon of B&O is a great example. He was a apparently a great leader at B&O...a great innovator at B&O..and did great things...for B&O shareholders, employees, and other stakeholders. However B&O has been gone for years and I really doubt if anything that Langdon did 40 years ago can be recognized and identifed as uniquely his at CSX today. Same with Hunter..and all the rest of us who are employed as managers today... if we're good we create value TODAY for the businesses we run and hopefully hand off the business to the next generation in better shape than we found it.. but that's it... Want to create lasting value? Then write a great book that people will still want to read in hundreds of years from now..or invent something.
Business owners and/or manage very seldom create anything of lasting value that transcends the businesses we run. You may be a great leader and a great manager...but none of that will matter to anyone once the business is gone. Look at some of the great business leaders of the 50s and 60s...Langdon of B&O is a great example. He was a apparently a great leader at B&O...a great innovator at B&O..and did great things...for B&O shareholders, employees, and other stakeholders. However B&O has been gone for years and I really doubt if anything that Langdon did 40 years ago can be recognized and identifed as uniquely his at CSX today. Same with Hunter..and all the rest of us who are employed as managers today... if we're good we create value TODAY for the businesses we run and hopefully hand off the business to the next generation in better shape than we found it.. but that's it... Want to create lasting value? Then write a great book that people will still want to read in hundreds of years from now..or invent something.
I take it you disagree with my prior point about the durability of rail investment decisions. I could take you to any Class 1 with which I am familiar and walk you through the physical plant and the customer base, mile by mile, industrial spur by industrial spur, and show you decisions good and bad made by every CEO for the last 120 years, and the effects thereof.
greyhoundsthey'll eventually get hungry and look to develop business in the less than 500 mile range, such as Chicago-Twin Cities. The UP has a lot of locomotives stored. Putting them to work earning some cash hauling intermodal between Chicago and the Twin Cities might not seem like such a bad idea after all.
The line certainly has the capacity. I believe it hosts perhaps 4 to 6 trains per day.
greyhoundsBTW, I commute to and from work on I-94 north of Chicago. I see a "whole lot" of CN containers pulled by CN tractors on that Interstate. Either the folks out in western Canada drink a whole lot of Ocean Spray Cranberry Juice or those containers are moving on relatively short hauls to places like Memphis, Toronto, etc.
Yes, very interesting read: heavy on accusations and innuendo, heresay, and broad generalizations but lacking in substantiation. No quotes, just someone saids. No facts and figures, just projected thoughts and ideas based on...on....what? based on trying to tear down what is written about without atttempting to justify, clearify, or back up the statements. It is what give real liars a bad name!
Here's an interesting read.
http://www.cnron.blogspot.com/
http://cnron.blogspot.com/2009/07/hunter-harrison.html
lenzfamily How quickly we forget. I recall not that many years ago (perhaps 20?, maybe even less) that a number of companies, such as (CN IIRC and) CP did in fact have ( I believe they were LTL) trucking divisions associated with their rail operations. This was certainly true in Ontario where I grew up and in BC where I now live. They spun these entities off and now I guess have decided to begin to reactivate this end of their business. Similarly and in the shorter term they spun off some of their 'underperforming at the time' trackage to regionals who boosted the business quite successfully in some cases, as illustrated IIRC in last month's Trains, and are now in some cases starting to regain operating ownership of these same lines. I guess there is nothing new under the sun and that what comes around, goes around.... Charlie Chilliwack, BC
How quickly we forget.
I recall not that many years ago (perhaps 20?, maybe even less) that a number of companies, such as (CN IIRC and) CP did in fact have ( I believe they were LTL) trucking divisions associated with their rail operations. This was certainly true in Ontario where I grew up and in BC where I now live. They spun these entities off and now I guess have decided to begin to reactivate this end of their business.
Similarly and in the shorter term they spun off some of their 'underperforming at the time' trackage to regionals who boosted the business quite successfully in some cases, as illustrated IIRC in last month's Trains, and are now in some cases starting to regain operating ownership of these same lines.
I guess there is nothing new under the sun and that what comes around, goes around....
Charlie
Chilliwack, BC
Yes...anyone can do the linehaul... but very few can do it as efficiently as rail..and those LTL carriers who have repositioned themselves as freight forwarders for the railroad have tailored their operations to rail. It would be difficult for them to now reinvent themselves as an entity which is once again independent from the railroads. They are therefore sitting ducks and pretty much at the mercy of what there larger rail suppliers want to do. Personally I would be nervous about depending on one large supplier for my transportation needs..especially as a transportation company myself. And now it looks as if that concern may have come home to roost....
I don't think CN has the "full service guys" in their sights...their aren't enough of them around anymore and the few who are small and compete at service levels that CN can't touch. After all..why would a shipper pay higher rates for truck? He/she would only do so if the service levels are better and to points that aren't on the railroads' network of service points. For the most part the over the road guys focus on time sensitive high value freight...very few skids of cement move cross country by truck anymore.
I
Hmm - this thread has now gone to some perhaps unexpected places . . .
Ulrich, I'd argue that the core function for the LTLs is the retail end - that's where the client base / customer contact and rate-setting functions are, and the pick-up and drop-off/ 'drayage'-type operations that are the absolutely indispensable, irreplaceable, 'first-mile' and 'last-mile' components of the service. You know how rail shippers complain that they're 'captive' to their serving railroad - well, now it's the LTL in control of that instead, and can choose who gets the line-haul. The LTLs can still also perform and take advantage of the 'consolidation' function and the resulting 'bulk rates' that you mention. The middle line-haul portion - that's a commodity, anyone can do it, and it can be 'shopped around'/ out-sourced/ sub-contracted to the lowest bidder [except for the premium time service level aspect]. There's no need to have a direct connection from shipper to any carrier - rail or otherwise - because the LTL can then fill that gap, wherever it might go or lead to. The ones who have partnered with CN or CP have been able to shrink their operations to those key portions - they don't have to maintain a huge rolling infrastructure of trucks and drivers to cover the line-haul, and the line-haulers who do are now vulnerable to being undercut by both the other LTLs and CN. The only advantage that the full-service guys had left is that they are a '1-stop shop', and it's all under their direct control - but now it's them that CN has directly in its sights with its new operations, because it's a single-source that also has the advantage of the lower line-haul costs.
- Paul North.
MP173 2. Outside business - CN has started a trucking and logistics company.
2. Outside business - CN has started a trucking and logistics company.
This, I believe, is one of the biggest and most under rated decisions the Company has made in recent years. Not so much about the trucking/logistics aspect...more so about getting into the transportation RETAIL end of the business.
Over the last ten years Canadian trucking carriers...especially some of the large LTL carriers have downsized their fleets in favour of outsourcing the linehaul to CN and CP . The above quote indicates that CN is now interested in going after this business directly, thereby competing directly with those large trucking LTL carriers it now services and partners with. It basically puts these trucking carriers/partners on notice..."we're going after your business".
Frankly, I have to wonder what's taken them so long. The real money is in the retail end of the business...those carriers who charge LTL rates and then consolidate these shipments into container lots really have been making good returns.. And if I was one of those large LTLs I would now be very concerned, and I would be looking for business that does not involve partnering with CN or CP. In retrospect one also has to respect those few trucking outfits who resisted outsourcing their linehaul to rail...they've still got their fleets..their premium service levels..and a client base and rates that support over the road transportation. The other guys, on the other hand, have cut each others' throats rate wise...and are now at the mercy of CN and CP. Lesson learned maybe: Do not outsource your core function!
One last point about how CN should allocate its profit...well.. they might consider buying one of the large carrier partners/freight forwarders that have come to rely on CN for the linehaul. If I were a betting man I would bet that we will see some transactions along those lines in the not so distant future.
lenzfamilyIn the BCR's case, the physical plant and other assets, as I and others saw them, and I expect Tyler would tell you, were in good shape.
In the BCR's case, the physical plant and other assets, as I and others saw them, and I expect Tyler would tell you, were in good shape.
Paul:The interesting thing about Buffett is that he uses OPM for the vast majority of his investments. The float generated by being an insurance company is better than a loan and better than using your own money. It is someone else's money which you will have to give back later.
If you havent, invest a couple of weeks in reading The Snowball by Alice Schroeder. It is the biography (authorized by WB) of his life. It is about 900 pages and provides considerable insite.
I look at CN as doing all four of your FCF uses:
1. Dividends/share repurchase - decent dividend and aggressive share buyback for several years. The number of shares have decreased by 17% since 2002.
3. Capex - At some point I will compare their capex as a % of revenue vs other carriers....not tonight
4. Merger to other business - yes.
Most other carriers have not made mergers since the late 90's. Conrail/NS+CSX was a big chunk and was all they needed for awhile. Plus...what else is there in the east? CP recently purchased DME but will they pull the trigger for PRB coal? I dont think so.
UP and BNSF digested SP and consumated the BN/SF merger over 10 years ago. Who else is out there for them?
MP173 Is it me, or did the UP reboots seemed to be more exciting than either BN/SF or CN/IC? Obviously the Conrail disconnect/reboot was a problem. RWM, I can see your point about the reboot being necessary. Also, back at the time of the SP merger, we were in a big economic boom. But,shouldnt it have gone just a little better than it did? ed
Is it me, or did the UP reboots seemed to be more exciting than either BN/SF or CN/IC?
Obviously the Conrail disconnect/reboot was a problem.
RWM, I can see your point about the reboot being necessary. Also, back at the time of the SP merger, we were in a big economic boom. But,shouldnt it have gone just a little better than it did?
Ed, good questions. Answer is that railways are not interchangable units like 1/2" machine bolts and hex nuts.
Sure, it would have been nice of these mergers that did not go well had gone better. But I do not believe people who say that it "could have" gone better. Just who did they have in mind that was going to get it so wonderfully right? It's not like there is a wealth of railroad superheros sitting around unemployed waiting for the phone to ring to leap into action.
I know personally many of the people involved, and I know something of their strengths and weaknesses, and like any group of railroaders, they had some of both. But if I step back and look at all the other possible groups of railroaders we are suggesting as the alternative that "would have" done better, and I don't buy that they are significantly smarter. Maybe another group would have done 5% better. Or 10% better. Which is not enough to notice. I truly do not believe you or I could have identified, hired, emplaced, and expected 50% better results out of any other possible group of railroaders. Nor do I believe now, with the advantage of hindsight and another 15 years experience in railways, that there was really any better way to do it.
I think there is another misapprehension that matters a lot, and that is a misapprehension about the manner in which railways function. Railways consist of a deeply integrated set of chained, contingent actions. Each action is required to function in order for every other action to function, and when one stops they all stop. Almost every decision impacts almost everyone and every customer. Contrast to a Wal-Mart. Unless one of the customers decides to slug one of the other customers, no one customer at a Wal-Mart interacts with any other customer except in a sort of vague traffic avoidance sort of way in the aisles and the parking lot. But at a railroad, any one customer's car often affects every other customer's car. Pricing, maintenance standard, lading security, service needs, service lane, origin-destination pair -- all are intertwined with every other customer. This is one reason why railways are not so easy to change or merge.
To evaluate the quality of a railroad's management and what it does for the shareholders, shippers, employees, and the public, let's consider 'qualitatively' - not 'quantitatively' [yet] - what the railroad does with it's Free Cash Flow - and otherwise - to re-invest in the enterprise for the long term - or not, as the case may be.
Essentially only 4 things can be done with the FCF, as I understand it - in no particular order:
1. Pay it out and distribute it to the stockholders, as either in the form of dividends or share repurchases or 'buy-backs' [depending on the desired tax treatment and other considerations]. This is essentially what The Children's Fund hedge fund ['TCI'] wanted CSX to start doing more of a couple years ago. Notably, Warren Buffett, the 'Oracle of Omaha' / Berkshire Hathaway, has never done either of these - BH shares have never paid a dividend. Instead, Buffett has let them grow in value through capital appreciation only, to the point where the Class A shares were valued - and bought and sold on the stock exchanges - for close to 140,000 dollars per share. With the recent market slump, I believe BH Class A shares had dropped to the 80,000 range, and may have rebounded since;
2. Invest it in some other unrelated outside business or investment, for diversification, better returns, etc. This could be anything from buying shares in another company to their bonds to Treasury bonds, gold, etc. Essentially it's an admission that we can't do any better with the money within the enterprise's operations - so we have to look elsewhere. This is also exactly how Buffett makes his money, but it's a little different because his core business is investing, not making or selling things, etc. Notably, Buffett has invested in several railroads for this purpose - he owns around 20 per cent of BNSF, and also has large holdings in NS, and UP too, I believe;
3. Re-invest it in the present business through major capital expenditures for physical expansions and upgrades - not mere maintenance replacements. This is essentially what BNSF and UP have been doing recently with their multi-tracking capacity expansions, what CN did in the 1990s with the Sarnia tunnel, what CP did in the 1980s with its Rogers Pass new line, what CR did with its double-stack clearance program in 1995, what KCS is doing in the Texas-Mexico areas, and what NS is now doing with its 'Heartland Corridor' and other projects;
4. Use it to acquire/ buy/ merge with something to add to the business - like another railroad, or a major operation, to add to the core enterprise. Essentially, this is the 'Instead of building it ourselves, let's buy somebody else's instead' route. Notably, CN has been doing this for about the last 10 years - everything from IC, WC, TransStar, BCR, re-acquiring prior spin-offs in various parts of Canada, and now the EJE. KCS has also done a little bit of this, and CP moved in an unusual way when it bought DME.
NS - and to a limited extent, CP, CN, and KCS - have also engaged in non-cash expansions, through various cooperation agreements and trackage rights in several corridors. Examples include the New Enlgland Patriot Corridor with Pan-Am / Guilford, the 'Speedway' through like Meridian [with UP ?] across the lower South, and the recent Mid-South Corridor with CN.
So there's more than one way to add value to and build the enterprise. CN may well believe that it has no need for additional tracks or relocations or internal improvements of its existing system - but that its best moves are instead to expand its network into new territory through acqusitions. In contrast, BNSF, UP, and NS are clearly building things and improving themselves.
Now ask yourself: Which railroads are doing some, or a combination, or all of these things, and thereby evidencing faith in themselves and a commitment to the industry ? And which are doing only a few, or none at all, perhaps fulfilling their legal obligations to the shareholders to extract the maximum value, but potentially leaving behind a sucked-dry carcass ? And which railroad is doing more of one or another, and/ or may have changed methods over the past few years - and why ?
I'm not saying this little analysis will lead to clear or decisive answers or conclusions, or a definitive 'who's-on-top' ranking, or identifying the 'white knights' or the 'black villains', etc. But it may provide a framework for thought and reference to put this kind of concern into better perspective.
As always, additional, contrary, supplemental, and supporting comments and thoughts are encouraged and welcomed.
The question to be addressed here IMHO, as far as BCR goes, is this: With a reboot of the kind you reference at SP I can see the point. It was a tired company whose time had come if I recall the condition of track and motive power. Absorption leading a reboot appears to have been UP's position with regard to SP. As others have pointed out, their wholesale removal of the SP T&E management created major road and yard problems for a period of a year or more, was it not? I understand the counterintuitive argument you advance but is that approach worth the cost in the long run? Perhaps it is to experienced people like yourself but to an observer such as myself a reboot of that sort seems counterproductive to say the least for at least the medium term.
In the BCR's case, the physical plant and other assets, as I and others saw them, and I expect Tyler would tell you, were in good shape. The provincial government chose to sell off the railway to the private sector because the government of the day didn't believe the public needed to be running a railway. That had been an ongoing debate in BC ever since its predecessor the PGE was established at first as a privately held company. Construction costs were prohibitive and more than the private secotor could finanace. The Provincial government took it over and gradually improved the quality of the ROW and equipment to the point that by the time of sale in about 2003-4 the BCR was, to the onlooker, and provincial owner/taxpayer (which I am) a good property. It never made a pile of money but it wasn't a 'dog' financially either, just a smaller railway (in comparison to others) intended to open up the Cariboo, Central Interior logging and timber trade as well as mining further north.
My point in saying all this is to say this acquisition is in my view a significantly different acquisition than the UP effected with SP. I also recognize that no two acquisitions are exactly the same but the BCR, I submit, as railways go, was and is a unique property, requiring highly specialized and unique maintenance and operating practices. When CN acquired BCR the vast majority of the experienced leadership at many levels of the company was let go and the media reported at the time that CN essentially considered them unnecessary. Friends of mine ( who had worked for BCR for thirty or more years) lost their jobs and went on to do other work very well, as well they would. They had contributed to the building of the railway in many areas for most of their working lives. The result for the BCR was an appalling loss of the specialized breed of people at many levels, many of whom had helped develop the railway's unique operating practices so necessary to survive in this very mountainous part of British Columbia.
Given the events that have occurred on the BCR since CN took over, it is painfully evident to me that in this case at least, CN managment clearly underestimated/ignored the expertise necessary to run this railway on a day to day basis. Again, I am not an expert but what I have seen in the last 5 or more years of CN operation of the BCR admits of no other reasonable conclusion.
BTW as I have pointed out on this forum at other times, the sale of BCR to CN remains a political and legal hot potato provincially. Court cases are still pending....
Maybe a one-train a day branch line. But not easy to do with a division. Too many interactions and contingent operations and sharing of resources with every other division.
Railway Man MP173 Railway Man MP173 Charlie, you are much closer to the situation in BC than I am. Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management. That was a mistake? Everything I read was that UP's problems in Houston had to do with eliminating SP's local management, which lead to a big meltdown. ed That presumes the meltdown would not have occured if the local management had not changed. It's an inference chain with nothing behind it but some peoples' opinions, and obviously there was not a consensus in opinion at that time among the experts, else the decision would not have been made to fire local management (i.e., we will presume no CEO melts his railway down on purpose). There are a lot of other possible causes of the meltdown. One is that the SP was so fragile by that point that it would have happened no matter what. There is a counter-argument that few think about, that you might as well go ahead and take the plunge and reboot the SP, and get it over with, because it was so fragile it was going to melt down from some natural cause in the very near future anyway, and at least by initiating the reboot you could restart with the operations integrated the way they would eventually have to be. The more I look back, the more I think that reboot was probably the only action that was truly a good one. In my experience, there is no clean, simple, pain-free way to integrate two railways. You either don't do it and run two separate plants until one of them fades away through attrition, or do it and get it over with quickly. When one of the two railways is on the verge of collapse, the "don't touch" option is not very good. You try to run it as is, it will just suck up enormous funds with no end in sight. RWM
MP173 Railway Man MP173 Charlie, you are much closer to the situation in BC than I am. Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management. That was a mistake? Everything I read was that UP's problems in Houston had to do with eliminating SP's local management, which lead to a big meltdown. ed
Railway Man MP173 Charlie, you are much closer to the situation in BC than I am. Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management. That was a mistake?
MP173 Charlie, you are much closer to the situation in BC than I am. Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management.
Charlie, you are much closer to the situation in BC than I am. Perhaps CN made the same mistake that UP made with buying out SP...and that is not retaining the local management.
That was a mistake?
Everything I read was that UP's problems in Houston had to do with eliminating SP's local management, which lead to a big meltdown.
That presumes the meltdown would not have occured if the local management had not changed. It's an inference chain with nothing behind it but some peoples' opinions, and obviously there was not a consensus in opinion at that time among the experts, else the decision would not have been made to fire local management (i.e., we will presume no CEO melts his railway down on purpose).
There are a lot of other possible causes of the meltdown. One is that the SP was so fragile by that point that it would have happened no matter what.
There is a counter-argument that few think about, that you might as well go ahead and take the plunge and reboot the SP, and get it over with, because it was so fragile it was going to melt down from some natural cause in the very near future anyway, and at least by initiating the reboot you could restart with the operations integrated the way they would eventually have to be. The more I look back, the more I think that reboot was probably the only action that was truly a good one. In my experience, there is no clean, simple, pain-free way to integrate two railways. You either don't do it and run two separate plants until one of them fades away through attrition, or do it and get it over with quickly. When one of the two railways is on the verge of collapse, the "don't touch" option is not very good. You try to run it as is, it will just suck up enormous funds with no end in sight.
I gather rebooting/integrating one line at a time is/was not a pragmatic option?
Gabe
Ulrich Both CN and CP require engineering or science degrees for people applying for management level operating positions. Maybe that's changed over the last 20 years.. I interviewed with both roads after completing college in 88, and although they had no positions available at the time, they made it clear they were looking for people with proven thinking ability and a high level of ability in mathematics. I'm not sure how someone who starts out as a conductor with no education beyond HS could therefore ever aspire to a management position. Maybe that's nolonger possible.
Both CN and CP require engineering or science degrees for people applying for management level operating positions. Maybe that's changed over the last 20 years.. I interviewed with both roads after completing college in 88, and although they had no positions available at the time, they made it clear they were looking for people with proven thinking ability and a high level of ability in mathematics. I'm not sure how someone who starts out as a conductor with no education beyond HS could therefore ever aspire to a management position. Maybe that's nolonger possible.
I recall that many of the Fortune 500 had reversed the requirement for hard engineering and business and science degrees by the early 90's because they had concluded there was a deficit in communications skills. Seems the engineering and science faculties of the late 70's and early-mid 80's had eschewed any utile training in human sciences, and the MBA grads who were taken on board had begun to outshine the science and engineering grads in terms of contributing to public and staff relations. Before long, the Business and Industrial Psych faculties had closed the gap by offering graduates with extensive training in motivational psych, group dynamics, even adult education.
I suspect the pendulum is slowing as we post here.
-Crandell
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