gabe ................... I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me. Gabe
................... I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me.
Gabe
Thanks to Chris / CopCarSS for my avatar.
greyhounds gabe: My concern is that railroads are going to kill the goose that lays the golden egg and take this too far. In circumstances wherein there are two competing railroads, my preference is for the government to butt out. In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so. Gabe P.S. Glad to see this thread with a little more activity. What would you have the STB do? There is no good way for them to determine what the railroad rate "Should" be. If they try, they'll just transfer money from one corporation to another corporation and screw things up in the process. We've got a 60 history of government regulating rail rates. The result wasn't good. In any event, the claim that M&G Polymers is somehow captive to CSX is unsupportable. The established standard for being "Captive" is that the customer has no viable alternative to one railroad. That alternative does not have to be a second railroad serving the facility.. M&G has such a viable alaternative. They're located on the commercially navigable Ohio River and they have a dock. http://seaport.findthebest.com/l/6530/M-And-G-Polymers-Point-Pleasant-Polyester-Plant-Apple-Grove-Dock They're shipping buik product. If their logistics people can't figure out how to use Ohio River barges to provide effective competiion for CSX then those folks can't do their jobs. All M&G has to do is barge its output to a river-rail transfer on a short line and it has opened up competition. That's going to cost something, but that extra cost will be the limit on CSX rates. There is rail rate limiting competition available, but aparently M&G would rather whine to the goverment than solve its own problem. M&G should get some plans drawn up and take them to CSX. Then say: "See this, we're going do this so we can reduce our shiping costs. If we spend the money to set this up we're going to use it and it will be at least 10 years before you can even think about getting the freight back. Now how about renegotiating our rates." Instead, they whine.
gabe: My concern is that railroads are going to kill the goose that lays the golden egg and take this too far. In circumstances wherein there are two competing railroads, my preference is for the government to butt out. In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so. Gabe P.S. Glad to see this thread with a little more activity.
My concern is that railroads are going to kill the goose that lays the golden egg and take this too far. In circumstances wherein there are two competing railroads, my preference is for the government to butt out. In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so.
P.S. Glad to see this thread with a little more activity.
What would you have the STB do? There is no good way for them to determine what the railroad rate "Should" be. If they try, they'll just transfer money from one corporation to another corporation and screw things up in the process. We've got a 60 history of government regulating rail rates. The result wasn't good.
In any event, the claim that M&G Polymers is somehow captive to CSX is unsupportable. The established standard for being "Captive" is that the customer has no viable alternative to one railroad. That alternative does not have to be a second railroad serving the facility.. M&G has such a viable alaternative. They're located on the commercially navigable Ohio River and they have a dock.
http://seaport.findthebest.com/l/6530/M-And-G-Polymers-Point-Pleasant-Polyester-Plant-Apple-Grove-Dock
They're shipping buik product. If their logistics people can't figure out how to use Ohio River barges to provide effective competiion for CSX then those folks can't do their jobs. All M&G has to do is barge its output to a river-rail transfer on a short line and it has opened up competition. That's going to cost something, but that extra cost will be the limit on CSX rates. There is rail rate limiting competition available, but aparently M&G would rather whine to the goverment than solve its own problem.
M&G should get some plans drawn up and take them to CSX. Then say: "See this, we're going do this so we can reduce our shiping costs. If we spend the money to set this up we're going to use it and it will be at least 10 years before you can even think about getting the freight back. Now how about renegotiating our rates."
Instead, they whine.
Well said, and I am sypathetic to your point.
However, I see it more as a strategic withdrawl than a bow to government regulation. I really fear that something bigger is coming. I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me.
BaltACD Lest we all forget - The Staggers Act was implemented in 1980 - because of the floundering financial status of the rail industry - even those who weren't in bankruptcy weren't financially healthy. Customer industries of that era dictated the pricing power - With the implementation of Staggers and the return of Class I carriers to relative financial health - pricing gets negotiated amongst near equals. Negotiating pricing is not for the squeamish - on either side. As I understand it M&G is now renegotiating after the expiration of a 10 year contract - a lot of things have transpired in 10 years on both sides of the negotiation - the prices for EVERYTHING involved in the cost basis for the carriers has increased - in many cases exponentially. It is time for M&G to step up their game rather than whine about it.
Lest we all forget - The Staggers Act was implemented in 1980 - because of the floundering financial status of the rail industry - even those who weren't in bankruptcy weren't financially healthy. Customer industries of that era dictated the pricing power - With the implementation of Staggers and the return of Class I carriers to relative financial health - pricing gets negotiated amongst near equals. Negotiating pricing is not for the squeamish - on either side.
As I understand it M&G is now renegotiating after the expiration of a 10 year contract - a lot of things have transpired in 10 years on both sides of the negotiation - the prices for EVERYTHING involved in the cost basis for the carriers has increased - in many cases exponentially.
It is time for M&G to step up their game rather than whine about it.
Doesn't sound like they're whining to me. According to the article their new plant in TX has access to several rail carriers. They've got options..as Ward says they can go truck (his suggstion even if tonque in cheek)...they can go barge...or they can move their plant. If shipping via CSX becomes uneconomical they can also move the plant to MX where other costs are lower as well..not so far fetched as they already have operations there and are already experienced in global production.
I don't see anything wrong with CSX attempting to raise rates to what they need...that's business. But when the head of the company makes statements like (let them ship truck) he's really missing the point as shippers do have options. Many have gone offshore to avoid costs here... which is why we constantly whine about China and Mexico. Shippers can move and they can shutdown.
Sounds to me like CSX should send a team in to M&G to identify what can be done to reduce transportation costs. M&G isn't in the tranportation business so don't expect them to do that...(the article quotes the chief of SALES)...Once that has been done they could perhaps recommend cost saving measures that would defray or at least mitigate CSX's own proposed increases. That's really what should happen. CSX might even recommend barge for some of M&G's business...sometimes there's nothing wrong with recommending a competitor and that can go a long way to building trust and preserving the relationship for another day. It isn't (or at least shouldn't be) about squeezing the customer like a lemon to get as much out of him as possible...it is about maximizing profit by maximizing value provided...and that often requires a more consultative approach that may include other transportation modes and even competitors.
According to their own website they've been around since the 1950s and are based in Italy. They entered the US market by purchasing the Shell polymer business a few years back. They are among the world's largest polymer manufacturers with operations in Europe, Asia, South America, Mexico and the US.
Duped post/ removed it [samfp1943]
A couple of posters here have mentioned that they were stock holders in NS and CSX. Since research is part of stock ownership, I thought I would follow the trail.
1.) Who is M&G Polymers ? one of their websites notes they are 6 years old) There current ownership is apparently: M & G Finanziaria s.r.l website at: http://www.gruppomg.com/index.php
2.) Previous ownership was: Constar International:http://www.constar.net// current website
I knew, from having worked in the plastic container bsiness that at some point Swell Plastics morphed into Constar as a part of the Dorsey (Trailer) Empire .
Corporate History of M&G here: http://www.answers.com/topic/constar-international-inc Scroll down to find the Historical Pedigree of M&G
Admittedly, this story becomes long, and involved, but it is a tale of mergers. morphing; intermixed with finances, bankruptcies, and outcomes. Also why, and how a large plastics (PET) feedstock plant winds up in an unincorporated community in West Virginia. On an old, [C&O] (?), B&O RR line that has itself been merged into the CSX RR. Might also be background for the problematic negotiations for a rail shipping rate discussion that has apparently almost gone into its own 'ditch' (?)
I know Italians do gondolas, but maybe, not Ohio R. Barges?
Ulrich Instead of screwing aroung with barges and transloading, move the plant to another state, or better yet to Mexico or China. Problem solved.
Instead of screwing aroung with barges and transloading, move the plant to another state, or better yet to Mexico or China. Problem solved.
Because screwing around with barges and transloading can greatly reduce shipping costs. And it will give M&G a better negotiating position with CSX.
Never too old to have a happy childhood!
gabe My concern is that railroads are going to kill the goose that lays the golden egg and take this too far. In circumstances wherein there are two competing railroads, my preference is for the government to butt out. In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so. Gabe P.S. Glad to see this thread with a little more activity.
gabe In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so. Gabe
In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so.
Ulrich Mr. Ward should recognize that history sometimes can repeat itself. 50 years ago shippers did switch to trucks in droves. It could happen again if they take an arrogant attitude with the customer. Personally I wouldn't say that to a customer nor would I be caught dead making that kind of a statement in public...because I wouldn't want to$1****$2off the people who pay me. NS isn't CSX's only competitor...trucking is more expensive, but not by that much when all factors are taken into account. M & G's business could be made to work with trucks, and I'll bet that a few trucking folks who read that article have already placed their calls to that shipper.
Mr. Ward should recognize that history sometimes can repeat itself. 50 years ago shippers did switch to trucks in droves. It could happen again if they take an arrogant attitude with the customer. Personally I wouldn't say that to a customer nor would I be caught dead making that kind of a statement in public...because I wouldn't want to$1****$2off the people who pay me. NS isn't CSX's only competitor...trucking is more expensive, but not by that much when all factors are taken into account. M & G's business could be made to work with trucks, and I'll bet that a few trucking folks who read that article have already placed their calls to that shipper.
I am not sure that I agree with you. Yes, absolutely, there are some companies that can go to trucking. However, if a significant percentage of such companies did so, several elements of the infrastructure surrounding trucking could not handle it. Trucking rates would far exceed rail rates. Furthermore, there are several types of freight that would be impractical to move by truck--trains just have too much of an advantage.
K4sPRR "...The September 26, 2011 issue of Fortune Magazine has an article titled "Showdown on the Railroad", it relates to some of the discussion here as well as some future considerations about the big 4 railroads and the alleged "cartel" they have become. Interesting, I strongly recommend checking it out. May I add this is an interesting topic, hope to see more from everyone..."
"...The September 26, 2011 issue of Fortune Magazine has an article titled "Showdown on the Railroad", it relates to some of the discussion here as well as some future considerations about the big 4 railroads and the alleged "cartel" they have become. Interesting, I strongly recommend checking it out. May I add this is an interesting topic, hope to see more from everyone..."
MMMMMMMMMMMMMMMMMMMMMMMMMMMMM! Sounds like an interesting story!
Story linked here: http://features.blogs.fortune.cnn.com/2011/09/13/showdown-on-the-railroad/
FTA:'...At the end of 2008, M&G's long-term contract expired, and the railroad nearly doubled its rates. "We couldn't believe it," says Fred Fournier, M&G's sales chief. He says M&G's captive plant is now being charged rates that are 140% to 500% above the railroad's variable costs for labor, fuel, etc. (the industry's yardstick for valuing contracts). By contrast, M&G's factory in Mexico has access.." to two U.S. railroads and pays less than 100% above the variable costs
FTA:"...In 2010, West Virginia's then governor, Joe Manchin, heard about M&G's plight and invited executives to dinner at his mansion with Michael Ward, the CEO of CSX. The governor conciliated the two sides. But the glow didn't last long: After the dinner, CSX once again refused to slash its price..."
FTA:"...Ward is unapologetic. He says CSX is simply charging what's appropriate (and the company maintains that M&G is overstating how much its rates are marked up). If shippers don't want to use trains, he says matter-of-factly, "they can use trucks." Fournier counters that trucks aren't a viable option; both M&G and its customers have built their supply chains around rail. He charges that CSX is exploiting its monopoly status..." [Emphasis added by poster]
"They can use trucks" that statement on its face, seems to be somewhat out of character in this century(?) Certainly, not an attitude in this market. IMHO. Seems to me as a pretty cavalier attitude for a modern day railroad executive to exhibit.
Is this a manifestation of stress in the "contest" between NS and CSX? Just askin'
The September 26, 2011 issue of Fortune Magazine has an article titled "Showdown on the Railroad", it relates to some of the discussion here as well as some future considerations about the big 4 railroads and the alleged "cartel" they have become. Interesting, I strongly recommend checking it out. May I add this is an interesting topic, hope to see more from everyone.
Ulrich .... let's not forget that to get to that point involved great waste of time and resources and required massive infusion of tax monies over many years.
.... let's not forget that to get to that point involved great waste of time and resources and required massive infusion of tax monies over many years.
While I agree with your other points in your post, I thought Conrail repaid those tax infusions loans. with interest.
My own CNI holdings are down about 7.5%, but that may be because I bought in when the price was at its highest. I'm not too worried about it though as I think over the longterm CNI will do fine. Hard to say if CN on the TSX is doing better but I think it is. I have had that one for many years and have bought steadily through the years as well...overall I'm very happy with the stock. The currency fluctuations may have some impact..
Ulrich:My CNI holdings are up about 2% YTD. Is the Toronto listing doing better? Perhaps it is due to USD$ devaluation?
Ed
I don't own any CSX stock however I've owned NS since 2007 and have been very happy with its performance. I don't think you would go wrong with either CSX or NS...both are excellent companies. I own CN as well...am much happier with the stocks that trade on the TSX...CN's US stock has floundered for the last year...not sure why that is. Same company after all.
Paul:You are reading my mind...which is scary.
If there is interest, I am going to have a "battle of the bands" between BNSF/UP and CN/CP. BNSF might be a little harder to compare as it is now privately owned (no shareholder info). Perhaps there are other reports out there.
How have the two stocks performed for you? I only own CN at this time. Thinking about CSX.
MP173 [snipped] CSX does appear to have a huge advantage into Boston, but isnt that primarily a one way consumer (intermodal) market? Advantage CSX
CSX has very little presence from the Southern Tier of New York down to the Mason-Dixon line of Pennsylvania, save for along the Delaware River around Philadelphia and the southwestern corner routes through and around Pittsburgh. Not sure if that's a handicap or an advantage, though . . .
I own some shares of both railroads. MP 173 / Ed's thumbnail analysis above is a good start, and right on point. When I have some more time, I want to pursue this further and more in-depth. (Similar comparisons could also be made between BNSF and UP, and CN and CP.)
- Paul North.
CSX must get all of its added traffic from its advantage in Indianapols . . .
P.S. I have been in South Bend for depositions regularly as of late. CP seems to have ethanol trains running all of the time on the NS line.
At the end of the day it probably boils down to the quality of the management. Both roads are well managed currently however CSX had that battle with Children's Investment Fund awhile back which was a distraction that the managers at NS did not have to contend with. Where routes, mileages, customer base, and infrastructure are very simliar as they are in this comparison, I would say the quality of the management would be the key differentiator...and that's probably why those two roads are for the most part neck and neck...they're both equally well managed.
It is interesting when looking at the numbers how similar these two railroads are. Both have 21,000 miles of track (source: Morningstar) and have comparable revenues. Trailing 12 months for CSX is $11.3b while NS is at $10.3b.
While there is a $1b difference in revenue between the two railroads, the net income for the TTM is identical at $1.7B. Return on equity (ROE) which I track closely on investments, is at 19.9% for CSX and 16.7% for NSC. With these ROEs at this level (almost unheard of in railroad history), there is no doubt, as Balt indicated...these are two well run railroads.
Now that the numbers have been presented...what causes CSX to generate $1B more in revenue with the same track miles? What is it that allows NSC to generate the same net income as CSX on $1B less revenue?
Both carriers have the same % of revenue as coal $$$ - 29% for NSC and 30% for CSX. Intermodal revenue for NSC is 19% and only 12% for CSX. One would reason that the lower intermodal percentage would yield higher profits for CSX, based on past margins.
Routes:
Gabe brings up a great point about the Meridian Speedway route of NSC being superior, but how critical is that? Advantage NSC.
I monitor the Chicago routes for both carriers (scanner) and it appears NSC generates considerably more revenue out of Chicago for the east coast. Their Elkhart line sees considerably more trains daily than the CSX Williard route. Plus NSC has the "secondary" NKP line to Ft Wayne with 20 plus trains daily. Advantage NSC.
I really dont have a clue on other routes, but as Gabe also pointed out, NSC reaches out to Kansas City and their Michigan footprint seems stronger.
CSX does appear to have a huge advantage into Boston, but isnt that primarily a one way consumer (intermodal) market? Advantage CSX
Perhaps part of the revenue advantage to CSX is Florida. Their revenue to that market is theirs, while NSC must split it with Florida East Coast. Also, CSX seems to generate some mineral revenue out of Florida. Advantage CSX
One possible advantage I see with CSX is they are running quite a bit of ethanol trains across the Chicago line...I am going to estimate about 3 per day, perhaps more. Not sure about NSC.
Where is the superior CSX route structure that is generating $1B more in revenue per year?
Doesnt CSX own significant percentages of Paducah and Louisville and Indiana Railroad? How does this play into their operations and their revenues/profitablity?
While their operating ratio is dropping, NSC still seems to be more profitable, at least on a margin basis. What is it about NSC which makes them a leaner, more profitable carrier?
gabe Ulrich: Furthermore, the PC was the victim of a massively subsidized interstate highway system that sucked up alot of freight in its operating region. Good thing we got rid of that. Gabe
Ulrich: Furthermore, the PC was the victim of a massively subsidized interstate highway system that sucked up alot of freight in its operating region.
Furthermore, the PC was the victim of a massively subsidized interstate highway system that sucked up alot of freight in its operating region.
Good thing we got rid of that.
The interstate system seems to be working quite well however railroads are now able to compete effectively. Not so 40 years ago when trains required 5 man crews etc..
Amazon has a copy listed new.
Is that book you mentioned"The Men Who Loved Trains" still available? I missed it when it first came out.
George
Ulrich Furthermore, the PC was the victim of a massively subsidized interstate highway system that sucked up alot of freight in its operating region.
In all fairness to the PC, they were hamstrung by costly and outdated labor practices and by a pre Staggers Act reguatory enviroment. Furthermore, the PC was the victim of a massively subsidized interstate highway system that sucked up alot of freight in its operating region.
PC would probably have done fine had Staggers come along 5 years sooner and with modern labor practices such as two person crews etc.
Although both CSX and NS area a showcase for how well a railroad can be run, and certainly shareholders have much to be please about, let's not forget that to get to that point involved great waste of time and resources and required massive infusion of tax monies over many years.
Conrail and all of its costs were just a stepping stone that could have been avoided had the right decisions been made in the mid 1950s.
Great topic Ed, as always. The thing I find facinating about the two railroads is--although I think I understand your point about the PC--they are what should have happened instead of the PC, allowing two profitable railroads rather than one big mess.
I think an advantage that NS has over CSX is the Meridian Southern seems to be a major area of growth for NS that CSX does not really have an answer for. I think NS' access to Kansas City also is an advantage. Finally, I think NS' access to Detroit is superior, should Detroit ever become relevant again.
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