The current(May, 2013) Trains Magazine commentery by Don Phillips is entitled "Every 20 years, railroading reinvents itself". In the article, Mr. Phillips says that "intermodal is a cash cow for railroads". I've always understood intermodal was run on a very thin profit margin, it caused a lot of operational challenges, and required a lot of capital and infrastructure investments. Is it the railroads' cash cow?
Thanks to Chris / CopCarSS for my avatar.
I think of cash cow as defined as today's cash producer approaching the end of its productive life. Its potential doesn't warrant further investment; the cash generated is to be used to fund future revenue producers. I would think coal traffic is the true cash cow today. If cash cow refers to high profitability and competitive advantage, I would think hazmat traffic wins.
Murphy Siding I've always understood intermodal was run on a very thin profit margin, it caused a lot of operational challenges, and required a lot of capital and infrastructure investments.
I've always understood that that was the case for single stack containers. When the second level (double stack) came along, that changed everything. Really the icing on the cake.
Admittedly double stacks did raise a whole new set of clearance issue problems, particularly for the eastern roads.
I thought a cash cow was a product or service that generated much revenue with comparatively little new additional expense. Often occurring unexpectedly.
I will be following this thread with interest.
Bruce
So shovel the coal, let this rattler roll.
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jclass I think of cash cow as defined as today's cash producer approaching the end of its productive life. Its potential doesn't warrant further investment; the cash generated is to be used to fund future revenue producers. I would think coal traffic is the true cash cow today. If cash cow refers to high profitability and competitive advantage, I would think hazmat traffic wins.
By the sheer quantity of coal trains that pull through here, and with the advent of the unit train, I'd also say coal is still the cash cow. I do wonder if the railroads would act likewise if natural gas booms as it is supposed to. A unit tank train would be an interesting sight.
Maybe "cash cow" is one of those terms that seems to describe something but really confuses the issue. I think few businesses have a product that produces a large and dependable profit. One reason is that if they do competitors will soon try to get part of the business.
But it is possible to have an item which can be depended on to cover its costs with a little left over. Competitors are unlikely to try to get into the business because it doesn't really justify their investment but the company that has made the investment does not face that problem. And, if a rail line is recovering all of its expenses, the company can then go after and develop other business. At first the new business only has to cover its marginal costs. With experience and skill the new business can become more profitable.
And of course, in this world the only constant is change.
I've often pointed to the cyclical nature by generation of businesses and products. Think back to your youth and the products and services and businesses that were around then. Now look around and see how many are still with you today in the same form? Most successful businesses last a generation. A second generation comes in either by inheritance or purchase and there is a 50/50 chance of continued success. A change here, a tweak there, might make it better and there is growth and continuance; or it might be the wrong change or tweak and it is gone. Products come and go, evolve, improve. Or not. Tide today is not the same Tide of 50 or 75 years ago...and many of its one time successful competitors are gone and new ones have arrived. Same with railroading...reinventing itself successfully about every 20 to 30 years because of commodities, traffic, traffic patterns, needs, technologies, and human whims. Coal is not a constant because it has changed itself from our home heating source, industrial power, major single transported natural resource commodity to a specialized sorted source of energy not or rarely used in home heating or for industrial power but moved to the shore line to be transported overseas. Coal is still a commodity, but its use pattern and consumption has evolved just like the transportation system it uses.
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Maybe, once the second layer of containers was added, it became the cash cow? It seems like that second layer would have doubled the revenues, without doubling the costs. Cash cow to me, is something that keeps bringing in good profits, without much additional investment. Every time you need more money, you just go milk the cash cow.
It has more to do with volume and assurances of volume than anything else. And what they... the railroad, the railroads, the shippers, and the truckers...are willing to put into it, risk, and devote resources and time to allow it to grow and work. Many ideas were put forth and used and thrown away as this business has grown and evolved.
Depending on coal revenue is becoming more of a liability than an asset for railroads. The EPA's War on Coal started it, the discovery of a 500 to 1000 year supply of cheap natural gas will finish it.
Intermodal hauling cheap Chinese imported junk around the country is the future for railroads. Want to support you favorite RR? Just keep going to Walmart, Target, Home Depot, Lowes, Dicks Sporting Goods, etc, and keep buying junk that you probably don't need, and that will break in less than a week (so you can go out and buy more of it). LOL
GP40-2 Depending on coal revenue is becoming more of a liability than an asset for railroads. The EPA's War on Coal started it, the discovery of a 500 to 1000 year supply of cheap natural gas will finish it. Intermodal hauling cheap Chinese imported junk around the country is the future for railroads. Want to support you favorite RR? Just keep going to Walmart, Target, Home Depot, Lowes, Dicks Sporting Goods, etc, and keep buying junk that you probably don't need, and that will break in less than a week (so you can go out and buy more of it). LOL
The war on coal is just one battle in the larger war on fossil fuels. Price rationing is the only way to win that war, so people will have less money to buy things at Walmart, et al.
Coal as a fuel source in our homes has been gone for 90 years as heating oil became the cheaper standard in the 1920's. Railroads began to adjust. American steel industry did not modernize in the 50's and 60's thus foreign steel took over the market, steel mills closed, and coal was no longer burning. Railroads made another adjustment. Electric coal burning generating stations deteriorated sot new gas burning stations were built or converted from coal. Railroads have been adjusting. Coal continues to lose domestic markets but there has been an increasing demand from the Asian rim countries especially. Railroads are adjusting. In fact there is more turmoil about it in the railfan legion than there is on the railroads. Railroads just keep on adjusting. Will the railroads go away because there is no domestic coal market or that the export market is smaller than the domestic market was in the 1920's? No.
Bucyrus The war on coal is just one battle in the larger war on fossil fuels. Price rationing is the only way to win that war, so people will have less money to buy things at Walmart, et al.
Until the Feds agree that we need to go 95% nuclear power, the war on all fossil fuels is fruitless, and they know it. The current administration knows they can attack coal because it is "dirty", and make it seem like they are doing "something". Meanwhile, they are backroom dealing to support all the domestic natural gas production they can because they know the U.S. economy needs the energy, and wind, solar, hydro isn't going to cut it.
henry6 ...Coal continues to lose domestic markets but there has been an increasing demand from the Asian rim countries especially.
...Coal continues to lose domestic markets but there has been an increasing demand from the Asian rim countries especially.
Right. Until we start exporting all our excess cheap natural gas to said Asian countries. Which we are planning to do.
Gas supplies in the ground are being measured in years, not decades or centuries, so, yeah, we will run out as soon as the gas companies sell the stuff off to the rest of the world; there really is no "excess" cheap natural gas, just what there is that they are selling away from us.. We in Marcellus Shale country have been snookered by the companies telling us this stuff is for us when they really are sending it off shore. The oil and gas energy companies own our power and fuel supplies, our government leaders, and our future. We've got to get our government and ourselves weaned off the stuff and do like Europe and others are doing with wind, solar, and thermal energies.
GP40-2 Bucyrus The war on coal is just one battle in the larger war on fossil fuels. Price rationing is the only way to win that war, so people will have less money to buy things at Walmart, et al. Until the Feds agree that we need to go 95% nuclear power, the war on all fossil fuels is fruitless, and they know it. The current administration knows they can attack coal because it is "dirty", and make it seem like they are doing "something". Meanwhile, they are backroom dealing to support all the domestic natural gas production they can because they know the U.S. economy needs the energy, and wind, solar, hydro isn't going to cut it.
Murphy Siding The current(May, 2013) Trains Magazine commentery by Don Phillips is entitled "Every 20 years, railroading reinvents itself". In the article, Mr. Phillips says that "intermodal is a cash cow for railroads". I've always understood intermodal was run on a very thin profit margin, it caused a lot of operational challenges, and required a lot of capital and infrastructure investments. Is it the railroads' cash cow?
Intermodal is a different animal than the steady diet of bulk freight that sustained railroading for the past half-century. Intermodal trains leave their terminals on a specified day at a specific time whether there are 20 containers or 200. This regularity of schedule is most attractive to shippers leading to the continued increase over the past few years. Impressive? Yes. "Cash cow?" That may be a bit premature.
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Bucyrus Coal may be the low hanging fruit, but the current administration and their base attack all fossil fuels every day. What ever happened to that XL pipeline? They must be about ready to approve it now that they have the time they said they needed to make sure it is safe, and all the regualtors have signed off on it.
Yep, the base does attack it every day. However, the administration "listens" to the base, then as politicians do, just ignore it, and do the opposite. In this case, make sure natural gas production stays as high as possible.
The XL pipeline will be built. They are just waiting for the "base" to get P.O.'d on another issue (gun control anyone?) and when the "base" is occupied by the other issue, approve the pipeline in the middle of the night.
All the politicians in DC are far more similar than different.
Other than the US, countries around the world are looking at other than fossil fuels for the future. In the US, the energy companies in oil, gas, and coal, determine where their money comes from and goes, and are holding hard to the status quo instead of investing in new technologies...at least not in the same amounts and fervor others are...of course it is largely governments an not private investors, too.
henry6 Other than the US, countries around the world are looking at other than fossil fuels for the future. In the US, the energy companies in oil, gas, and coal, determine where their money comes from and goes, and are holding hard to the status quo instead of investing in new technologies...at least not in the same amounts and fervor others are...of course it is largely governments an not private investors, too.
Germany is closing nuclear plants. Is that seeking alternative sources? Wind and hydro power can't supply all the necessities.
We have plenty of fossil fuel and the technology to burn it cleanly. Why not use it?
Norm
I look at carloads, revenue, tonnage tables in annual reports also. The intermodal is considered a carload based on per container, so a double stack would have nearly $1950 of revenue, based on 100% capacity usage. That isnt a bad number, considering there is no local switching to speak of. Point to point line haul.
Ed
Norm48327We have plenty of fossil fuel and the technology to burn it cleanly. Why not use it?
Burning it "cleanly" would be fine if means burning it without emitting CO2. Can we do that?
Bucyrus Norm48327We have plenty of fossil fuel and the technology to burn it cleanly. Why not use it? Burning it "cleanly" would be fine if means burning it without emitting CO2. Can we do that?
Trees and other plants need CO2 ro grow.
Norm48327 Bucyrus Norm48327We have plenty of fossil fuel and the technology to burn it cleanly. Why not use it? Burning it "cleanly" would be fine if means burning it without emitting CO2. Can we do that? Trees and other plants need CO2 ro grow.
If it were only CO2 emissions that were the problems of burning any carbon based coal....
CO2 is not the only problem. It is just the only problem we can't solve.
The CN annual report is out (on line at cn.ca) and the report has some interesting data. The following is a summary of the year's results.
Railroad revenue was up 10% from $8.111B ($Ca) to $8.398B a 10% jump. Total revenue was $9.920 B which included other income such as trucking, passenger train payments (VIA, Amtrak, Metra), and tranloading.
CN breaks it's revenue into 7 groups. Petroleum/Chemical, Metals/Minerals,Forest, Coal, Grain/Fertilizer, Intermodal, and Automotive.
Average revenue per carload for the system was $1767. I can post all the raw data here if wanted, but here is the summary of where the growth came from.
CN is a little different in that COAL is not a major commodity for the railroad, with just 15% of revenue and 9% of carloadings. Carloadings of coal were down 6% but revenue climbed 15%. Meanwhile revenue per tonmile DROPPED by 2%. Revenue per carload exploded by 23% to $1637 per carload. The only explanation for the increase in revenue for coal and the huge explosion in carload revenue while the RTM dropped was an increase in mileage hauled.
FOREST PRODUCTS include lumber, paper, and woodchip type products. With the acquirision of British Columbia Railroad, CN tapped into the long haul lumber business. That is very cyclical, but the Forest commodity showed a nice improvement with revenues up 5%. Carloadings were flat and RTM jumped 4%. Revenue per carload was up 4.3% to $2991. This is the highest per carload revenue commodity on the railroad and reflects the long haul nature of the product and the enormous pricing power railroads have for this product. Think about it...lumber doesnt move efficiently from BC to United States by truck. While this can be considered a "cash cow", it is more a "cash calf" as the overall revenue is ony 14% of system and is subject to major moves based on house building. We all know what happened to that five years ago.
Living near the former Grand Truck Western in NW Indiana, I also thought of that as an AUTOMOTIVE pipeline. Perhaps on that line, but it only contributes 6% to total system revenue. That revenue did increase 11% last year with carloadings up 2% and RTM up 3%. Carload revenue is $2423 and jumped 8.6%. Obviously the length of haul increased for there to have been 11% revenue increase but only 3% jump in RTM. Cash cow? Hardly. Nice business when the lunch buckets are full at the auto plants.
The old Illinois Central was a grain hauler, particularly corn and soybeans. CN is much more mixed with considerable Canadian products contributing to the GRAIN/FERTILIZER group. Revenues were $1590 B, up 4% yoy and it makes up 18% of system revenue. RTMs were up 4% while carloadings were flat. This increase obviously came from pricing power. An average carload of this commodity fetches $2664 in revenue. Cash cow? Sort of, but somewhat seasonal and very subject to weather conditions.
The METALS/MINERALS group consists of steel, aluminum, ore, coke, and dimensional loads (?!?). This is an important commodity for CN with 13% of system revenues. It showed a 13% increase in yoy revenue but only a 1% jump in carloadings. RTM was up 7%. Carload revenue was $1106 per load, an 11% increase yoy. My guess here is that CN handles considerable short haul ore which pushes revenue per carload down. The $1106 doesnt seem correct for high value products such as steel and aluminum ingots. However, CN does handle quite a bit of short haul steel out of Gary, In to the NS at Van Loon (10 miles). Yesterday CN brought 80 loads of steel to the old NKP. That cannot pay too much per carload.
Now we discuss INTERMODAL, the final group which contributed nearly $2B in revenue last year, 22% of system and an 11% jump yoy. "Carloadings" were 34% of system and jumped 10% yoy. Remember, a carloading is one container. Most cars contain 2 containers. Revenue per carload (container) was $1145 which was flat yoy. Obviously growth was organic with the carloadings increase providing the revenue jump. CP's meltdown and strike contributed.
Recently I was stopped at a roadcrossing by the WB Montreal - Markham (Chicago) intermodal 149. It was a monster with a block of boxcar freight at the front of the train (perhaps 30 cars) followed by 240 containers. This was an efficient train with nearly all containers stacked. It was split nearly evenly between domestic and international containers. A quick back revenue check showed that train had revenue of perhaps $230,000 (based on $950 per box). Add in boxcar freight revenue of $30,000 for a total revenue of $260,000 for the train and one can see why CN has an operating ratio of 62.9%...best in industry.
So, while one can state that CN doesnt have a "cash cow" per se, the intermodal and pet/chem groups provide huge growth and pricing opportunities.
CN is much different from UP, BNSF, NS, and CSX as there is very little coal originating online.
Full disclosure...CN is a personal equity holding.
So, for what it is worth, those are the numbers for CN/2012.
Thanks , ED (mp173):
Pretty interesting stuff. Out here in the Flat part of Kansas, hard by the BNSF. I have been amazed by the traffic passing through here. Both East (or possibly Northbound?) and Westbound.
( These are my impressions from observing the passing parade, and by no means scientific)
About four years ago, the primary flow was Containers (both directions). Lots of single stacked cans going East and West ( probably going East singled due to clearance issues(?) . Now the single stacked are incorporated into trains of double stacks. There were not a lot of TOFC cars w/ trailers ( what was running was tacked on the rear of the trains). Now we see solid TOFC trains, and they run to some pretty lengthy trains. ( UPS-Fed Ex- Schneider, and any number of 'refrigerated carriers' are showing up on them).
The tank trains are there as well, but they seem to be kind of mixed within the trains. A block of tank cars, Covered hoppers, and some boxcars, as well mixed throughout the trains. Someone had asked if this blocking was also an effort to prevent a bad spill in the event of a derailment (?). Could be a consideration.(?) It was mentioned by someone on another Thread here some time past, that the reason for that was the origins were in different locations, which would account for the variety in the blocks of cars. Ultimately,delivery was going to large receivers on the Gulf Coast.
Which explains why they seem to be similarly made consists when returning for reloads. Merchandise trains are still there but seem to be much smaller and only in smaller numbers, in either direction. There is some Coal traffic ( at least one train in each directiion, goes down towards Texas, some where,? ) Solid trains of auto carriers in each direction.
We do seem to see several 'bare-table moves, each week. It is kind of interesting that those moves, seem to be made up of similarly constructed cars, COFC and TOFC, if they are in the train they are blocked by type/style.
Power is normally three or four units, on the head-end, Some DPU's but not nearly as many as thery have used in the past (at least through this area). Power moves (light engines) are not too often ( probably moves from Wellington, to Wichita(?) of a couple of units. The long distance moves are made on the through trains ( with 8 or 9 units on the head-end (apparently done with some dead-in-tow>)
It makes for som locally interesting train watching, around here. Six miles up the road, at Mulvane, Ks. the the Ark City sub ( out of Ok and Tx) junction with the T-con, and Traffic splits. North to Wichita and Newton and the Branch goes Northeast to Augusta. THose two lines are configured for bi-directional running, but can be one directional. Both go through the Flint HIlls toward Topeka. and KC (and East).
I'm on my way to an appointment, so I will quickly comment on two items ValpoEd mentioned.
The increase in coal revenue is related to greater mileage hauled. CN now take a number of trains a month from CP at Edmonton out to Prince Rupert, BC. These are PRB coal trains loaded by Arch Coal. It gets to Edmonton via BNSF to the border at Coutts, AB/Sweetgrass, MT, and from there on CP via Lethbridge, Calgary, and on to Edmonton. Also new contracts have started from coal fields east of Jasper, AB (for ease of reference to US readers) west to both Vancouver and Prince Rupert..
The dimensional loads are over clearance items requiring special handling. Right now windmill parts are a popular item.
Darn good analysis Ed ! Thanks for your time and effort in typing it all up !
- Paul North.
Does anyone know the standard for "$/carload" for intermodal? Is it per TEU? Per container regardless of size? Per stacked container? Or per "car" which can be up to five units long?
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