Eastern Railroad Discussion > Taking apart NS's Third Quarter General Merchandise report

An analyst unpacks the details inside Norfolk Southern's General Merchandise category.Now let’s consider Norfolk Southern’s (NSC) General/Industrial Merchandise segment’s third-quarter performance. This segment includes the transportation of agricultural items, chemicals, paper and forest products, metals and construction products, and automotive products.The company’s General Merchandise segment is its largest segment in terms of revenue.
https://marketrealist.com/2018/10/why-norfolk-southerns-general-merchandise-revenue-rose-in-q3?utm_source=yahoo&utm_medium=feed&yptr=yahoo

In other words, the carload stuff is still more profitable than the intermodal?--the same stuff that could be chased away by poor service?

Victor A. Baird
http://www.erstwhilepublications.com



Edited 1 time(s). Last edit at 11/07/18 16:46 by wabash2800.

Yes

Posted from Android

How a typical railroad works: eliminate costs. There are more line item expenses involved in loose car railroading than intermodal or unit trains, but the profit margin is greater. All the railroad looks at is the line item expenses, and how to get rid of them. Never mind that you are shooting yourself in the foot. Management gets a bigger bonus, and the trucking companies get richer..

Show us the data!

irhoghead Wrote:
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> There are more line item expenses involved in
> loose car railroading than intermodal or unit
> trains, but the profit margin is greater. 

Bob Wilcox
Charlottesville, VA
My Flickr Shots

I read this same traffic/profits information in 1974, Funny how the basics just don't change.
Lackawanna484 your three posts here although wildly varied are quite interesting.
Thanks
Gonut

General merchandise is the most profitable sector of the railroad and the one they invest in the least.

The railroads hesitate to buy new railcars, to make investments that would speed trip time, to help new customers connect up to their lines, or to even pitch industrial businesses located on their lines about using rail.

All the Wall Street oooing over increased profitability per share for 25+ years (mostly driven by debt fueled share buybacks and abandonments) have missed that the railroads have been exiting the carload business and thus harming their current and future overall profits.  You cannot locate new plants or mines on lines you abandon and rip up.

Too many people also don't get that its better to have an operating ratio of 80% on revenue of $20 billion than an operating ratio of 70% on revenue of $10 billion and that it's better to invest $1 billion for a new perpetual cash stream of $200 million per year than it is to juice the stock price through a share buyback.

The simple potential of the carload business is between half and en entire order of magnitude over its current size.  This is shown time and again whenever railroads turn over "unprofitable" branch lines and regions to entrepreurial minded railroaders who proceed to treble, quintuple, octuple, and more tha existing carload business by the simple expedient of SALES CALLS to customers.

Today you have railroaders who don't understand that priority merchanidse freight used to move at near Amtrak speeds across the country and that all those dry van tractor trailers on the highways are hauling stuff that used to be in a boxcar.  Railroads are still running operating plans that fail to optomize car movements and that can't figure out how to send merchandise cars through no more than two hump yards (one at the start and one at the end).  Railroads still don't get that they can make money even with business moving 50 to 500 miles by just providing a service with a little bit of thought put into the plan, and that the density of business at those distances are where the money and freight volume is actually at.

NS runs daily intermodal trains into centers like Bethlehem PA. Boxes are dismounted and put on chassis frames, and out the gate.

For a one off shipper in north Jersey, this can be a TWO DAY gain over a box car.

I see this as a recognition by NS that you can focus on your strengths, while you unload your weak last mile delivery.

Posted from Android

abyler Wrote:
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> General merchandise is the most profitable sector
> of the railroad and the one they invest in the
> least. The railroads hesitate to buy new railcars, to
> make investments that would speed trip time, to
> help new customers connect up to their lines, or
> to even pitch industrial businesses located on
> their lines about using rail.

The stupid thing is, these assets (rail cars, yard and mainline capacity, locomotives, crews, etc) are all so mismanaged.  For example, the lonely boxcar.  Railroads claim they don't get a return of investment on these, primarily because they do not make enough revenue trips.  Yet, it's the railroads' own damn fault that a car's trip is (seemingly) to go visit every yard on its route, and spend enormous amounts of time in those yards.  When the cars are empty, it's far worse.  The railroads talk all about velocity, but you rarely see them actually implementing it.  If they'd move the damn cars to their destinations, they would get a instant big bump up in ROI (and that doesn't even take into consideration the much happier customer)! 

Same with yards - An example that I witness all the time; holding cars for maximum train size utilization, only to have them sit there for days on end, waiting for enough cars to "justify" running the train, or finding a train that can handle the pick up of those cars.  With in the yards themselves, often, these cars are moving from different tracks because now they have too many cars for that destination in the original track, so now need to find a bigger track, etc (so you handle the same cars multiple times).  The yards get plugged up, you switch the same cars numerous times, yard velocity time slows when the yards are full and congested, etc.  Now the costs of handling those cars are increasing because of added, non-needed expenses (in fact, all these costs just make the "service" even worse).  The only thing that has been accomplished is much longer transit times for the customer's merchandise, the expenses have been dramatically driven up, assets are not being used effectively (and are in fact tied up when they are needed).... you get the picture.  And it's mostly all self inflicted and causes the downward spiral that we witness now.

> All the Wall Street oooing over increased
> profitability per share for 25+ years (mostly
> driven by debt fueled share buybacks and
> abandonments) have missed that the railroads have
> been exiting the carload business and thus harming
> their current and future overall profits.  You
> cannot locate new plants or mines on lines you
> abandon and rip up.
>
> Too many people also don't get that its better to
> have an operating ratio of 80% on revenue of $20
> billion than an operating ratio of 70% on revenue
> of $10 billion and that it's better to invest $1
> billion for a new perpetual cash stream of $200
> million per year than it is to juice the stock
> price through a share buyback.

Unfortunately, these "Wall Street" people do not give a damn about the company, it's people, the communities, etc.  It's all about making a quick "buck" for themselves (or their clients), then heading for the next one.  We all know the saying:  "IT'S ALL ABOUT ME!"  In my little world, it seems like to me that there should be a different level of stock and corporate "ownership".  For example, say common stock, with it's voting rights, etc; to be able to have this right to make decisions about a company, I feel one should have to be invested in in for a long period of time (ie you have to hold the shares for a given time period), so these decisions would have a chance to be based on long term thinking.  I believe those that "trade stock" of a company, "short term trading" like it is done now, should not have a right to dictate how that company is run.  This is just my personal belief, as I think an "investor" should be someone who actually "invests" in the company, not someone who "gambles" with it (which usually includes "stacking the deck" or other means of enhancing ones' winnings).

Lackawanna484 Wrote:
-------------------------------------------------------
> NS runs daily intermodal trains into centers like
> Bethlehem PA. Boxes are dismounted and put on
> chassis frames, and out the gate.
>
> For a one off shipper in north Jersey, this can be
> a TWO DAY gain over a box car.
>
> I see this as a recognition by NS that you can
> focus on your strengths, while you unload your
> weak last mile delivery.
>
> Posted from Android

I see what you are saying here, however, if one can take that shipper with their rail spur, and become part of their regular inventory logistics network, the railroad could do a lot more business with them, provide them the efficiencies of shipping using a box car (those carry a lot more than a truck trailer), and provide other benefits for the community, (say for example, not having those intermodal trailers on their city streets).  But this would also require the railroads to provide good, reliable service.  That can be done, many shortlines do it now, which is really quite amazing on their part as those shipments must also us the notoriously unreliable Class One railroads' networks withing those cars' journeys.  You know, it's actually pretty amazing, if one thinks about it, on how many of these shortlines can mitigate these problems which are caused by their Class One "partners", and still keep the business and the customer happy enough to use rail service...

Lackawanna484 Wrote:
-------------------------------------------------------
> NS runs daily intermodal trains into centers like
> Bethlehem PA. Boxes are dismounted and put on
> chassis frames, and out the gate.
>
> For a one off shipper in north Jersey, this can be
> a TWO DAY gain over a box car.
>
> I see this as a recognition by NS that you can
> focus on your strengths, while you unload your
> weak last mile delivery.

When you unload the last mile delivery and eat the drayage cost, you also unload the profit potential of the move.

spwolfmtn Wrote:
-------------------------------------------------------

> Unfortunately, these "Wall Street" people do not
> give a damn about the company, it's people, the
> communities, etc.  It's all about making a quick
> "buck" for themselves (or their clients), then
> heading for the next one.  We all know the
> saying:  "IT'S ALL ABOUT ME!"  In my little
> world, it seems like to me that there should be a
> different level of stock and corporate
> "ownership".  For example, say common stock, with
> it's voting rights, etc; to be able to have this
> right to make decisions about a company, I feel
> one should have to be invested in in for a long
> period of time (ie you have to hold the shares for
> a given time period), so these decisions would
> have a chance to be based on long term thinking. 
> I believe those that "trade stock" of a company,
> "short term trading" like it is done now, should
> not have a right to dictate how that company is
> run.  This is just my personal belief, as I think
> an "investor" should be someone who actually
> "invests" in the company, not someone who
> "gambles" with it (which usually includes
> "stacking the deck" or other means of enhancing
> ones' winnings).

The biggest change in corporate governance would come from forbidding fiduciary trustees from voting shares they do not personally own.

The entire concept of shareholder governance is undermined by allowing hedge fund owners, mutual fund managers, pensions fund managers and the like from voting other people's shares.  Corporate governance is literally controlled by people who actually have no ownership of the stocks they get to control, personal risk, and thus no skin in the game.  They get to outvote and take control of companies from actual stockholders, who they outnumber in terms of share and dollar value control by virtue of the accumulation of other people's investments.

Its as if by living in a Home Owner Association Neighborhood, the head of the HOA board gets to cast all the votes for political offices for all homeowners as their fiduciary, or as if apartment building owners get to cast the votes of their renters.

abyler Wrote:
-------------------------------------------------------
(SNIP)
> The biggest change in corporate governance would
> come from forbidding fiduciary trustees from
> voting shares they do not personally own.
>
> The entire concept of shareholder governance is
> undermined by allowing hedge fund owners, mutual
> fund managers, pensions fund managers and the like
> from voting other people's shares.  Corporate
> governance is literally controlled by people who
> actually have no ownership of the stocks they get
> to control, personal risk, and thus no skin in the
> game.  They get to outvote and take control of
> companies from actual stockholders, who they
> outnumber in terms of share and dollar value
> control by virtue of the accumulation of other
> people's investments.

Sort of true, but mostly because of the pension plan participant, 401k participant, etc laziness.

If you ask Vanguard, Fidelity, Schwab, etc for the right to vote "your" shares in portolos they manage, they are required to let you do that, in most cases.  Your pension manager has given the investment manager a default right to vote UNLESS you choose to revoke it.  I described how that's done in the discussions about the CSX takeover. Mantle Ridge, with 2% of the sahres, stampeded Vanguard, Fidelity, Federated, etc into voting their way.

It's become an issue in the anti-Israel BDS movement, the anti-weapons movement, etc.

>
> Its as if by living in a Home Owner Association
> Neighborhood, the head of the HOA board gets to
> cast all the votes for political offices for all
> homeowners as their fiduciary, or as if apartment
> building owners get to cast the votes of their
> renters.

A fiduciary is a little different than a manager. A fiduciary is required to consider the interests of the beneficiary only.  A manager will consider the interests of the beneficiary as well as the broker's own interest, etc. The Trump administration revoked rules which required managers handling pension plan, IRA, 401k money to be fiduciaries.  Wall Street will look out for the customers, they say...