Eastern Railroad Discussion > Railroad Recession

Interesting article in today’s Pittsburgh Post-Gazette.

https://www.post-gazette.com/business/pittsburgh-company-news/2019/10/07/American-railroads-recession-CSX-Union-Norfolk-Southern-tariffs/stories/201910070103

PSR with big trains is not helping. There are several examples where the big railroads are not seeking new business.

bigkidpgh Wrote:
-------------------------------------------------------
> Interesting article in today’s Pittsburgh
> Post-Gazette.
>
> https://www.post-gazette.com/business/pittsburgh-c
> ompany-news/2019/10/07/American-railroads-recessio
> n-CSX-Union-Norfolk-Southern-tariffs/stories/20191
> 0070103

And driving away existing business they don't want to be bothered with - most loose car railroading on their mainlines.  

It's hard to have a real recession with consumer optimism and spending at current levels, yes some things are slowing
down but true domestic business will make it through (that's the kind of business the Class 1s are running off).

Out

Talk it up enough, and people will believe it...
 

GDP is more aligned with whether or not there is a recession. Car loadings can be a leading indicator, or not. Unemployment rate tends to be a lagging indicator. 

Running customers off can make good business sense when the ROI from serving those customers is lower than the cost of capital. Just about every large business will deliberately exit the market segments that aren't sufficiently profitable. Then the challenge becomes shedding overhead in proportion to the customers who've been run off. This is Business 101.  

I have a feeling that Wall St. and the railroads cannot ignore reality forever. Loose car loads are still the backbone of the industry. Without revenue, there is no growth. Without growth, Wall St. gets pretty fickle.

Just look at Sears and K Mart if you want an example of a great company that lost its will to hustle and do business.

As I have said before, I can go to any store and buy only a pack of gum. They don't care how much money I spend. They want the traffic and the market share. Railroads should be little different.

Business 101 never had to go out and make payroll. A small customer today who you run off can become a
dream for a competitor. The correct way to handle those you want to run off is to find a way to still capture their
business while also finding the mechanism to perform that task. Case in point, CP working with G&W to handle
such business. I harken back to my previous employer, a darling of Wall Street, the innovator of PSR in the
industrial distribution business. 5 years down the road, their biggest competitor who 5 years previous was about
the same size, is now 300% larger/ My employer, same sales level as 5 years ago but wow, the earnings per
share are doing better. Business 101 sees that as success, reality says it sucks.

Out

Nobody except Matt Rose has bothered to point out that RRs are common carriers and as such do NOT get to do whatever they want. They are not the same as any other business governed by Business 101 principles.



Edited 1 time(s). Last edit at 10/08/19 18:05 by NYC6001.

> Business 101 never had to go out and make payroll.
> A small customer today who you run off can become a
> dream for a competitor. The correct way to handle
> those you want to run off is to find a way to
> still capture their business while also finding the mechanism to
> perform that task.
 
You can always find an anecdote to the contrary, but the overwhelming odds are that customers you run off will not become a I-wish-we-had-not-done-that. Besides, if you can think of a way to bring the profitability of the customer up to the norm, go ahead. That's not in conflict with Business 101. But most of the time, you can't figure out a way to do that. 

And I have no idea what you mean about making payroll. When a big business files bankrupcy, it's usually because it can't make payroll, pay its payables, or meet its debt obligations... out of cash, they're all the same. I've seen big businesses go bankrupt precisely from trying too long to be all things to all people. 



Edited 1 time(s). Last edit at 10/09/19 05:48 by ctillnc.

MEKoch Wrote:
-------------------------------------------------------
> And driving away existing business they don't want
> to be bothered with - most loose car railroading
> on their mainlines.  

NS has in the last several years done that in eastern Virginia - a large cat litter plant wanted to construct a branch line (NOT at NS's expense) to their plant for up to 50 cars a day, 7 days a week, and NS stated they had no capacity on their Richmond District line to handle that much traffic (NS already serves a paper mill at the end of the Richmond District with up to nearly that many cars a day).  That strikes many as a business "kill" approach rather than attract new business.  Virginia state officials state they are interested in seeing it actually happen but will require politicians at the state level to "sponsor" any such industrial branches to be built (it's an 8-mile line off the Richmond District, from "Lester Manor" Va. to Central Garage, Va.).  With NS saying a flat out NO to that business, it's on indefinite hold for now, even though the business wanting this new line currently recieves 20+ carloads of inbound bentonite clay (from U.P. RR in Wyoming) daily (it's trucked to the plant from Doswell, Va.) and states they would ship out at least 20 "TBOX" cars daily, including Sunday, if they had direct rail service.  What does anyone do about that type of sititation?



Edited 1 time(s). Last edit at 10/09/19 10:08 by rbx551985.

rbx551985 Wrote:
-------------------------------------------------------
> MEKoch Wrote:
> --------------------------------------------------
> -----
> > And driving away existing business they don't
> want
> > to be bothered with - most loose car
> railroading
> > on their mainlines.  
>
> NS has in the last several years done that in
> eastern Virginia - a large cat litter plant wanted
> to construct a branch line (NOT at NS's expense)
> to their plant for up to 50 cars a day, 7 days a
> week, and NS stated they had no capacity on their
> Richmond District line to handle that much traffic
> (NS already serves a paper mill at the end of the
> Richmond District with up to nearly that many cars
> a day).  That strikes many as a business "kill"
> approach rather than attract new business. 
> Virginia state officials state they are interested
> in seeing it actually happen but will require
> politicians at the state level to "sponsor" any
> such industrial branches to be built (it's an
> 8-mile line off the Richmond District, from
> "Lester Manor" Va. to Central Garage, Va.).  With
> NS saying a flat out NO to that business, it's on
> indefinite hold for now, even though the business
> wanting this new line currently recieves 20+
> carloads of inbound bentonite clay (from U.P. RR
> in Wyoming) daily (it's trucked to the plant from
> Doswell, Va.) and states they would ship out at
> least 20 "TBOX" cars daily, including Sunday, if
> they had direct rail service.  What does anyone
> do about that type of sititation?

I don't know what one would do, but Buckingham Branch is bending over backwards to keep this business, including expanding Doswell Yard to accomodate more clay cars. Construction is ongoing. The management of BBRR knows that you don't say no if there's a remote chance you can handle the business some way and make a dollar or two at it. And if they can get the 50 car a day deal going they will have a business that can single handedly make a huge profit center for the Piedmont subdivision...something it has lacked for ages. 

Before pleasing Wall St because the object, a railroad would damn sure find a way to handle 50 cars a day to not only a current but, new customer.  That's what is wrong with  the g-o-m operating ratio being kept low.  It stinks.  If you can make a buck, then do it. It spends just like anyone else dollar.

"Pleasing Wall Street" means less expensive capital to invest in track and equipment.

Just like having a higher FICO score means lower costs for your mortgage, car payments, etc.

Posted from Android

Except they aren’t investing in track and equipment now. Equipment is being stored or disposed of and capex for improvements or betterment’s have more or less been suspended - CN being a shining exception.

I will allow that the service cost on the debt they are taking on to buy back stock could be lower as a result of the Streets happiness.

Posted from iPhone

Juniata Wrote:
-------------------------------------------------------
> Except they aren’t investing in track and
> equipment now. Equipment is being stored or
> disposed of and capex for improvements or
> betterment’s have more or less been suspended -
> CN being a shining exception.
>
> I will allow that the service cost on the debt
> they are taking on to buy back stock could be
> lower as a result of the Streets happiness.
>
> Posted from iPhone

Point noted.  In general, a company's ability to handle / service debt is considered a major element of Wall Street's interest.

Some firms with a high rate of return on capital are taking advantage of the low (artifically low, IMHO) debt costs to issue more debt and buy back more shares.

      This part of PSR is a twin to the 80-20 rule. Many believed the original crap that 80% of your revenue came from 20% of your customers so what you should do is jet those 80% bums. When you do that and recalculate, you have to jet that new 80% and pretty soon you have nothing. Happens quickly.
       Someone finally figured out what it may really be telling you is the 80% group of customers need to be looked at and see if they can be turned into a part that produces more of that 80% of your revenue .   Duh!

UN-FRICKIN'-BELIEVEABLE!!!!!!!!!!!!!!!

Customer will build the branch!
Customer wants 50 inbound cars a day!
Customer will ship 20 cars a day!

So, for 6 days:

That's 400+ cars a week!!!!!!!!!!!
That's 4 100-car trains per week.
Which equals over 200+ trains PER YEAR!!!!!!!!!!!

And NS said "NO"?????????????????????  What is wrong with these people???!!!!!???

Good God, the RR is being a total idiot right now.

Give it to a shortline---they'll make it happen!!!

rbx551985 Wrote:

>
> NS has in the last several years done that in
> eastern Virginia - a large cat litter plant wanted
> to construct a branch line (NOT at NS's expense)
> to their plant for up to 50 cars a day, 7 days a
> week, and NS stated they had no capacity on their
> Richmond District line to handle that much traffic
> (NS already serves a paper mill at the end of the
> Richmond District with up to nearly that many cars
> a day).  That strikes many as a business "kill"
> approach rather than attract new business. 
> Virginia state officials state they are interested
> in seeing it actually happen but will require
> politicians at the state level to "sponsor" any
> such industrial branches to be built (it's an
> 8-mile line off the Richmond District, from
> "Lester Manor" Va. to Central Garage, Va.).  With
> NS saying a flat out NO to that business, it's on
> indefinite hold for now, even though the business
> wanting this new line currently recieves 20+
> carloads of inbound bentonite clay (from U.P. RR
> in Wyoming) daily (it's trucked to the plant from
> Doswell, Va.) and states they would ship out at
> least 20 "TBOX" cars daily, including Sunday, if
> they had direct rail service.  What does anyone
> do about that type of sititation?

Another option instead of the 8-mile branch line of NS's Richmond District would be what was first proposed a year or two before this one came up:  build a 22-mile line from Doswell to Central Garage for Buckingham Branch to own/operate to the plant for direct rail service.  That would go over a substantial river bridge (which would have to be built over the North Anna River), take a long upgrade from there, and travel through multiple Virginia counties (Hanover, Caroline and King William).  Also, the 22-mile proposal would have to cross busy Highway 301 (likely at grade), and over an extremely busy, 4-land highway (Highway 301) to reach the plant.  Needless to say, the much shorter 8-mile line proposal (with only 2 small creeks and no major streets to cross, and with a route following property lines to avoid imminent domain issues) is far more feasible, but then - it requires the participation of the host RR.  Yes, NS said "no" ... publicly.  What they're saying "behind the curtain" is anybody's guess.  Hmmm.... maybe someone at NS with their head down to Earth might see this thread and take another look.  One can only hope.  Meanwhile, Buckingham Branch RR is doing terrific by this customer (no suprise there, as they do well by ALL of the customers) now out of Dowsell with a bulk unloading terminal for the plant's inbound clay, but the local 2-lane highway from Doswell to C-Garage sees a LOT of truckloads of materials every day for the lack of direct rail service.  So why did they build so far from an active RR line?  The county had one of the best financial incentive programs in Virginia to place it there, that's why.  'Want to know what's what with these issues?  Like almost everything else these days, just follow the money.  BTW, Virginia officials - about a year ago - revisited the plan in a simple statement saying it could still happen but would require someone at "state level" in politics to sponsor the plan.

In keeping with what this thread on TO.COM regards, I would like to hear any and all stories about similar (to the above text) stories happening elsewhere in the nation - and how similar or how different those business turn-downs are affecting the areas they are in, the people there, and the highways and RAILROADS which served (--or served--) them.



Edited 5 time(s). Last edit at 10/11/19 07:57 by rbx551985.