Global Ports Forum

Japan Trainmakers Get India, Indonesia Edge From Advisor

Japan International Consultants for Transportation Co. is working on feasibility studies for high- speed trains in India, Indonesia and Vietnam as it tries to help Japanese rail companies boost sales overseas.

The projects include separate lines from the Indian city of Chennai to Hyderabad and Ernakulam, said Masanori Tanaka, president of JIC, which is owned by East Japan Railway Co. (9020) and other Japanese train operators. The Indonesian track would link Jakarta and Bandung, he said in a July 27 interview in Tokyo.

The advisor bases its studies on Japanese technologies and this bolsters Japanese companies’ odds of winning contracts for any lines that are subsequently built, Tanaka said. The company was designed to replicate the success of Paris-based consultant Systra in bolstering French train exports as Japanese suppliers try to offset slowing domestic demand.

“There’s a higher chance when the plan is based on a Japanese system,” Tanaka said. Still, it’s “not certain” Japanese companies will win orders as the ultimate decision is made by the customer following a tender, he said.

JIC is working on 18 rail projects in total, including overseeing construction of lines in Jakarta, Cairo, China, Istanbul and Ho Chi Minh City, Tanaka said. The company is aiming for sales of about 1 billion yen ($13 million) in its first fiscal year, which started in April, he said.

Rail v. Roads

The company is focusing on Asian markets as economic growth, urbanization and rising road congestion are spurring interest in trains, he said.

“Developing countries are at a stage where they are deciding whether big cities should become car societies or train societies,” he said. “We’re getting in on the planning stages.”

India is studying a total of six high-speed lines, including the two that JIC is assisting with, he said. Vietnam is reassessing plans for high-speed rail after a 1,550-kilometer (963 miles) line from Hanoi to Ho Chi Minh City was rejected by lawmakers in 2010.

Separately, Tokyo-based Hitachi Ltd. (6501) and partner John Laing won a 4.5 billion pound ($7 billion) train order from the U.K. last week. A Nippon Sharyo Ltd. (7102) venture won an order for about 300 trains from Taiwan in 2011.

The total global market for rail equipment may increase 2.4 percent a year to 160.5 billion euros ($200 billion) by 2016, from an average of 136 billion euros annually between 2007 and 2009, according to the Association of the European Rail Industry.

Systra, part-owned by rail operators Societe Nationale des Chemins de Fer Francais and Regie Autonome des Transports Parisiens, had sales of 416 million euros in 2011. The company was formed in 1957.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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Buffett Poised to Win Wager on U.S. With Rail Purchase

March 1 (Bloomberg) — When Warren Buffett bought North America’s second-biggest railroad, he called it an “all-in wager” on the U.S. economy. It’s turning out to be a pretty good bet on the oil industry, too.

Burlington Northern Santa Fe’s track network puts it among the best situated of its peers to meet shipping demand for fracking sand, pipe and crude in the northern U.S. Bakken region, where oil production has more than tripled since 2008, according to data compiled by Bloomberg.

Gains in mineral and chemical carloads helped Burlington Northern pay a $1 billion distribution to Buffett’s Berkshire Hathaway Inc. last month. The railroad is the busiest in the U.S. in 2012 by traffic, positioning it to build on a 16 percent jump in 2011 sales that helped narrow the revenue lead of Union Pacific Corp., which lacks tracks into the Bakken area.

“It’s kind of like if somebody discovers gold in your backyard but not your neighbor’s,” said John Anderson, advisory director at Greenbriar Equity Group, a private-equity firm based in Rye, New York, focused on the transportation industry. “It’s just good luck.”

Drilling in the Bakken region in Montana and North Dakota is increasing because of improvements in hydraulic fracturing, a technology that uses sand and other chemicals to hold open fissures in shale formations to extract oil. With no pipelines in place yet, railroads are taking oil to refineries and delivering materials such as pipe and specialized fracking sand.

North Dakota

Burlington Northern has “been lucky” to some degree, Tony Hatch, an independent rail analyst in New York, said in an interview. “They’ve got a big presence in North Dakota, which was probably not something that was probably in the forefront in their mind two or three years ago as a competitive advantage.”

That’s adding to the benefits Buffett received when he spent $26.5 billion to acquire the 77.5 percent of Fort Worth, Texas-based Burlington Northern that Berkshire didn’t already own. Buffett, 81, called the deal an “all-in wager” on the U.S. economy when he announced it in 2009.

He negotiated his biggest-ever purchase so Berkshire could benefit from demand for shipping on routes in the U.S. West. The deal has helped boost Omaha, Nebraska-based Berkshire’s profit in the past two years as a recovering economy pushed Burlington Northern’s revenue to $19.5 billion in 2011.

Burlington Northern “has benefitted from the shale play probably more than Union Pacific,” said Lee Klaskow, a Bloomberg Industries analyst in Skillman, New Jersey.

Two Railroads

The railroad serves about 30 percent of U.S. oil refineries, Klaskow said in an interview. It’s also one of only two major carriers, along with Canadian Pacific Railway Ltd., with tracks into the region. That means Burlington Northern can pick up shipments from drillers and take them to the refineries across its 32,000-mile (51,500-kilometer) system.

Having a “full service” approach contrasts with Union Pacific’s need to exchange carloads with Burlington Northern or Canadian Pacific to move petroleum to refineries on its network, Klaskow said. Freight that stays on one railroad’s system for the full trip is typically more profitable.

Oil and gas-field servicing are “exploding very healthily” for Burlington Northern, said Paul Bingham, economics practice leader at consultant CDM Smith in Arlington, Virginia. “In the west I think the BN disproportionately benefits from that.”

Fourth-quarter net income advanced 41 percent, Burlington Northern said this week in a filing. Buffett didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer.

Fracking Fallout

The increase in fracking has hurt another Buffett bet: $2 billion in bonds of Energy Future Holdings Corp. He wrote down the investment by more than $1 billion as lower gas prices pressured the power company and told shareholders in a Feb. 25 letter that the investment is at risk of losing all value.

Investors following Buffett’s lead on railroads have outperformed the broader U.S. market.

The Standard & Poor’s 500 Railroads Index, a gauge of Burlington Northern’s three publicly traded peers, surged 80 percent through yesterday from Nov. 2, 2009, the day before Buffett agreed to buy the carrier. The S&P 500 rose 31 percent in the same period.

Canadian Pacific’s shares were up 57 percent since then in Toronto. Its largest shareholder, Pershing Square Capital Management LP’s William Ackman, has cited Bakken access as one of the railroad’s potential advantages as he pushes for a management change.

Trade Group’s Data

Association of American Railroads data offer glimpses of Burlington Northern’s drilling-related traffic.

Fourth-quarter originated carloads of non-metallic minerals and products grew about 15 percent, while chemicals climbed 5.4 percent. Fracking sand and petroleum are included in the latter two categories, according to the Washington-based trade group.

The railroad doesn’t report oil cargo as a category, and Krista York-Woolley, a spokeswoman, said Burlington Northern doesn’t break down volumes by shipping locations.

Burlington Northern is leading the North American industry in originated carloads of all kinds in 2012, with a four-week moving average of almost 165,000 through Feb. 18. That compares with about 140,000 for Union Pacific, according to data compiled by Bloomberg Industries.

Union Pacific’s chemical volumes also are rising because fracking technology is boosting natural-gas drilling. Chemicals are Union Pacific’s second-biggest commodity by volume, after coal. And its route system blunts the disadvantages of not serving the Bakken region directly, said Tom Lange, a spokesman for the Omaha-based railroad.

Gulf Coast Access

“The majority of Bakken crude shipments ultimately are delivered by Union Pacific to the Gulf Coast refineries,” Lange said yesterday by e-mail. “Other railroads interchange with us in Kansas City and St. Louis.”

The revenue lead for the largest U.S. railroad over Burlington Northern dwindled to only $9 million in 2011 from more than $2 billion in 2003. Sales growth at Burlington Northern has been faster since then, and it eclipsed Union Pacific sales in 2008 for the first time since at least 1987.

Burlington Northern has a “bigger position in what I think in the next cycle will be faster-growing elements — intermodal, the Bakken, international grain,” Hatch said. “If you just woke any rail analyst in 1990 or 2000 and said, ‘Best franchise?’ They’d have said Union Pacific. I think it’s closer now.”

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net

Rail-Freight Surge Before Holiday Shows U.S. Skirting Recession
By Natalie Doss
December 29, 2011 2:19 PM EST

North American railroads’ freight volumes surged 17 percent last week, the most in a year, in an indication that the U.S. economy will avoid a second recession.
Rising shipments of retail goods helped drive the jump in carloads for the period ended Dec. 24, the Association of American Railroads said today. The trade group released the results after government data showed U.S. jobless claims fell to a three-year low in the past month.
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Analyst Dur Sees Transportation M&A, Consolidation
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The double-dip recession “that people feared only six, eight, 10 weeks ago never materialized,” said Tony Hatch, an independent railroad analyst in New York. “Things are going pretty well in a variety of the commodities that the railroads carry.”
Analysts focused on pre-Christmas rail traffic this year because record retail sales over the Thanksgiving weekend suggested that the seasonal peak in freight shipping might extend into December. Many retailers delayed building inventory amid concerns that the economy was weakening.
Commodity carloads such as chemicals posted the second- largest jump of 2011, up 12 percent. Intermodal carloads, which can move by rail, road and sea and often move retail goods, rose 23 percent, the most in a year.
The increase in freight traffic may also signal that shippers put more long-haul cargo on trains instead of trucks as railroads improve reliability for last-minute deliveries.
“The rails are getting stuff off the road,” said Lee Klaskow, a Skillman, New Jersey-based analyst with Bloomberg Industries.
Carriers such as Omaha, Nebraska-based Union Pacific Corp. (UNP), the biggest U.S. railroad, and Warren Buffett’s Burlington Northern Santa Fe (BNI) tend to be leading indicators of economic health, Klaskow said.
“Have we skirted a double-dip recession? According to the rail tea leaves, yes,” Klaskow said. In addition, “the economic data appears to be showing some sort of economic growth.”
To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

Rail Freight Gains as Record Retail Sales Buoy December Rush
By Natalie Doss
December 08, 2011 2:04 PM EST

North American railroads’ seasonal peak in shipments may be extending into December as an increase in online Christmas shopping boosts demand for moving packages.
Christmas shipping is shifting closer to the holiday after retailers delayed building inventory because of concern the economy would enter a recession, said Tony Hatch, an independent rail analyst in New York. Late restocking and railroads’ gains in reliability mean shippers may send more cargo by train this month, when volumes typically slow, he said.
“The general economic uncertainty has created a new kind of Christmas rush,” Hatch said. The delayed peak for carriers has “also been helped by the fact that the railroads are themselves getting better.”
Railroad intermodal units, the containers and trailers often used for retail goods that can move by rail, road and sea, rose 4.7 percent in the week ended Dec. 3, the Association of American Railroads said today. That growth rate may increase in coming weeks as shippers such as FedEx Corp. (FDX) and United Parcel Service Inc. (UPS) use railroads for delivery of online purchases.
FedEx, the operator of the world’s biggest cargo airline, announced this year that it would move some intermodal goods by rail for the first time. While the Memphis, Tennessee-based company moves less by railroad than UPS, the added business indicates that railroads are more capable of handling consumer deliveries.
FedEx, UPS
Carriers including Union Pacific Corp. (UNP) and Berkshire Hathaway Inc.’s Burlington Northern Santa Fe LLC are benefiting as delivery companies such as FedEx and Atlanta-based UPS use railroads for long-distance transportation before putting their packages on trucks for final delivery directly to customers.
“The railroads move a lot of the deferred parcel business,” said Jason Seidl, a New York-based analyst with Dahlman Rose & Co. “With online sales up nearly 30 percent on the Black Friday weekend, you could see some additional rail traffic.” Seidl has “buy” ratings on Omaha, Nebraska-based Union Pacific, CSX Corp. (CSX) and Norfolk Southern Corp. (NSC), the biggest publicly traded U.S. railroads.
Thanksgiving weekend retail sales climbed 16 percent to a record $52.4 billion as U.S. consumers poured into the malls and took to the Web. Online sales on Black Friday surged 26 percent to $816 million and 18 percent to $479 million on Thanksgiving Day, according to ComScore, a Reston, Virginia-based research firm.
December Peak
Since reaching a 2011 high in the week ended Oct. 1, intermodal carloads continued year-over-year gains. Those gains may increase in the first few weeks of December as peak’s end for the railroads extends for part of UPS’s and FedEx’s busiest seasons.
Delivery companies like UPS use railroads in part because “it’s just cheaper,” said Lee Klaskow, a Bloomberg Industries analyst in Skillman, New Jersey. “That being said, they’re not like a typical shipper looking at intermodal just because it’s cheap. If the service levels aren’t there, they’re not going to use it.”
A jump in carloads this December may not indicate increased business from holiday shoppers since the railroads don’t break out volumes by shipper, according to Paul Bingham, economics practice leader at consultant Wilbur Smith Associates in Arlington, Virginia.
Air, Road
“I wouldn’t be 100 percent confident that if I saw, let’s say the volume declines being less than you would expect seasonally typically, that was coming solely from UPS and FedEx,” he said in a telephone interview.
Though railroads could see some additional December volume, airfreight and truckers are likely to be the biggest beneficiaries of a delayed peak season, according to Justin Yagerman, a New York-based analyst at Deutsche Bank Securities Inc. He expects intermodal shipments to moderate through the end of the year and has a “buy” rating on FedEx, UPS, Union Pacific and Jacksonville, Florida-based CSX, and a “hold” on Norfolk Southern.
Railroad shares are outperforming the broader market as investors see a benefit from an increase in intermodal shipments. Before today, the Standard & Poor’s 500 Index (SPX) was little changed since the beginning of the year, while the S&P 500 gauge (S5RAIL) consisting of Union Pacific, CSX and Norfolk Southern rose about 10 percent.
Carriers in recent years have become more closely tied to cyclical consumer demand, according to Hatch. While that will benefit them if buying power is strong this holiday season, the extended shipping peak may not extend longer than usual if it fades.
“They’re much better companies but as they’re getting better they’re getting a lot more cyclical,” Hatch said. Rather than just moving grain and coal, for which demand is typically stable, “now they are going to move Christmas goods, or not, depending on the consumer.”
To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

Railroads Avert U.S. Holiday-Season Strike on Union Accords
By Lisa Caruso
December 03, 2011 5:28 AM EST

Dec. 2 (Bloomberg) — Freight railroads won new labor agreements with two unions, averting a strike in the holiday shipping season, after U.S. lawmakers said they were prepared to intervene in the dispute.
The Brotherhood of Locomotive Engineers and Trainmen and the American Train Dispatchers Association, representing 26,500 workers, reached tentative accords, the National Railway Labor Conference, a Washington-based group that bargains on behalf of railroads, said in an e-mailed statement last night.
Winning the contract agreements ended the threat of a walkout that could have occurred as soon as Dec. 6, the Association of American Railroads trade group said in a statement. Another union, the Brotherhood of Maintenance of Way Employes, extended a “cooling-off” period to Feb. 8.
“While the railroads only agreed upon an extension with BMWE, we are hard pressed to envision a situation where BMWE would not eventually work out a deal,” Jason Seidl, a Dahlman Rose & Co. analyst in New York, said today in a note to clients.
The Standard & Poor’s 500 Railroads Index fell 0.1 percent today. The gauge consists of the three largest publicly traded U.S. railroads: Union Pacific Corp., CSX Corp. and Norfolk Southern Corp.
$2 Billion
A freight-rail work stoppage would have cost the U.S. economy about $2 billion a day, the Washington-based AAR said. The House was ready to vote on legislation to prevent a “job- crushing railway labor strike,” House Speaker John Boehner, an Ohio Republican, said yesterday before the union accords.
The agreements call for raises of more than 20 percent over six years, A. Kenneth Gradia, a labor conference official, said in the group’s statement.
Ten unions have tentative deals and two have ratified agreements. The maintenance-employees group said this week it plans to bargain into February. It speaks for 25,100 workers who build and maintain tracks, according to the labor conference.
Talks among 30 freight railroads, including Union Pacific and Warren Buffett’s Burlington Northern Santa Fe, and unions representing 132,000 workers broke down in September after almost two years, triggering a 90-day strike ban under U.S. law.
Railroads carry 43 percent of the freight volume moved between cities, according to the railroad association.
Congressional Action
House transportation committee Chairman John Mica, a Florida Republican, and Senator Mike Enzi, a Wyoming Republican, on Nov. 30 proposed adopting the recommendations of a board President Barack Obama appointed in October to resolve the dispute.
Senate Majority Leader Harry Reid, a Nevada Democrat, made a similar proposal and added one to extend the Dec. 6 bargaining deadline until Feb. 8.
U.S. business groups urged Congress to prevent a strike if the companies and unions didn’t resolve the dispute.
“We are not thrilled with Congress getting involved in settling labor disputes,” Alex Herrgott, director of transportation and infrastructure for the U.S. Chamber of Commerce, said in an interview. “But we’re more concerned about losing $2 billion a day without intervention.”
One-third of U.S. exports and 70 percent of coal shipments travel by rail, Herrgott said in an e-mail.
–With assistance from Mary Jane Credeur in Atlanta and Heather Perlberg in New York. Editors: Andrea Snyder, Bernard Kohn
To contact the reporter on this story: Lisa Caruso in Washington at lcaruso7@bloomberg.net
To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Bernard Kohn at bkohn2@bloomberg.net

Britain postpones high-speed rail decision – report
Sun Dec 4, 2011 11:46am GMT

LONDON (Reuters) – The government has postponed until January a decision on building a new 32 billion pound high-speed rail network so as to consider measures to reduce the impact on those living nearby and the environment, media reported on Saturday.

A decision had been expected by the end of the year, but the media reports said the decision had been delayed to consider the construction of a 500 million pound tunnel to reduce the proposed network’s environmental impact.

“The important thing is to make the right decision, even if that means a delay of a few parliamentary days,” a Department for Transport spokeswoman said.

She confirmed the tunnel proposal but dismissed as speculation reports of its cost.

The proposed 400 km per hour line connecting London with major cities to the north has run into angry opposition from people living near the route — many of them supporters of David Cameron’s Conservative Party worried about the impact on their homes and the countryside.

The government’s proposal is for a new Y-shaped high-speed rail network. The initial phase would connect London and Birmingham by 2026, reducing journey times to 49 minutes from 84. Lines to Manchester and Leeds would open by 2033.

(Reporting by Mohammed Abbas; Editing by Ralph Gowling)

Buffett’s Burlington Exploits 29% Increase in Boxed Grain to Asia: Freight
By Natalie Doss
November 17, 2011 3:41 PM EST

Burlington Northern Santa Fe, the railroad controlled by Warren Buffett, is upgrading yards that handle shipping containers as it takes advantage of a 29 percent surge in Asia-bound shipments of specialty grains.
Products such as organic or genetically modified soybeans, which can’t travel in traditional hopper cars, are now being packed in containers that once sailed back empty to Asia after bringing retail goods to the U.S. That’s an opportunity for railroads to bring boxes of specialty grains to American ports.
U.S. agriculture exports in containers accounted for 21 percent of 2010’s total, 4 percentage points more than 2006, as carriers and shippers seek to meet consumer demand among Asia’s growing middle class. Burlington has disclosed about $680 million in spending on container yards since 2002, more than half in the Midwest, where most corn and soybeans are grown.
“As the world has now neared or surpassed 7 billion people in population, there’s a direct correlation in this increasing demand and rising tide for exports,” said Fred Malesa, who oversees international intermodal marketing for the carrier controlled by Buffett’s Berkshire Hathaway Inc. (BRK/A) “Containers and global containerization are playing a significant role in meeting that demand.”
Seaborne grain-container deliveries to Asia climbed 29 percent in the first eight months of this year alone, according to the U.S. Department of Agriculture.
‘Handled Carefully’
“It used to be we send them whatever grain we had, whatever soybeans we had, we send them, they’re happy to have it,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition in Washington. “Not anymore. They are being very selective in what they purchase, demanding highest quality, and often smaller volumes of specific” goods.
Container shipments of grain began just five to 10 years ago, Friedmann said. The shipments accounted for about 5 percent of U.S. seaborne grain exports last year.
The containers already were popular with railroads and their customers. So-called intermodal boxes can be moved from ocean-going vessels to railcars to trucks, all without being unpacked.
Adapting that shipping practice for export grain means new markets for Burlington, the largest U.S. rail carrier of farm products. Fort Worth, Texas-based Burlington’s rail network in the western U.S., where the company competes with Union Pacific Corp. (UNP), moves shipments to Pacific ports such as Los Angeles and adjacent Long Beach.
Transfer Loading
Hauling containers laden with grain for Asia-bound ships on the U.S. West Coast lets Burlington profit from trade in both directions, since it already carries items such as electronics made in China and South Korea from those ports to inland destinations.
Union Pacific, based in Omaha, Nebraska, is investing in a transloading unit at the company’s Yermo facility near the ports of Long Beach and Los Angeles, where bulk shipments of grain from the Midwest are transferred to containers, then shipped overseas.
Shippers “think they will need and want this service,” said Tom Lange, a Union Pacific spokesman.
Boxing up grain near ports and thousands of miles from farmers’ fields may not satisfy customers like Japanese tofu- maker Shikoku Kakoki Co. and Tokyo-based Gomei Shoji Kaisha Ltd., which may want goods separated for the entire journey, according to Bruce Abbe, executive director of the Midwest Shippers’ Association, and Sean Strawbridge, managing director of trade relations and port operations at the Port of Long Beach.
Midwest Shipments
Asia is the top destination for U.S. waterborne boxes of grain, accounting for 94 percent last year, according to the agriculture department.
Shipping of specialized grains is “best done when they can load containers back here in the Midwest right at the source of plants, and that’s where we’re not as well served as we’d like to be by the system,” said Abbe, whose group represents businesses including soybean shipper Brushvale Seed Inc. and peas and lentils exporter Maviga NA Inc.
The challenge is twofold: Railroads benefit from having fewer stops and longer trains, and farms in the Midwestern U.S., which produce much of the country’s agriculture exports, are often far from container hubs in Chicago and on the West Coast.
While Burlington said transloading, or transferring cargo from bulk cars to containers, near ports is inefficient, the company serves inland transloading facilities in the Midwest.
Rail Rally
“We take these producing areas of ag exports and we match those with the urban and growing population centers in the U.S.,” where containers arrive with consumer goods, Burlington’s Malesa said by telephone. That creates “a better trade balance for the country.”
Rising demand for containerized grain and capital goods for railroads is helping drive a rally in the shares of carriers and their equipment suppliers. The Standard & Poor’s 500 Railroads Index of three U.S. carriers, including Union Pacific, climbed 10 percent this year through yesterday. Burlington was part of that gauge before being bought by Berkshire in February 2010.
Rail-car builder Trinity Industries Inc. (TRN) added 9.5 percent in the same period and competitor Greenbrier Cos. gained 4.1 percent, while rail-car lessor GATX Corp. increased 16 percent. The S&P 500 fell 1.7 percent.
‘Eagerly Pursue’
“The demand for export containers of grain far exceeds the supply of available containers,” said Long Beach port’s Strawbridge.
While bulk goods historically have been carried overseas in ships from the Pacific Northwest, the increase in customized grain is spurring the southern California ports to “eagerly pursue” more farm products, said the Agriculture Transportation Coalition’s Friedmann. Los Angeles and Long Beach are the busiest U.S. container ports.
“Now we’ll have, really for the first time, large volumes of containerized grains moving to L.A.-Long Beach, as opposed to just up to Seattle-Tacoma” as limited container capacity drives railroads to seek additional boxes, Friedmann said. That shows that railroads expect that “this is going to continue and accelerate.”
The Port of Long Beach is preparing by studying additional export grain units. Terminal operator Total Terminals International is among developers studying construction of grain transloading facilities, Strawbridge said.
‘Anticipate the Markets’
Infrastructure planning is crucial for rail companies seeking to position themselves in markets where demand will grow, said Union Pacific’s Lange.
“It takes a long time for our investments — we spend years getting track in place,” Lange said. “You have to anticipate the markets pretty far in advance here.”
Taiwan is the largest destination for U.S. grain-container shipments. China is second, though it remains the top destination for overall U.S. agriculture exports that totaled $99.9 billion through September.
Covered hopper cars, which carry more grain than can fit in a container, will probably always be the main method of transporting crops, Abbe said. Still, demand for higher-quality foods will “lend itself to containerized shipping and more and more of that’s going to develop,” he said.
To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

Sand Like Gold Boosts Greenbrier’s Railcar Production: Freight
By Alex Kowalski
November 09, 2011 12:00 AM EST

Greenbrier Cos Inc. (GBX) and American Railcar Industries Inc. (ARII) can’t expand their fleets fast enough as demand for sand used in the hunt for oil and natural gas helps power U.S. railcar production to a three-year high.
“Everybody is asking for cars right now,” Dale Davies, chief financial officer at American Railcar, said in a telephone interview from his Saint Charles, Missouri, office. “Everybody is trying to ramp their capacities up as much as they can. We’re pretty much full for 2012.”
Companies involved in oil and natural gas production such as Chesapeake Energy Corp. (CHK) are thriving even as 9 percent unemployment, a depressed housing market and stagnant incomes restrain the economy. Their demand for railcars is creating jobs and boosting earnings at railway suppliers as the industry piggybacks off the drilling resurgence from Pennsylvania and Wyoming to North Dakota and Texas.
Trains transport as much as 2,500 tons of sand for a single hydraulic fracturing project, which involves splintering open tiny cracks about a mile beneath the earth’s surface to unlock stores of petroleum and natural gas. When the so-called fracking is complete, a different set of railcars hauls out the thousands of barrels of newly discovered fuel.
“Energy transformation is afoot in North America,” William Furman, chief executive officer at Lake Oswego, Oregon- based Greenbrier, said on a Nov. 3 conference call with analysts. “Demand for railroad, railcars and railroading has uncoupled from the overall economic drivers which have long linked the industry to gross domestic product and the economic health of the nation.”
Highest Since 2008
The need to move fracking components has helped push the number of railcars waiting to be built to 65,044, the highest level since 2008 and the seventh consecutive quarterly increase, according to Steve Barger, an analyst at Keybanc Capital Markets Inc. in Cleveland, citing Railway Supply Institute statistics.
Shares of Greenbrier, American Railcar and Trinity Industries Inc. (TRN) have outpaced the Russell 2000 Index (RTY) since the end of 2010 even after they lagged behind from August through September amid growing concern that the economy was slipping into a recession.
“Given the strong correlation between industry backlog and the share prices (84 percent), we think strong bookings in the third quarter will drive upside to the shares, supporting our belief that the pullback in the group has been driven more by macro concerns rather than actual deterioration in industry fundamentals,” Barger wrote in an Oct. 16 research note.
50,000 More
The energy industry may require 50,000 new railcars in the next three to four years in addition to the ones already in backlog, said Barger, who recommends shares of Greenbrier, Trinity and American Railcar. Orders for small cube covered hoppers, the containers used to transport sand, may total 30,000. Tank cars to ship the oil would make up the rest, he wrote.
“If you want a car, you’re going to pay a higher price for it right now simply because there are no available build spots left,” Barger said in an interview.
Greenbrier’s backlog was about 15,400 railcars by the end of August, the company said last week. At Trinity, it stood at 27,885 railcars by Sept. 30, the Dallas-based company said. American Railcar and FreightCar America Inc. (RAIL), the other publicly traded U.S. manufacturer, reported 7,100 and 6,311 backlogs in the same period.
Growing Backlogs
“The manufacturers can now be a little more choosey about what they take because their backlogs are growing, which makes their price margin more significant,” said Paul Bodnar, an analyst at Longbow Research in Independence, Ohio, who has “buy” ratings on Trinity and Greenbrier. Hoppers currently cost between $70,000 and $90,000, while tank car prices range from $80,000 to $110,000, he said.
Hydraulic fracturing has opened up vast regions of the U.S. to drilling, helping make the U.S. less dependent on imported oil.
The Marcellus Shale formation, which stretches from New York to Tennessee, contains about 84 trillion cubic feet of recoverable natural gas, according to the U.S. Geological Survey. The Bakken formation, located in North Dakota and Montana, has about 3 billion barrels to 4.3 billion barrels of recoverable oil, the USGS estimates.
“We have a hard time finding labor,” Chesapeake Chief Financial Officer Nick Dell’Osso said during an Oct. 4 investor conference. “We have a hard time contracting for railcars. We have a hard time finding truck drivers and diesel mechanics. When the rest of the economy seems to be falling apart, it creates an interesting dichotomy for us.”
The Bakken
A typical completed well in the Bakken will produce about 1,000 barrels of oil per day in its first year before dwindling to about 100 barrels per day in five years, according to the North Dakota Department of Mineral Resources. Barger said the tank cars can generally carry about 750 barrels of crude oil.
While each project varies, fracking one well may require between 125 tons to 2,500 tons of sand, according to Jim Gipson, a spokesman for Chesapeake. The mineral, along with several other components, is used to hold open fissures in shale formations, allowing gas and oil to escape.
About 7.2 million tons of frack sand were consumed in 2009, the most recent year for which data are available, according to Thomas Dolley, a mineral commodity specialist at the USGS. Production grew more than 300 percent from 2001 to 2009. It likely doubled from 2009 to 2010 and will increase again this year, Dolley said.
Hoppers can carry about 100 tons of sand, Keybanc’s Barger said. One fracking project may require as many as 25 carloads.
“The frack-sand market has resulted to grabbing anything that will feasibly work,” Bodnar said a fleet operator in the Midwest told him. Some shippers have even resorted to employing containers not typically meant to haul sand, he said.
To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Recalled trains back on tracks
By Xin Dingding (November 15, 2011 9:37 AM)
BEIJING – The Ministry of Railways confirmed that 54 bullet trains previously recalled over safety concerns following a fatal bullet train crash in July will resume operations on the Beijing-Shanghai high-speed railway.

“The modified CRH 380BL trains will be put into service gradually starting Wednesday, since they are deemed qualified after being tested, assessed by an independent party and approved by experts,” the ministry said in a news release on Monday.

It also ordered the manufacturer to follow up the trains’ performance and improve after-sale service, and also asked the operators to strengthen maintenance and management to ensure safe operation.

Produced by China CNR Corp, one of China’s two major train makers, the trains were pulled from service on the Beijing-Shanghai high-speed railway on Aug 12, some three weeks after 40 people were killed and nearly 200 others injured in a bullet train crash near Wenzhou in East China’s Zhejiang province, an incident that triggered public fury in China.

Developed for the landmark high-speed railway with a top operation speed of 380 km/h, the recalled trains were not the same model as those involved in July’s crash, but the recall was part of the government’s efforts to soothe public concerns about the safety of the high-speed train service.

After the accident, the ministry launched a nationwide safety check on its high-speed railways to eliminate potential risks, and lowered the speed of its high-speed railway service.

The CRH 380BL model trains reportedly had a higher malfunction rate than allowed by the ministry, with a series of power outages and blackouts on the Beijing-Shanghai line in the first month of operations.

An official with CNR blamed sensors on its trains for being “too sensitive” so that they often gave false alarms and caused the power outages and blackouts.

Caixin Century magazine later reported the recall was also linked to fractures discovered in the trains’ driving axles by ultrasonic inspections, which the ministry denied, saying it had been a false alarm and the German ultrasonic detector used was too sensitive.

CNR, however, said the recall was due to quality defects with outsourced parts and components, without naming the manufacturers in question.

“After a three-month process of modifications and repeated tests, previously reported problems with the CRH 380BL trains have all been fixed,” an unnamed ministry official was quoted by Xinhua News Agency as saying.

The first six of the 54 recalled trains will resume service on the Beijing-Shanghai high-speed railway on Wednesday.

“If everything goes well, all the recalled trains will resume service by Dec 6,” he said.

After the news spread, some passengers commuting between the two major cities said they are still not able to put total confidence in the recalled trains.

“I have no other choice though I’m still worried about safety,” said Chen Lili, 23, a college student who is often traveling between Beijing and Shanghai for job interviews.

“The recalled trains’ safety can’t be guaranteed just because the producer said so. They did not even give details about what problems they corrected,” Chen said.

Netizens reacted with humorous caution, as a much-forwarded micro blog suggested those riding on the Beijing-Shanghai high-speed railway “wear a helmet or bulletproof vest just in case”.

Jin Huiyu contributed to this story

Posted on: 14 Apr 2011, 05:32 PM

China limits speed of bullet trains

Beijing: In a move to placate passengers, China has decided to slow down the speed of its high profile bullet trains. This surprising announcement was made after commuters complained they are forced to ride on high-speed trains and pay more because the Railway Ministry cancelled slower trains.

China’s high-speed railways will run at a slower speed than previously expected, Railways Minister Sheng Guangzu, who recently replaced Liu Zhijun following corruption charges, said.

In an interview to a daily, Sheng said high-speed trains will run at 300 kilometres per hour starting from July 1, instead of the previously announced 350 km/hr.

The change to the country’s high-speed rail network was made after Liu stepped down when he became the subject of an investigation for an alleged “severe violation of discipline” on February 12.

Sheng said only the four east-west and four north-south artery lines of the high-speed rail network will carry trains at 300 km/hr.

The inter-city lines that usually connect major centers within regions should be operated at between 200 and 250 km/hr, while most railways in central and western China will operate at less than 200 km/hr, he said.

Previously, China was expecting to build a high-speed rail network with an operational speed of 350 km/hr or more, which dramatically reduced distances between cities.

The landmark Beijing-Shanghai high-speed railway was built to run trains at 380 km/hr that could compete with airlines.

But Sheng did not say whether the line will still run that fast when it opens in June.

For passengers, a lowered speed could mean a cut in ticket prices in the future.

Wang Yongping, spokesman for the ministry, said on Wednesday that the lowering of the operational speed will “provide a bigger price-float range”, without elaborating.

The ministry also plans to ask passengers to provide their real names when buying bullet train tickets starting from June 1.