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Record Cars to China Boost Wilhelmsen as Japan Rebounds: Freight
By Michelle Wiese Bockmann
August 13, 2012 7:00 PM EDT
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Record car shipments to China and a rebound in cargoes from Japanese automotive companies recovering from last year’s tsunami will mean the most profit ever for Wilh. Wilhelmsen ASA, the world’s largest vehicle transporter.
European sales to China rose 42 percent to an average of 53,500 vehicles a month this year, according to data from China Automotive Information Net, a government researcher. Shares of Lysaker, Norway-based Wilhelmsen, with 23 percent of the global fleet, will rise 31 percent in the next 12 months, the average of seven analyst estimates compiled by Bloomberg shows.
While the company is handling more cargo to Asia, it’s also earning more because it has more cars to bring back from the region. Japanese exports to the U.S., the industry’s biggest trade route, rose 25 percent in June after companies from Toyota Motor Corp. to Honda (7267) Motor Co. reopened factories, Japan Automobile Manufacturers Association data show. Wilhelmsen is also carrying more construction and mining machinery, according to Chief Executive Officer Jan Eyvin Wang.
“We have trades emerging that weren’t there before,” said Anders Karlsen, the analyst at Nordea Securities in Oslo whose recommendations on the shares of shipping companies returned 31 percent in the past year. “That’s filling up Wilhelmsen’s ships more and helping its profit.”
Wilhelmsen vessels earned $67 a cubic meter (35 cubic feet) of cargo in the second quarter, little changed from a year earlier, according to RS Platou Markets AS. Rates were last higher in the first three months of 2009, when the ships earned $69, the Oslo-based investment bank estimates. More cargoes to and from Asia mean the ships are less likely to sail empty on either leg of the journey, boosting revenue.
The company’s net income will reach $316.8 million this year, from $143 million in 2011, according to the mean of 10 analyst estimates compiled by Bloomberg. Profit is predicted to keep advancing for at least another two years. The shares, which jumped 64 percent to 47 kroner in Oslo trading this year, will advance to 61.4 kroner in 12 months, the estimates show.
China’s appetite for European cars is growing after the nation’s gross domestic product expanded more than fivefold in a decade, making it the second-largest economy. Deliveries of passenger vehicles may rise 11 percent to 16.09 million units this year, with sales accelerating in the second half, the China Association of Automobile Manufacturers predicted July 26. The country is the world’s biggest vehicle market.
While China’s car imports are likely to provide the largest boost to global trade in vehicles this year, automakers are already shifting manufacturing to the fastest-growing regions, said Kevin Tynan, an automotive analyst for Bloomberg Industries in New York.
Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, Ford Motor Co. and Volkswagen AG are among automakers that said this year they will add capacity and new factories in China.
Demand may weaken after the Chinese economy slowed for six consecutive quarters. The International Monetary Fund cut its 2013 world growth forecast to 3.9 percent on July 16, from an April projection of 4.1 percent, citing Europe’s debt crisis. Global vehicle sales contracted 5.9 percent in 2008 amid the worldwide recession, recovering just 0.9 percent the following year, data compiled by Bloomberg Industries show.
Japan, the largest car exporter, shipped 6.2 percent fewer vehicles to Europe in June, data from the Japanese association show. Deliveries to all destinations rose 7.2 percent, reflecting a recovery from a collapse in output after the magnitude-9 earthquake and subsequent tsunami that struck the country March 11, 2011. Shipments are still 7.4 percent below the four-year average.
Toyota (7203), based in Toyota City, Japan, said Aug. 3 it expects sales to increase 23 percent to a record 9.76 million units this year, from a previous prediction of 9.58 million. Honda, located in Tokyo, reiterated July 31 it expects to sell a record 4.3 million vehicles in its current fiscal year.
Slower global growth is already reducing earnings for other merchant ships. Rates for very large crude carriers, holding 2 million barrels, declined 70 percent this year, according to Clarkson Plc (CKN), the biggest shipbroker. Earnings for Capesizes, hauling iron ore and coal, fell 84 percent, London-based Baltic Exchange data show. Both earn less than running costs, accountant Moore Stephens International estimates.
Both vessel classes are suffering because of a glut of capacity. Car carriers are profitable partly because owners scrapped ships when seaborne trade in vehicles dropped 40 percent in 2009. The fleet contracted by about 7 percent to 646 vessels, Clarkson data show.
Wilhelmsen, which operates 141 carriers, took advantage of the slump to hire other companies’ vessels on long-term charters, CEO Wang said by phone Aug. 8. As well as owning the ships, it also operates others through joint-venture partnerships. The bigger fleet is now boosting profit after rates rebounded, he said.
The cost of chartering in a ship for a year fell as low as $12,000 a day in 2009 and is now at about $25,000, according to Platou, which anticipates $28,000 in 2013. The carriers need about $10,500 to cover running costs, excluding fuel, and pay interest on debt, the bank estimates.
Nippon Yusen K.K. (9101), based in Tokyo, operates 121 car carriers, representing about 3.5 percent of its total capacity, according to data on its website. Mitsui O.S.K. Lines Ltd., also located in the Japanese capital, has 72 carriers in a fleet of 512 vessels, Clarkson data show.
The vessels are also in demand because of gains in exports of construction and mining machinery, which generate about 70 percent of Wilhelmsen’s profit, according to Pareto Securities AS in Oslo. Caterpillar Inc. (CAT), the world’s largest maker of what the shipping industry calls high-and-heavy loads, will report record sales of $68.8 billion this year, according to the mean of 16 analyst estimates compiled by Bloomberg.
The outlook for car carriers is attracting the interest of John Fredriksen, the world’s wealthiest ship owner, with assets of at least $12.7 billion, according to the Bloomberg Rich List. Frontline 2012, a shipping company he formed in December, may order car carriers as part of its strategy to build vessels with more efficient engines, according to Tor Olav Troeim, an adviser to Fredriksen in London. Shipping companies are seeking to reduce fuel costs after so-called bunker prices neared a record last year.
Wilhelmsen also plans to improve the fuel efficiency of its fleet, with an anticipated daily saving of about $3,300 at current prices, Wang said. The new ships will also be wider, allowing them to carry more cargo, because of the broadening of the Panama Canal. The $5.25 billion expansion of the waterway between the Atlantic and Pacific oceans is scheduled to be completed in late 2014.
Demand for the vessels will increase by 7 percent to 8 percent this year, exceeding fleet growth of 5 percent, according to DVB Bank SE, a transportation lender. Global car sales rose to 6.5 million units in June, the highest for the month since at least 2009, according to Bloomberg Industries data.
“They are filling up the ships both ways: from Asia into Europe and back again,” said Frode Moerkedal, an analyst at Platou Markets in Oslo whose share recommendations returned 15 percent in the past year. “Demand for car-carrier services is higher than supply growth.”
To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net
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Tesoro eyes West Coast empire with BP refinery deal
Mon Aug 13, 2012 10:59pm BST

* Deal would make Tesoro largest U.S. Pacific Basin refiner

* Sale furthers BP’s partial exit from U.S. refining

* $2.5 billion deal includes $1.3 billion for inventory

By Kristen Hays and Erwin Seba

HOUSTON, Aug 13 (Reuters) – Tesoro Corp has agreed to buy BP’s Carson plant for $2.5 billion, creating the biggest U.S. oil-refining empire in the Pacific Basin with about a quarter of California’s processing capacity, but the deal could trigger regulatory alarms.

Tesoro, the largest independent refiner on the U.S. West Coast, will pay $1.18 billion plus the cost of inventory. London-based BP is seeking to focus more on northern U.S. refineries with better access to cheap Canadian oil supply.

Shares in Tesoro closed up more than 9 percent on Monday at $38.87 apiece, their highest price in more than four years.

The purchase of the 266,000-barrels-per-day (bpd) plant could garner close scrutiny from regulators aiming to prevent any one company from gaining too much control over how much gasoline, diesel fuel and other products are made in a state.

California is the country’s largest gasoline market, and its drivers routinely pay some of the highest pump prices due to boutique blending requirements that prevent the state from importing large quantities of fuel.

“We’re going to look seriously at it,” said Lynda Gledhill, spokeswoman for California Attorney General Kamala Harris, whose agency will comb through the deal alongside the U.S. Federal Trade Commission. An FTC spokesman declined to comment.

Greg Goff, Tesoro’s president and chief executive officer, expressed no regulatory concerns in a conference call with analysts on Monday.

“We will work our way through the regulatory approval process,” Goff said.

Tesoro’s grip in a U.S.-defined petroleum supply zone that includes five western states, Alaska and Hawaii would rise to 25.35 percent from 17.66 percent of the region’s 3.12 million bpd of refining capacity with the purchase of BP’s Carson refinery.

That amount would fall to 20.1 percent if Tesoro sells its Hawaii refinery as planned.

If regulators approve the purchase, Tesoro will have three plants in California alone in addition to three refineries elsewhere in the Pacific region — in Washington, Alaska, and Hawaii.

“Integrating the BP assets, specifically the logistics, is expected to drive significant value throughout our West Coast system,” Goff said.

Texas-based Tesoro plans to merge Carson with its 97,000-bpd Wilmington plant, located next door, to form a 370,000-bpd refinery, company officials said. It would be the largest refinery west of Texas.

The deal would give Tesoro nearly 700,000 bpd of refining capacity in the Pacific Basin, surpassing that of Chevron Corp , which currently has 575,000 bpd of capacity as the top U.S. refiner in the region.

MARKET CONCENTRATION

West Coast refinery ownership is already concentrated and further consolidation could sharpen regulatory concern, said Severin Borenstein, co-director of the Energy Institute at the University of California-Berkeley.

“Further concentration will get greater scrutiny,” Borenstein said. “We’ve not seen a lot of deals of this scale done for some time.”

Chevron would remain the largest refiner in California, but adding BP’s plant to Tesoro’s lineup would make Tesoro a close second, said John Auers, senior vice president with refinery consulting firm Turner, Mason & Co.

However, Tesoro will surpass Chevron as the largest refiner for the entire West Coast, Alaska and Hawaii, Auers said.

If the FTC looks at Tesoro’s share of the Los Angeles gasoline market, concentration levels could be higher, he said.

The FTC has blocked such deals based on market concerns before. In 2001, the FTC scuppered Valero Energy Corp’s purchase of a third California refinery as part of that company’s merger with Ultramar Diamond Shamrock.

Since then, would-be buyers have assumed they could acquire no more than two refineries in California. In 2002, Tesoro purchased the 166,000-bpd Martinez refinery that Valero was forced to sell to win FTC approval of the Ultramar purchase.

Tesoro also is buying storage and distribution assets from BP, including more than 100 miles (160 km) of pipeline, three marine terminals, four land storage terminals and four product marketing terminals.

It plans to sell those assets to its master limited partnership, Tesoro Logistics LP, for around $1 billion within a year of closing.

WEST COAST GIANT

The merger of the Carson plant with Tesoro’s Wilmington refinery — which are separated by a fence — should be finished by 2015, with the completion of $225 million in spending for pipeline interconnections and improved hydrotreating capacity used to make greener fuels.

Tesoro will shift about 25 percent of the combined refining capacity to produce diesel to “meet the growing demand for distillates on the West Coast,” Goff said, and operations at some redundant units will be reduced.

BP said in late July that it was in advanced talks on the sale of the Carson plant, as well as its Texas City, Texas refinery. The oil major announced in February 2011 that it would sell the refineries by the end of 2012 as it reorients its U.S. operations to focus on its three Northern Tier plants.

BP’s North American products division, which oversees its U.S. refineries, finished a three-year probation term in March that stemmed from a 2005 explosion that killed 15 people and injured many more at the Texas City refinery.

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Saudi $60 Billion Debt-Financed Hub Will Triple Traffic: Freight
By Glen Carey
July 31, 2012 5:00 PM EDT
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Saudi Arabia is spending more than $60 billion on a logistics hub, airport improvement and roads to reduce travel time in the Arab world’s biggest economy.
The investments also yielded the largest sukuk, or Islamic bond, offered in the Middle East this year and an initial public offering on the stock exchange in June.
“There is a large infrastructure boom happening in Saudi Arabia,” Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, said in a phone interview on July 30. “Once they create these sukuk instruments, they cut their reliance on direct government funding and make it possible to buy into the projects. This policy benefits the government and investors.”
The world’s top oil exporter is spending $500 billion to build power plants, schools, roads and other facilities to modernize the country and create jobs for youth. Earlier this month, the kingdom’s Ministry of Transportation signed contracts valued at 4.4 billion riyals ($1.2 billion) to build new roads and maintain and operate existing ones.
Saudi Arabia’s economy is forecast to expand 4.8 percent this year, the fastest rate after Qatar among the six Gulf Cooperation Council states, according to an April survey of economists compiled by Bloomberg. Net foreign assets of the kingdom’s central bank increased 20 percent in June to 2.2 trillion riyals from a year earlier, central bank data show.
Under the $53 billion five-year aviation investment program, the government plans to triple passenger traffic at Riyadh’s King Khaled International Airport to 25 million people, build an airport in Jazan in the southwest and renovate other airports.
The efforts to build a modern logistics and transportation system also spawned the single biggest debt debut in the Middle East this year to help fund expansion work on the international airport in Jeddah on the Red Sea.
The General Authority for Civil Aviation in January sold 15 billion riyals ($4 billion) of Islamic bonds and plans to issue a second tranche to fund airport expansion. The 10-year notes, which comply with Islam’s ban on paying interest, will pay a profit rate of 2.5 percent.
“The aviation sukuk is paying next to nothing,” Asim Bukhtiar, head of research at Riyad Capital, said in a phone interview. “The demand has been very strong.”
Qatar raised the same amount, $4 billion, in an Islamic bond sale last month, two people familiar with the transaction said.
Saudi Airlines Catering Co. (CATERING) in June offered 24.6 million shares, or 30 percent of its total shares, according a statement posted on the Capital Market Authority’s website. The stock has risen 17 percent since it started trading on July 9.
“The government realized that instead of putting money into projects itself, it was better to involve professional institutions, which can best ensure progress,” Murad Ansari, Riyadh-based analyst at investment bank EFG-Hermes Holding SAE, said in a phone interview.
The volume of cargo and mail through the kingdom’s airports increased 13 percent in 2011 to 641,896 tons from the year earlier period, according to the civil aviation authority. Riyadh handled the most cargo at 274,342 tons, while Jeddah followed at 265,629 tons, the authority said.
The cost of insuring Saudi debt against default for five years fell to 103.5 basis points on July 25, the lowest since Oct. 28, according to prices compiled by Bloomberg. Credit- default swaps on the country were little changed at 107 basis points today.
The kingdom’s 2012 budget includes 35.2 billion riyals for transportation projects, according to the Ministry of Finance. They include financial appropriations to expand King Khalid International Airport and build 4,200 kilometers (2,600 miles) of roads in addition to 28,100 kilometers already under construction, the ministry said.
“Transportation infrastructure is an important enabler of growth,” Kotilaine said. “They are trying to create a national transportation network that links more of the country together.”
Saudi Arabia said on July 30 it had shortlisted four groups to submit bids to build an electrical subway train network linking major areas of Riyadh. The 175-kilometer electrical rail link will connect its airport with other parts of the city, including the new King Abdullah Financial Center, according to the website of ArRiyadh Development Authority.
The first group, led by France’s Vinci SA (DG), includes Siemens AG of Germany and Saudi Arabia’s Almabani General Contractors Co., the official Saudi Press Agency reported. The second is headed by Canada’s Bombardier Inc. (BBD/B) and includes Saudi Arabia’s Al Rajhi Holding Group and South Korea’s GS Engineering & Construction Corp. (006360) The third group includes Samsung C&T Corp., while the fourth is led by Strabag SE, central Europe’s biggest construction company.
In April, TAV Insaat, a Turkish builder, won a contract with partners worth $800 million to construct and maintain hangars at King Abdul Aziz international airport in Jeddah. Boeing Co. (BA) delivered one 777 ER300 aircraft to Saudi Arabian Airlines Co., also known as Saudia, in June. And Boeing has an order to deliver eight Boeing 787-9 Dreamliners.
Domestic flights are currently limited to Saudia and discount carrier National Air Services. Sama, a discount carrier that had competed with National Air, collapsed in 2010 after only three years of operations. With travel demand increasing as the population of 28 million grows by 3 percent annually, the government plans to issue a license for a third carrier.
“Since Sama closed down it has been difficult to get flights to Jeddah on the weekends,” Ansari said. “The idea that this new airline, whoever is going to be licensed, will be allowed to fly domestic routes also tells you there is a need for more operators in the domestic space.”
Domestic Competition?
Domestic airline traffic last year jumped 19 percent, more than the increase in international and domestic together of almost 14 percent to more than 54 million, according to the aviation authority’s website.
Qatar Airways Ltd. and China’s Hainan Airlines Co. (600221) are among carriers vying to offer domestic flights in Saudi Arabia after an initial 14 applicants were cut to a shortlist of seven, the kingdom’s aviation regulator said.
Qatar Air Chief Executive Officer Akbar Al Baker said on July 3 that the carrier was interested in establishing a Saudi offshoot only if the government there agreed to a “fundamental rethink” of aviation policies, including fare controls and “excessive” fuel charges.
“Any airline within Saudi is pretty fettered domestically by having fare controls imposed upon them, which doesn’t make good commercial business sense,” said John Strickland, director of JLS Consulting in London. “It is a big country, a big market both for domestic travel and travel in and out of Saudi for business and leisure. The potential is there for liberalization to really expand that.”
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net
To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

Ellesmere Port offers a model for Britain

An employee inspects new Astras at Vauxhall’s Ellesmere Port plant.
By Graham Ruddick, Property and industry correspondentLast Updated: 8:01PM BST 17/05/2012
The Government has finally been handed a blueprint for how it can drag Britain out of its economic malaise: General Motors’ investment in Ellesmere Port.

GM has owned Vauxhall since 1925, building cars though a world war and global recessions, but earlier this year the future of the Merseyside plant faced its biggest threat.

After years of losing money in Europe, GM decided it was time to cut capacity. The eyes of management and Steve Girsky, the man put in charge of the restructuring, quickly fell on Ellesmere Port and the company’s site in Bochum, Germany.

That Ellesmere Port has survived is due to an unprecedented coordinated effort between Government, trade unions and Vauxhall’s 2,100 workers.

Trade unions have shown long-term thinking and made concessions, the Government has acted proactively and demonstrated an industrial strategy, and the skills and experience of Vauxhall workers at Ellesmere have come up trumps.

“We have shown what you can do where there is a clear strategy,” said Paul Everitt, chief executive of trade body the Society of Motor Manufacturers and Traders (SMMT). “That should resonate with other industries and parts of Government.”

It is now clear that when GM sources warned in February that Ellesmere could close, the Government, Vauxhall management and the trade unions sprang into action.

Vince Cable, the Business Secretary, travelled to Detroit to explain to the GM board – including chief executive Dan Akerson – why it should keep Ellesmere open.

The plant has always been one of GM’s most efficient – it employs 2,100 staff but can manufacture up to 187,000 vehicles a year, while Bochum employs 3,100 and has a capacity of 160,000. However, GM was concerned about the costs Ellesmere was racking up from importing parts from Europe and the potential backlash from powerful German unions of closing sites in the eurozone country.

“They wanted an assurance that the Government was behind the industry, which we are,” said Cable. “The car industry in the UK is a great success story.”

While Cable and his team were lobbying GM management, trade unions and Vauxhall workers – led by former Unite general secretary Tony Woodley and Vauxhall managing director Duncan Aldred – were putting together a plan to bring production of the next-generation Astra to the plant and guarantee its future.

Their proposal to GM involved making Ellesmere even more efficient by introducing greater flexibility among the workforce. Essentially, when the Astra was selling well they would work more – including overnight, at weekends and through the traditional summer holiday – and when sales were down they would down tools.

In car manufacturing such flexibility is a major benefit. Models can vary wildly in popularity depending on their age and the economic environment. German unions have been left on the back foot by the willingness of the UK workforce to be flexible in order to save jobs.

The icing on the cake for the Ellesmere rescue plan appears to have been the personal intervention of David Cameron, who made phone calls to GM in Detroit to lay out the Coalition’s commitment to car manufacturing. “The PM has been our star player,” said Mark Prisk, the Manufacturing Minister. “These things matter. In the past we have underestimated relationship building. We are moving away from the old habit that ministers just turn up to cut the ribbon at the end.”

But ironically, the foundations for this coordinated effort were laid by Labour’s Business Secretary, Lord Mandelson, in the depths of the recession.

In 2009 he launched the Automotive Council, a body made up of government and industry representatives.

Through the council, car makers have been able to tell Government exactly what is needed to allow them to invest – a clear strategy, support for the supply chain, investment in apprenticeship schemes, and not just blank cheques.

The results have been significant. More than £4bn of new investment into the UK has been committed by car makers such as Jaguar Land Rover in the last year.

Now Ellesmere has been saved, seemingly at the expense of rivals in Germany, where no car plant has
closed since the Second World War.

“This is a real boost to UK manufacturing and shows we can take on all comers,” Mr Prisk said.

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BTG Pactual Said to Invest $1 Billion in Sete Oil-Rig Operator

Banco BTG Pactual SA’s private-equity funds invested $1 billion in Sete Brasil Participacoes SA, more than doubling their stake in the oil-rig operator to 30 percent, according to four people with direct knowledge of the deal.

EIG Global Energy Partners LLC, a Washington-based private- equity firm, also invested in the Rio de Janeiro-based company as part of a 5.4 billion-real ($2.7 billion) capital increase, said the people, who asked not to be identified because the shifts in ownership haven’t been announced.

BTG, Banco Santander Brasil SA and Banco Bradesco SA (BBDC4) all held 13.7 percent stakes before the offering, according to Sete Brasil. Santander’s holding declined to 6.9 percent, while Bradesco, which didn’t buy additional stock, had its participation reduced to about 3 percent, the people said.

Sete Brasil is seeking capital as it plans to spend about $27 billion by 2020 building deep-water drilling platforms that will be rented by Petroleo Brasileiro SA (PETR4) in pre-salt fields off Brazil’s southern coast. The reservoirs are under about 6,500 feet of water and beneath 16,400 feet of sub-sea bedrock, sand and salt. Petrobras, as the state-controlled petroleum company is known, has said it holds oil reserves of as much as 8.5 billion barrels in five pre-salt fields.

Pension funds Petros and Funcef each held 19.2 percent before the capital increase, while Previ and Valia, which are also pension funds, had 10 percent and 5.5 percent, respectively. Petrobras held the remaining 5 percent and is keeping its stake.

BTG, Bradesco and Santander officials declined to comment, asking not to be named in accordance with company policies. Sete Brasil and EIG didn’t immediatly respond to e- mails requests for comment.

To contact the reporter on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Buffett Railroad Beats Coal Slump With 75% Gain in Oil: Freight

Warren Buffett’s Burlington Northern Santa Fe railroad and Union Pacific Corp. (UNP) are combating a drop in coal cargoes by catering to the industry responsible: the hydraulic fracturing of shale formations.

BNSF, Union Pacific and their peers are hauling in energy producers’ gear to extract crude oil and gas from shale, then shipping out petroleum products. BNSF’s petroleum carloads rose 75 percent in the second quarter from a year earlier while Union Pacific saw a 12 percent gain in the unit where it groups fracking-related freight.

“This is a whole industry that just sprung up on all the rail properties,” Jeffrey Kauffman, an analyst at Sterne Agee & Leach Inc., said in a telephone interview. “It’s a new growth source that helps to mitigate what’s probably a temporary dislocation of an old energy source.”

The dislocation has come with a hefty cost, as many North American utilities stopped generating power from coal in favor of cheaper natural gas released by fracking. Coal cargoes at Class I railroads, North America’s largest, dropped 11 percent in the second quarter. Neither Union Pacific’s chemicals segment nor BNSF’s petroleum shipments rival their coal volumes.

“The shale opportunity has been a double-edged sword for the rails,” Ben Hartford, a Robert W. Baird & Co. analyst in Milwaukee, said in a telephone interview. “The abundance of natural gas domestically has pressured prices, and the resulting degradation to the coal demand has been palpable.”

‘Double-Edged Sword’

Union Pacific’s shale business will probably grow to almost 400,000 carloads in 2012, Chief Executive Officer Jack Koraleski said on a July 19 conference call. That’s roughly double the number of carloads the Omaha, Nebraska-based company moved from the Bakken shale formation in the northern U.S. in 2011.

“While the coal business, which is our largest book of business, has softened, we’ve been able to offset that with strength in crude oil, in frack sand, in automobiles, in pipes and domestic intermodal,” Koraleski said in a telephone interview last month.

BNSF and Union Pacific transport most of their Bakken region crude shipments to Oklahoma, California, Louisiana, New Mexico and Texas. The companies are more insulated from risk associated with the abundance of natural gas than eastern rails since coal in the Powder River Basin of Wyoming and Montana costs less to mine than in the Appalachian region.

Stock Performance

Union Pacific has climbed 15 percent this year, surpassing gains of 6.9 percent by CSX Corp. (CSX), the biggest eastern U.S. railroad, and 0.6 percent by Norfolk Southern Corp. (NSC) The Standard & Poor’s 500 Industrials Index rose 5.8 percent.

Union Pacific, the biggest North American railroad, lacks direct access to the Bakken shale oil field. It benefits from interchanges with traffic originated by BNSF and Canadian Pacific Railway Ltd. (CP) bound for Louisiana and Texas terminals.

The largest contiguous oil deposit in the continental U.S., the Bakken includes parts of North Dakota, South Dakota and Montana in the U.S. and Saskatchewan and Manitoba in Canada.

“People are just getting their heads around how large the opportunity will be for the next year or two,” David Vernon, a New York-based analyst with Sanford C. Bernstein & Co., said in a telephone interview.

BNSF is “seeing strong double-digit type growth” in all markets related to shale fracturing, CEO Matt Rose said in an interview in May. Buffett’s Berkshire Hathaway Inc. (BRK/A) spent $26.5 billion in 2010 to acquire the 77.5 percent of Fort Worth, Texas-based BNSF it didn’t already own in the billionaire investor’s biggest takeover.

‘It’s Phenomenal’

“Everything to do with drilling, horizontal drilling, frack sand, pipe, oil, it’s phenomenal,” Rose said.

Once more pipeline capacity comes online, in part through the reversal of the 150,000-barrel-a-day Seaway pipeline to carry crude south, rails will be hauling less out of the Bakken region.

“You are seeing a huge amount of growth right now, but as that pipeline capacity increases, the cost advantage of pipe to rail will take some of it back by 2014, 2015,” Vernon said.

Railroads should still see some growth from natural gas drilling, said Lee Klaskow, a Bloomberg Industries analyst in Skillman, New Jersey.

“The pipelines can take out oil but they can’t bring in sand and water,” he said.

To contact the reporter on this story: Heather Perlberg in New York at hperlberg@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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Treasuries Fall as European Leaders to Meet on Crisis Measures

Treasury 10-year note yields rose for the first time in five weeks as European leaders pledged to take steps to resolve the region’s sovereign-debt crisis, damping demand for the safest assets.

European Central Bank President Mario Draghi and the head of the Bundesbank will discuss new rescue measures, which could include bond purchases, two central bank officials said. The leaders of Germany and France said they would do “everything” necessary to save the common currency. The Federal Reserve will announce Aug. 1 whether it intends to take additional measures to bolster the U.S. economy.

“Draghi’s comments have lifted expectations that the ECB is finally ready to act,” said Guy Haselmann, an interest-rate strategist in New York at Bank of Nova Scotia (BNS), one of the 21 primary dealers that trade with the Fed. “The marketplace is expecting something out of the Fed.”

The U.S. 10-year yield rose nine basis points for the week, or 0.09 percentage point, to 1.55 percent, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 fell 26/32, or $8.13 per $1,000 face amount, to 101 27/32.

Treasury trading volume reported by ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose to $330.3 billion at 5:03 p.m. yesterday, the highest since June 6. Trading has averaged $240.1 billion this year.

‘Buying Point’

Investors should view the rise in yields from record lows as an “attractive buying point,” Brett Rose, an interest-rate strategist in New York at primary dealer Citigroup Inc., wrote yesterday in a report. “We expect that many of the same things that have guided yields lower over the past year will drive yields even lower.”

The U.S. central bank purchased $2.3 trillion in securities in two rounds of a strategy called quantitative easing from 2008 to 2011 to spur the economic recovery. While Fed policy makers at their meeting last month refrained from introducing a third round of asset purchases, Chairman Ben S. Bernanke indicated that it’s an option.

The Fed has kept it benchmark lending rate in a range between zero and 0.25 percent since December 2008.

“People think the Fed can fire off another round of bond- buying programs,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA. “The payrolls report has disappointed three months in a row. I can’t imagine expectations are very optimistic for that.”

‘For Armageddon’

The Labor Department will likely say Aug. 3 that the U.S. economy added 100,000 jobs in July, according to the median forecast of economists in a Bloomberg News survey, an increase over 80,000 the prior month. The unemployment rate is forecast to hold steady at 8.2 percent, another survey shows.

U.S. gross domestic product, the value of all goods and services produced in the nation, rose at a 1.5 percent annual rate. That followed a revised 2 percent pace in the prior quarter, and compared with the 1.4 percent median forecast of economists surveyed by Bloomberg News.

“The market was positioned for Armageddon,” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York. “We’ll go back to comfort zone, 1.5 percent. That could be comfort for the market, but it may take a little bit more to get there.”

Draghi and Bundesbank President Jens Weidmann will hold talks in the coming days in an effort to overcome the biggest stumbling block to a new raft of measures including bond purchases, two central bank officials said.

The central-banker meeting “definitely spooks people” who own longer-term Treasuries, said Prakash of BNP Paribas.

Central Banks

Treasuries declined yesterday on speculation major central banks globally will boost measures to revive the global economy. The ECB and Bank of England also meet next week, and the Bank of Japan (8301) gathers Aug. 9.

Spanish and Italian bonds surged yesterday after Le Monde reported that the ECB is preparing to buy securities in the secondary market, followed by primary-market purchases from the region’s bailout funds. A spokeswoman for the ECB declined to comment.

Two-year notes posted the first weekly loss since June as German Chancellor Angela Merkel and French President Francois Hollande said their countries are “bound by the deepest duty” to keep the monetary union intact.

France and Germany both seek “quick” implementation of resolutions made at a June 28-29 European Union summit, according to the statement.

“Still, we can’t go too much higher in yield as there are still massive concerns in Europe,” said RBC’s Cloherty. “And domestically we are still seeing slower growth.”

Ten-year notes have returned 5.8 percent this year and 2.2 percent this month, compared with a 3.1 percent gain by Treasuries overall this year and 1.4 percent this month, according to Bank of America Merrill Lynch indexes.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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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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Industry Funds Hiring Bankers for European Infrastructure

Industry Funds Management Pty Ltd., which oversees A$35 billion ($37 billion) of assets, plans to boost investment in European infrastructure shed by governments and companies struck by the region’s economic crisis.

IFM, whose clients include Australian pension funds, is adding to a team of 16 staff in London by hiring investment bankers focused on infrastructure debt, said Robin Miller, head of debt investments, in an interview. The Melbourne-based fund manager is hiring a senior investment director to run the team, Miller said.

“We think there will be more opportunities to invest in both infrastructure debt and equity assets in the U.K. and Europe because of the pressure that both governments and the banking system are under,” Miller said. “We expect to hire some people out of the banking industry.”

Investment banks in Europe are preparing for a second wave of job cuts in less than a year after Europe’s debt crisis slashed fee income from deals. Investors including Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan are pursuing infrastructure assets in Europe to diversify beyond stocks and bonds.

British Columbia Investment Management Corp., manager of about $86 billion in pension assets, was among a consortium of investors which in May bought EON AG (EOAN)’s natural-gas pipelines in Germany for 3.2 billion euros ($3.9 billion).

Industry Funds Management owns stakes in assets including airports in Melbourne, Perth and Darwin; the port of Brisbane; toll roads in New South Wales state and power generation in Victoria, according to a company presentation. It lost out on bidding for the lease to operate Sydney’s desalination plant to Ontario Teachers’ and Hastings Funds Management Pty for A$2.3 billion, people familiar with the matter said in May.

Firms including Credit Suisse Group AG (CSGN) and UBS AG have shed staff in Europe as banks face pressure to boost efficiency ahead of tougher capital and liquidity rules designed to curtail risk- taking.

To contact the reporter on this story: Brett Foley in Melbourne at bfoley8@bloomberg.net

To contact the editor responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net

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