Replies to post #1934 on The Rising Influence of Rising Affluence

[DewDiligence]

UNP +2.3% to all-time high on Barron’s plug in #msg-58573323.

[DewDiligence]

Senate Committee Seeks to Revoke Railroad Antitrust Exemption

[These machinations will likely turn out to be much ado about nothing, but they affect the stocks of the four main US railroads in the short haul. (Heheh—get it?)]

http://www.reuters.com/article/2011/03/03/railroad-antitrust-idUSN0325211520110303

›WASHINGTON, March 3 (Reuters) - The U.S. Senate Judiciary Committee approved legislation on Thursday that would strip freight railroads of their antitrust exemptions.

The measure in the Democratic-led Senate was approved 14 to 1, but its future was uncertain in the Republican-led House of Representatives. Similar proposals approved by the Judiciary panel previously failed to become law.

Proponents of the legislation are critical of rail industry consolidation that has left four companies providing nearly 90 percent of U.S. freight transportation and shippers complaining of rate overcharges.

Union Pacific Corp (UNP), Berkshire Hathaway Inc's (BRK-a.) Burlington Northern Santa Fe, CSX Corp (CSX) and Norfolk Southern Corp (NSC) are the major freight hauling railroads. [UNP and Burlington operate mainly west of Chicago, while CSX and NSC operate mainly east of Chicago.]

They have a limited antitrust exemption under federal law and are permitted to negotiate rates with their customers, as opposed to having rate increases fixed by regulators.

Some shippers -- those with no good alternative to rail transport -- complain they have been gouged by an industry that can afford to charge more competitive rates for moving goods. These include agricultural, chemical, coal and steel companies and utilities.

Rail transports roughly 40 percent of domestic freight.

The railroads say they do not overcharge for freight, and increased regulation would add costs that would hamper the industry's ability to sustain and increased regulation would add costs that would hamper the industry's ability to sustain and build its network and capacity.‹

[DewDiligence]

Rising Rail Shipments Corroborate U.S. Expansion

[UNP is up on a down day today, possibly from this info. See the prologue of #msg-58573323 for UNP’s tie-in with The Global Demographic Tailwind.]

http://www.bloomberg.com/news/2011-04-12/rising-railroad-shipments-reflect-increasing-momentum-in-u-s-expansion.html

›By Anna-Louise Jackson and Anthony Feld - Apr 12, 2011 12:01 AM ET

Growth in railroad-shipping volume shows the U.S. economic expansion is gaining momentum, even with rising energy prices in the first quarter.

Total rail volumes excluding grain and coal shipments rose 7.9 percent to 4.6 million carloads in the quarter ended March 31, according to data compiled by the Association of American Railroads in Washington. It was the second-highest increase in a first quarter, following last year’s 9.3 percent rise.

“This is almost double the first-quarter growth rates of the last economic recession, during the 2003-2006 recovery period,” said John Mims, a transportation analyst in Richmond, Virginia, at BB&T Corp. Rail volumes were on the “high end” of his expectations for the first quarter, and his projections for the second quarter assume the pace of volume recovery will continue.

Rail-car shipments that exclude coal and grain, such as chemicals and metals, represent the bulk of materials that go into industrial production, so an increase in volumes bodes well for the broader economy, Mims said.

“We’ve had no indications from the rails that they’re pulling back on their projections for strong commodity shipments throughout the year, which is a strong indication that industrial production will continue to improve,” Mims said.

He has a “buy” rating on Jacksonville, Florida-based CSX Corp. (CSX) and on Union Pacific Corp. (UNP) in Omaha, Nebraska, the two largest companies in the Standard & Poor’s 500 Railroads Index. They are “seeing more margin improvement” because of strong pricing gains and cost management, he said.

Industrial Production

According to Mims’ calculations, the correlation between the 12-month average of total rail-car loadings excluding grain and coal and the Federal Reserve’s industrial-production index is 0.88. A correlation of 1 would show the rail volumes and index move in lockstep, while a value of zero shows there is no relationship [duh].

Manufacturing output, which makes up 75 percent of all industrial production, rose 0.6 percent in February, the eighth consecutive monthly increase, according to Fed data released last month.

The gains in the rail industry show the economy was able to withstand shocks such as severe winter weather, unrest in the Middle East, the earthquake and tsunami in Japan and higher gasoline prices in the first quarter, said Art Hatfield, a transportation analyst at Morgan Keegan & Co., based in Memphis, Tennessee.

Stimulus Projects

“It’s pretty good when you consider we’re at the tail end of all the stimulus projects out there,” Hatfield said. “That’s an indication the economy is beginning to right itself.”

In its March meeting, the Fed’s policy-making Open Market Committee said indicators of industrial production “were at levels consistent with solid increases in factory output in the coming months” and its business contacts are planning to expand production to meet an anticipated rise in sales.

“A further increase in business activity also indicated that the economic recovery remained on track,” according to the minutes of the Fed’s meeting.‹

[DewDiligence]

Railroads, Shippers Face Off

[This is politics as usual, IMO. US railroads, especially UNP, are beneficiaries of The Global Demographic Tailwind for the reasons set forth in the prologue of #msg-58573323.]

http://online.wsj.com/article/SB10001424052702303970604576402070526560698.html

›Freight customers complain of lack of competition, rising rates at hearing

JUNE 23, 2011
By JOSH MITCHELL

WASHINGTON—Freight railroads are raising rates and making big profits despite the fragile economy, drawing increasing scrutiny from federal regulators and the ire of shippers.

The Surface Transportation Board, the federal agency that regulates the freight-rail industry, opened a two-day hearing Wednesday to determine whether there is a lack of competition in the industry, responding to complaints by farmers, coal companies, manufacturers and other rail customers.

The proceeding became the venue for a clash between representatives of shippers, who say consolidation in the rail industry is driving up the cost of goods for consumers, and the chief executives of big rail-freight carriers who said tighter regulation could sidetrack billions in job-creating investment.

Among the shippers' proposals is a requirement that railroads be forced to link their facilities to competitors' rail lines.

Shippers say the change would give them greater access to multiple railroads on certain segments, taking away pricing power from railroads that shippers call excessive.

"Be careful," Kansas City Southern Chairman Michael Haverty said at the hearing. "The ancient oath of Hippocrates, 'First do no harm,' certainly applies to these proceedings."

Rail-industry profits have been booming in recent months. Kansas City Southern reported a 12% increase in revenue and an 18% increase in operating income for the first three months of the year. CSX Corp., Union Pacific Corp. and Norfolk Southern Corp. have all posted double-digit profit gains for five consecutive quarters. In the first three months of 2011, CSX earnings rose 30%, Norfolk Southern's climbed 26% and Union Pacific's increased 24%.

Union Pacific Corp. CEO James Young said new rules that cut into industry earnings could jeopardize investments to expand freight-shipping capacity [no kidding]. He said the rail industry invests a higher percentage of its earnings in capital projects, which lead to public benefits through new jobs and improved infrastructure, than other industries.

"The predictable decline in railroad earnings means that these policies would have a serious negative impact on our investment plans," Mr. Young testified. "Capital spending would decrease immediately just as our nation is looking to railroads to provide more transportation capacity. This would reverse the progress we've made during the last 30 years."

Shippers countered that the four dominant freight railroads are using their clout to raise rates unfairly and arbitrarily.

"The railroads are operating in a presumed deregulated environment, which works fine if the customer has access to competing options," Bob Szabo of Consumers United for Rail Equity, a lobbying group for rail shippers, said in an interview. "If we have to buy electricity from one company, then obviously in our society we regulate that price."

Peter Pfohl of the Western Coal Traffic League said rail-shipping rates in the Powder River Basin, a region in southeast Montana and northeast Wyoming, tripled in nominal dollars between 2003 and 2010 after holding steady for two decades.

He dismissed the notion that the price increases were put in place to cover increasing costs, and instead said a lack of competition in the industry has allowed rail companies to increase rates with shippers having little option but to absorb them.

"There's a substantial competitive problem involving the largest segment of Western rail commerce, and it needs [to be] addressed," Mr. Pfohl said.

Sen. Jay Rockefeller (D.,W. Va.), who is leading the charge for more industry regulation, said in a report last fall that Class I railroads have been raising prices by an average 5% a year above inflation since 2004. [Fuel costs have something to do with this; the formula-based fuel surcharges imposed by the railroads do not fully offset their increases in operating cost.] He said then the trend of increasing rates continued even during the recent recession as other freight-transportation modes cut prices.

The railroad executives said shippers have plenty of access to competitive modes of transportation, including trucks and barges. Railroads say the rate increases correspond to increased costs, including plans to rebuild and expand infrastructure and to hire more employees.

The rail industry is countering the shippers' lobbying efforts with ad campaigns and warnings that the industry would scale back hiring and billions of dollars in planned infrastructure investments if new regulations are put into place.‹

[DewDiligence]

UNP, BNSF face ‘Novel” Pollution Lawsuit

[Would the plaintiffs like to shut down all rail transport? Do they realize that trucks produce many times more pollution per unit of freight volume than trains do? BNSF Railway, one of the defendants, is a wholly owned subsidiary of Berkshire Hathaway.]

http://finance.yahoo.com/news/2-railroads-face-unique-apf-4212926822.html?x=0&.v=3

›October 18, 2011, 7:39 pm EDT

LOS ANGELES (AP) -- When the lump on her toddler's tummy turned out to be a rare cancer, Carla Hernandez wondered if living just a half-mile from two rail yards emitting a constant veil of near-invisible pollution was somehow responsible.

"When she was diagnosed they kept asking me if I smoked or if anyone smoked around her, but no one did," said Hernandez, sitting beside her 4-year-old daughter, who was sleeping after her latest treatment at Children's Hospital Los Angeles.

Such accounts of families and children living near transportation corridors and experiencing health problems helped prompt a conservation group and two environmental justice groups to file a lawsuit Tuesday against two of the nation's biggest railroad companies.

The Natural Resources Defense Council filed the suit under a unique legal theory that diesel exhaust is hazardous waste and companies should be held accountable for health problems suffered by residents living near rail yards.

The lawsuit filed in federal court against Union Pacific Corp. and BNSF Railway Co. accuses the companies of violating the Resource Conservation and Recovery Act, which regulates hazardous solid waste disposal. The lawsuit alleges problems at 17 rail yards across California, from Oakland to San Bernardino.

The conservation group claims minute particles in diesel exhaust, including lead, cadmium, arsenic and other toxic elements, are solid waste. If the novel suit is successful, a senior attorney with the council believes it could open the door for legal action against similar air pollution sources such as ports, airports or anyplace with a lot of diesel equipment.

"We really believe it's hazardous and a product of the rail company's operations," said Angelo Logan, executive director for East Yard Communities for Environmental Justice, one of the litigants. "It's being emitted into the air and the local residents have to bear the brunt of the toxic waste the locomotives and other equipment are producing."

Lena Kent, a spokeswoman for Fort Worth, Texas-based BNSF, called the lawsuit unreasonable and said the railroad has spent hundreds of millions of dollars to reduce emissions and replace outdated locomotives.

"The NRDC and environmental justice groups have refused to acknowledge any of the work we've done," she said. "They're being unreasonable and it's another attempt to attack the region's goods movement industry."

Aaron Hunt, a spokesman for Omaha, Neb.-based Union Pacific, said the railroad had not yet seen the filing but "Union Pacific remains in compliance with state and federal regulations."

"We are proud of our rail industry leadership role in testing and developing technology that improves fuel efficiency, reduces emissions and provides sustainable freight transportation solutions that support America's economy," Hunt said.

Millions of cargo containers loaded on trucks and trains travel by freeway and railway through Southern California then to the rest of the country. West Coast ports are the nation's principal gateway for cargo container traffic from Asia, with the ports of Los Angeles and Long Beach handling about 40 percent of the nation's cargo.

Rail yards have long been blamed for health problems in communities around transit corridors. Diesel exhaust contains tiny particles that can penetrate deep into the lungs, carrying a variety of toxins that have been linked to acute bronchitis, lung disease, heart attacks and other ailments.

Exposure to such pollution can be especially dangerous for children whose lungs are still developing and the elderly, whose immune systems may be compromised, studies show.

Hernandez said she worries about bringing her daughter back to their Commerce home between hospital visits because of high pollution levels.

She and other residents who live near rail yards and see a constant film of fine pollution particles settle like dust on their windows and elsewhere in their homes say they support the lawsuit. [How can one distinguish this from ordinary household dust?]

"It's not like we have the luxury to move out of there," said Hernandez, whose daughter has a 20 percent chance of getting cured. "The pollution is still there."‹