Mechanicville Yard Aerial Report

I remember a column in Trains many years ago (well over 20), from The Professional Iconoclast. He said for rail to survive, it needed to go intermodal. Trains are most efficient moving large quantities over great distance. Having an intricate signal system because of the mixed traffic of through freights and locals is not cost-effective. It would be better to have intermodal terminals strategically placed, off-load the container to truck, and deliver it to the customer that way. It also allows rail to capture traffic that is off-line.

Facilities like this could easily be used for that, as feeder hubs. Indeed, it is what Hunt and UPS have already been doing.

facts are stubborn things. only uprr was 'revenue adequate' in 2010, a term used by stb to define railroads that 'earned their cost of capital'. nsrr was among the losers. 'revenue adequate' means earnings over average assets in excess of 11.1%. (roa) . the fact that intermodal equipment is 'off books' further defends my low profitability of intermodal position. imagine the impact of pricing intermodal to earn 11% including 'off books' equipment? their pricing is driven by over-the-road pricing. and trucks easily beat intermodal in the door-to-door pricing battle. ( not to mention transit times). now nsrr is adding $40mil in assets to incur new operating expenses because they won't undercut the tunnel ? but then again railroad mangement seems to embody arcane thinking. cp management is in for a shake-up because they are unable to get their operating ratio below 75%. ken patrick

Facts aren't stubborn; facts are facts. Certain people are stubborn, though...

You don't seem to understand revenue adequacy (RA). RA is based on a carrier's RETURN ON INVESTMENT (not ROA) relative to a weighted average cost of capital (WACC) benchmark as calculated by the STB.

"...and trucks easily beat intermodal in the door-to-door pricing battle. ( not to mention transit times)."

Interesting. UPS ships upwards of 1 million intermodal loads per year, and FedEx is actively converting certain lanes to intermodal. They are arguably the most service sensitive of all carriers, and certainly have the wherewithall to truck over-the-road. Huh.

KEN PATRICK wrote:facts are stubborn things. only uprr was 'revenue adequate' in 2010, a term used by stb to define railroads that 'earned their cost of capital'. nsrr was among the losers. 'revenue adequate' means earnings over average assets in excess of 11.1%. (roa) . the fact that intermodal equipment is 'off books' further defends my low profitability of intermodal position. imagine the impact of pricing intermodal to earn 11% including 'off books' equipment? their pricing is driven by over-the-road pricing. and trucks easily beat intermodal in the door-to-door pricing battle. ( not to mention transit times). now nsrr is adding $40mil in assets to incur new operating expenses because they won't undercut the tunnel ? but then again railroad mangement seems to embody arcane thinking. cp management is in for a shake-up because they are unable to get their operating ratio below 75%. ken patrick

In terms of return on assets, I think you are referring to the amount of revenue generated by an asset (say a locomotive) over the useful life of that asset compared to its historical cost. So if you paid $150,000 for a new locomotive in the 70's (And I have no idea how much a locomotive cost in the 60's and 70') and over its entire life time its earned $30,000,000 in revenue (once again, this is a made up figure as I don't know if this is accurate) then it has paid itself over 200 times (many more factors to that but you get my drift). And my expertise is not in finance or accounting even though I get my daily dose of each everyday. ROA however is measured not necessarily just in a given time period, but over the entire life of the asset. And in my opinion this isn't as important as your return on investment (ROI) that Mr. Cowford has previously mentioned. (We all have different ways of doing business)

I don't think the project at Mechanicville was designed as a remedy for lack of doublestack coming into Ayer. I think the purpose of it is to compete in the Capital area market. In fact, I think it wouldn't make sense for them not to compete in this market as their rival CSX already has a large presence there. Oh and NS was shipping containers to Kenwood anyways so why not have their own terminal (Greater control, flexibility and probably revenue).

If NS is willing to spend $40mil on this project then obviously they have calculated a cash flow that will justify the spending.

I once again apologize if this is coming off hostile but what you are claiming doesn't add up. If intermodal is a money losing venture, then railroads wouldn't be spending megabucks investing in it. Further more, I think your numbers about trucks are skewed. It may be cheaper to ship a single load by truck than by rail (And there are many layers to that statement that I won't waste time breaking down),but the higher volume of trucks that need to cross the country are handled cheaper on railroads. And for the most part, your products aren't perishable (And yes, there are many perishables that ship by rail but that is a whole other point) so if it takes longer to get them to market it won't damage the product. We like to call that supply chain management (From the ground to the shelf, we plan out every step we can) and these railroads have that down (As do the companies who own the products).

Lastly, just consider this -- what is the definition of the word "intermodal"?

FYI, NS Intermodal mentioned at the end. You must be a paid suscriber to read this at the source.

http://trn.trains.com/en/Railroad%20New ... ratio.aspx

Norfolk Southern posts record revenues, strong operating ratio
Published: January 25, 2012

Photo by Michael S. MurrayNORFOLK, Va. — Norfolk Southern Railway set an all-time record for operating revenue in 2011 as it released its results for the year’s final quarter. The railroad posted an operating ratio of 71.4 percent, a great showing despite rising costs.

NS’s coal shipments rose in 2011’s fourth quarter on strong export coal (up 27 percent from a year earlier), domestic metallurgical coal (up 11 percent), and industrial coal (up 9 percent). Partially offsetting those gains was a 3 percent drop in domestic utility coal, the railroad’s largest category. Overall coal volumes rose 3 percent in the fourth quarter and 4 percent for the year.

In fact, all categories of NS goods saw rising volumes in the fourth quarter, with intermodal shipments up nearly 18 percent.

Operating expenses for NS rose $2 billion over a quarter earlier, or 14 percent. Rising fuel prices led the rise, up $95 million

CN9634 wrote:I don't think the project at Mechanicville was designed as a remedy for lack of doublestack coming into Ayer.

No doubt some part of the economic justification for Mechanicville was based upon the cost savings of converting the Ayer intermodal traffic to/from Chicago from single to doublestack, roughly doubling the number of boxes per train, for somewhere around 75-85% of the mileage, especially where there is linehaul capacity constraints and growth potential, over some period of time until the route into Ayer is fully cleared. Same would ring true for the prospective traffic that should be generated by the Crescent Corridor.

roa would be on total assets ( net of depreciation) not individual assets. week 49 totals- containers 203k, trailers 37k, coal 134k cars, grain 22k cars, chemicals 28k cars, the latter 3 are 'captive shippers'. where would you place your business development investments? someplace where you control pricing or where you chase trucks? but back to my reason for starting this. why spend $40m to filet/toupee 200 containers/day at a probable expense of $3mil/year when you can spend $4.5-$6.0 mil to undercut the tunnel? i was hoping someone at ns would provice us the answer. lastly, fedx is an airline hub & spoke, ups not so much so but still flies a lot. the ups trains are limited and dedicated . probably marginally profitable. why railroad intermodal? face-saving? track the railroad intermodal management that have fallen on their swords over the years. why? ken patrick

Ken,
Mickeyville is about more than just AYMO/MOAY. NS will be using that as their IM yard in the Albany area. It is a market in which the new yard will provide a much better operations base, it will also have the ability to handle racks. I imagine NS would have found another location in the Albany area to operate out of even if PAS did not exist and there was no MOAY/AYMO...from what I understand the current NS IM yard is CP controlled and too small.
As for why toupee'ing AYMO makes sense, they can sell an extra 100 outbound spots from Albany. You're right, it will add expense, but its also going to bring in revenue, there is a market for them there. Its not like containers loaded at Mickeyville on top of AYMO will be trucked from Boston. It will save them running a train from Albany, as they can stack it on top of an already running train. Frees up a block and line time for something else. Undercutting the tunnel might not be so easy either, with the bridge on one side, undercutting could easily mean dropping the bridge too. More than likely they would have to raise the roof. Raising the roof would drive the 4.5-6mill price tag up...

And while coal, grain and chem might be captive those rates are regulated. They don't really control the pricing any more than they do on IM. IM offers the ability to mass transport large quantities, the labor costs are less, to move 200 containers on the rails takes a 2 man crew, that would take 200 drivers (who are in short supply and so can ask for more money) add in recent trends in gasoline prices and the of fuel efficiency railroads will move more trailers to the rails in the future. IM is a growing business, in the future OTR trucking will shrink as fuel prices rise letting the efficiency of railroads move freight long legs, while trucks will be the terminal to door leg...NS is going after the short haul IM now.

Rail execs who have fallen on their swords? I can't name any, but Mike Haverty come to mind as a rail exec who helped Santa Fe create the IM program on the transcon in the 80's. He really fell! Fell all the way from a champion of IM to a president/ceo of Santa Fe and KCS. Sounds like a hell of a rough fall to me

"lastly, fedx is an airline hub & spoke, ups not so much so but still flies a lot. the ups trains are limited and dedicated . probably marginally profitable."

Oh, huh... so Fedex GROUND, the division that has begun converted some lanes to intermodal in the last 18 months, is an air carrier? And UPS intermodal volume is limited?

Seriously, you really work in the industry?

no rail rates are 'regulated' they are published in 'tariffs' created by the railroads or, most importantly, by contract with the shipper.(per staggers) the stb currently has dozens of rate challenges from 'captive shippers'. the stb usually comes down on 1.4x direct costs as the rate. there are several shipper groups involved in rate disputes. on balance, railroads price on what they think 'the traffic will bear', not costs.the higher value of the materials shipped, the more the shipper should be willing to pay the railroad. look at plastics. i experienced this in starting the first intermodal shipment of waste.
fed x ltl (ground) is a single percentage of their volumes. it is split between 3 day and over 3 day. usps ceased rail except for pallets and empty bags. fed x trailers seen on flats are largely repositioning empties. ups ltl rail is over 800 miles destination. google 'fedx rail' . can you spell hype? ken patrick

Well Ken, I did what you asked - I googled "fedx rail" and here was the first article that popped up:

http://www.progressiverailroading.com/r ... ays--25647

"FedEx will systematically use rail intermodal service for the first time in its nearly 40-year history when it rolls out [the] revamped less-than-truckload operation..."

First, to correct a misstatement of mine: In past posts I meant Fedex Freight, Not Fedex Ground. Now, to correct you (again): Fedex Freight (the LTL division) does NOT use intermodal, solely or primarily, to repo empties. They integrate it into their network. Fedex GROUND (the parcel division) DOES.

http://www.logisticsmgmt.com/article/in ... x_freight/

“We did not consider any lane that we felt would jeopardize our product offering in the marketplace,” said Logue. “We know that we were very comfortable with the lanes we have picked for rail partnership…from all of our meetings with our rail providers, and the lanes we have picked will support our network viabilities.”

UPS rail is over 800 miles? Duh! It's not exactly a secret that intermodal viability is more challenging at shorter hauls. You're in the bulk intermodal market, right? How many rail-truck (via transload) opportunities do you see where the total length of haul is, say 2-300 miles.

Stick a fork in me, I'm done.

The bottom line, even though you likely don't want to hear it, Mr. Patrick, is that railroad managers have a good handle on their business and know what they are doing. Every major carrier has looked at intermodal many times over to evaluate its position within their overall business and financial performance. And, the answer is that they are better off with intermodal traffic than without it at the bottom line. Furthermore, it offers growth and traffic diversity and improving financial performance (as I mentioned before, appropriately-applied and well-managed stack offers financial returns approaching bulk traffic and exceeding portions of loose-car traffic).

You don't need to wait for a response from someone at NS for the justification of why fillet/toupe vs. clear the route into Ayer: folks on this site have given you your answer. First, Mechanicville was built for a variety of reasons besides filleting/toupeing, so that operation does not bear the entire cost of the project; second, the cost to clear the Hoosac and entire route to Ayer is economically unjustifiable with private capital, particularly when there is an economically-justified alternative (filleting/toupeing in a mixed-use terminal to substantially reduce costs for a substantial part of the linehaul in the Chicago lane and prospectively in the future Crescent Corridor lane); and, third, you've underestimated the cost to clear the Hoosac and entire route into Ayer.

i love these blogs. they show an amazing lack of knowledge about railroad fixed/variable costs , pricing and management rewards. think of adding $40mil in fixed costs and $3-$4mil in variable costs/year because you don't want to increase the 10' roof cut an additional foot, use steel ties, and pandrol fasteners to get to 22'? it's a no-brainer. run the grinders thru a few times.
our state suffers from high transportation railroad pricing. it kills new business. as a member of the freight advisory panel i see presentations that cite the northern route without addressing this tunnel and pricing. it's foolish for mbta to spend anything on pas without extracting pricing concessations. also, the ns hype that they will spend $132mil and not fix the tunnel and two bridges is just silly. lastly, ns mechanicville to chicago is not competitive. they got the short end in the conrail break-up. ken patrick

You add nothing to any of our discussions. I am highly doubtful that you could even locate half of the locations we talk about on a map.

I don't know anyhing about cost and variables and formulars vs. expenditures or even how to spell them...I only know from what I read in publications like Railway Age and progressive rail that the Big roads consider intermodal their bread and butter..No switching involved,no crews to spot loads and empties...Solid unit trains with a two man crew from point "A" to point "B"...and when you read how much money they invest with new and expanded intermodal yards and locomotives...The figure is mind boggling...Ken, you may be right, but I would have to put my money on the executives of these big roads. When you look at their bottum line, they must be doing something right...The Northeast has some good warm water ports that are underutilized.
Boston,Portsmouth(which is probably to small), Portland and Searsport, ME. which is one good example that I don't understand because they are serviced by rail...OH! Newpy!....Some one we all know and love just retired from P/A...Take a guess!