PANAMAX And BNSF

Did Warren make a bad bet?

Somehow I'd like to think that he factored in that PANAMAX will essentially be a non-term come 2014:

http://online.wsj.com/article/SB1000142 ... 85830.html

Brief passage:

• Did Warren Buffett buy Burlington Northern railroad just in time for freight from Asia to find a different route to Kansas?
  
  Right now, about 70% of U.S. imports from Asia arrive by ship on the West Coast, and much of that then gets transferred to rail lines like Burlington Northern's for transit to the rest of the country.
  
  But in 2014, Panama will rock the world of logistics. That's when it will open a fat new lane of its canal for big ships that can carry three times as much as vessels sailing the current channel. If larger vessels make it cheaper to send cargo through the canal, ports in the East and on the Gulf Coast could grab a big slice of business from the West, and thousands of jobs with it, or so one argument goes. Several logistics experts are calling the expansion a game changer and a threat to the western ports and railroads.
  
  But in the complex calculus of supply-chain management, price is just one of many variables. The coming sea change may actually raise all boats, reducing congestion, increasing routes and trade, and forcing an overdue upgrade in U.S. infrastructure—particularly in the East.
  
  "We believe in the ability of the West Coast ports to grow," regardless of the Panama expansion, says John Lanigan, executive vice president at Burlington Northern. His rail line is adding capacity near Long Beach, Calif.—and in Kansas too

Allow me to expand on some of the thoughts presented here. First, in view of that not everyone here has an employment history within the maritime industry (I don't) or for that matter even interest (I do), let me define the term PANAMAX. It simply means "PANama canal MAXimum" and that is the maximum dimension a vessel may have in order to transit the Canal.

Now regarding railroads, the BNSF likely has more to lose than the UP from any diversion of Container traffic sway from the Port of Los Angeles/Long Beach, this is because BNSF owns the "Transcon" - the former ATSF line that is largely double tracked, comparatively grade-free, and by freight standards, a high-speed railroad (HSR of sorts). Their marketing to the maritime operators is that with high value merchandise (the "must have' toy; whatever), is more valuable with a shorter pipeline owing to BNSF's greater speed. BNSF has invested heavily (investor funds) to provide greater capacity on the strength of increased business through the Port of LA/LB.

Now with the expansion of the Canal so that it will be able to handle any container vessel afloat (some VLCC - Very Large Crude Carriers in range of 650KDWT will still be excluded). and with expansion of East and Gulf Coast Ports, traffic formerly routed through LA/LB and providing BNSF or UP with a Transcontinental line-haul, will now be landed through these latter ports - and reducing the need for railroad transportation to handle containers to destination. Eastern carriers, CSX and NS will benefit, but not to the same extent as BNSF and UP will lose.

I'd like to think Warren factored the PANAMAX development into placing his bet. The bet is that there will be continued increases in import (and maybe even EXport) traffic as the century progresses and that LA/LB that now has vessels deliberately "slow steaming' simply because they cannot dock will see this condition alleviates - in short, there will be enough business for all.

Finally, away from the BNSF, let us consider the bet Kansas City Southern has placed; this one is the wild card. With the acquisition of the NdeM from the Mexican government, KCS is betting that still undeveloped ports can offer the "cheap labor', along with operational efficiencies simply not realized in a government run operation, and offer a rate competitive shipment to any point in the US. It will be interesting to watch those cards being dealt.

Gilbert B Norman wrote:Allow me to expand on some of the thoughts presented here. First, in view of that not everyone here has an employment history within the maritime industry (I don't) or for that matter even interest (I do), let me define the term PANAMAX. It simply means "PANama canal MAXimum" and that is the maximum dimension a vessel may have in order to transit the Canal.

Now regarding railroads, the BNSF likely has more to lose than the UP from any diversion of Container traffic sway from the Port of Los Angeles/Long Beach, this is because BNSF owns the "Transcon" - the former ATSF line that is largely double tracked, comparatively grade-free, and by freight standards, a high-speed railroad (HSR of sorts). Their marketing to the maritime operators is that with high value merchandise (the "must have' toy; whatever), is more valuable with a shorter pipeline owing to BNSF's greater speed. BNSF has invested heavily (investor funds) to provide greater capacity on the strength of increased business through the Port of LA/LB.

Now with the expansion of the Canal so that it will be able to handle any container vessel afloat (some VLCC - Very Large Crude Carriers in range of 650KDWT will still be excluded). and with expansion of East and Gulf Coast Ports, traffic formerly routed through LA/LB and providing BNSF or UP with a Transcontinental line-haul, will now be landed through these latter ports - and reducing the need for railroad transportation to handle containers to destination. Eastern carriers, CSX and NS will benefit, but not to the same extent as BNSF and UP will lose.

Note there are already containerships afloat that will still be Post-Panamax even when the new locks are completed. New Panama Canal locks are 180 ft. wide, while the Maersk E class Containerships (Emma Maersk and sisters) are 186 ft. wide, and the Maersk Triple E Class that are on order will be 194 ft. wide

I'd like to think Warren factored the PANAMAX development into placing his bet. The bet is that there will be continued increases in import (and maybe even EXport) traffic as the century progresses and that LA/LB that now has vessels deliberately "slow steaming' simply because they cannot dock will see this condition alleviates - in short, there will be enough business for all.

Slow-steaming isn't to await dock space, it is to lower fuel consumption. With the high cost of Bunker Fuel, and Fuel costs are the largest component of containership costs, slow-steaming can save 20% of the fuel cost per voyage, which is a big deal.

Finally, away from the BNSF, let us consider the bet Kansas City Southern has placed; this one is the wild card. With the acquisition of the NdeM from the Mexican government, KCS is betting that still undeveloped ports can offer the "cheap labor', along with operational efficiencies simply not realized in a government run operation, and offer a rate competitive shipment to any point in the US. It will be interesting to watch those cards being dealt.

KCS has access to only a single port on the Pacific Ocean, Lazaro Cardenas, which is south of Mexico City. The port has significant potential but it is expected to mainly handle Auto Parts for Mexican assembly plants, not consumer goods for the US. It is a long way from Lazaro Cardenas to Laredo, TX and is across the Sierra Madre Mountains with serious grades. More of a threat would be a port in the Northern Baja California, south of Tijuana, the problem with that is that it would require significant new railroad construction over terrain that isn't mountainous, but it definitely isn't flat either. The National Railway of Mexico was split into four parts, Ferrosur in the south, Ferromex in the North and West, TFM (now KCSdeM) in the North and East, and Ferrovale (a neutral terminal railway serving Mexico City). KCS de M serves the Matamoro (Brownsville, TX) and Laredo, TX gateways, with Ferromex serving all the gateways further west (Eagle Pass, El Paso, Bisbee, and Tijuana). The UP owns 26% of Ferromex.

Gilbert if you want to understand the why containers move through some ports and much less so through others I would like to recommend that you read this scholarly study by
Dr. Robert C. Leachman of UC-Berkeley

http://www.psrc.org/assets/3363/elasticity.pdf

In addition Dr. Rob is also a railfan and authored the book "Northwest Passage" covering the Burlington Northern in Oregon and Washington in the '70s and '80s. He took most of the photographs too.

Mr,. JayBee, thanks for your immediate thoughts presented to the Forum with maturity and respect.

All I can say regarding Emma and her even more bulbous Triple E sisters, is that, if she were other than a maritime vessel, she should be on "Biggest Loser":

http://www.worldslargestship.com/

However, judging from the linked Maersk material, they plan to sail these vessels in the Asia-Europe market; However, I'd like to think that Warren when placing his bet foresees continued expansion of LA/LB traffic, and that his Santa Fe "transcon" is the line that can provide more economic and efficient transportation to the Midwest and East than any routing the UP has available. (disclaimer: no longer hold BRK.B; but had Warren chose to create a "BNI tracking" class of stock, I'd likely hold that).

Possibly over at the KCS Forum, we could discuss the bet that KCS placed with its Mexican properties. I thought they had more than one Port available and wanted to develop US ex/import traffic through such, but apperently not. Also, recalling my 1973 ride on the Aguilla Azteca, the terrain is indeed 'rough' - and today proliferated by all too many "bad hombres".

Jaybee laid it out quite well... I differ on one point: The northern Baja port possibility I don't see as a threat for at least the next 10-15 years, if ever. Why? To Jaybee's point, there is zero infrastructure in place, port, rail or otherwise - this would be a project of massive proportions. Also, UP/BNSF would likely be reluctant to help siphon traffic away from LA/LB. Finally, evolving traffic patterns: This concept was born in the 2000s, when WC port growth was deemed unstoppable. Now we have all-water business, growth in on-shoring and near-shoring, and evolving markets in SE Asia/India (the traffic of which would be routed via the Suez). US WC ports have capacity for what growth is expected near/medium term.

What's interesting is that prior to double-stack service, "all water" routing was the norm for EC traffic. It's now gone full circle. As the WSJ article stated, about 30% of Asian imports go through the EC, roughly the % of the US EC population. Not coincidental... freight moves to where the people are. How far AW import freight will be able to competitively "double back" overland to interior US consumption points is the big question.

While likely unrelated to PANAMAX, as I doubt if coal would be shipped throlugh the Canal, neverthe less look what graces - all six columns wide of it - the National section of Today's New York Times:

http://www.nytimes.com/2012/04/19/us/bo ... -coal.html

There are severl topics over at Class I discussion at which the matter of export coal is being addressed.

Saturday's New York Times has an article title 'Making Everything Shipshape':

http://www.nytimes.com/2014/06/28/busin ... ships.html" onclick="window.open(this.href);return false;

Brief passage:

• Traditionally, America’s West Coast ports have been the gateway to the rest of the country for the growing supply of goods from China and Hong Kong. The ports in Tacoma, Seattle, Oakland, Los Angeles, Long Beach and elsewhere offer much shorter sailing times than Gulf Coast and East Coast ports. But for shippers of some goods, the web of logistics, including trucks and railroads, ends up being less expensive if they go through the Panama Canal.
  
  Even though the West Coast ports are viewing the project to widen the Panama Canal as a major threat, it may not be their biggest challenge, said John Martin, who works as an economic consultant for several ports.

All told, BNSF, and for that matter the UP, appear ready to roll over and play dead. With all the expansion projects occurring at East Coast ports, let us hope it will not be a case of 'Let's throw a post-PANAMAX party.....but nobody came.