The current(May, 2013) Trains Magazine commentery by Don Phillips is entitled “Every 20 years, railroading reinvents itself”. In the article, Mr. Phillips says that “intermodal is a cash cow for railroads”.
I’ve always understood intermodal was run on a very thin profit margin, it caused a lot of operational challenges, and required a lot of capital and infrastructure investments. Is it the railroads’ cash cow?
I think of cash cow as defined as today’s cash producer approaching the end of its productive life. Its potential doesn’t warrant further investment; the cash generated is to be used to fund future revenue producers. I would think coal traffic is the true cash cow today. If cash cow refers to high profitability and competitive advantage, I would think hazmat traffic wins.
I’ve always understood that that was the case for single stack containers. When the second level (double stack) came along, that changed everything. Really the icing on the cake.
Admittedly double stacks did raise a whole new set of clearance issue problems, particularly for the eastern roads.
I thought a cash cow was a product or service that generated much revenue with comparatively little new additional expense. Often occurring unexpectedly.
I will be following this thread with interest.
Bruce
By the sheer quantity of coal trains that pull through here, and with the advent of the unit train, I’d also say coal is still the cash cow. I do wonder if the railroads would act likewise if natural gas booms as it is supposed to. A unit tank train would be an interesting sight.
Maybe “cash cow” is one of those terms that seems to describe something but really confuses the issue. I think few businesses have a product that produces a large and dependable profit. One reason is that if they do competitors will soon try to get part of the business.
But it is possible to have an item which can be depended on to cover its costs with a little left over. Competitors are unlikely to try to get into the business because it doesn’t really justify their investment but the company that has made the investment does not face that problem. And, if a rail line is recovering all of its expenses, the company can then go after and develop other business. At first the new business only has to cover its marginal costs. With experience and skill the new business can become more profitable.
And of course, in this world the only constant is change.
I’ve often pointed to the cyclical nature by generation of businesses and products. Think back to your youth and the products and services and businesses that were around then. Now look around and see how many are still with you today in the same form? Most successful businesses last a generation. A second generation comes in either by inheritance or purchase and there is a 50/50 chance of continued success. A change here, a tweak there, might make it better and there is growth and continuance; or it might be the wrong change or tweak and it is gone. Products come and go, evolve, improve. Or not. Tide today is not the same Tide of 50 or 75 years ago…and many of its one time successful competitors are gone and new ones have arrived. Same with railroading…reinventing itself successfully about every 20 to 30 years because of commodities, traffic, traffic patterns, needs, technologies, and human whims. Coal is not a constant because it has changed itself from our home heating source, industrial power, major single transported natural resource commodity to a specialized sorted source of energy not or rarely used in home heating or for industrial power but moved to the shore line to be transported overseas. Coal is still a commodity, but its use pattern and consumption has evolved just like the transportation system it uses.
Maybe, once the second layer of containers was added, it became the cash cow? It seems like that second layer would have doubled the revenues, without doubling the costs.
Cash cow to me, is something that keeps bringing in good profits, without much additional investment. Every time you need more money, you just go milk the cash cow.
It has more to do with volume and assurances of volume than anything else. And what they… the railroad, the railroads, the shippers, and the truckers…are willing to put into it, risk, and devote resources and time to allow it to grow and work. Many ideas were put forth and used and thrown away as this business has grown and evolved.
Depending on coal revenue is becoming more of a liability than an asset for railroads. The EPA’s War on Coal started it, the discovery of a 500 to 1000 year supply of cheap natural gas will finish it.
Intermodal hauling cheap Chinese imported junk around the country is the future for railroads. Want to support you favorite RR? Just keep going to Walmart, Target, Home Depot, Lowes, Dicks Sporting Goods, etc, and keep buying junk that you probably don’t need, and that will break in less than a week (so you can go out and buy more of it). LOL
The war on coal is just one battle in the larger war on fossil fuels. Price rationing is the only way to win that war, so people will have less money to buy things at Walmart, et al.
Coal as a fuel source in our homes has been gone for 90 years as heating oil became the cheaper standard in the 1920’s. Railroads began to adjust. American steel industry did not modernize in the 50’s and 60’s thus foreign steel took over the market, steel mills closed, and coal was no longer burning. Railroads made another adjustment. Electric coal burning generating stations deteriorated sot new gas burning stations were built or converted from coal. Railroads have been adjusting. Coal continues to lose domestic markets but there has been an increasing demand from the Asian rim countries especially. Railroads are adjusting. In fact there is more turmoil about it in the railfan legion than there is on the railroads. Railroads just keep on adjusting. Will the railroads go away because there is no domestic coal market or that the export market is smaller than the domestic market was in the 1920’s? No.
Until the Feds agree that we need to go 95% nuclear power, the war on all fossil fuels is fruitless, and they know it. The current administration knows they can attack coal because it is “dirty”, and make it seem like they are doing “something”. Meanwhile, they are backroom dealing to support all the domestic natural gas production they can because they know the U.S. economy needs the energy, and wind, solar, hydro isn’t going to cut it.
Right. Until we start exporting all our excess cheap natural gas to said Asian countries. Which we are planning to do.
Gas supplies in the ground are being measured in years, not decades or centuries, so, yeah, we will run out as soon as the gas companies sell the stuff off to the rest of the world; there really is no “excess” cheap natural gas, just what there is that they are selling away from us… We in Marcellus Shale country have been snookered by the companies telling us this stuff is for us when they really are sending it off shore. The oil and gas energy companies own our power and fuel supplies, our government leaders, and our future. We’ve got to get our government and ourselves weaned off the stuff and do like Europe and others are doing with wind, solar, and thermal energies.
Coal may be the low hanging fruit, but the current administration and their base attack all fossil fuels every day. What ever happened to that XL pipeline? They must be about ready to approve it now that they have the time they said they needed to make sure it is safe, and all the regualtors have signed off on it.
I had noticed that as well and found it curious. Please turn your attention to the August 2012 issue of Trains and page 28 of the article concerning Uncle Pete. The charts show a breakdown of UP’s 2010 traffic mix. Intermodal was 38% of carloads but 20% of revenue. By comparison, energy (mostly coal) was 23% of carloads and 22% of revenue. Of the six classes of freight intermodal was lowest revenue per car, $974. Granted these numbers are over two years old and intermodal has gone nowhere but up since then. The ratio of added trailers/containers to added resources to move them is lower than added hopper/tank cars.
Intermodal is a different animal than the steady diet of bulk freight that sustained railroading for the past half-century. Intermodal trains leave their terminals on a specified day at a specific time whether there are 20 containers or 200. This regularity of schedule is most attractive to shippers leading to the continued increase over the past few years. Impressive? Yes. “Cash cow?” That may be a bit premature.
Yep, the base does attack it every day. However, the administration “listens” to the base, then as politicians do, just ignore it, and do the opposite. In this case, make sure natural gas production stays as high as possible.
The XL pipeline will be built. They are just waiting for the “base” to get P.O.'d on another issue (gun control anyone?) and when the “base” is occupied by the other issue, approve the pipeline in the middle of the night.
All the politicians in DC are far more similar than different.
Other than the US, countries around the world are looking at other than fossil fuels for the future. In the US, the energy companies in oil, gas, and coal, determine where their money comes from and goes, and are holding hard to the status quo instead of investing in new technologies…at least not in the same amounts and fervor others are…of course it is largely governments an not private investors, too.
Germany is closing nuclear plants. Is that seeking alternative sources? Wind and hydro power can’t supply all the necessities.
We have plenty of fossil fuel and the technology to burn it cleanly. Why not use it?
I look at carloads, revenue, tonnage tables in annual reports also. The intermodal is considered a carload based on per container, so a double stack would have nearly $1950 of revenue, based on 100% capacity usage. That isnt a bad number, considering there is no local switching to speak of. Point to point line haul.
Ed