Jim Wrinn mentioned in his latest blog about many engines being stored and several hundred crew members being furloughed. I knew that traffic these days was soft, but not that soft. I have observed here in the last week or so that UP’s stock price is losing about $1-2 almost daily. Not the typical info that I hear and see about UP.
Is this all attributed to overall traffic levels being down? Are all of the other class 1s experiencing the same comparative lower levels?
Mark VW
Summer lull and a stagnent economy.
Stock price can be related to a lot more than the condition of the business. I’ve noticed that some financial writers are suggesting that the stock market may be on the cusp of another bubble.
The railroads are all down from their highs of a few months ago, when both UP and KCS, for instance, were tickling $125. CP was at nearly $200. I’m no expert and haven’t done the math, but I think the price was too high across the board as a multiple of earnings.
Take a look at the AAR weekly carloadings report for UP…
Coal YTD is down 17% (oh crap)
All carload commodities down 7% (oh crap)
13 of the 19 commodities are down YTD vs 2014 (oh crap)
Intermodal is flat (actually down slightly) YTD (oh crap)
When big coal starts melting away, the rails have problems. It is the engine which runs the railroad, which allows the big expenditures, shiny locomotives, and bright future. The natural gas prices due to fracking are eating away at the PRB coal movements. Everything else is trending lower, which in itself wouldnt be an issue, but when coal is down by nearly 20% …think about it 100 trains a year ago are now 80 trains. That is alot of parked locomotives and people sitting at home awaiting a phone call.
Ed
A number of factors including a sluggish economy and world events are putting downward pressure on most stocks. We’re overdue for a bear market anyway, so expect at least 9 to 12 months of stock declines, maybe longer depending on how events in Greece play out. Railroads for the most part appear to be strong viable businesses, so from that standpoint I wouldn’t be overly concerned unless you’re planning on drawing from your investments over the next five years… otherwise, fasten your seatbelt and enjoy the ride!
Coal traffic isn’t just being hit by natural gas prices. The current Fed government administration is very unfriendly towards coal’s role in power production and also has no interest in promoting its export abroad. As long as that’s the governing policy from DC, there is no future for anyone, including the RR’s, when it comes to coal. If I was a RR whose revenues included hauling a lot of coal used for power plants, I’d be quite concerned about my long-term financial picture.
New EPA regulations to take effect in 2016 will force the shut down of perhaps over 6 dozen major coal plants.
http://www.eia.gov/todayinenergy/detail.cfm?id=20292
Wind and solar are being publicized as offsetting the baseload coal plant retirements, but having worked in the electrical industry for a period of time, the unknown fact to most of the public is that wind and solar are only able to operate a fraction of the time compared to a 24-hour-per-day baseload coal plant, and the capital costs to hook to the grid are very expensive per kilowatt hour generated compared to a baseload station.
Both wind and solar are typically more expensive per kilowatt hour generated, and that is why utility companies will typically charge a premium if you wish to claim that the kilowatt hours on your bill were all generated by wind or solar.
Natural gas can fill in as a baseload substitute and thankfully fracking is allowing some of that to happen, but pipeline infrastructure will have to be increased to make that more viable as a substitute. And of course, it is only a viable substitute if fracking for natural gas is allowed to continue in order to keep supply of natural gas at a point where it is economical.
The bottom line is, whatever our current electric bills are, we can expect increases year after year after year as baseload coal slowly gets strangled by EPA regulation out of existence.
It might not be too much of an exaggeration to say that in our children’s lifetimes,with the direction America is being taken by Washington regulatory policies, the passing of a unit coal train could become as rare an occurence as the passing of a circus train.
Railroads are most certainly already having their economists on staff “wargaming” these various scenarios. We already see major capital investment shifting to intermodal corridors and away from coal corridors for the most part.
Lo
kgbw49, this is the fault of the coal producers and users. No one else.
They have had many years to work out a system to make coal fired electrical producing plants emissions way less.
But, they have done what big business is good at, and that is ignoring the problem.
They are spending millions of dollars to fight regulations, instead of putting the money in research to solve the problem.
The worst that can happen is the top executives of a company, file to shut down a coal fired generation plant, pocket the golden parachutes they have given themselves, and laugh all the way to a great retirement as they pass all of the people they put out of work.
This is the same as it has been, is, and will be.
I don’t think it is the fault of the coal companies. The industry has invested in cleaning up emissions, and has come a long way. But a whole new dimension of emissions has been added to the problem with the decision that CO2 emissions are destroying the planet. If you want to see what is killing coal, look to the people who have said they intend to do kill coal. kgbw49 has it right. Renewable energy will only become viable with a huge price increase and the consequential price rationing that results.
We are a unique situation w
Not mentioned above but I believe also the Federal Government has hinted it will not be flexible on the PTC implementation deadline and will fine carriers on a per day basis for being out of compliance. The fines are pretty steep. UP is far behind in it’s PTC implementation. Also it is a big hauler of Powder River Basin Coal and I believe other shipments are softening as well. UP is a good buy long-term and I am a major investor. Can’t go wrong with them.
UP is well positioned to haul a significant amount of automotive materials in and finished automobiles out of Mexico from approximately 8 new automobile assembly plants coming on line in the next several years. In addition, there is a significant amount of additional manufacturing investment coming on line in Mexico in that time frame. UP will also be benefitting from significant expansions of refineries and plastics manufacturing as a result of the increase in low cost natural gas feedstocks resulting from the fracking boom. CMStPnP’s sage comments on the long term prospects for UP are well-founded.
Typical economic slump rule for railroads…First to suffer, Last to recover.
If you look at the EIA link in the earlier post, you see that most of the coal plants retired this year are small plants where the power companies don’t want to install the old mercury clean-up technology. Power companies have invested little in CO2 capture technologies, like sequesterization, even with some federal stimulus money. They are close to getting a construction commitment for one in Texas. Interestingly it will be financed by China.
Well, there is an election on the horizon.
With the clear exception of CN and maybe CP, the class 1s are too heavily invested in coal regardless of any fault on anyone’s part. Coal for a number of reasons is not likely to become a growth commodity again so the only clear path to continued profitability is to find alternative sources of revenue as quickly as possible. In my opinion focussing on building up the intermodal business and improving services to the paper industry are a good start. The intermodal business in particular has lots of room to grow both from a domestic and international standpoint. Further out, taking back the LCL business might be another avenue to followup… that business was lost to trucking decades ago but could be won back at least to some degree.
Trash
With today’s society, Trash and its disposal is a growth industry.
I didn’t see the UP CEO’s latest quarterly report message. A conductor told me he had said “we can do better” in reference to not making their targeted numbers. It was shortly after that when the cutting started.
It’s always appeared to me, that as long as they can make their numbers even at reduced business levels, they are happy. Less traffic actually can make some of their metrics seem better, such as velocity. During most of the economic slow down, beginning in 2008, they were able to post very good performances, even has traffic dropped considerbly. They had to cut to do it, but were able to look good. I wouldn’t be surprised that there are some in the glass palace (HQ) who are far enough removed from how the world works, who think the company is better off at reduced levels because of that past experience.
Eventually though, you reach a point where you can’t cut anymore and are actually going to have to find new business. And not just new business gained because your competitor is having their own problems. (How long is that business going to last once your competitor fixes their problems?) It may require a change in attitude towards what business is worth having. Maybe they will have to look at business that is less than 100 cars at a time or runs in shorter lanes.
I myself have doubts they can or will change. While I’m not ready to retire for a while, there are times I’m glad that I’m closer to that instead of just starting out. While I should be OK, I worry about those just entering the work force, railroad or otherwise.
Jeff
Never? Seriously? Anybody older than about twenty has seen our economy go through boom and bust cycles. Where you are in that cycle depends on what type of work you do and where you do it, I suppose.
Yes, I mean never, but I suppose I should qualify that because I do not mean “never” in terms of geological time. What I mean is to never return as a country to the economic prosperity of the past. I am referring to the average performance since there will be performance spurts here and there.