Reports related to this article:
Project(s): View 3 related projects in PECWeb
Plant(s): View 3 related plants in PECWeb
en
Researched by Industrial Info Resources (Sugar Land, Texas)--Almost across the board, North American rail operators reported declining freight volumes and lower quarterly profits in second-quarter 2016 when compared with the same period last year. Rail operators including CSX Corporation (NYSE:CSX) (Jacksonville, Florida), Union Pacific Corporation (NYSE:UNP) (Omaha, Nebraska) and Norfolk Southern Corporation (NYSE:NSC) (Norfolk, Virginia) reported profits that were lower than the previous year and declining freight volumes, particularly for coal. One notable exception, Kansas City Southern (NYSE:KSU) (Kansas City, Missouri) did show higher profits and a less significant decline in coal shipments than other major operators.
While coal haulage has traditionally been a high source of income for most rail operators, its declining use as environmental mandates tighten and new natural gas-fired plants come online has meant that rail operators are hauling much less than in previous years. Union Pacific, for example, in its quarterly earnings statement, reported a 27% slide in coal revenue and a 21% decrease in volume. In addition to lower domestic shipments of coal, a stronger dollar is helping curtail exports, further cutting into rail profits. "We expect coal volumes will continue to be impacted by natural gas prices, high inventory levels, export demand and weather," said Eric Butler, Union Pacific's chief marketing officer in the company's July conference call. CSX reported a 34% decline in year-over-year coal volumes.
Kansas City Southern is one of the few exceptions to the rule of declining rail profits. While other companies reported lower year-over-year profits, Kansas City Southern reported second quarter net income of $120.1 million, up 10% from second-quarter 2015. The company was less affected by declining coal volumes, reporting only a 1% decline on the year. Effective cost-cutting measures also helped boost the company's bottom line.
Despite the dwindling profits of most of the major rail players, capital and maintenance spending remains quite strong in the freight rail sector. One of the largest of these projects is Union Pacific's planned grassroot rail switching and classification yard near Hearne, Texas. The yard will be constructed on a 700-acre site that will allow the railroad to sort cars where seven of its lines cross, serving the Houston, Dallas, Austin and San Antonio areas, as well spots along the Gulf of Mexico and in east Texas. The $400 million project is planned to kick off later this year and will take close to two years to complete.
Other projects involve intermodal rail terminals. One of the largest of these is Burlington Santa Fe Northern's (Fort Worth, Texas) construction of the International Gateway Intermodal Facility in southern California. The facility will be located approximately four miles north of the Port of Los Angeles and will serve it and the Port of Long Beach. The facility will be able to handle approximately 2.8 million container units a year. Another intermodal rail project is a proposed CSX rail terminal in North Carolina, which would help serve the metro-Raleigh area. For more information, see July 18 article - CSX Railway Increases 2016 Capex for Locomotive Payments, Sees Progress on Proposed North Carolina Terminal.
In addition to a decline in coal, railroads are also seeing less crude oil shipped by rail. The U.S. Energy Information Administration (EIA) reports that in the first five months of 2016, movements of crude oil by rail averaged 443,000 barrels per day (BBL/d), down 45% from the same period last year. Much of the decline is due to fewer shipments from the Midwest to the East Coast. "Crude oil shipments by rail have generally decreased since last summer for several reasons, including narrowing price differences between domestic and imported crude oil, the opening of new crude oil pipelines, and declining domestic production in the Midwest and Gulf Coast onshore regions," writes the EIA, pointing out that since the price between domestic and imported crudes has narrowed, "the more likely coastal refiners will choose to run imported crudes rather than domestic supplies shipped by rail."
Despite the decline in crude-by-rail volumes, Industrial Info is tracking hundreds of millions of dollars' worth of crude-by-rail terminal projects in North America. These include Enbridge Incorporated's (NYSE:ENB) (Calgary, Alberta) expansion of its crude-by-rail terminal in Eddystone, Pennsylvania. Construction on the project is expected to begin in the fourth quarter of this year and will involve the installation of two 80,000-BBL/d unit trains for a total plant capacity of 240,000 BBL/d to increase crude oil shipments from the Bakken Shale to the East Coast.
In addition to major capital projects are millions of dollars of upgrade and rehabilitation projects to keep companies' lines in top condition. Among the largest of this type of project is Union Pacific's state-wide upgrade and rehabilitation program in Texas, which began earlier this year. The estimated $250 million program involves work on the track, as well as nine intermodal terminals, transloading facilities and automotive distribution areas to maintain a state of good repair and improve safety throughout the network.
While rail has certainly better times in the past, rail operators continue investment into their facilities are rail lines, as railroads remain a key, driving force behind moving goods and products throughout North America.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
While coal haulage has traditionally been a high source of income for most rail operators, its declining use as environmental mandates tighten and new natural gas-fired plants come online has meant that rail operators are hauling much less than in previous years. Union Pacific, for example, in its quarterly earnings statement, reported a 27% slide in coal revenue and a 21% decrease in volume. In addition to lower domestic shipments of coal, a stronger dollar is helping curtail exports, further cutting into rail profits. "We expect coal volumes will continue to be impacted by natural gas prices, high inventory levels, export demand and weather," said Eric Butler, Union Pacific's chief marketing officer in the company's July conference call. CSX reported a 34% decline in year-over-year coal volumes.
Kansas City Southern is one of the few exceptions to the rule of declining rail profits. While other companies reported lower year-over-year profits, Kansas City Southern reported second quarter net income of $120.1 million, up 10% from second-quarter 2015. The company was less affected by declining coal volumes, reporting only a 1% decline on the year. Effective cost-cutting measures also helped boost the company's bottom line.
Despite the dwindling profits of most of the major rail players, capital and maintenance spending remains quite strong in the freight rail sector. One of the largest of these projects is Union Pacific's planned grassroot rail switching and classification yard near Hearne, Texas. The yard will be constructed on a 700-acre site that will allow the railroad to sort cars where seven of its lines cross, serving the Houston, Dallas, Austin and San Antonio areas, as well spots along the Gulf of Mexico and in east Texas. The $400 million project is planned to kick off later this year and will take close to two years to complete.
Other projects involve intermodal rail terminals. One of the largest of these is Burlington Santa Fe Northern's (Fort Worth, Texas) construction of the International Gateway Intermodal Facility in southern California. The facility will be located approximately four miles north of the Port of Los Angeles and will serve it and the Port of Long Beach. The facility will be able to handle approximately 2.8 million container units a year. Another intermodal rail project is a proposed CSX rail terminal in North Carolina, which would help serve the metro-Raleigh area. For more information, see July 18 article - CSX Railway Increases 2016 Capex for Locomotive Payments, Sees Progress on Proposed North Carolina Terminal.
In addition to a decline in coal, railroads are also seeing less crude oil shipped by rail. The U.S. Energy Information Administration (EIA) reports that in the first five months of 2016, movements of crude oil by rail averaged 443,000 barrels per day (BBL/d), down 45% from the same period last year. Much of the decline is due to fewer shipments from the Midwest to the East Coast. "Crude oil shipments by rail have generally decreased since last summer for several reasons, including narrowing price differences between domestic and imported crude oil, the opening of new crude oil pipelines, and declining domestic production in the Midwest and Gulf Coast onshore regions," writes the EIA, pointing out that since the price between domestic and imported crudes has narrowed, "the more likely coastal refiners will choose to run imported crudes rather than domestic supplies shipped by rail."
Despite the decline in crude-by-rail volumes, Industrial Info is tracking hundreds of millions of dollars' worth of crude-by-rail terminal projects in North America. These include Enbridge Incorporated's (NYSE:ENB) (Calgary, Alberta) expansion of its crude-by-rail terminal in Eddystone, Pennsylvania. Construction on the project is expected to begin in the fourth quarter of this year and will involve the installation of two 80,000-BBL/d unit trains for a total plant capacity of 240,000 BBL/d to increase crude oil shipments from the Bakken Shale to the East Coast.
In addition to major capital projects are millions of dollars of upgrade and rehabilitation projects to keep companies' lines in top condition. Among the largest of this type of project is Union Pacific's state-wide upgrade and rehabilitation program in Texas, which began earlier this year. The estimated $250 million program involves work on the track, as well as nine intermodal terminals, transloading facilities and automotive distribution areas to maintain a state of good repair and improve safety throughout the network.
While rail has certainly better times in the past, rail operators continue investment into their facilities are rail lines, as railroads remain a key, driving force behind moving goods and products throughout North America.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
