LarryKaufman

CP Upheaval

Larry Kaufman — Thu, 17 May 2012 12:40:00 GMT

Canadian Pacific announced early this morning that Fred Green has resigned as president and chief executive, along with seven current board members. Moore later, I'm sure.

Well, a bad highway bill is headed for the House floor and they don't even call it a highway bill

Larry Kaufman — Wed, 08 Feb 2012 18:01:00 GMT

The so-called American Energy and Intrastructure Jobs Act cleared the Hous Transportation and Infrastructure Committee, and is headed for a vote on the floor. With considerable fanfare, the proposed 97,000 lb. limit on big trucks was stripped from the bill introduced by Chairman John L. Mica. Sounds good, but hardly anyone thinks that provision is dead. It can be inserted by amendment on the floor. It can be inserted in the dead of night when the House and Senate versions of the highway bill are being reconciled in cnference.

Meanwhile, the bill calls for a three-year study of the big trucks, but seems more concerned with safety aspects than with economic. I'll believe Congress is serious when it calls for a study of the cost allocation for highways. Considering that big rigs pay only about 80% of their cost responsibility now, any increase in maximum weight without a large increase in user fees simply amounts to another subsidy by taxpayers for operators of big trucks. I say operators of big trucks because many of the beneficiaries of Congress conferring largesse on big trucks will go to some of America's biggest shippers who operate large private truck fleets. They dont like that pointed out because it opens them to one of my favorite aphorisms: there are a lot of socialists out there wearing capitalist suits. More as this legislation progresses - or not.

Rail fatalities? Is NTSB sure?

Larry Kaufman — Tue, 20 Dec 2011 21:02:00 GMT

The National Transportation Safety Board (NTSB) has released its data on transportation fatalities in 2010. The safety agency, which I normally hold in high regard, has a classification system that I consider distorts the data and presents railroads in an unfair light. In its latest tally, NTSB reports a significant decline in what it calls motor vehicle fatalities and cites railroads as having an increase, the only mode to do so. Despite NTSB terminology, the vast majority of fatalities that INVOLVE railroads are not railroad fatalities. They are motor vehicle fatalities in which the motorist drove into or in front of a moving train. I have argued this for many years and you can see how successful I've been. Just because NTSB chooses to be bureaucratic and unthinkingly rigid doesn't mean that the rest of us must follow its lead. When motorists drive around crossing gates and manage to kill themselves, perhaps NTSB should consider establishing a new fatality category: Suicide by train.

Watch out for bigger, heavier trucks

Larry Kaufman — Fri, 18 Nov 2011 19:58:00 GMT

Back in 1974, the trucking industry gained authority to operate trucks that had a gross vehicle weight (truck and load) of 80,000 lbs. on federal-aid highways. The funny (not haha funny) thing about it was the neither the House nor Senate had ever held a hearing on the proposal to increase truck weight from the 73,280 lbs. that had prevailed since the Interstate Highway System was begun. Nor was the provision in either the House or Senate version of the highway bill. It was inserted in the dead of night by persons unknown into the final, conference version of the bill. Conference committee versions of legislation are not subject to debvate or amendment; they get a straight up-or-down vote.

Now the truckers and some of their customers want to increase truck GVW to 97,000 lbs. They would add a sixth axle, as Canada did, and claim that with 22 wheels instead of the current 18, damage to highways would actually decrease. By golly, those fellers really are concerned about the public welfare, aren't they? Congress is screwing around with a reauthorization of the surface transportation program, the House talking about a five year program and the Senate talking about a two-year program. Neither knows where the money will come from, but the existing gas and diesel fuel taxes do not provide enough money to pay for what the talkative House and Senate committee chairmen say they would spend. There have been no hearings on taking truck weight limits up to 97,000 lbs., nor is a provision to do so in either House or Senate drafts.

That means it is time for railroad lobbyists and others who think gigantic trucks are not good for the country to go on guard for something to be slipped in during the dead of night. It worked before, and the quality of House and Senate members hasn't increased over the past 37 years.

CP and Private Equity

Larry Kaufman — Mon, 31 Oct 2011 20:10:00 GMT

Private equity investor William Ackman announced over the weekend that his Pershing Square investment company has acquired 12.2% of Canadian Pacific's common stock. Speculation about what he has in mind was immediate, with one analyst going so far as to speculate that Warren Buffett and his Berkshire Hathaway migtht want to buy CP. He did not seem to be aware that such a transaction would require regulatory approval that Buffett's purchase of BNSF did not require. An RBC (Royal Bank of Canada) analyst speculated that if CP were to be sold it might be to a Canadian pension fund or similar institution. Other analysts were keeping their powder dry as of Monday afternoon. Unlike the ill-fated effort by a London-based hedge fund to control CSX a few years ago, there is no immediate suggestion that CP is about to go through the same process. Ackman, who has a record of taking board seats on companies in which he has major investments, might yet force a sale of CP, although it's more likely he will press management to improve its operations and thus its earnings, and to do so with some sense of urgency.

He saved the UP

Larry Kaufman — Tue, 19 Jul 2011 17:20:00 GMT

John Kenefick died last Friday at age 89. He was one of the true titans of railroading in the second half of the 20th Century. That no one has seen fit to comment on his passing is disappointing. A case can be made that if Kenefick had not fought those who ran the UP holding company in New York, the railroad would not exist today and the western rail consist would be considerably different.

Kenefick pickup up the Western Pacific, which gave UP access to the Port of Oakland and the growing intermodal container business. He also got the Feather River Canyon route through the Sierras. By acquiring the Missouri Pacific, he put UP into the chemical coast of Texas and pretty well sealed the ultimate doom of the Southern Pacific, which had dominated that traffic through its Cotton Belt subsidiary. He brilliantly funded the Chicago & North Western's access into the Powder River Basin coal fields of northern Wyoming at a time when CNW didn't have the capital and BN was operating a monopoly on a very lucrative business. The acquisition of the Katy was a nice pick-up, but not one of great consequence. Kenefick was retired by the time the Southern Pacific flag fell to UP, but UP would not have been in a position to acquire SP had it not done the other deals Kenefick orchestrated.

John Kenefick was one of the few railroaders this side of John Barriger who I called "Mr." He deserved it and it came naturally. Anyone else have any views pro or con? If so, step right up. This blog has been kind of boring lately.

Purchase premium?

Larry Kaufman — Mon, 28 Mar 2011 16:37:00 GMT

From today's PR daily news digest:

3/28/2011 10:30:00 AM Government Oversight

STB should re-examine rail acquisition-related accounting policies, senators say

Last week, 10 U.S. senators sent a letter to Surface Transportation Board (STB) Chairman Daniel Elliott III expressing concerns about the STB’s treatment of acquisition premiums when assessing a Class I’s asset base. As an example, they cited Berkshire Hathaway’s acquisition last year of BNSF Railway Co., which involved a purchase price about $7.3 billion higher than BNSF’s book value, the senators said.

“Allowing this and future acquisition premiums to be included in a railroad’s regulatory rate base raises a serious concern for captive rail shippers. Put simply, Berkshire Hathaway could pay an inflated price for BNSF, and then pass that cost onto its captive customers in the form of higher rates,” wrote the senators, including Al Franken (D-Minn.), Michael Enzi (R-Wyo.), Tom Harkin (D-Iowa), Tim Johnson (D-S.D.), Mary Landrieu (D-La.), Amy Klobuchar (D-Minn.), Herb Kohl (D-Wis.), Mark Pryor (D-Ark.), Jon Tester (D-Mont.) and David Vitter (R-La.).

By including an acquisition premium in the capital asset base, a railroad is able to “artificially inflate” the revenue-to-variable cost ratio of 180 percent that is required by statute for a shipper to bring a rate dispute before the STB, they wrote. The senators urged the STB to re-examine its accounting policies to better protect shippers.

“The board is necessarily limited in its ability to determine when a rail rate is unreasonably high, but we are concerned that the inflation of this congressionally established threshold will ultimately mean only a very small number of shippers are able to challenge rates before the STB,” the senators wrote.

However, the STB and its predecessors, as well as the Securities and Exchange Commission have long required railroads to follow generally accepted accounting practices (GAAP), so “the regulator has the certainty of using a process that is validated, audited and required regulation,” BNSF officials said in a statement.

“Following the acquisition of BNSF by Berkshire Hathaway, a valuation of BNSF assets and liabilities was conducted as required by GAAP,” they said. “Purchase accounting has been used to account for transactions like the BNSF-Berkshire one for past rail transactions, and has resulted in both write-ups and write-downs of net assets. In the case of the BNSF-Berkshire transaction, a rigorous and independent valuation was performed by one ‘Big Four’ accounting firm and audited by a second one.”

BNSF’s balance sheet, including its property, plant and equipment, goodwill, and other assets and liabilities were adjusted to reflect the market value paid for the company, according to the Class I.

“As with prior railroad transactions, the assets were not overvalued or undervalued, but accounted for at this fair market value,” BNSF officials said. “In the BNSF-Berkshire transaction, most of the premium paid was accounted for as goodwill, which is not included in the regulator asset base for revenue adequacy determinations.”

Congressional advocacy for a special proceeding on the application of GAAP accounting “unfairly and unnecessarily” singles out one transaction, BNSF officials believe.

“BNSF expects that the board will give the issue a fair hearing when it undertakes a review of BNSF’s valuation in the ordinary course of its regulatory proceedings,” they said.

Proving that most members of Congress are economic illiterates, they completely ignore that a business is not worth what accountants come up with as book value, but is worth what someone else will pay for it, no more, no less. UP paid about $3.75 billion for SP and CSX and NS paid $10 billion cash for Conrail. The whiners of the captive shipper crowd didn't whine about it then. Anyone care to discuss why railraods invariably are treated differently than are other industries?

Reregulate?

Larry Kaufman — Thu, 24 Feb 2011 16:08:00 GMT

The STB is conducting a public hearing today to consider whether it should change the class and commodity exemptions from regulation that were granted by the former ICC nearly 30 years ago. In plain English, this is a proceeding to consider whether railroads should be regulated once again. Considering how l regulation damned near destroyed the railroad industry prior to passage of the Staggers Rail Act of 1980, this is a serious issue that must be considered seriously. A group of whiney shippers (socialists wearing capitalist suits) stimulated by Sen. Rockefeller (D-WV) are behind this. Do shippers require protection by the federal government from the depradations of rapacious railroads? Let's put it this way: If you can dray a container or trailer to a UP facility in Los Angeles, you can dray the same trailer or container to a BNSF facility in Los Angeles. Intermodal, which now is completely unregulated, is about as competitive a business as exists in transportation. The same can be said of the boxcar exemption. If you can load it in a boxcar, you can load it in a truck trailer. Therefore, no regulation is necessary at all. We've about miled the high speed rail discussion for all it's worth. How about giving some thought to railroad regulation and what it might mean for transportation in the U.S. if Congress again mucks about where it has no real knowledge and where it certainly is not needed.

Socialists wearing capitalist suits

Larry Kaufman — Tue, 11 Jan 2011 20:18:00 GMT

Inland waterway barge operators and their customers, which include some of the largest utility, grain, coal-shipping, and chemical companies in the nation are demanding that the federal government increase spending on locks and dams for which they have been paying fuel taxes. The locks and dams do need maintenance and it would be bad public policy to allow existing infrastructure to deteriorae further. I do think it is highly hypocritical for barge customers to demand more spending -- especially when they don't come close to paying the cost of these facilities now.

To the extent that these shippers can move their shipments at lower expense than the actual cost of the facilities used, they are effectively subsidized by all taxpayers and their non-waterway using competitors in particular. I'm sure if they could figure out how to move barges over the Rocky Mountains and other areas where there are no navigable waterways, those non-waterway shippers would join the club.

Railroads, as we know, do not receive subsidies from the government. They are responsible for the cost of owning, building and maintaining their own rights-of-way and even get to pay property taxes for the privilege. Much the same thing can be said about truckers and their customers, considering that every independent study ever done has concluded that truck fuel and excise taxes do not pay for the truckers' (and their customers) allocable share of the cost of the public right-of-way we taxpayers provide them.

Waterway interests like to refer to their services as "low cost." Would that they were. They are not low-cost, but they are less expensive than other forms of transportation that are not subsidized. The difference between what they do pay and what the system actually costs is -- here comes the ugly word -- the subsidy the barges and trucks and their shippers get from other taxpayers. Considering that these fine folks like to talk in capitalist terms about being captive shippers and the need to re-regulate the railroads, I reach the conclusion that we have a lot of socialists out there wearing capitalist suits.

STB Reauthorization

Larry Kaufman — Tue, 15 Dec 2009 18:42:00 GMT

Ever since a draft of the STB reathorization legislation made it into the public domain a week ago, I've been waiting for someone to blog on this subject. As no one has, I guess I'll have to start thediscussion.

The thing is called STB Reauthorization, but the changes in railroad regulation are the real reason this could be an important measure. The draft repeals the bottleneck doctrine that says a railroad cannot be forced to file a tariff for a portion of a move that it is able to handle on a single-line basis. It also provides a mechanism for mandating terminal area reciprocal switching, and for banning so-called paper barriers barring short lines from interlining traffic with any road other than the original owner. These provisions will be quantified and railroads will fight for or against them on the basis of how much they cost in lost revenue. What may be more insidious, though, is language that instructs STB to take a pro-shipper posture, a radical change from the existing mandate to focus on railroad revenue needs. The so-called antitrust provisions have not yet been released, but they may be worst of all from a railroad point of view, particularly of they are anything like the provisions approved last spring by the Senate Judiciary Committee. Anyone out there want to open railroads to challenges in state and federal courts alleging violations of antitrust law? Care to put your fate in the hands of 12 citizens chosen at random and judges who don't begin to understand the nature of network businesses, which is why Congress originally assigned administration and enforcement of most antitrust laws to the Interstate Commerce Commission and later its successor, the STB?

This is a blog site for people interested in railroads and railroading. I hope the lack of comment before this is just a sign that everyone is busy with holiday preparations. I'm sure the hypocrtical shipper advocates hope those who value railroads are otherwise occupied.

Policy? What policy? Trains? What are they?

Larry Kaufman — Mon, 27 Jul 2009 19:09:00 GMT

The one constant in Washington appears to be the lack of anything remotely close to a national transportation policy. While bloggers at the PR blog site are focused on high speed rail passenger service and hybrid technology, the government behaves as though there were no railroad industry. Proof? We have some $47 billion of stimulus funds for highways and bridges, $5 billion for HSR (redefining HSR as trains moving at up to 110 mph, when some of us can remember when the old Metroliner service on the Penn Central got up to speeds of 150 mph) and not a sous, shilling, shekel, ruble or dollar for freight railroads. Heck, DOT will spend more on bicycle trails than on freight rail capacity, which is scheduled to get the magnificent sum of (drumroll, please) $0. Let's have some discussion of this. The railroads will be required as common carriers to accept all freight tendered, to subject their rates to challenge and regulation, and to compete with other modes of transportation that are effectively subsidized by the federal government in the form of public rights of way for which they do not pay their allocable share of costs. It's a real national issue that somehow doesn't seem to resonate with rail fans.