Railway Age was in Chicago June 17-18 at the Millennium Knickerbocker Hotel for its first-annual Rail Insights conference, structured as a series of conversations with industry leaders who, with Railway Age’s experienced team of editors, engaged in an interactive dialogue to explore the challenges, issues and trends affecting the North American rail market.
“We designed this conference to be very different from most of the conferences people in the rail industry are familiar with,” explained Railway Age Editor-in-Chief William C. Vantuono. “We decided to take a completely different approach than the usual prepared speeches and PowerPoint-slide-based presentations—there are more than enough of those to go around, at numerous conferences. Our format, which is really more like a talk show, was much more spontaneous. It gave the participants—people like Oscar Munoz, Wick Moorman, Deb Miller, Ron Batory, Linda Morgan, Tom Hoback, Ed Hamberger, Steven Beal, Chris Aaadnesen—lots of room to stretch out and say what’s on their minds. The feedback we’ve received indicates that participants gained some valuable insight into our growing and changing industry.”
Railway Age’s editorial team included Contributing Editors Frank N. Wilner (Capitol Hill), Roy H. Blanchard (short lines and regionals), Jason Seidl (Wall Street) and David Nahass (equipment finance and leasing); Engineering Editor (and Railway Track & Structures Editor) Mischa Wanek-Libman, and Vantuono. They hosted discussions covering such topics as capacity, capital investment strategies, safety, equipment financing, the regulatory environment, the Wall Street perspective, supplier/customer relationships, crude oil and passenger rail. “The format was unique, harking back to Louis Rukeyser’s Wall Street Week TV show of 1970-2002,” noted Blanchard. “Would that more conferences did as well in the dialog and insights department. And Railway Age provided a text message number for questions, enabling moderators to select questions to fit the conversational thread.”
Blanchard, who was instrumental in devising the format, hosted a panel of experienced short line players to get their views on unappreciated risks, customer portfolio changes, misunderstandings about short lines, measuring profitability by customer, and advice to any would-be short line buyer. The panelists: Ed Ellis (Iowa Pacific), Marty Pohold (Genesee & Wyoming Ohio Valley Region), Dennis Miller (Iowa Interstate) and Tom Hoback (Indiana Rail Road). “As to risks, all agreed it’s risky to pick up a for-sale property because right out of the box you have to fix whatever’s behind the seller’s reason for exiting,” said Blanchard. “The challenge is managing the inevitable loss of some customers and finding better customers to replace them. The greatest misunderstanding about non-Class I roads is they are not all mom-and-pop streaks of rust in the sand and have revenue and capital requirements just like anybody else. Determining yield by customer is a bit more tricky, but a good place to start is RTMs by customer. Advice to a would-be short line owner? Bring money—lots of it. In short, what one heard from the panel one never would have gotten from any PowerPoint slide set.”
CSX President and Chief Operating Officer Oscar Munoz, among the new generation of Class I leaders, kicked the discussions off with Vantuono, who queried him on his background in consumer products (soft drinks and telecommunications) prior to joining CSX as chief financial officer more than a decade ago. Getting the variability out of product delivery at CSX is as important as it is at the Coca-Cola Co., one of Munoz’s prior companies. “The customer interface —train crew or Coke delivery truck driver—is crucial,” said Munoz, the oldest of nine children and fluent in five languages (Spanish, Italian, French, Portuguese and English). He talked extensively about CSX’s activities in recruiting and training new talent at a railroad whose employee demographics have been changing as older employees with deep institutional knowledge retire.
Conrail President Ron Batory, whose career began in the early 1970s, talked about four decades of changing railroad approaches to capital investment, from “survival” in the 1970s to “sporadic” in the post-Staggers Act 180s to “stability” in the 1990s to “significant” in the 2000s, in which some $16 billion will be invested this year. He described the past 40-plus years as “a series of success stories that led us to where we are today. I well remember that days when we were cannibalizing infrastructure just to raise cash.”
Surface Transportation Board Acting Chairman Deb Miller described to Frank Wilner an agency constrained to some degree by budget and manpower, as well as rules that prohibit STB commissioners from discussing cases among themselves—which Miller finds counter-productive. Nevertheless, the STB attempts to decide cases as quickly as possible; revisions to procedures as well as the agency’s structure proposed under S.808, the STB Reauthorization Act of 2015, would be tremendous help. In another session hosted by Wilner, attorneys Michael McBride (Partner, Van Ness Feldman LLP) and Robert D. Rosenberg (Partner, Slover & Loftus LLP), both of whom have extensive experience representing shippers and shipper associations, engaged in a spirited discussion about railroad rates, captive shippers, open access, railroad revenue adequacy, among other matters currently in play on Capitol Hill.
AAR Assistant Vice President-Security Tom Farmer addressed the luncheon with a talk on how the industry’s security initiatives have not let up in the years following the Sept. 11, 2001 terrorist attacks on the U.S.
Chicago remains the number one interchange point for Class I railroads; not improving it is not an option, said Oliver Wyman Rail Practice Vice President Jason Kuehn, who was joined by Amtrak Blue Ribbon Panel member and former STB Chair Linda Morgan, Oliver Wyman Rail Practice Vice President Jason Kuehn and Chicago DOT Director of Transportation Planning and Programming Jeffrey Sriver. Real progress, through programs like CREATE, to improve freight and passenger rail traffic flows through Chicago has been made, but there is much more to be done. Funding remains problematic, at best.
Rail pricing gains will hold, especially on truck-competitive business, said Cowan & Co. Managing Director Jason Seidl, who also said that a transcontinental merger involving a western and an eastern Class I “is not a question of if, but when. And when one combination takes place, the other railroads will have no choice but to follow.”
Rethinking the merchandise carload network to serve regional needs is something on which the industry needs to focus, said First Union Managing Director Rail Barbara Wilson, in her session with David Nahass. Supplier executives Steven Beal (National Railway Equipment), Chris Aadnesen (Georgetown Railway Equipment Co.) and Pete McCabe (GE Transportation) talked about such topics as accessibility for customers, being in synch with what the railroads need to become more productive, creative use of technology and the importance of a healthy customer base with the ability to invest in new technologies. In a surprising insight, McCabe, who has spent most of his career at GE in aerospace and other hi-tech divisions, said that, based upon his experience, the railroads are the most open to innovation and adopting new technologies.
During the closing session, AAR President and CEO Ed Hamberger noted that the railroads are far more agile than they were pre-Staggers, able to adapt to changing markets and traffic patterns. Hamberger and Norfolk Southern Executive Chairman Wick Moorman, in a conversation with Vantuono, stressed the importance of the industry’s continued ability to invest capital, and the negative consequences that over-regulation would bring, not only on the railroads, but on the North American economy. Since the early 19th century, the railroads have been the most economical way to move goods. “It’s why we have been around this long,” said Moorman. “If we cannot continue to invest in our industry—in many cases investing ahead of the curve with a reasonable expectation of return—we’ll go back to a place where no one—not railroads, not shippers, not anyone—will benefit.”
These are just a few of the highlights from Rail Insights. Dates and location for the 2016 edition of this conference will be announced in the coming months.
Railway Age Editor-in-Chief William C. Vantuono, Managing Editor Carolina Worrell and Contributing Editor Roy Blanchard contributed to this report. We would like to thank our sponsoring organizations—GREX, Oliver Wyman, Edna A. Rice Executive Recruiters Inc., RailWorks, Michigan State Railway Management Programs, RailPros, GE Transportation, Progress Rail Equipment Leasing, Northeast Logistics Systems Inc. and Siemens—for their support.