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AAR Reports Decreased Weekly Rail Traffic

April 28th, 2016

The Association of American Railroads (AAR) has reported that U.S. rail traffic for the week ending April 23, 2016, totaled 491,946 carloads and intermodal units, an 11.7 percent decrease compared to the same week in 2015.

U.S. carloads, which totaled 230,599 for the week, were down by 17.1 percent compared to the same week last year. U.S. intermodal volume for the week totaled 261,347 units, a decrease of 6.3 percent compared to 2015.

Three of the 10 carload commodity groups that are tracked by the AAR posted an increase for the week ending April 23, 2016, when compared with the same week in 2015. Miscellaneous carloads increased 23.3 percent to 9,515 carloads, chemicals were up 1.6 percent to 30,858 carloads, and motor vehicles and parts were up by 1.3 percent to 19,138 carloads.

Coal showed the largest decrease in the commodity groups, with a drop of 40.1 percent to 58,837 carloads. Petroleum and petroleum products declined by 24.9 percent to 11,348 carloads, and grain dropped 7.9 percent to 18,340 carloads.

For the first 16 weeks of 2016, U.S. rail volume totaled 7,953,707 carloads and intermodal units, a decrease of 7.6 percent when compared to last year. Carloads, with a total of 3,844,016, were down by 14.3 percent, and intermodal, with a total of 4,109,691, dropped by 0.2 percent.

On the 13 reporting U.S., Canadian and Mexican railroads, combined North American rail volume for the week ending April 23, 2016, was 648,515 carloads and intermodal units, down 11 percent.

For the first 16 weeks of 2016, North American rail volume was down 7.1 percent, with a total of 10,433,247 carloads and intermodal units.

NS Reducing Operations at Knoxville Rail Yard

April 25th, 2016

Norfolk Southern Corp. (NS) has announced that it will reduce train operations at its Knoxville, Tenn., rail yard, effective May 1, in response to lower traffic volumes and the company’s five-year strategic plan to implement cost control initiatives and network improvements. The plan includes enhancing operating efficiencies, reducing costs, driving profitability, and supporting long-term growth.

NS will idle switching operations at the rail yard, where freight cars from inbound trains are sorted by destination and assembled into outbound trains. This will decrease train traffic, reducing the need for personnel and infrastructure for train operations and maintenance activities. The Knoxville terminal will still serve as a hub for through-train operations and NS has developed an operating plan to minimize any customer impact.

Knoxville will continue to serve as headquarters for the company’s Central Division, which includes 1,100 track miles primarily in Tennessee and Kentucky. The company currently employs more than 1,570 people across Tennessee with nearly 850 miles of track across the state, intermodal terminals in Memphis, and a major rail classification yard and locomotive shop in Chattanooga.

NS remains on track to achieve its previously announced annual expense savings of more than $650 million and an operating ratio below 65 percent by 2020.

FRA Announces $25 Million in Funding for PTC Implementation

April 6th, 2016

The U.S. Department of Transportation’s (USDOT) Federal Railroad Administration (FRA) is accepting applications for $25 million in competitive grant funding for Positive Train Control (PTC) implementation. The funding, available to railroads, suppliers, and state and local governments, is part of the 2016 Consolidated Appropriations Act that funds the USDOT.

U.S. Transportation Secretary Anthony Foxx stated, “Positive train control is a long overdue technology that prevents accidents and saves lives. These funds will help us get closer to implementing PTC, and I encourage applications that can make these limited dollars go as far as possible.”

Applications will be accepted until May 19, 2016, with preference given to projects providing the greatest level of public safety benefits.

“Any Congressional funding and investment to make Positive Train Control active on our nation’s railroad network is a worthwhile investment,” said FRA Administrator Sarah E. Feinberg. “But it will take even more significant funding to achieve this important, life-saving goal. We look forward to working with Congress to find these resources and encourage railroads to submit strong applications.”

In 2008, Congress mandated PTC implementation on certain railroad main lines where railroads transport poisonous-by-inhalation hazardous (PIH) or toxic-by-inhalation hazardous (TIH) materials, or any line where a railroad provides regularly scheduled passenger service. The original deadline of December 31, 2015 was extended to at least December 31, 2018 by Congress last year.

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STB Seeks Comments on Revocation of Commodity Exemptions

March 28th, 2016

The Surface Transportation Board (STB) is seeking public comment on its proposal to revoke existing class exemptions from railroad-transportation regulations for certain commodities. The decision comes as the Board is examining its current regulations in light of the many changes in the rail industry over recent decades.

The Board specifically seeks comments on revoking exemptions concerning crushed or broken stone or rip rap (a type of loose stone used to maintain surface stability); hydraulic cement; coke produced from coal, primary iron or steel products, and iron or steel scrap, wastes, or tailings. The Board seeks additional information about these markets and comments addressing whether regulatory oversight is warranted.

The Board is also inviting interested parties to file comments regarding the possible revocation of other commodity class exemptions, and such comments are requested to address any marketplace changes comparable to the ones addressed in the Board’s decision

“Today’s decision is an important step towards improving shippers’ access to the Board’s processes and addressing whether the Board’s regulatory approaches need modification in light of current market conditions,” said STB Chairman Daniel R. Elliott. “These are important issues and I look forward to the public comments addressing the proposed exemption revocations. My central goal is for all stakeholders to have an appropriate, meaningful path to the Board.”

For further information on the STB’s proposal, visit the STB website.

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FTA Publishes Final Rule on State Safety Oversight of Rail Transit Systems

March 16th, 2016

The U.S. Department of Transportation’s (USDOT) Federal Transit Administration (FTA) has announced a final rule, strengthening state safety oversight and enforcement to prevent accidents and incidents on rail transit systems. The final rule, which will be published in the Federal Register on March 16, will take effect 30 days after publication.

“With the more rigorous and effective state safety oversight required by this final rule and federal law, transit systems across the nation will receive greater safety oversight with the aim of improving safety for passengers and transit system employees,” said U.S. Transportation Secretary Anthony Foxx.

“Greater investigatory and enforcement power combined with better training will give state safety oversight watchdogs sharper teeth to help rail transit agencies keep their systems safe,” Foxx added.

States where a rail transit system operates must carry out several federal statutory requirements, including submitting its State Safety Oversight (SSO) program to FTA for certification. The designated SSO Agency must have financial and legal independence from the rail transit agencies it oversees, and SSO Agency personnel responsible for performing safety oversight activities must have proper training and certification.

The final rule also requires that a State’s SSO Agency adopts and enforces relevant federal and state safety laws, has investigatory authority, and has appropriate financial and human resources for the number, size and complexity of the rail transit systems within its jurisdiction.

States with an operating rail transit system must have an SSO program certified within three years of the effective date of the final rule. California and Massachusetts are already certified by the FTA, with most of the 28 remaining states already taking some actions toward compliance. Congress has authorized a source of funds to the states for their use in meeting these new safety oversight obligations.

The existing Federal SSO program regulations will remain in effect during the transition period and then be rescinded.

If a state is non-compliant after the three-year period, FTA may withhold federal funds until its SSO program is certified. If a state fails to establish an SSO program, FTA is prohibited by law from obligating any federal financial assistance to any entity in that state otherwise eligible to receive FTA program funding.

“FTA has delivered exactly what Congress authorized: a stronger, more robust state safety oversight program with increased enforcement tools,” said FTA Acting Administrator Therese McMillan. “States should act swiftly to come into compliance to provide a higher level of safety for their rail transit system riders and workers.”

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AAR Releases First State of the Industry Report

January 28th, 2016

The Association of American Railroads (AAR) has released its initial “State of the Industry Report” spotlighting key challenges, accomplishments and innovations in the freight railroad industry. The reports are designed to inform lawmakers, the business community and the public about the freight railroad industry’s top priorities.

The initial report details the industry’s investments in new technology and innovation for enhancing rail safety. The association will issue several reports each year, including two more in 2016, with each report focusing on a certain aspect of the industry.

“Our industry maintains its leadership position through innovations designed to improve the performance of our employees, our equipment and even the rail itself,” stated AAR President and CEO Edward R. Hamberger. “This new report outlines how the railroad industry provides innovative, on-the-ground technologies and community programs that safeguard our customers’ cargo, the communities we serve and our employees.”

This report focuses on items such as safety investment, the role of “big data” in diagnosing and solving problems, the continued commitment by the rail industry to implement Positive Train Control (PTC) technology, and emerging technologies such as drones and community-based training and outreach.

Features of the report include contributions from experts such as John Tunna, director of the Federal Railroad Administration’s (FRAOffice of Research & Development, and Tony Sultana, a principal investigator at the Transportation Technology Center Inc. (TTCI).

Through input from these experts, as well as the Security and Emergency Response Training Center (SERTC), RailInc. and AskRail, AAR shows how the industry is continuing to address safety in an industry where the train accident rate has fallen 45 percent since 2000 and 80 percent since 1980.

“The exciting thing right now is that technology is moving into the transportation field at a rapid rate,” Tunna said in the report.

The report showcases new safety advancements that the industry is taking, including the development of an ultrasonic detection system that allows a better view into steel rail to locate track defects before they can cause problems. The industry is also investigating the use of drones for inspection of track, bridge and other freight rail infrastructure, as well as monitoring air quality.

Hamberger said the ultimate takeaway from AAR’s first State of the Industry Report is clear: an increased emphasis on rail network investments – $25 billion annually over the last five years on average – collaboration with customers and government and the development of new technologies combine to improve safety.

“The sweeping reduction in freight rail accidents and injuries over the last several decades is the result of stepped-up employee training as well as a dedicated team of safety experts who conduct rigorous research, examine problems in new ways, apply technological advances and novel changes to processes that ultimately make a safe system of transportation even safer,” said Hamberger.

“We are proud of the industry’s efforts, including those highlighted in this report, and look forward to promoting more developments in the future,” added Hamberger.

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NS Combines Virginia & Pocahontas Divisions

January 13th, 2016

Effective February 1, Norfolk Southern Corporation (NS) is consolidating its Virginia and Pocahontas divisions under the new Pocahontas Division, as part of an ongoing drive to enhance operating efficiencies and support long-term growth. The new Pocahontas Division will be headquartered in Roanoke, Va., and will be comprised of 2,581 route miles, mainly in Virginia and West Virginia, extending from the Port of Virginia to Portsmouth, Ohio, and from Bristol, Va., to Hagerstown, Md.

The consolidation will improve service by placing most of the company’s coal routes under the operating authority of a single division. It further consolidates operational control over NS’ Heartland Corridor, a double-stack intermodal route through Virginia, West Virginia, and Ohio.

“Creation of the new Pocahontas Division supports the railroad’s strategic plan to deliver cost-efficient and superior service while building a stronger enterprise,” said Mike Wheeler, NS senior vice president operations. “Consolidating the two divisions enables us to streamline operations and focus resources on high-return growth opportunities.”

The new Pocahontas Division headquarters in Roanoke will be led by Superintendent Charles M. “Mike” Irvin, a 33-year employee with experience managing several different divisions for the railroad. In Roanoke, NS currently operates a local switching yard, locomotive and rail car maintenance and overhaul facilities, and a material yard that supports track maintenance gangs systemwide. The city is also headquarters of the company’s Virginia Division.

In other recent strategic initiatives, NS has reduced three corporate office locations to two, restructured its Triple Crown Services subsidiary, and integrated the D&H South Line to increase options for shippers. The company is also changing traffic patterns and idling parts of its 253-mile “West Virginia Secondary”, a line between Columbus, Ohio, and central West Virginia that has seen a steady decline in business in recent years. NS has also idled a 33-mile mainline between Elmore and Princeton, W.Va., in September 2015.

NS will continue to operate its rail yard in Bluefield, which mostly handles trains moving Appalachian coal.

“Coal mined from the Appalachian Basin has long served as a vital, low-cost source of energy to power America, and Norfolk Southern remains committed to providing top-notch service to our valuable coal customers,” stated Wheeler. “At the same time, the railroad is nimble and adapts to changing market conditions. Our strategic plan positions us to meet the needs of current customers while creating efficiencies and focusing resources on infrastructure and markets that support continued growth.”

Wheeler noted that the Heartland Corridor opened in 2010 as part of a public-private partnership among Norfolk Southern, Virginia, West Virginia, Ohio, and the federal government. The Corridor is the shortest route for transporting intermodal freight between the Port of Virginia and Midwest consumer markets. Norfolk Southern trains will begin serving the new Heartland Intermodal Gateway in Prichard, W.Va., the state’s first intermodal facility, this year.

“The Heartland Corridor opens global trade markets for West Virginia, Kentucky, and Ohio businesses, creates opportunities for jobs and economic expansion, and supports the railroad’s efforts to shift freight from highway to rail,” Wheeler said. “The Heartland Corridor is a vital part of the U.S. transportation network. As we help communities and businesses compete in the global marketplace, we are building a stronger future for Norfolk Southern and our shareholders.”

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CP Discloses Offer to NS

November 18th, 2015

Canadian Pacific (CP) has disclosed the offer it has made to Norfolk Southern Corporation (NS) in a letter sent to NS on November 17, 2015, which proposes the two railroads combine to form one new company.

The verbatim text of the letter addressed to NS CEO James Squires is dated November 9. Since there has been considerable appreciation to the NS stock price due to market speculation regarding a potential combination with CP, Squires asked CP CEO Hunter Harrison to hold off on sending this letter until such time as the two CEO’s could meet, which occurred on November 13. The proposal was accepted unanimously by the CP Board of directors.

The letter proposes the offer of a 50 percent cash 50 percent stock transaction based on Friday’s closing stock price for both CP and NS in which NS shareholders would receive $46.72 in cash and 0.348 shares of stock in a new company that would own CP and NS. NS shareholders will own 41 percent of the new company.

Harrison’s letter stated, “In light of the substantial synergies created by the combination, we believe that the fair value of the new company would be approximately $270.68 per share at the time of transaction closure—which is assumed to occur on December 31, 2017. As a result, NSC shareholders will receive at that time $46.72 in cash plus $94.16 in market value of the stock of the combined company which on a present value basis at the time of the anticipated announcement (March 31, 2016) is expected to represent total value of $126.18 per share—which is a 59.4% premium to NSC’s 45-day VWAP of $79.14. In addition, NSC shareholders would continue to receive a dividend of $0.59 per quarter during the pendency of the regulatory review of the transaction.”

The letter listed several potential benefits to NS shareholders, including creation of a transcontinental rail network across North America; global reach through premier ports; integrated operations across at least four major rail gateways; more than US$1.8 billion in annual operating synergies achieved over the next several years; and a collaborative Surface Transportation Board regulatory process.

Additionally, the letter cited enhancing service offering to shippers as a potential benefit. The letter stated that as the combined network creates more end-to-end shipment solutions for customers while reducing congestion in key corridors, an expanded network capacity will improve service and lower costs, something Harrison said is both pro-shipper and pro-competition.

The letter continued, “Finally, the United States and Canada would benefit from having an end-to-end shipment solution that improves safety, reduces highway congestion, improves service, lowers cost and increases overall freight capacity (which is vital to support expanded economic growth) behind an environmentally friendly form of transportation funded exclusively with private versus public expenditures.”

“We are ready to begin working with you and your team immediately on this transformational opportunity and are prepared to commit whatever resources may be necessary to complete the proposed transaction expeditiously and in a manner which both recognizes and fairly addresses any social considerations related to the successful integration of our two great companies,” concluded Harrison’s letter.

CP has retained Simpson Thacher as lead transaction counsel, Stinson Leonard Street and Bennett Jones as United States and Canadian regulatory counsel, respectively, and J.P. Morgan Securities LLC, which has issued a “highly confident letter” regarding CP’s ability to finance the proposed transaction.

NS has confirmed that it has received an unsolicited, low-premium, non-binding, highly conditional indication of interest from CP to acquire NS. The NS board of directors, in consultation with its financial and legal advisors, will carefully evaluate and consider this indication of interest in the context of Norfolk Southern’s strategic plans. Notably, any consolidation among Class I railroads in North America would face significant regulatory hurdles.

The two railroads have recently announced they were named on the CDP‘s Global Performance Report. CP was recognized on the Climate A List 2015 for achieving an A in climate performance and was listed on the Standard & Poor’s (S&P) Climate Disclosure Leadership Index with a 100, the highest score an organization can receive, for its carbon disclosure.

NS achieved a score of 99 on the company’s carbon disclosure and received an A minus on environmental performance. The company was also listed on the S&P Climate Disclosure Leadership Index.

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Congress Approves Bill Extending Surface Transportation Programs, PTC Deadline

October 28th, 2015

Congress has approved the Surface Transportation Extension Act of 2015 (H.R. 3819) to fund and extend the authorization for federal highway and transit programs through November 20 of this year and extend the deadline for implementation of Positive Train Control (PTC) to December 31, 2018.

Bill H.R. 3819 passed the House of Representatives on a two-thirds vote on October 27 and was introduced and passed in the Senate on October 28.

The bipartisan legislation was introduced on October 22 by Transportation and Infrastructure Committee Chairman Bill Shuster, Ways and Means Committee Chairman Paul Ryan, and Transportation and Infrastructure Committee Ranking Member Peter DeFazio.

“This legislation averts what would have been a catastrophic shutdown of railroad service while putting accountability provisions in place to ensure that implementation of positive train control moves forward,” stated U.S. Senate Commerce, Science, and Transportation Committee Chairman John Thune.

“I urge the president to sign this bipartisan, bicameral measure into law as soon as possible to end the uncertainty surrounding the looming deadline for rail passengers and shippers across the country,” continued Senator Thune. “After two years of intensive oversight work from the Senate Commerce Committee, I am pleased the Congress came together to pass a tough, bipartisan, and accountability-focused measure to ensure that we never need another extension.”

Freight railroads have indicated that, without an extension of the PTC deadline, they will suspend shipments of certain chemicals, such as chlorine used to purify drinking water and anhydrous ammonia used in fertilizer, before the end of the year. Some companies that produce these chemicals already have been forced to begin their production shutdown processes. In other cases, some freight railroads may suspend all shipments of commodities.

Passenger rail service will also be impacted if the PTC deadline is not extended. Commuter railroads will have to suspend operations, and Amtrak service will have to suspend operations outside of the corridor between Washington and New York.

Representative Shuster stated, “Last week, the Transportation Committee unanimously approved bipartisan, multi-year surface transportation legislation, and today’s Surface Transportation Extension Act will ensure that states can continue to fund transportation projects while Congress continues to make progress on the multi-year bill.”

“H.R. 3819 also recognizes that failing to extend the Positive Train Control deadline now will have devastating economic impacts,” Shuster continued. “Not only will railroads stop shipping important chemicals critical to manufacturing, agriculture, clean drinking water, and other industrial activities, but passenger and commuter rail transportation will virtually screech to a halt.”

“A PTC-related rail shutdown would pull $30 billion out of the economy in the first quarter and lead to 700,000 jobs lost in just one month,” continued Shuster. “It’s our responsibility to extend this deadline now, and avoid shutting down much of our rail system.”

“Members of the House and Senate are to be commended for taking the responsible action to extend the PTC deadline,” said Association of American Railroads (AAR) President and CEO Edward R. Hamberger. “This provides the certainty American industries and businesses need to serve the millions of Americans who rely on rail every day. The extension means freight and passenger railroads can continue moving forward with the ongoing development, installation, real-world testing and validation of this complex technology.”

“The rail industry remains fully committed to being accountable and transparent in completing PTC and we look forward to working with Congress to get a broader long-term surface transportation bill to the desk of the President expeditiously,” added Hamberger.

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GE Sells Tank Cars & Repair Shops to Marmon, Remaining GE Railcar Services to Wells Fargo

October 2nd, 2015

Marmon Holdings, Inc., a Berkshire Hathaway company, has acquired substantially all of GE Railcar Services fleet of railroad tank cars and, in a separate agreement that will be completed by the end of 2015, has also agreed to acquire certain GE Railcar Repair Services repair and maintenance facilities.

The railcar assets will become part of the portfolio of rail equipment managed by Marmon’s Union Tank Car Company (UTLX) and Procor Limited, while the acquired repair facilities will expand the existing network of locations operated by UTLX Repair Services and Procor Repair Services.

Frank Ptak, chairman and CEO of Marmon Holdings, said, “Union Tank Car and Procor have a long history of providing high quality equipment and comprehensive tank car services to their customers throughout North America. This acquisition reflects our continuing commitment to invest in and grow these business units and generate enhanced value for their customers.”

“The addition of the GE Railcar Repair Services sites also will further enhance the full-service capabilities of Marmon’s already extensive repair, maintenance, and inspection network,” added Ptak.

UTLX builds, leases and ships railroad tank cars while Procor provides leasing and repair services throughout Canada.

Additionally, Wells Fargo & Company has announced that First Union Rail, its railcar finance, leasing and fleet management business, has agreed to purchase GE Railcar Services from GE Capital. The transaction will add more than 77,000 railcars and just over 1,000 locomotives to First Union’s existing fleet as well as associated operating and long-term leases. The transaction is expected to close by end of the first quarter of 2016, and terms are not being disclosed.

“GE Railcar Services, with its high quality asset base, has a long history of strength and stability that will add significantly to the quality and diversification of our existing fleet,” said First Union Rail President Barbara Wilson. “We greatly value our client relationships and look forward to meeting the industry’s growing demand for rail cars.”

Ed Blakey, head of Wells Fargo Specialized Lending & Investment, said, “First Union Rail integrates well with the many solutions Wells Fargo offers its corporate and commercial customers to help them succeed financially. We look forward to introducing GE Railcar Services’ customers to Wells Fargo’s broad suite of financial solutions.”

First Union Rail’s acquisition of GE’s railcar and locomotive fleet will make the business the second largest railcar and locomotive leasing company in North America.

Terms of the transactions are not being disclosed.

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