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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 (FRA) Office 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.
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.”
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.
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.
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.
Progress Rail Services Corp. has entered into a definitive agreement with Amsted Rail Company, Inc. to purchase Rail Product Solutions, Inc. (RPS), a provider of track fastening products and integrated fastening systems. The acquisition is anticipated to close once regulatory approvals are received.
“This acquisition shows our continuing commitment to grow our business and expand our product and service offerings for our customers,” said Progress Rail President and CEO Billy Ainsworth. “RPS is a leader in track fastening systems, and I am proud to have them join the Progress Rail and Caterpillar team.”
“Our focus on high quality products and dependable service has enabled Progress Rail to be a preferred supplier in the rail industry,” said Dave Roeder, senior vice president of Progress Rail’s Engineering and Track Services. “The RPS acquisition expands our portfolio of track related products and allows us to provide more comprehensive solutions to our customers.”
“RPS is a good strategic fit, and a good cultural fit, as their team shares the same passion for customer service and satisfaction as Progress Rail,” added Roeder.
Progress Rail, a member of the Caterpillar Company, is a supplier of railroad products and services.
CSX Chairman and CEO Michael J. Ward has announced changes to several senior management positions, including the resignation of President Oscar Munoz who has joined United Continental Holdings, Inc. as president and chief executive. Clarence W. Gooden, who most recently served as executive vice president and chief sales and marketing officer, has been named president of CSX. All changes to management positions are effective immediately.
“We sincerely congratulate Oscar on his appointment to United and the opportunity to lead another outstanding transportation company,” said Ward. “We all thank him for 12 years of dedicated and successful service to CSX.”
Gooden will oversee both operations and sales and marketing. He has served as executive vice president and chief sales and marketing officer since 2004, helping lead CSX’s growth and value pricing efforts. He has more than 40 years of experience in operations and sales and marketing.
Fredrik J. Eliasson has been named executive vice president and chief sales and marketing officer. In his previous position as executive vice president and CFO, he helped develop and lead strategic initiatives, particularly in efficiency and capital allocation. Prior to his appointment as executive vice president and CFO in 2012, Eliasson served in key sales and marketing and finance leadership roles, including vice president of the chemicals and fertilizer business, vice president of emerging markets, vice president of commercial finance, and vice president of financial planning and analysis. He joined the company in 1995.
Cindy M. Sanborn is the new executive vice president and chief operating officer of CSX Transportation, Inc. She has been serving as executive vice president operations since earlier this year and has helped lead the company’s operating performance and Service Excellence initiatives. Sanborn has served in leadership positions of increasing responsibility in operations, including vice president and chief transportation officer and vice president northern region. She joined CSX in 1987.
Frank A. Lonegro is promoted to executive vice president and chief financial officer. He helped shape and lead efficiency and capital strategies in positions of increasing responsibility, most recently as vice president service design and, before that, president of CSX Technology, vice president mechanical, vice president internal audit and associate general counsel. He joined the company in 1999.
“I look forward to leading this dynamic team, and have every confidence in our ability to deliver a compelling future for CSX,” stated Ward. “I plan to leverage this team’s leadership and tremendous skills in safety, customer service and efficiency as CSX executes its strategies to achieve ever-better levels of financial performance.”
The Federal Railroad Administration (FRA) is soliciting applications from states for $10 million in competitive grants to improve track and highway-rail grade crossings along routes that transport energy products like crude oil and ethanol.
“The U.S. Department of Transportation has made increasing safety at highway-rail grade crossings, especially along routes transporting energy products, one of its top priorities,” stated U.S. Transportation Secretary Anthony Foxx. “This money allows the Department to support innovative ideas and solutions developed at the local level, and I encourage states to apply for this funding.”
Last year there were 269 deaths due to highway-rail grade crossing collisions, the first increase in fatalities in a decade. Collisions at highway-rail grade crossings are the second-leading cause of all railroad-related fatalities. FRA ramped up its campaign earlier this year to prevent these collisions through greater education, stronger enforcement and smarter engineering.
“Most of these deaths are completely preventable, and that is why the Federal Railroad Administration has redoubled its efforts to reverse last year’s upward trend,” said FRA Acting Administrator Sarah Feinberg. “These funds will allow states to take innovative ideas and make them a reality to increase safety and decrease fatalities.”
The U.S. Department of Transportation (DOT) has taken more than 24 actions in the last two years to increase the safety of transporting hazardous materials by rail. The funding for track improvements on energy routes will increase safety on these rail lines.
The FRA guidelines for the grant applications encourage states to include innovative solutions to improve safety, especially at highway-rail grade crossings. The funding is part of the Railroad Safety grants for the Safe Transportation of Energy Products (STEP) by Rail Program.
The Federal Transit Administration (FTA) has announced a proposed rule that would establish a framework for a Public Transportation Safety Program under FTA’s authority, allowing the agency to monitor, oversee and enforce safety in the public transit industry.
“With transit ridership at its highest levels in generations, and our nation’s transit agencies facing increased pressure to meet the demand for service, we must continue to ensure that safety remains the top priority,” said FTA Acting Administrator Therese McMillan. “This rulemaking is a major step forward in establishing FTA’s safety regulatory framework, as all future safety-related rules, regulations and guidance will be informed by the Public Transportation Safety Program.”
The proposed rule would implement FTA’s authority, which was established by Congress in the Moving Ahead for Progress in the 21st Century Act (MAP-21), to conduct inspections, audits, and examinations, and to test equipment, facilities, rolling stock, and the operations of public transit systems. It will also allow the FTA to take appropriate enforcement actions, including directing the use of, or withholding, Federal funds and issuing directives and advisories to the transit agencies.
The proposed rule is based on the principles and practices of Safety Management Systems (SMS), which focuses on organization-wide safety policy and accountability, proactive hazard identification, and risk-based decision-making.
U.S. Transportation Secretary Anthony Foxx stated, “Every day, millions of Americans take public transportation to get to work, school, medical appointments, and other important destinations. This new program will help us ensure that transit continues to be a safe way to get around, and a safe place to work.”
Also in the proposed rule, The FTA has defined a National Public Transportation Safety Plan, which the FTA expects to publish in the Federal Register for public comment in the next several months. The plan will include safety performance for all public transportation, minimum safety performance standards for revenue transit vehicles, a Safety Certification Training Program, and other content determined by FTA.
Public comments on the proposed rule must be received by October 13, 2015.
The Federal Railroad Administration (FRA) has delivered its “Status of Positive Train Control Implementation” report to Congress, showing most railroads will miss the December 31, 2015, positive train control (PTC) implementation deadline.
PTC prevents train-to-train collisions, over-speed derailments, incursions into established work zone limits and a train going to the wrong track because a switch was left in the wrong position.
“Positive Train Control is the most significant advancement in rail safety technology in more than a century,” stated U.S. Transportation Secretary Anthony Foxx. “Simply put: it prevents accidents and saves lives, which is exactly what we seek to do at the Department of Transportation every single day. We will continue to do everything in our power to help railroads install this technology.”
The FRA noted that it has provided significant assistance to railroads to help them become PTC compliant, including funding of more than $650 million to passenger railroads, $400 million in Recovery Act funding, and an issuance of nearly $1 billion loan to the Metropolitan Transportation Authority for PTC on the Long Island Rail Road and Metro-North.
The FRA has also built a PTC testbed in Pueblo, Colo., established a PTC task force, and has worked directly with the Federal Communications Commission (FCC) and the Advisory Council on Historic Preservation to resolve issues related to spectrum use and to improve the approval process for PTC communication towers.
FRA Acting Administrator Sarah Feinberg stated, “The Federal Railroad Administration will continue to use its resources and expertise to help railroads achieve the critical goal to have Positive Train Control implemented.”
The “Status of Positive Train Control Implementation” report was mandated by the House of Representatives Appropriations Committee. The December 31, 2015, PTC implementation deadline was established by Congress in 2008.