North America
increased from 112,000 carloads in 2009 to 293,000 carloads in 2012, and 87,000 in the first quarter of 2013. Wisconsin is the epicentre of these developments with over 100 mines now active or planned, with a railway infrastructure connection deemed essential for their success amidst such strong competition. Among the contracts secured by CP
in the past two years are agreements to transport sand from new processing facilities in Tunnel City, Oakdale and Sparta, Wisconsin, which will be sent to new facilities in the Bakken at Makoti and New Town. CN is also handling more frac sand shipments in Wisconsin, and is improving infrastructure to boost delivery to fracking areas in the Western Canadian Sedimentary Basin.
This includes a $C 33m ($US 32.4m) upgrade of the 119km line between Wisconsin Rapids and Blair and a $C 35m project to improve 64km of track between Ladysmith and Poskin. This project was announced in 2012 as part of an agreement with Superior Silica Sands to transport frac sand from its Poskin facility to various shale areas. UP is similarly offering a “Sand 2
Shale” service which can transport shipments ranging from a single wagon to 100-wagon plus trains from terminals in the Northern White Sand mines in the Upper Midwest to the Permian and Eagle Ford Shales in Texas. The railway reported a 265% increase in frac sand shipments between 2010 and 2012 and has upgraded infrastructure to meet
Oil revenues offset fall in Class 1 coal volumes
experienced difficulties with coal volumes. Coal comprises 25% of its revenue traffic, and after coal volumes fell by 13%, and coal revenues by 17% to $US 2.9bn in 2012, overall profits fell from $US 1.9bn to $US 1.7bn as revenues dipped by 1% to $US 11bn in 2012 despite intermodal, chemical, auto and housing volume gains. Coal shipped by NS and CSX from
T
he western fracking boom may appear to have been all good news for the Class 1s, but it has
come at a time when volumes of coal, a traditional mainstay of the continent’s major railways, have fallen through the floor, with around 300,000 fewer carloadings in 2012. The fall in coal shipments is partly
linked to the abundance of domestically-produced natural gas, another product of the fracking process, in the US market. This has resulted in a dramatic fall in prices from a high of $US 13 per million British Thermal Units (mBTU) in summer 2008, to a low of just below $US 2 in April 2011 and $US 3.29 in August 2013. As a result many American power plants have switched their primary fuel from coal to natural gas as the United States looks set to overtake Russia as the world’s largest gas producer. This is a trend that has hurt all of the
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Class 1s, but has been partly offset by success elsewhere. While BNSF reported a 6% drop in coal volumes, which accounts for 22.5% of its business, in 2012, increased revenues from consumer and industrial products helped the railway to report an overall net income of $US 3.37bn, up from $US 2.97bn in 2011. “Crude by rail is backfilling 50% of our coal losses,” Rose says. “We have never seen a business that has grown so fast.” CSX similarly reported a 19% drop in
coal volumes in the fourth quarter of 2012 year-on-year, and an 18% fall in coal revenues to $US 717m, but despite improved intermodal, automotive and chemical traffic, the railway reported a 3% fall in net earnings during the quarter to $US 443m after revenue fell 2% to $US 2.88bn. Annual earnings increased by 2% to $US 1.86bn as revenues remained flat at $US 11.8bn. Norfolk Southern (NS) also
the Illinois River Basin can compete at $US 3.50 per mBTU, but Appalachian coal competes only at around $US 4.50 per mBTU. NS and CSX have consequently looked to boost export coal volumes and use of their network to make up for a shortfall in domestic demand as well as continuing on cost- cutting strategies. CSX is also expecting to increase west-east oil traffic in 2013. NS chief executive Mr Wick Moorman recently told TheFinancial Timesthat his railway has cut its prices for handling export coal to stoke demand. NS subsequently reported a 21% increase in coal export volumes in the first quarter of 2013 which slowed the overall decline in coal traffic to 4.4%. Yet revenues for coal still fell by 17% to $US 635m. “It’s still a good business,” Moorman
says. “But the rates are down 25-30%.” In the longer term, NS and CSX hope
that the market has already bottomed out and that rising gas prices and a reduction in large coal stockpiles at power stations will result in a turnaround. BNSF reported a 7% increase in volumes during the quarter and a 1% increase in the first six months compared with the same period in 2012. UP similarly reported a 12% increase in coal volumes in the second quarter year-on-year.
IRJ September 2013
this demand, including rebuilding junctions in Wisconsin, increasing capacity at yards on the Mankato line in Minnesota and other yard upgrades in Wisconsin and Iowa.
Future growth
While the increase in oil and chemical shipments, epitomised by developments in the Bakken, have partly offset coal shortfalls (see panel), coal’s expected recovery will not kill this market growth. On the contrary, current domestic production meets about half of the United States’ need for oil. And with the United States aiming to rely less on imports from Venezuela, Saudi Arabia, Russia and Africa as it looks to secure
Photo: Norfolk Southern
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