2019 Outlook • Freight car orders are on the rise, due in part to renewed strength in crude by rail (CBR), which is driving large orders for tank cars and frac sand covered hoppers. All the new DOT-117 cars that were placed in storage when CBR traffic collapsed a couple of years ago are in service. Fleet replacement is another strong factor, as indicated by such programs as CN and CP beginning wholesale replacements of the aging Canadian grain car covered hopper fleet with higher-capacity railcars. • The Surface Transportation Board limps along with only two members; there is no certainty as to when the full complement of five members will be in place. (See Watching Washington, p. 16, for Frank N. Wilner’s analysis.) • The Mid-Term Elections shifted the balance in Congress dramatically. The House of Representatives has returned to Democratic control after many years. Rep. Peter DeFazio of Oregon will chair the Transportation & Infrastructure
Committee. He’s described by BNSF Executive Chairman Matt Rose as “an extremely capable and insightful person who’s been around a long time” with “a very keen interest in making sure the freight railroads [are] working for all the constituencies of the railroad industry—not just the [Wall Street] sell-side guys. (Cover story, p. 18.) Outgoing Railroad Subcommittee Chair Jeff Denham (R-Calif.), an avowed enemy of high-speed passenger rail in his home state, lost his re-election bid and is out of the picture—much to the delight of HSR advocates. The biggest variable may be whether Class I M&A (mergers and acquisitions) will re-emerge in the foreseeable future, following a relatively quiet period since the mega-mergers of the 1970-2000 period, which resulted in creation of the Big 7 carriers we have today. The rumor mill has been grinding away. One Wall Street research firm has reported that while M&A can have “very
accretive synergies,” it is “very unlikely in the near- to medium-term.” This firm has created “quick and dirty” merger models for several potential combinations, including CSX-CP, NS-CP, CN-NS, UP-CP, and CN-KCS. Investor interest in M&A, the research firm said, resurfaced following reports that CSX’s corporate jet was recently flown to Calgary, where CP is headquartered, for the first time in several years. In addition, activist hedge fund TCI is now CP’s second-largest shareholder and holds major positions in three other Class I’s. As well, CP President and CEO Keith Creel “spoke quite openly about his continued support for M&A at CP’s Analyst Day.” The reasons M&A could move forward: “Following CP’s failed merger attempts with CSX and NS in 2014-16, it’s clear that a potential merger needs to be friendly and not hostile for it to have a regulatory chance. But with new management at CSX and a move to PSR at Union Pacific and Norfolk Southern, perhaps the railroads are more
Keeping Technology in Motion
42 Railway Age // December 2018
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