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Railroad Newsline for Friday, April 27, 2007

Compiled by Larry W. Grant

In Memory of Rob Carlson, 1952 – 2006

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RAIL NEWS

THE BOX THAT CHANGED THE WORLD

Photo here:

[www.americanheritage.com]

Some inventions are obviously important from the moment they appear. When James Watt patented a radically improved steam engine in 1769, it was the first new power source since the windmill had appeared in Persia a thousand years earlier. Watt's rotary steam engine, patented in 1784, could turn a shaft and thus could power almost any type of machinery from cotton mills to printing presses to ship engines. By enabling the Industrial Revolution to move into high gear, Watt's rotary steam engine remade the world in less than a hundred years.

And some inventions are just, well, sexy. The Wright brothers' airplane fulfilled a dream of humankind that dated back to the day a caveman had first looked with wonder upon a bird. It is doubtful that anyone in 1903 could have foreseen a Boeing 747 or an F-16, but the airplane from the outset was regarded as a wondrous thing.

Some inventions, however, no matter how important, just don't get the credit due them. The stirrup, for instance, is so simple and, once invented, so obvious that it is hard to imagine riding a horse without it. But although mounted cavalry made the chariot obsolete beginning about 1000 B.C., the stirrup was only invented, in India, around 200 B.C., and it didn't reach Europe until the eighth century A.D. Once it did, it made the mounted knight the dominant instrument of European warfare, profoundly affecting medieval history.

The twentieth-century equivalent of the stirrup, perhaps, is the cargo container, which was first used when a ship sailed out of Newark, New Jersey, bound for Houston, on April 26, 1956. No one would call the cargo container sexy. It is, after all, just a metal box. Nor does it usually get the credit it deserves for initiating an economic revolution.

Much of the expense of freight transportation has always lain in breaking bulk, when goods are transferred from one form of transportation, such as a ship, to another, such as a truck, train, or river steamer. Since men first went down to the sea in ships, cargo was loaded on board piecemeal and unloaded the same way. This called for great skill both to ensure that cargo space was used to the utmost and that weight was properly distributed. Modern cargo ships required sometimes hundreds of stevedores to be unloaded quickly, and then the cargo had to be loaded piece by piece onto trucks or trains to get to its final destination. It was a cumbersome and expensive process.

In the early 1950s an American trucking executive named Malcom (that's how he spelled it) McLean initiated a better idea: Carry the cargo in aluminum and steel containers that could fit directly on flatbed railroad cars or trucks. A few crane operators could then load or unload a ship and have the goods on their way in a matter of hours.

McLean had been born near the small town of Maxton, North Carolina, in 1913. A born entrepreneur, he started in the trucking business in 1934, hauling oil for a gas station he was managing in nearby Red Springs. By 1940 he owned 30 trucks. The war proved a bonanza for him, and his revenues in 1946 were 10 times what they had been in 1940.

In 1937, waiting while lumber was being offloaded from his truck and loaded on a ship, McLean thought about how much more efficient it would be if the entire truck, in effect, cargo and all, could simply be put aboard the ship and then rolled off on the other side of the ocean. He was unable to do anything with his idea at the time, but when he sold his trucking company in 1955 for $25 million he could and did. He bought a shipping company and two World War II tankers and converted them to hold containers.

As the first container ship sailed out of Newark, bound for Houston, an official of the International Longshoremen's Association, the notoriously corrupt union whose members handled cargo at East Coast ports, was asked what he thought about it. "I'd like to sink that son of a @#$%&," he replied.

He was right. Most of the cost of freight handling at ports went to the wages of the many longshoremen needed to load and unload ships in a timely manner. Containerization reduced freight-handling costs from $5.86 to 16 cents a ton, a drop of 97 percent. (Containerization greatly reduced the amount of dockside pilferage as well, which also reduced costs substantially.) Since cargo handling is what economists call a "transaction cost," a cost of bringing a product to market without adding at all to its value, any reduction in it translates directly into increased profits for manufacturers and -- thanks to competition -- decreased prices for customers.

The idea of containerization was slow to develop at first. Agreements had to be reached on standard sizes for the containers. Ports had to be fitted with cranes able to handle them. And unions, needless to say, fiercely resisted a technology that threatened the livelihoods of their members and the political power of their leaders.

It was the Vietnam War -- a logistical nightmare for the U.S. military -- that powered the triumph of containerization. By the late 1960s, Malcom McLean's company was shipping 1,200 containers a month to the port of Cam Ranh Bay, making it possible to field half a million well-supplied troops at the end of an 8,000-mile supply line. Since the military contracts covered the cost of returning the containers, mostly empty, to the United States, McLean saw opportunity in Japan. At the time, Japan was the world's fastest growing economy (industrial output in Japan rose by a factor of four between 1960 and 1973). He was soon very profitably shipping televisions and stereos from Japan to the United States at the rate of six shiploads a month.

Because containers so greatly reduced shipping costs, manufacturing could move to areas where labor was much cheaper, giving those areas -- especially the so-called "Asian tigers" -- a big economic boost. This made them, in turn, larger markets for the goods and services of the more developed countries. It was a classic win-win economic situation, and world trade exploded as a result. (A continuing reduction in tariffs since World War II also helped, of course, by further cutting the cost of imported goods.) In 1950 the United States exported less than $10 billion worth of goods. That figure doubled by 1960 and doubled again by 1970. But as containerization really kicked in in the 1970s, American exports rose by a factor of five. Some of that was inflation, but the real increase was still huge. In 2006 the value of U.S. exports was a hundred times what it had been in 1950, and many other countries had had similar increases.

Today, 300 million 20-foot-long containers cross the world's oceans every year, and a single modern container ship can handle 4,000 40-foot containers. These vast ships are far larger then those that can fit through the Panama Canal, so-called Panamax ships. And there are plans to build container ships that are "Malacca-max," just able to fit through the important shipping channel in the Strait of Malacca, between Singapore and Indonesia. A Malacca-max ship would be a quarter of a mile long, 190 feet wide (the Panama Canal is 110 feet wide), and draw 65 feet.

The total value of world exports today is over $12 trillion a year, equal to more than a quarter of world GDP. So the box may not have been a sexy idea when it sprang into the entrepreneurial mind of Malcom McLean, as he waited impatiently for his truck to be unloaded. But it was certainly a most important one. Indeed, one might not entirely unreasonably describe McLean as the father of the modern global economy. - John Steele Gordon, American Heritage

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SPEED ON THE MINDS OF AMTRAK SUPPORTERS

ROCKFORD, IL -- Jo Ann Jenkins was in favor of the Amtrak route that went past Davis Junction and the Chicago/Rockford International Airport. Then she saw the numbers Tuesday. Now she supports the old Blackhawk line that runs through Elmhurst and Genoa.

"It can probably be started quicker," Jenkins, a Rockford resident, said at Tuesday's public informational meeting about the three proposed Amtrak routes.

Speed was the key for residents Tuesday -- they wanted whichever route could get them to Chicago the fastest and could be put in place the soonest.

According to Amtrak's feasibility study, the old Blackhawk line would be the fastest, would cost the least and would get the most passengers. For most of the 60 residents at Tuesday's meeting, that was a good enough reason to support it.

"I think it's the most direct route from Rockford to Chicago," said Jenkins' son, Brian Leggero of Rockford.

Leaders are trying to get Amtrak back here for the first time since 1981. A train a day would go from Dubuque, Iowa, through Rockford to Chicago and back.

The Illinois Department of Transportation hopes to choose a route by the end of May, said George Weber, acting chief of IDOT's railroad division. He said Tuesday's turnout was good, and the public comments will help officials make the decision.

There was some support Tuesday for the route that goes through Marengo and Belvidere.

Jim Pyfer of Caledonia questioned Amtrak's ridership projections. He thinks there are more people along the Belvidere route who would use the train than along the alternatives.

He and Harvey Kahler, a railroad advocate from Chicago, thought the old Blackhawk line would be too congested.

"Two things killed Amtrak service before: the location of the station in Rockford and the time it took to get from Rockford to Chicago," Pyfer said. Kahler thought Amtrak was too optimistic about the speed of the old Blackhawk line when it travels through Chicago.

Amtrak officials stood by their numbers, which have the Blackhawk route 45 minutes quicker between Chicago and Rockford.

Residents agreed that another key is Rockford city bus service to the Amtrak station. If the train didn't stop at the airport, buses could connect the two also, some said.

There was a lot of support for an east-side station somewhere between Perryville and Alpine roads, and several people said that was more important than restoring the downtown station.

David Dobson of Rockford said he saw both sides when it came to the debate on routes. While he slightly prefers the old Blackhawk route, his ultimate preference -- like just about everyone else -- was the get the first train here as soon as possible. - Thomas V. Bona, The Rockford Register Star

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TSRR TO HONOR U.S. MILITARY WITH ARMED FORCES DAY EVENT

PALESTINE, TX -- To honor veterans of the United States military both past and present, the Texas State Railroad will once again be hosting its annual "Armed Forces Day" event May 18-20 on the grounds at the Palestine Depot.

"We have set aside May 18 as 'Education Day" for area schools," TSRR spokesperson John Garbutt said. "This is a great field trip opportunity allowing students to visit the railroad and learn about America's military history by way of exhibits and interaction with living history impressionists and veterans."

This unique annual event is free to the public and serves as an occasion to honor veterans and show support for America's men and women currently serving in the armed forces.

"Our theme this year is 'In the Shadow of the Blade,' based on the award-winning military documentary of the same name -- a film following the healing journey of a Vietnam War Huey helicopter," Garbutt said. "One veteran called the film 'The most important thing to happen for Vietnam veterans since the dedication of the Wall.'"

A special ceremony will precede the showing of the film.

Vietnam veterans are encouraged to attend this year's event as the Texas State Railroad celebrates Armed Forces Day.

For more information please contact the park at 800-442-8951. - Mary Rainwater, The Palestine Herald-Press

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COTTON BELT DEPOT TO OFFER TRAIN DISPLAYS

TYLER, TX -- The Cotton Belt Depot in Tyler, Texas will be open for tours May 5 in conjunction with the Tyler Train & Memorabilia show that weekend.

The depot features train artifacts and memorabilia. One of the most popular items at the depot is the Bragg model train display. Hundreds of model trains were donated to the city by Sharon Bragg in honor of her late husband. The trains made their inaugural run during the Cotton Belt Depot's Centennial Celebration in June 2005.

Currently, a portion of the H.J. McKenzie collection is on temporary loan from The University of Texas at Tyler.

The depot will be open for tours from 10:00 to 15:00 hours on May 5. Admission is free. The depot is at 210 E. Oakwood.

The Cotton Belt Depot was built in 1905 and began serving passengers on the Cotton Belt Line in 1907. Service continued until the mid-1950s, and the railroad used the structure for offices and storage until it was boarded up in 1987. The Southern Pacific Railroad donated the building to the city of Tyler in 1988. The city used federal transportation grants, half-cent sales tax funds, and a grant from the Vaughn Foundation to restore the historic building. The building reopened as offices for the Tyler Transit bus system in the summer of 2003. - The Tyler Morning Telegraph

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AMTRAK BILL CLEARS SENATE COMMITTEE

WASHINGTON, DC -- Amtrak legislation sponsored by Sen. Frank Lautenberg won unanimous approval from the Senate Commerce Committee today, but is a long way from becoming law.

The $11.4 billion measure, sponsored by the New Jersey Democrat and Republican Sen. Trent Lott of Mississippi, would provide money to operate the railroad over six years and help states establish train service between selected cities.

The bill would also allow the federal government to issue $7.8 billion worth of bonds to improve Amtrak and help states seeking to increase passenger rail service.

That piece of the overall Amtrak bill has to win approval from the Senate Finance Committee before it can proceed.

"Our legislation will provide the necessary resources to bring Amtrak up to speed as a real alternative to taking a plane or driving a car," Lautenberg said in a statement. "People in New Jersey rely on Amtrak and want to be sure that the system will be there for them in the future. With this plan, it will."

The Senate has to approve the Amtrak bill, then the House. Then President Bush would have to sign it into law. The Bush administration has proposed $800 million for Amtrak next year and $100 million for states seeking to boost intercity passenger rail. - Raju Chebium, Gannett News Service, The Cherry Hill (NJ) Courier Post

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GOODBY ENID…HELLO BLACKWELL

ENID, OK -- In August 2005, Enid leaders, local farmers and area lawmakers touted the news -- Oklahoma’s first large-scale ethanol plant would be built in Enid.

It’s not going to happen.

Officials with Oklahoma Sustainable Energy and Chaparral Energy, which formed a joint agreement under the name of Oklahoma Ethanol LLC, a limited liability company, announced Tuesday they have accepted an offer to build their plant in Blackwell and will do so beginning with a fall groundbreaking on a 240-acre site between Blackwell’s downtown and city industrial park off Interstate 35.

“Our decision to locate the plant in Blackwell is strictly a business decision based on what’s best for our company and investors,” said Mark Fischer, a manager of Oklahoma Ethanol and Chaparral president.

Tuesday’s news was the latest twist in an ongoing economic development story here that resembles a foot race with a host of false starts.

In late February, officials with the partnership announced postponement of their Enid plans for a $90 million to $100 million plant to be built on 40 acres adjacent to ADM at 16th and Willow because of increasing construction costs and the high price of corn, a main ingredient in the processing of ethanol.

Their announcement came on the heels of an announcement by officials with Orion Ethanol of Pratt, Kansas, saying they were postponing construction of an ethanol plant here until overall market conditions and commodity prices changed.

Despite the city of Enid’s commitment to help Oklahoma Ethanol build its plant here with establishment of a Tax Increment Finance district in March 2006 to help offset startup costs and $250,000 in upfront seed money, other communities -- including Blackwell -- didn’t give up trying to land the proposed plant.

“I was aware they were exploring other options. We had inked our deal more than a year ago,” said Jon Blankenship, executive director of Greater Enid Chamber of Commerce.

Rep. Mike Jackson, R-Enid, who had worked on the state level to spark the plans for ethanol startups throughout Oklahoma with marketing and tax breaks once plants are in full production, said he had heard “there was a possibility of them (Oklahoma Ethanol) looking at other locations.”

Shane Frye, executive director of Blackwell Area Chamber and Industrial Authority, confirmed Blackwell, along with other locations in the state, kept in the running for Oklahoma Ethanol’s proposed plant.

“We’ve been working with them. Our incentives were similar to Enid,” Frye said about what Blackwell was offering.

According to a key component list outlined by Oklahoma Ethanol officials, transportation incentives were vital. Blackwell had proximity to I-35 and offered important rail access.

Blackwell Northern Gateway Railroad, a short-line rail between Blackwell and Wellington, Kansas, the site of a rail yard that serves Burlington Northern Santa Fe and Union Pacific, offered to provide rail access at reduces costs to all major markets for purchasing grain and selling ethanol and distiller’s grains, a byproduct of the process often used as a livestock feed.

Plant manager Mike Frickenschmidt of Oklahoma Ethanol said the company will have a 240-acre tract of land to construct a double loop of rail tracks that will allow for the shuttling of grain on the outside loop and shuttling ethanol on the inside loop.

“This is a huge labor and transportation costs savings,” Frickenschmidt said.

Land area and rail service were big keys in how Blackwell won out, Frickenschmidt said.

According to the key components list, Blackwell already has the infrastructure to supply necessary water to the plant, and existing wastewater systems have the ability to handle plant wastewater.

City leaders in Enid began hearing presentations last month from interested contractors for a new wastewater treatment plant, that is expected to cost from $26 million to $42 million.

On Tuesday, Oklahoma Ethanol officials returned the $250,000 in seed money to Enid City Manager Eric Benson’s office.

“The city respects their decision. I have a very high regard for the leadership of Oklahoma Ethanol and Chaparral Energy. Mike Maly (of Chaparral Energy) and Mike Frickenschmidt are distinct gentlemen. As a gesture of goodwill they returned the $250,000 the city advanced to them. They could have waited until 2009. That shows they are men of integrity,” Benson said.

Major players in the process remain hopeful ethanol development will become a reality here someday.

Blankenship said he understood the company “has left the door open for subsequent projects in Enid.”

Jackson said he believes Oklahoma Ethanol will have something down the road for Enid because of the initial courting here and the good impression it likely left with Oklahoma Ethanol.

“Enid is still an excellent site for an ethanol plant. We plan on hopefully building a second one,” Frickenschmidt said. - Scott Fitzgerald, The Enid News & Eagle

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BUYBACK MAY HELP CP AVOID SUITORS

Canadian Pacific Railway Ltd., which managed an 18 per cent increase in first-quarter earnings despite fierce winter weather, may be trying to steer clear of private equity players by launching a $1 billion share buyback that would make it a less attractive takeover target.

With private equity firms looking to snap up everything from Canadian port operators to telephone companies, the country's second-biggest railway said yesterday that it plans to purchase and cancel up to 15.5 million of its outstanding common shares, representing about 10 per cent of the public float.

The move, which comes on the heels of Warren Buffet's Berkshire Hathaway Inc. move to take an 11 per cent stake in U.S. railway Burlington Northern Santa Fe Corp., has at least one analyst speculating that CP has decided to voluntarily leverage its balance sheet as a takeover defence strategy.

"This is a fairly significant buyback in the order of about $1 billion," said David Newman, an analyst at National Bank Financial. "So with free cash flows of about $300 million, they're going to have to leverage up the balance sheet, which would make it less attractive for private equity players who look for strong free cash flows and an underleveraged balance sheet."

Bond-rating services DBRS Inc. reacted by lowering its rating on CP to "negative" from "stable," citing the share buyback announcement. DBRS argued that CP "will likely issue substantially more new debt to fund the repurchases."

Newman said the recent interest of private equity firms in Canadian ports and terminals, as well as other infrastructure assets, suggests the country's railways – particularly CP – may also be on the menu.

Canada's biggest telephone company, BCE Inc., was recently kicked into play after its largest shareholder effectively forced the company to consider an offer by a consortium of companies that includes Canadian pension funds and U.S. buyout giant Kolberg Kravis Roberts & Co.

Despite a higher valuation, CP would likely be a more attractive target than rival Canadian National Railway Co. because it is smaller and would be easier to merge with another U.S. railway, according to Newman.

CN, by contrast, already has significant operations south of the border and would be more likely to draw protest from U.S. regulators if it were to be involved in any mergers, he said.

CP executives were coy when asked whether the share buyback was designed to thwart a private equity takeover.

"There's clearly people circling all over the place in every industry, so you can't say yes and you can't say no," Fred Green, CP's chief executive, told analysts during a conference call yesterday to discuss first quarter earnings.

He added, however, that CP has "no discussions ongoing" and remains focused on running the railroad and delivering shareholder value.

Despite wicked winter weather that resulted in slides, wash-outs and avalanches in western Canada, the railway yesterday reported first quarter earnings that increased 18 per cent to $128.6 million, or 82 cents a share, compared to $108.8 million, or 69 cents a share, last year.
That beat average analysts' estimates.

Green said the railway's operations team have "come through hell" to deliver the results, which included revenue of $1.09 billion, compared to $1.07 billion during the same period last year, estimating that the harsh winter weather cut its earnings to the tune of 10 cents a share.

CP also said yesterday that contract negotiations continue with about 3,000 maintenance employees, whose union is in a position to issue a 72-hour strike notice.

Rival CN said on Monday that a combination of bad weather conditions and a two-week strike by conductors was responsible for a 10 per cent drop in its first quarter profit. - Chris Sorensen, The Toronto Star

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CN VOWS PUSH TO PREVENT COSTLY DERAILMENTS

Canadian National Railway Co.'s managers have stepped up their commitment to safety, and workers have to follow suit to help prevent costly derailments, says CN chief executive officer Hunter Harrison.

Mr. Harrison, who joined CN in 1998, said the railway needed to be whipped into shape in the years after the former federal Crown corporation became a publicly listed company in 1995 on the Toronto Stock Exchange.

In the late 1990s, safety wasn't taken as seriously within CN's work force as it is now, but ever-more vigilant adherence by employees to train operating rules is crucial, said Mr. Harrison, who become CEO in 2002.

"Very frankly, we engaged to some degree, in certain areas, in a very permissive culture that did not require compliance with rules," he said in an interview yesterday after CN's annual meeting in Moncton. "When I suggested zero tolerance on the safety issue, people thought I was crazy."

CN's safety record came under fire from two B.C. mutual funds during the meeting, but 92.2 per cent of the ballots cast by shareholders voted against Ethical Funds Inc.'s proposal to "link executive compensation to environmental, social and governance success."

In separate voting, 95.6 per cent of shareholders' ballots rejected Inhance Canadian Equity Fund's proposal to force CN to "conduct a track safety audit on policies, procedures and technical practices on the BC Rail line."

Mr. Harrison said safety is already a top priority at Montreal-based CN. Yesterday, he named CN vice-president of transportation services Paul Miller as the railway's new chief safety officer.

Jennifer Coulson, Ethical's manager of sustainability, and Dermot Foley, Inhance's vice-president of strategic analysis, welcomed the new appointment. They said they didn't expect to score victories with their proposals, but were pleased to see their safety concerns make it onto the meeting's agenda.

Ethical owns about 500,000 CN shares, while Inhance holds 12,000.

Mr. Harrison said CN's corporate culture has changed for the better since 1998, when CN acquired Illinois Central Railroad Co., which he headed before jumping to CN.

"Have we made some mistakes? Yes," he said. "Are we probably going to make a few more mistakes in the future? Yes. But are we bad, mean-spirited people who don't care about safety? Absolutely not. Those are fighting words for me. We have never thought about compromising safety, thinking we could cut corners here or there."

A large portion of derailments can be traced to human error, he said.

"If you go through any safety analysis or safety training, one of the things that you'll learn is that 80 to 90 per cent of accidents are caused by human behaviour," Mr. Harrison said, adding that too often, the focus is on weather conditions and other external factors, when it should be on the ability of workers to adapt to change.

United Transportation Union spokesman Frank Wilner said CN management needs to repair its relationship with workers. The 2,800-member UTU staged a 15-day strike in February, and went through another work stoppage earlier this month. "Mr. Harrison is ignoring that fatigue and, in some cases, insufficient training of new hires contribute significantly to what is the human factor in accidents," Mr. Wilner said. - Brent Jang, The Toronto Globe and Mail

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UNION PACIFIC LOOKS SET FOR A GREAT RIDE

Union Pacific Corp., the nation's largest railroad by revenue, has struggled to improve its service and efficiency since it was caught flat-footed as the economy surged and demand for rail service grew in the fall of 2003.

Nearly four years later, it appears to be getting back on track.

"Union Pacific has an opportunity - because it's messed up so far - it now has a chance to catch up," said analyst Rick Paterson with UBS.

Chief Executive Jim Young, who took over the company in January 2006 when Dick Davidson retired, will get a chance to tell investors about the progress at the company's annual stockholders meeting May 3 in Salt Lake City.

Graph here:

[www.omaha.com]

Union Pacific's comeback story could mean higher earnings and a stock price rising faster over the next three years compared with the industry as a whole, Paterson said.

Young, who was not available to comment for this story, said in January that 2006 was the best year ever at the railroad. But he cautioned that this year could start slowly, with a national slump in the housing and automobile markets. Demand should be strong for coal, international goods and corn for ethanol, Young said.

Omaha-based Union Pacific's first-quarter earnings reflected some of Young's concerns, as well as the work the railroad had done to improve its efficiency. Last week, Union Pacific reported a 24 percent jump in net income, with increased revenue, despite lower shipping volumes.

The economy might slow this year, but operational efficiency is key, Young said.

J.P. Morgan Securities analyst Thomas Wadewitz said Union Pacific is the most compelling rail story in the country, partly because the railroad will be negotiating long-term contracts with many of its shipping customers in coming months, particularly for automobiles, chemicals and coal.

"With the greatest legacy contract repricing opportunity and the most room for operational improvement, we continue to believe UNP (Union Pacific) has the most compelling upside potential of all of the major rails," Wadewitz said in a research note on the first quarter.

After its first quarter earnings were released April 19, Union Pacific's stock rose to a 52-week high of $119.22 before closing that day at $116.47. U.P. shares rose 42 cents Wednesday to close at $116.36.

The stock received a shot in the arm earlier this month as well, rising to a then-52-week high of $112.10 on April 12. Warren Buffett disclosed that Berkshire Hathaway had become Burlington Northern Santa Fe Corp.'s largest shareholder with 11 percent of its stock.

BNSF is Union Pacific's chief rival, but Buffett said he had invested in two other railroads. Buffett would not disclose which ones.

Paterson said Virginia-based Norfolk Southern and Florida-based CSX Corp. were his best guesses for Buffett's expanded rail investments.

However, Union Pacific would be a good investment because it has so much room for improvement, Paterson said. Young appears to have an eye on the need to operate more efficiently and is willing to go more slowly on revenue growth.

"I think the railroad will do well under his watch," Paterson said. "He has a better view on bottom line returns and is not so focused on the top line."

Union Pacific spokeswoman Kathryn Blackwell said the railroad always has been focused on revenue growth, bottom-line results, service and productivity.

"This remains our focus," Blackwell said.

Union Pacific was a top performer in the rail industry in 2002 and 2003 as it cut costs and personnel in a slowing economy. But the railroad was caught with too few resources when the economy finally perked up in late 2003, Paterson said.

"Demand went from zero growth to 10 to 12 percent almost overnight," Paterson said. "It was unprecedented, and they could not have anticipated that. That's fair. But other railroads made it through."

One of Union Pacific's mistakes in 2004, Paterson said, was continuing to accept business it could not handle. "It ran out of train crews and locomotives and track."

Congestion followed and parts of Union Pacific's 32,400-mile network of rails slowed. Train crews hit service-hour limits in odd places at odd hours, Paterson said. That added to transportation costs, he said, because crews had to be picked up for scheduled rest times, while other crews burned overtime waiting for late trains.

The railroad hired thousands of new people and purchased hundreds of new locomotives to meet the swelling demand, Paterson said.

Blackwell said Union Pacific responded as quickly as it could to the rebounding economy, which grew at a pace not even the railroad's customers had anticipated. It takes six months or more to train new employees for train service jobs, and there is a long lead time between ordering new locomotives and having them delivered, Blackwell said.

Comparing Union Pacific's 2004 performance with BNSF illustrates some of the differences.

BNSF, which operates on a slightly smaller rail network, moved 9.54 million carloads of freight in 2004, compared with Union Pacific's 9.45 million.

BNSF had $791 million in earnings, which was $187 million more than Union Pacific's $604 million, even though Union Pacific had $1.5 billion more in revenue.

Union Pacific acknowledged it had problems. In its 2004 annual report, the railroad said operational inefficiencies and record high fuel prices ate into profits.

At the same time, BNSF was telling its investors that 2004 was its most successful year ever. Chief Executive Matthew Rose said the company had purchased locomotives, increased rail capacity and streamlined its car-loading in anticipation of an improving economy.

In 2005, Union Pacific announced an overhaul of its network to improve service, which included turning some business away and charging more for other business. It poured money into capital improvements that increased its capacity.

The improvements began to show in Union Pacific's bottom line. Net income improved in 2005 to $1 billion, and again in 2006 to $1.6 billion. Operating ratio, an important efficiency measure, improved from 89.4 percent in 2004 to 86.8 percent in 2005 and 81.5 percent in 2006. Railroads generally strive for operating ratios of 80 percent or lower.

The time railcars spent sitting in terminals dropped from an average of 30.5 hours per week in 2004 to 28.7 hours in 2005 and 27.2 hours in 2006.

Union Pacific's operating ratio of 81.5 percent in 2006 remained behind BNSF and other major railroads last year as they reported operating ratios of 77.8 percent or better, and Union Pacific's $1.6 billion in net income was behind BNSF's $1.8 billion. - Joe Ruff, The Omaha World Herald

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ALASKA HOUSE OK's BOND SALE BY RAILROAD

Brushing off global warming concerns, the state House gave a boost to Agrium's Nikiski fertilizer plant Wednesday when it authorized the Alaska Railroad to sell $2.9 billion in tax-free bonds for construction of a new coal gasification facility.

Agrium is studying whether to build a coal-conversion plant as a way to provide feedstock for its factory in the face of declining natural gas supplies. The tax-free railroad bonds would provide a financing mechanism for the plant and for new rail facilities necessary to haul coal from Healy.

The House added an amendment to the original bill increasing the bond authority by $300 million to cover a possible 43-mile railroad spur line from Willow to Port MacKenzie. Among many unanswered questions about the project is whether coal would be shipped to Nikiski from the Port of Anchorage or from the Mat-Su facility at Port MacKenzie.

The railroad bond authority was approved by the House 35-0. The measure has not been discussed in the Senate yet.

Controversy arose Monday, when the measure first reached the House floor, over a move to impose limits on new carbon dioxide emissions created by the Nikiski project.

House Democrats argued that the financing measure was a chance to do more than offer lip service to the need to reduce emissions of greenhouse gases.

But the House voted 26-11 to reject a Democratic amendment that would have limited emissions at the new plant to levels produced by natural gas-fired power plants. Several Republicans who spoke in opposition were dismissive of extensive scientific studies identifying human-caused emissions as a major source of warming.

Rep. Mike Kelly, R-Fairbanks, called the effort to limit emissions a reaction to "junk science" that would impede future development of coal in Alaska.

"I've seen some research out that says it's not what us humans are doing," said Rep. Peggy Wilson, R-Wrangell, explaining why she opposed the amendment.

Agrium said it hopes to inject excess carbon dioxide into existing Cook Inlet oil wells to enhance oil recovery. But the company opposed any mandatory requirements.

"There's lots of friendly talk about reducing the greenhouse effect," said Rep. Les Gara, D-Anchorage, who offered the amendment, "but the only action we've taken this session is likely to exacerbate the problem."

Port Mackenzie Rail

Another wrinkle developed over the Mat-Su rail extension to Port MacKenzie.

Agrium initially told legislators it was planning to ship coal through Anchorage because of uncertainties surrounding the unbuilt Mat-Su line. That comment stirred a reaction from borough officials and Mat-Su legislators, who see coal trains as the key to developing a line that could eventually serve other traffic crossing the Port MacKenzie dock.

The $300 million increase in bond authority was a result. Proponents say the new rail line could divert the expected daily 100-car coal trains away from populated areas around Wasilla. But some Willow residents say they don't want to see the trains rumbling on a second line through their community.

Building the rail extension would remain an economic decision to be made by the railroad board.
And the railroad must wait to see if Agrium decides to go ahead with the coal gasification plant. A decision is expected in 2008, Agrium officials have said.

The financing measure, HB 229, was introduced by Rep. Mike Chenault, R-Nikiski. Under the bill, only Agrium -- not the state or the state-owned railroad -- would be at risk if the project flops and the bonds can't be paid off, advocates said.

The plan rests on the Alaska Railroad's unique authority to issue tax-free bonds for non-governmental purposes. The authority was granted by Congress when the railroad was transferred to the state, but it has not been tested with the IRS.

Backers say the benefits to Alaska would include jobs and local tax revenues in the Kenai area, increased coal traffic for the railroad, and a fee paid by Agrium to the railroad. - Ton Kizzia, The Anchorage Daily News

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KANSAS CITY SOUTHERN PROFIT JUMPS, BUT MISSES STREET VIEW

CHICAGO, IL -- U.S. railroad Kansas City Southern on Thursday said its quarterly net profit nearly doubled due to strong pricing and rising freight volumes in some segments, but it fell short of analyst expectations.

The Kansas City, Missouri-based company reported first-quarter net income of $22.2 million or 21 cents a share, compared with $12.9 million or 11 cents a share a year earlier.

Wall Street analysts had on average expected earnings per share for the quarter of 27 cents, according to Reuters Estimates.

The company reported revenue for the quarter of $411.3 million, up from $388.4 million. Analysts had expected revenue of $416.6 million.

The company said coal revenue rose to $45.1 million from $39.8 million, chemical and petroleum product revenue increased to $75.6 million from $67.2 million. The railroad's automotive business, however, saw revenue decline to $23.7 million from $25.9 million. - Reuters

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MECHANICS BANK TUNES UP OLD RAILWAY BUILDING

RICHMOND, CA -- A new Mechanics Bank branch has rescued a century-old railway building in Point Richmond, California and is expected to spur economic activity in the community.

Mechanics Bank has agreed to occupy a structure known as the Trainmasters Building that once was slated for a wrecking ball. The bank will use the building, now sitting in a lot across from the Richmond Plunge, for the relocation of an existing branch elsewhere in Richmond.

Word of the 2,100-square-foot new branch for Mechanics Bank heartened those involved in the efforts to salvage the railroad building, which was built in 1903.

"I guess I have an affection for old things," said Martin McNair, a retired real estate developer and investor who has been the driving force the last few years in the quest to save the building. "Old things should be preserved and restored."

'Great for the area'

The relocation, McNair predicted, will make a big difference in the appearance of the community, located at the southwest corner of Richmond.

"It will make the entrance to Point Richmond look more professional, more polished, more complete," McNair said.

A local business leader also applauded the pending move by Mechanics.

"This new branch is an absolute win for our community," said Jerry Feagley, a local realty broker and director with the Point Richmond Business Association. "It will be great for the area."

The Trainmasters Building was constructed originally as a reading room for railroad workers. McNair said the railway figured if the workers spent more time reading, they might not carouse as much in local bars, pool halls and brothels. Later it became a classroom.

Ultimately, it was the primary office for the master of the rail yard, said McNair, who also is a member of the Mechanics board of directors. The board had to approve the relocation to the new branch site.

For nearly all of the last 25 years, though, the building had been abandoned and boarded up. A group that pushed to save the building moved it about 1.5 miles from a nearby rail yard to its new location near the corner of Richmond Avenue and Garrard Boulevard.

"We had to replace all the windows, the siding and the roof," McNair said.

Saving history

Richmond City Council member Tom Butt, an architect, also worked to help save the building.

"(The Trainmasters Building) was on the verge of being destroyed," Butt said in a recent interview. "I pulled that thing from the toilet so many times, I don't want to tell you."

A breakthrough came a few months ago when Rauly Butler, a senior vice president with Richmond-based Mechanics Bank, was scouting for sites to move one of the bank's Richmond branches.

"I drove by the Trainmasters Building and thought it was a perfect fit for us," Butler said. "It is old. It has that historic feel. It is the first thing you see when you come into Point Richmond."

Cash flow

By becoming the building's tenant, Mechanics Bank will provide cash flow to improve and maintain the building. Mechanics will first recoup some of its startup costs and then all the rent will flow to the nonprofit and then back into the community.

Preparing the building and the surrounding area for the bank will cost about $1.05 million, Butler estimated. That included $600,000 in construction work, $400,000 to refurbish and landscape the property around it, and $50,000 to install an ATM in a kiosk outside the building.

"Because it is historic, we didn't want to cut into the walls to install an ATM," Butler said.
The bank intends to build a large deck in front of the building that will be available to the public, Butler said. The deck will be used for open-air plays performed by a local theater company, he said.

Opening a new branch could also benefit the bank, according to Mechanics officials. The bank had become disenchanted with the current branch location at West Cutting Boulevard and Wine Street.

The existing branch is isolated in a business park whose primary tenant is the state's DNA laboratory. Security is also an issue. That branch has been robbed "several times," Butler said.

Only bank in Point Richmond

"What do we gain by moving? We're the only bank in Point Richmond," Butler said. "A lot of Point Richmond residents don't know we're there. The number one reason a customer chooses a bank is still location."

The bank lists on its Web site 28 retail banking branches, including 19 in the East Bay.

Mechanics expects to open the branch on Sept. 1 and will have eight employees working there, Butler said. Bank officials are convinced the branch will generate heightened economic activity.

"The new branch is going into what was kind of a no-man's land," Feagley said. "Now the bank will create increased commerce right at the gateway to Point Richmond." - George Avalos, The Contra Costa Times, InsideBayArea.com

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TRANSIT NEWS

TAKING DART? TAKE EXTRA MONEY

DALLAS, TX -- Gas prices aren't the only commuting costs on the rise.

Dallas Area Rapid Transit customers will have to dig a little deeper in their pockets to ride the bus and train this fall after the agency's board hiked fares Tuesday for the second time in four years.

Beginning Oct. 1, riders will pay an extra quarter for a single trip, 50 cents more for a day pass and $10 more for a monthly pass.

Complete list of fare changes here:

[www.dart.org]

DART officials said the fare increase will generate $7 million a year to offset higher costs for fuel, energy and steel and also help fund an expansion program that will double the agency's light-rail network by 2013.

"We have demands on our expenses every day," board chairman Mark Enoch said. "And we have a responsibility to generations of transit riders 15 to 20 years from now."

Other board members raised concerns that the steepest fare increases affect reduced-fare passes used by seniors, children and people with disabilities. Reduced-fare costs will rise from 50 cents to 75 cents for single trips and $15 to $25 for a monthly pass.

Joyce Foreman, the board's vice chairman, said it was unfair to raise reduced fares by 50 percent to 67 percent when employee passes bought by large businesses will rise only with the price of inflation.

"I do not believe that there is equity in this process," Ms. Foreman said. "I am not against a fare increase, but I want it to be equitable for all our riders."

Supporters of the increase in reduced fare for single trips countered that the fare has been 50 cents since 1995. Board members voted 9-5 to approve the increase.

Without a fare increase, DART officials project that ridership would have grown by 3.5 percent. But with the increase, they expect that ridership growth will slow to 1.5 percent.

DART, which has an annual operating budget of nearly $350 million, is expanding its light-rail network from 45 miles to 93 miles over the next six years.

Planned expansions include a new line that will extend from Carrollton to Pleasant Grove and another line running to Dallas/Fort Worth International Airport.

Local political and transportation leaders are pushing for legislation that would allow cities to ask voters to raise their sales-tax cap in order to join DART. Sales-tax revenue makes up roughly three-quarters of DART's budget, while fares account for 12 percent to 14 percent.

As DART board members considered the fare increases Tuesday, riders waiting for their train at the Akard Station in downtown Dallas gave the new fare structure mixed reviews.

"I guess they gotta do what they gotta do," said Jimmy Thomas, who lives in Oak Cliff. "That's not too bad for me. Some people can't afford it."

Mr. Thomas, who has a disability that qualifies him for a reduced-fare pass, said he'll be able to absorb the increase from $15 to $25 a month. But for those who can't afford a prepaid pass, he said, the daily jump from $2.50 to $3 for a round trip will be a hardship.

"Those who have to pay $2.50 every day, it's going to be rough on them," he said.

Toya Thompson, a member of DART's Paratransit Access Advisory Group, told board members that many DART riders with disabilities use the transit system several times a day for errands, doctor's appointments and job interviews.

"A rate increase would be very difficult for them," Ms. Thompson said.

Mr. Enoch said he understands those concerns. But he emphasized that DART's revenues need to keep up with rising costs as the agency expands.

"We're mindful of those folks who are hardest-hit by this," Mr. Enoch said. "But the price of milk they pay at the grocery store, the price of gasoline they buy at the pump, the price of their rent ... all have gone up in the years that we haven't gone up."

Patricia McGill said the fare increase won't deter her from taking DART from her White Rock Lake neighborhood to her job at a law firm in downtown Dallas.

"It's still better than parking," Ms. McGill said. "It's worth it to me. I've been amazed that they've kept it as low as they have, frankly." - Jake Batsell, The Dallas Morning News

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GROUP'S TRAX MOTION REJECTED

SALT LAKE CITY, UT -- In its drive to shift the route for a proposed TRAX extension, a Draper, Utah group hit another roadblock this week.

A 3rd District judge rejected the group's request for temporary restraining order Monday. Judge Leon Dever said the group could not overturn a city resolution through a referendum because it is an administrative action, not a legislative one.

"This matter before the court is based neither on state law nor local law," the ruling stated. "It is based upon Draper City's Resolution . . . which merely expresses the city council's preference of a certain light-rail extension."

But Summer Pugh, a citizen group leader, said Citizens for Responsible Transportation will "most likely" appeal. She said she was "shocked" by the decision because it did not address the issue she took Draper City to court over.

"We went to show we had enough signatures, but the judge would not even rule on that," she said. "Instead, he ruled on an issue we did not even brief or have oral arguments on."

But the judge said the signatures were moot because the referendum's basic validity failed.

Draper City Attorney Doug Ahlstrom said the city was happy with the ruling and agreed it was not a matter that should have gone to a referendum process.

Meanwhile, Pugh is considering further action, saying the future of TRAX is a "huge issue" in Draper.

"This is going to affect Draper residents, Draper property values and Draper's quality of life," she said. "Citizens have the right to weigh in on it." - Steve Gehrke, The Salt Lake Tribune

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COMMUTER RAIL LINE TO BE STUDIED

The Oregon House voted 44-13 Tuesday to study an extension of a new Beaverton-to-Wilsonville commuter rail line to Salem.

House Bill 2472-A calls for a task force to study the extension. Train service is projected to begin in September 2008 on the 15-mile line connecting the two suburban employment hubs. There is no timetable for extending the line to Salem, because more study is needed of the line's viability.

Extending the commuter rail line to Salem could help Keizer and Donald house more workers from the bustling Wilsonville area, said Rep. Mitch Greenlick, D-Portland.

The Salem-area delegation was divided on the vote. Representatives Vicki Berger, R-Salem, Brian Clem, D-Salem, Kevin Cameron, R-Salem, and Betty Komp, D-Woodburn voted in favor.

Voting against were Representatives Kim Thatcher, R-Keizer, Vic Gilliam, R-Silverton, Fred Girod, R-Lyons and Donna Nelson, R-McMinnville. Rep. Brian Boquist, R-Dallas, missed the vote. - Steve Law, The Salem Statesman Journal

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IMPACT OF STREETCARS EXPECTED TO BE SLOW

MADISON, WI -- The first phase of a possible Madison streetcar system wouldn't generate as much redevelopment as future extensions, consultants studying the transit option said Tuesday night.

That could make the potential four-mile, $58 million "central loop" a tougher sell for streetcar proponents, who hope tax-increment financing dollars could offset much of the cost.

"The arms have better development potential, but you need to start with the trunk," said former Ald. Ken Golden, a member of the Madison Streetcar Study Committee.

The first phase, which Charlie Hales, project manager for HDR Inc., called the "most affordable" option, would loop past the Capitol, Monona Terrace, Overture Center, Kohl Center and Meriter Hospital.

The system likely would include three trains running 10 to 12 minutes apart, Hales said.

Future phases would extend service to Villager Mall on Park Street on the South Side and along East Washington Avenue, both areas that the consultants found to have the greatest redevelopment potential.

The draft feasibility study, presented to the streetcar study committee Tuesday, provided more details as to how the consultants were able to declare streetcars "an excellent fit" for Madison.

According to the HDR study, a fully built streetcar system would create, through 2030, an additional 2,200 to 2,400 housing units, 3,900 to 4,400 jobs and $830 million to $910 million in property investment within a quarter-mile of the tracks than if no streetcar system was built.

To make those projections, the consultants evaluated 91 sites on the Isthmus and their redevelopment potential based on a number of factors such as recommended density and zoning in long-term city and neighborhood plans.

After determining the maximum number of potential residential or commercial units for a given site, the consultants factored in the impact they said streetcars have had in cities such as Portland, Ore., and Tacoma, Wash. For example, sites within a block of streetcars are expected to develop at 80 percent of the maximum potential, whereas sites more than four blocks away from streetcars are expected to develop at 40 percent of maximum potential.

In addition, the start-up loop would increase nearby property values $100 million to $200 million within five years, the study concluded. That would generate $740,000 to $1.4 million a year in property taxes, based on 2007 tax rates.

Mayor Dave Cieslewicz said Monday the study indicated the city could pay for the system without using existing property taxes, but rather a combination of federal funding and tax-increment financing, which sets aside additional property taxes generated by an improvement to help pay for that improvement.

The committee is expected to meet again in early June and approve a final report by this fall. - Matthew DeFour, The Wisconsin State Journal

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LIGHT RAIL EXPANSION PLAN ANGERS SOME RESIDENTS IN FORT LUPTON

FORT LUPTON, CO -- A plan to expand light rail in Denver may affect residents in and around Fort Lupton.

RTD is looking to take over Union Pacific's rail classification yard and intermodal facility near 40th Avenue and Brighton Boulevard in north Denver. The transit agency wants the property for its east corridor and north metro corridor, as well as for a rail car maintenance facility.

If RTD takes over the Denver property, the railroad would have to move its operations elsewhere. Right now it's looking at 640 acres in Weld County.

That plan doesn't sit well with many residents near Fort Lupton.

"It will bring more traffic, noise and pollution," said Kerry Kramer-Murray, whose family owns a historic Centennial farm nearby.

"It (the farm) has been in the family for 103 years. It's part of the Colorado Historical Society, and this railroad proposal will come right up to our property line."

Some railroad opponents say the Weld County site is inappropriate for a new classification yard because the soil contains too much gravel.

"The ground water is going to be contaminated from the railroad. Every kind of hazardous material, chemical and fuel known to mankind could end up getting spilled."

Dick Hartman, special representative to the president of Union Pacific Railroad said, "We wouldn't consider moving to a site that was unacceptable for that use."

Hartman also said, "We've been asked to relocate. Had we not been, we'd go on doing business at our existing locations."

The proposed site near Fort Lupton is east of County Road 27 and south of County Road 10. It would operate 24 hours a day, seven days a week.

"From an economic standpoint this is huge to Weld County," said Larry Burkhardt of Upstate Colorado Economic Development. "This has the potential to create thousands of new jobs."

Burkhardt said there could be three phases of economic growth. The first would come from the railroad moving its operations. The second would be from national firms building warehouses adjacent to the classification yard. And the third would come from the service industry moving in to take care of new residents and employees.

"It's not a done deal," said James Barnes, director of media information for Union Pacific.

He said a feasibility study is under way to see if it makes sense to move operations to Fort Lupton.

Opponents argue that the railroad should look elsewhere.

They say a similar operation in Dallas generates traffic upward of 700 trucks a day.

"I don't feel any of our infrastructure can handle two trucks a minute, 24 hours a day, seven days a week," said resident Jaff Hayen.

Kramer-Murray added, "Front Range airport (near Watkins) welcomes them with open arms. Let them go where they're wanted. They're not welcome here."

Hartman said the railroad is not looking at any other property. - Lance Hernandez, KMGH-TV7, Denver, CO

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LIABILITY PACT EASES PATH FOR FASTRACKS

DENVER, CO -- It doesn't solve RTD's financial challenges, but the Colorado General Assembly's passage this week of key legislation improves chances for new FasTracks rail lines to be built where area voters thought they would.

The Regional Transportation District planned to put FasTracks passenger trains serving Denver International Airport, north Adams County, Boulder/Longmont and Arvada/Wheat Ridge in freight-rail corridors after negotiating property purchases and operating rights with the Burlington Northern Santa Fe and Union Pacific railroads.

"This was established as an absolute must-have by (BNSF) as a condition for negotiations," said RTD general manager Cal Marsella. "By getting it done, we're back at the table in meaningful negotiations to get the property and develop operating plans to implement FasTracks."

When metro Denver voters approved an RTD tax hike to pay for much of the $4.7 billion FasTracks plan, the assumption was that at least four of the trains would share routes with freight railroads.

Yet after a fatal train crash in California in January 2005 involving passenger and freight trains, BNSF demanded that RTD limit the liability of the railroad if an accident were to occur involving FasTracks trains in freight-rail corridors.

To satisfy the railroad's demand, legislators passed Senate Bill 219, which limits the imposition of "punitive or exemplary damages or damages for outrageous conduct" in the event of an accident involving FasTracks trains, even if a freight railroad is responsible for the accident. It also allows RTD to buy insurance covering a freight carrier's negligence if there is an accident.

Some legislators said they resented being pressured, but RTD said the bill was a requirement for FasTracks to proceed.

The bill now goes to Gov. Bill Ritter for signing. RTD government relations officer Sherry Ellebracht said there is "no indication that he has a problem with it."

For the two commuter trains to Longmont and Wheat Ridge, RTD will negotiate largely with BNSF, which owns most of those freight corridors.

Planners working on the Gold Line from Union Station to Arvada and Wheat Ridge have looked at operating streetcars on city streets as an alternative in case railroads balked.

Being forced to indemnify private businesses from accident liability was "unfortunate" and "distasteful," said Arvada Mayor Ken Fellman, but it was "one of those things that had to be done."

His city's "preferred alternative" is for rail in the freight corridor, Fellman said.

"If we couldn't get over this hurdle, we would probably end up with an alternative that is not acceptable to our community," he said.

Denver City Councilman Rick Garcia said passage of the bill means RTD can get back to the promise of the 2004 FasTracks vote.

"This gets us closer to what was originally intended," he said. - Jeffrey Leib, The Denver Post

THE END