first union rail corporation robert j. blankemeyer vp - acquisitions 2593 wexford-bayne road...
TRANSCRIPT
![Page 1: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/1.jpg)
First Union Rail CorporationRobert J. Blankemeyer
VP - Acquisitions2593 Wexford-Bayne Road
Sewickley, PA 15143724-935-5523
May 12, 2011 [email protected]
![Page 2: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/2.jpg)
IntroductionRailroad OverviewShipper OverviewGovernment RegulationEquipmentThe Future
May 12, 2011 [email protected]
![Page 3: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/3.jpg)
▪ A Wells Fargo Company- Top 4 U.S. Bank Holding Co.- $1.3 trillion assets at bank
- Top 3 Bank Leasing Company - Top 4 general service rail lessor
- 90,000+ rail assets
Opinions are mine alone
May 12, 2011 [email protected]
![Page 4: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/4.jpg)
The Beginning of the End Lower volumes + lower rates = Lower returns = Lower Capital Expenditures = Decreased Capacity & Service =
▪ Deferred Maintenance Lower volumes + lower rates =
May 12, 2011 [email protected]
![Page 5: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/5.jpg)
40% of industry in bankruptcy CR, CRIP, MILW, etc.
Specter of nationalizationDeclining market shareCumbersome pricing structureDifficult abandonment processHeavy government regulation
May 12, 2011 [email protected]
![Page 6: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/6.jpg)
Staggers Rail Act Eased abandonment process Gave Railroads pricing parameters
Industry Consolidation Mergers rationalized cost structure Dramatic reduction in employees;
productivity Boom in short lines and regional railroads
New tenor of government regulation Let the market decide
May 12, 2011 [email protected]
![Page 7: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/7.jpg)
Railroads can envision a virtuous cycle: Higher volumes + higher rates = Higher returns = Higher Capital Expenditures = Increased Capacity & Service = Higher volumes + higher rates =
Intermodal is a key driverMay 12, 2011 [email protected]
![Page 8: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/8.jpg)
Volume growth means more customers
Service Improvement means happier customers
Volume + Service = Productivity (“incremental margins”) means happier shareholders
Return Growth means happier shareholders and high levels of Capex (happier suppliers) – no “battle for cash”
May 12, 2011 [email protected]
![Page 9: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/9.jpg)
The Great Recession of 2008 and 2009 was the 3rd worst rail recession in last 100 years 15+% loss of traffic – loads and revenues
Railroad’s Response Flexed market pricing power Increased network fluidity Trimmed work force Continued major expansion projects
May 12, 2011 [email protected]
![Page 10: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/10.jpg)
May 12, 2011 [email protected]
![Page 11: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/11.jpg)
May 12, 2011 [email protected]
$0$1$2$3$4$5$6$7$8$9
$10$11
1980 1984 1988 1992 1996 2000 2004 2008
Roadway and Structures
Equipment
![Page 12: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/12.jpg)
90%+ of all expenditures maintain existing physical plant Little/no capex is used for expansion Public private partnerships are new
paradigm – Heartland , Gateway and Crescent Corridors
Leasing companies and shippers supply over 70% of railcars Railroads can avoid this Capex
May 12, 2011 [email protected]
![Page 13: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/13.jpg)
Strengths: Strong Secular Growth – above GDP Favorable Market Structure – Mega-
carriers Supply Constraints – Infrastructure
issues of other modes Solid Barriers to Entry Limited Alternatives – truck, marine
13
![Page 14: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/14.jpg)
Challenges- Capital intensity – CAPEX intense (15%
to 19% of gross revenues)- Capacity bottlenecks – Low hanging fruit
is gone- Interdependent Supply Chain
- Can other modes keep up? Port congestion
- Reliability vs. trucks
14
![Page 15: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/15.jpg)
15
Threats - Economic malaise- Rising capital requirements- Regulation- Maritime trade flows
▪ Panama Canal is a game changer▪ Super Container Ships – 18,000 TEUs
![Page 16: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/16.jpg)
16
Grain – US is the world’s breadbasket Coal – Met Exports; PRB coal to China? MSW (garbage), perishables, shale,
others Hub and Spoke vs. direct T/L issues: Drivers, Oil, Carbon,
Infrastructure & Efficiency so…. Intermodal Intermodal – International and
Domestic Trucking companies becoming partners Domestic intermodal grew during recession
![Page 17: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/17.jpg)
17
“I want it there when I want it, on time, damage-free at a cost of next to nothing.”
Anonymous shipper
![Page 18: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/18.jpg)
18
Capacity! How can I move my product?Service! Will it get there when needed?Then….rates… How much will it cost?Trucker issues very much on shippers’
mindsAffecting political decisions – Shippers
easing away from re/reg fights to partnerships
![Page 19: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/19.jpg)
19
Infrastructure deficitTax policyCarbonOil independenceEfficiencyPassenger Rail – Help or hurt?
![Page 20: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/20.jpg)
20
2003 – 221 of Fortune 500 report on carbon; 409 in 2009
Green supply chains enforcement by Wal-Mart (from $2BN transport spend to $4BN+ by ’11); GE, P&G, etc…. As go large multi-nationals so go all
Anticipating future EPA regs and emissions law
![Page 21: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/21.jpg)
21
Railroads were the first regulated entity Interstate Commerce Commission - 1887
#1 Issue Today – Positive Train Control – PTC $10BN mandate; cost/benefit ratio of 22:1
Hazardous Material TIH/PIH protection wanted
Passenger Rail Supported but not at expense of freight
Trucking Hours of Service (HOS) regs
![Page 22: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/22.jpg)
22
Driving time recommended from 11 hours to 10 hours
Work day (driving and admin) can be extended to 14 hours/day; 16 hours 2x/wk But can only work 13 hours (break of 1-3 Hrs)
Required rest breaks (30 mins. 1st 7 hrs - 1 hr a day) Now, no limit on consecutive hours of driving/no required break
34 hour restart – Game Changer Drivers can’t drive after working more 60 hrs in any
7 day period; now 60 hrs/7 days or 70 hrs/8 days Driver must be off-duty 34 hours and must include 2
periods of midnight to 6am; now just 34 hrs
![Page 23: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/23.jpg)
23
Impact Additional truck and drivers needed. Shorter length of haul resulting from 10-hour
restriction Inability to serve rural markets Increased costs Less efficient dedicated operations Congestion at pick-up and delivery windows IT investment to reprogram distribution mgt.
systems Unofficially, net-net will be:
5% to 7% productivity decrease Loss of 100,000+ drivers; could be 300,000 Increased trucker pay and trucking costs
![Page 24: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/24.jpg)
Registered Active
UMLER 1,509,795 1,384,996
Adjusted 1,637,746 1,497,455
Adjusted – P, Q and S car types counted by platform
Data Source: Railinc Umler™ System.
May 12, 2011 [email protected]
![Page 25: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/25.jpg)
Registered Active
UMLER -46,850 -146,973Adjusted -46,339 -161,895
Adjusted – P, Q and S car types counted by platform
Data Source: Railinc Umler™ System.
My opinion is that 100,000+ cars have been retired/scrapped.
May 12, 2011 [email protected]
![Page 26: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/26.jpg)
26
285+k cars parked – 4/15/11 Down from 490+k at peak in 8/09 My estimate: 100k to 150k will never see
service again Older, less efficient cars
▪ 263k GRL versus 286k GRL Costs to repair/maintain difficult to recover Cars installed prior to 7/1/74 have 40 year
life▪ Cost to rebuild and qualify for 50-year life is not
economically justified
![Page 27: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/27.jpg)
A - Equipped Box CarsB - Unequipped Box CarsC - Covered HoppersE - Equipped GondolasF - Flat CarsG - Unequipped GondolasH - Unequipped Hopper J - Gondola Car - GT
May 12, 2011 [email protected]
![Page 28: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/28.jpg)
K - Equipped HopperL - Special Type CarsP - Conventional Intermodal Q - Light weight, low profile
intermodalR - Refrigerator CarsS - Stack CarsT - Tank CarsV - Vehicular Flat Cars
May 12, 2011 [email protected]
![Page 29: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/29.jpg)
Data Source: Railinc Umler™ System.
![Page 30: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/30.jpg)
Data Source: Railinc Umler™ System.
![Page 31: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/31.jpg)
31
![Page 32: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/32.jpg)
Data Source: Railinc Umler™ System.
High cube, grain/DDG covered hopper – 3,193 Small cube, cement covered hopper – 1,519 Depressed, High Side Coal Gondola – 1,294 GS, carbon tank car, 18.5k to 21.5k gal – 1,006 Equipped Gondola, less 48’ – 750 Grain covered hopper 4k to 5k cf – 641 GS, carbon tank car, 21.5k to 24.5k gal – 558 GS, carbon tank car, 27.5k to 31.5k gal – 472
![Page 33: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/33.jpg)
March 7, 2011 [email protected]
High cube, grain/DDG covered hopper – 40,153 GS, carbon tank car, 27.5k to 31.5k gal – 30,654 Depressed, High Side Coal Gondola – 27,590 Small cube, cement covered hopper – 13,773 Rotary, rapid discharge coal hopper – 11,796 COFC, 5 unit, 40’ well Double Stack – 10,195 GS, carbon tank car, 24.5k to 27.5k gal – 9,014 SS, 340 psi pressure, 31.5k gal – 7,700
Data Source: Railinc Umler™ System.
![Page 34: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/34.jpg)
Next Tier of regs for road units are slated for 2015 OEMs need to develop new engines at cost of
$1+BN Costs of retro-fits and overhauls are unknown Still hundreds of road units stored New orders will be abysmal for 2 years Scheduled railroading is increasing
productivity
34
![Page 35: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/35.jpg)
GenSet locomotives appear to be wave of future 4 competing manufacturers –
consolidation? Jury still out on “best” technology Government subsidized move through
lower emissions ▪ Continued economic support is iffy
Higher fuel costs may keep interest High initial cost continues to be an issue
35
![Page 36: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/36.jpg)
Above GDP++ Intermodal Domestic – 53’ Double Stack Cars
and 53’ containers and chassis Above GDP
Intermodal International – 40’ Double Stack Cars and 40’ containers and chassis
Ag Products – Covered Hoppers Export Coal – Coal Gondolas and Hoppers Ethanol – Tank Cars and large Covered
Hoppers
![Page 37: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/37.jpg)
GDP Growth Autos – Multi-Level Racks and Flat Cars Lumber – Boxcars and Flats Chemicals – Covered Hoppers and Tank Cars Aggregates – Small Covered Hoppers and
Gons Metals – Gondolas
Below GDP Paper Auto Parts
![Page 38: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/38.jpg)
Uncertain Domestic Coal – Impact of Nuclear
▪ Traditionally 40% of tonnage and 20% of revenues
▪ Market Share shrinks to 40% over next 15 years from approximately 50%
▪ Domestic source of energy▪ Environmental Issues▪ Clean Coal Technologies
![Page 39: First Union Rail Corporation Robert J. Blankemeyer VP - Acquisitions 2593 Wexford-Bayne Road Sewickley, PA 15143 724-935-5523 rob.blankemeyer@wellsfargo.com](https://reader030.vdocuments.site/reader030/viewer/2022032517/56649c915503460f9494c210/html5/thumbnails/39.jpg)
The “Story” used to be on either end of the pipeline, i.e., either producers or retailers. Now the “Story” is the pipeline and rails are well positioned.
2011 will be a fantastic year for carriers Pricing increases in 6% to 8% range Traffic gains of 3% to 5% Better but not great for leasing cos. and builders
Equipment winners will be traditional favorites – no surprises
Recovery is underway but is “choppy” Housing will remain a “vast wasteland”
Lease pricing is slowly improving Market is moving to shorter term operating leases
39