Metals in general and steel in particular remain bright spots for North American railroads, which are suffering from steep declines in the coal transport business.
For the first five months of this year, overall metals carloads originated, both inputs and outputs, are up by more than 16 percent over the same period a year ago, according to data from the Washington, D.C.-based Association of American Railroads (see table, page 67). Ore and coke are significantly higher, while scrap and finished forms are only modestly improved.
Although it is too early to tell if this strengthening marks a reversal in longer-term downtrends in most metals business, the railroads are not sitting still, waiting for potential customers in the metals sector to knock on their door.
Most notably CSX Transportation, one of the two big eastern rail transporters, began implementing scheduled service in March along some lanes and in collaboration with some shippers. The initiative is led by Hunter Harrison, the Jacksonville, Fla.-based railroads new chief executive, who implemented similar operations previously at several railroads including the Illinois Central (IC), the Canadian National (which bought the IC in 1998), and Canadian Pacific.
The other major eastern railroad, the Norfolk Southern (NS) does significant business supplying automobile plants in the Southeast, and is in the midst of a program to add rolling stock, including more than a thousand gondolas.
Kansas City Southern (KCS) serves several mills in the Deep South, and is also very active in Mexico.
Given the numerous factors affecting rail volumes, tracking market trends is difficult in the short term, Michael Rutherford, vice president of sales and marketing for industrial products at CSX, pointed out. For example, we do quite a bit of project work in loads such as pipe, he said. There are also plant openings and closings. Even a single asset swap by scrap operators can have an impact on flows and modal choices.
One clear trend in the metals sector is a reduction in the level of inventories being held by service centers. Rutherford explained that when service centers buy in large volumes, they tend to move that material by rail. When they reduce inventory in response to pricing, however, the just-in-time strategy tends to favor road transport.
That isnt to say there arent opportunities upstream. CSX laid some new track to connect and service Precision Strips new slitting facility in Bowling Green, Ky., that came into service in March. The railroad has also logged some new business from mini-mills getting into the advanced high-strength steel for automotive grades arena.
One of the fascinating things about metals is that for a so-called mature industry, there is a lot going on just beneath the surface, Rutherford said. Overall metals account for about five percent of freight volume for CSX, he noted.
Moving cars, not running trains
The big initiative being implemented under CSX Hunter Harrison is precision-scheduled railroading, Rutherford noted. We started rolling that out in March and the early results are very favorable., he said. Overall system velocity is up 10 percent; terminal dwell time is down 7 percent, and over the scheduled merchandise networkwhich is where metals would moveloaded transit times were down 15 percent.
The simplest definition of precision-scheduled railroading (PSR) is an operating strategy that focuses on moving cars through the system, rather than on running trains. If the focus is on optimizing trains, the emphasis is on fewer, longer trains. The ultimate expression of that philosophy is the unit train, where a single commodity is transported from a specific loading location to a specific destination.
In practice, it has been determined, however, that unless the unit train can be loaded and unloaded in less than a dayas is the case with crude-oil trains where dozens of tank cars are loaded and unloaded at a time on dedicated loop tracksthen it is actually most efficient to ship in blocks or cuts of cars on scheduled mixed-freight or manifest trains.
So far, precision-scheduled railroading has delivered good results for us and for our customers, Rutherford reports. In one case, we converted a shipper in the metals sector from a unit train to merchandise service. That customer is already seeing faster cycles because they dont have to take the time to load and build a whole train, then unload the entire train before they can release cars. The PSR model is challenging what we thought about unit trains, he summarized.
In another challenge to conventional thinking, Rutherford said CSX actually wants to hear about dirty cars. Industry analysts have noted that mills are often reluctant to unload gondolas of scrap and then reload the same cars with finished pipe or coil because of the dirt and debris accumulated from previous shipments.
Noting that reloading inbound cars with outbound freight is exactly the kind of efficiency which PSR seeks to capture and deliver, Rutherford insisted that, any customer who does not get a clean car should communicate to us and we will follow up with the receiver who released that car. There is a process for that.
Jim Schaaf, group vice president for metals and construction at the Northern Southern said Norfolk, Va.-based NS also likes reloads. We are always looking for those opportunities. Dirty cars are an age-old problem but it is really just a matter of identifying them and notifying us of the reject.
As noted, the NS is an important carrier of steel to the auto industry. We move a lot of coil, Schaaf said. And over the past two years, we have added about 2,000 new rail cars in metals service, about 1,200 of them gondolas and the rest coil cars. There are no major facilities additions to mention, but we continue to expand incrementally with our industrial development initiatives. We have also invested in our yard at Bellvue, Ohio, he pointed out.
Standardization and simplification
On the equipment front, Schaaf noted that NS new railcars arent solely about new capacity but also offer a new level of efficiency. We operate 80 different types of cars, and we want to get that number down to below 20, he said. That does more than simplify and standardize operations, he noted, it also makes maintenance and switching in classification yards more efficient.
We are also revamping our customer interface, Schaaf added. The more information our shippers can get, the better they can manage their business and then work with us to manage the exceptions. New features for car locations and estimated arrival times will be unveiled in the very near future, he said.
Such tools are expected to give rail a sharper edge in intermodal competition, primarily against trucks. But rail also faces competition from barges, Schaaf noted. We see some of that in scrap-substitutes, such as pig iron, and also for some tubular goods along the Mississippi River.
Coil cars are clearly one type of rolling stock the NS is retaining. The highest standard of simplification and standardization, the shipping container is ubiquitous worldwide.
A specialized freight forwarder or non-vessel operator, Coil-Tainer Ltd. ships high-value coils (steel, aluminum, and copper) in standard 20-foot box containers using a proprietary pallet or cradle.
We dont compete on the low-value HRC that moves at $15 per ton, Michael J. Smolenski, president, comments. We handle the coils that need the protection of a container. We have about 3,500 units in service worldwide, and we are on the fourth generation. West Chester, Pa.-based Coil-Tainer owns the cradles, and has relationships with several mills in the U.S. as well as steamship lines.
By size and weight a 20-foot container can hold a single 22-ton coil, or two 12s, three 8s, or four 7s. Coil-Tainer has developed a container tested to 37 tons that can hold a single 35-ton coil. Ideally two-way business can be arranged, but, if not, the cradles are stackable 40 in a 40-foot container.
Not all international metal transport has to travel by water. Metals is one of the largest market segments for the Kansas City, Mo.-based Kansas City Southern Railroad (KCS).
The railroad reported that growth in the metals segment is driven by automotive and appliance production in Mexico. Petroleum drilling and hydraulic fracturing are also significant drivers of steel traffic. Large natural gas transmission pipelines being built in Mexico to convert power plants from coal or fuel oil to natural gas are spurring more movement of steel.
Most of KCSs steel carloads are outbound semifinished products or finished steel. KCS also moves a substantial amount of steel slab and steel coils, and like the big eastern rail transporters is working with shippers and consignees to improve railcar utilization and processes to increase capacity. The KCS noted that several customers, both shipping and receiving, have invested in handling capabilities for improving equipment cycle times and minimizing demurrage in rail yards.
KCS has seen business related to pipe production increase in Texas as well as growth in the consumption of Asian-produced steel coils bound for Mexican automotive plants. With the barge business suffering from serious excess capacity, waterborne rates are falling and, in some instances, that decline is drawing business away from rail. Although some inbound scrap deliveries to mills have been impacted, the KCS is not seeing outbound shipments affected.
On the political and legal front, the KCS is confident that the modernization of NAFTA will increase the steel segment of its business. In the meantime, significant changes under Mexican energy reform are leading to more efficient production and increased consumption of steel pipe.