View the April 21, 2021 seminar recording
Jennifer Symoun
Good morning or good afternoon depending on where you are. Welcome to the Talking Freight Seminar Series. My name is Jennifer Symoun and I will moderate today's seminar. Today's topic is Rail Freight Growth Opportunities and Challenges.
Before I go any further, I do want to remind you to call into the teleconference for the best audio quality. If you are listening to the audio over the computer and experience any issues, I am unable to fix them as audio quality will vary based on your network connection, computer, speakers, and other factors. Please also keep in mind if you are calling into the teleconference for the audio, you will need to mute your computer speakers or else you will be hearing your audio over the computer as well.
Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. If during the presentations you think of a question, you can type it into the chat area. Please make sure you send your question to "Everyone" and indicate which presenter your question is for. Presenters will be unable to answer your questions during their presentations, but I will start off the question and answer session with the questions typed into the chat box. We will also take questions over the phone if time allows and I will provide instructions on how to do so once we get to that point.
The PowerPoint presentations used during the seminar are available for download from the file download box in the lower right corner of your screen. The presentations will also be available online within the next few weeks, along with a recording and a transcript. I will send a link to the recording in the next day or so and will also notify all attendees once all materials are posted online.
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Today we'll have three presenters:
Our first presentation will be given by John Maddox, the Freight and Rail Unit program manager at the Kansas Department of Transportation. He has worked at KDOT for 23 years. In addition to administering state funded rail improvement programs, as well as rail improvement projects utilizing federal grant funds, Mr. Maddox is also involved with programmatic, policy and legislative issues. In his spare time he enjoys the arts (abstract expressionist and abstract) and many genres of music. He is an avid tennis player and enjoys creating his own abstract expressionist paintings.
John Maddox
Thank you, Jennifer. Glad to be here today and give folks an idea of what we're doing at the Kansas DOT as it relates to our rail freight growth opportunities and some of the issues that we are facing. I will go ahead and get started with my slides. Again, I am John Maddox the Freight and Rail Coordinator at the Kansas Department of Transportation. I am in the Bureau of Transportation Planning which is housed in our Division of Planning and Development.
So, one thing I do want to point out, we do have several state-funded programs that we have utilized for many years to address not only growth opportunities but also to address particular issues that are faced on the rail system throughout the state, but also to do major rehabilitation projects and also utilize state funds to help leverage federal grant programs. I will go through my slide, but I'm not going to go through every bullet point. We do have several state-funded programs that are designed to address the long-term viability of the Kansas rail network that encompasses the agricultural energy and manufacturing served by Class 1 and short line railroads throughout the state. We want to improve rail access which will improve and enhance economic competitiveness. We really look to do projects that impact the movement of goods and multimodal transportation logistics improving velocity and throughput of these various products that the railroads transport. I will say that the support for the state-funded programs and the federal grant opportunities that we have been able to be part of are supported with the Bureau division and all the way up through KDOT executive staff levels. We have a lot of champions for rail transportation.
Just a brief overview of the rail network. We have three Class 1 railroads that operate in the state: BNSF, UP, Kansas City Southern. And then Norfolk Southern has 3 miles of trackage rights in the metro Kansas City area. They own and operate approximately 2,700 miles of line. And then we do have two switching railroads, one in Kansas City and the other in Wichita. Then moving on to the short line network, we have 13 short line railroads. They own and operate just shy of 1,500 miles of track and that is about 40% of the rail network. Including trackage rights and whatnot that's just over 1,700 miles. In 2019 the short line railroads combined all 167,527 carloads, and that is the truckload equivalent of just over 670,000 truckloads. So, as you can see, with short lines making up 40% of the rail network, having connections with all of the Class 1s, they do play a vital role in freight transport throughout the state.
As we look at the growth there is certainly a variety of challenges. Some are more complex than others. But as we look at the program and the opportunities and challenges, we really look to enhance the system capacity, improve velocity, and one of the things that we have been chipping away at, if you will, is the ability to safely and efficiently transport fully loaded 286K railcars. We certainly look at the implementation of the in-cab, railyard, and dispatch technologies; we are looking to improve environmental impact. And as we look at the rail projects not only for the railroads and for their customers, we do see that modal shift and see more truckload equivalents moving over to rail which improves safety and it reduces maintenance and wear-and-tear on highways and bridges and especially local, county, and city streets and roads that are not necessarily designed for the heavier semi loads.
I will go over this a little bit later, one of our public-private partnerships that we did a couple of years ago was the 286K Initiative, as we called it, and that starts the process of addressing that issue across all of the short lines. In Kansas, that is about a $150 million fix to get all the short line network up to a 286K compatibility.
As I mentioned, we have two state-funded rail programs that are both statutory. They were run through the legislature and approved. The long-term program we have had for many, many years is Rail Service Improvement Fund. Last year legislation was passed for the Short Line Rail Improvement Fund. It is very similar but a bit different in ways to the other program. There are certain guidelines and whatnot that we follow for both programs as they are based on statute. The Rail Service Improvement Fund, that particular program, we do major rehabilitation projects and bridge improvements, 286K upgrades and that is generally on the railroads, but we have also done various projects through this program at shipper locations throughout the state. We receive $5 million annually and in statute it says there has to be a benefit-cost ratio of 1.0 or greater, so there has to be some level of benefit. Thus, we do a relatively detailed benefit-cost analysis that gives us that final ratio. The minimum amount of match on this program is 40%. In some instances, we have had applicants do 50% match and the remainder, whether it's 50% or 60%, is in the form of a reimbursable grant. You can see the qualifying entities; it is fairly broad and also the projects. One thing we do with these projects is that we do require quarterly performance measure reporting for three years after the project is completed. And just to give you an idea of the popularity of the program, in fiscal year 21 we had 16 applicants with $23 million in grant requests and certainly overprescribed. We were able to select 9 projects and 3 of those were shippers, 6 were short line railroads for a total of $22.4 million in total project cost. We do a call for applications annually, generally around June 1st.
So, the Short Line Rail Improvement Fund I mentioned, this is a new program, it's a three-year program that's part of our new IKE Transportation Program. It is a little bit different in that the qualified applicants are somewhat limited to short line railroads and shippers located on shorelines. It's a 30% match, 70% reimbursable grant that is in statute. As far as projects are concerned, those qualified projects are very similar to the RSIF program with the exception of maintenance. This program does allow for maintenance projects. We will receive $5 million annually this year come July 1, and then again July 1 of next year, and that will complete the three years of funding as the program stands now. As with the other program, it was certainly overprescribed during our last call. We had 17 applications totaling almost $11 million in grant requests and we had $5 million available. We were able to select 13 projects (9 shippers, 4 short lines) and we will be doing about $7.1 million in total project costs across all of the projects. One interesting aspect of this program, the first year that we have seen with the shippers, they are either rehabilitating or extending sidings or both to accommodate more railcars or to be able to use rail for the first time in quite a few years or in some cases, the first time ever that they have used rail. We have calculated that after these projects are completed, the increase in rail car loads will be about 7,000 annually and that equates out to just over 28,000 truckloads. We will require an annual report for three years following project completion so we can see how the projects are playing out and how that traffic is playing out. We did issue our call for applications on March 31st and I expect to have quite a few come in, and that deadline is May 3rd.
I mentioned the 286K issue that not only Kansas but all states face. We did an initiative back in 2019 to kind of test, if you will, the appeal of doing 286K specific projects. We had $11.2 million in grant funds available. The recipient match funds varied between 40-50% for about $6.7 million, so across four short line networks we have done just under $18 million (these projects are almost finished) in 286K upgrades. Project budgets range from $1.8 million to $7 million. Again, it was major rehab with a lot of rail replacement and a lot of bridge improvements for this initiative. And that starts to chip away at that issue in Kansas; only 30% of the network is 286K compliant. Oftentimes the short lines get 286K cars and they are not compliant, so they have to light load them into 263 or 268.
One specific project with the RSIF program is a project on the KYLE Railroad. Union Pacific serves it, so we have the state involvement, the short line involvement, and certainly the Class 1. The funding for this project was about $2.3 million, the railroad put in just over $1.5 million. And the objective was to replace an old 85lb rail with a 115lb continuous welded, replace five turnouts, and then of course adding ballast and servicing tamping and rehabilitating crossings and taking care of some drainage issues. But the major unit train shippers are Scouler grains at Downs and then AgMark in Glen Elder, KS. Scouler, specifically, opened a $3 million flat storage unit at the end of 2020 that was increased storage capacity from what they already have. You can see the average carloads for three years prior to the project and the estimated carloads after the project. That again is the equivalent of just over 49,000 truckloads. Not only with this particular project, but all of our short line projects, there are numerous benefits. I will not go through each bullet point but there are certainly benefits to the shippers, to railroads, the public benefits, and the environmental benefits. Cumulatively they all have quite an impact. This particular project, I put up a few of the numbers for the benefit-cost analysis looking at the ratio; what is saved as far as pavement damage cause, transportation, efficiency benefits and accident and emission savings. A very solid project that will play out with a lot of benefits to a lot of different folks.
On this particular slide, I just wanted to point out what we have done for the last three years as far as various rail projects through the Rail Service Improvement Fund, the new Short Line program, our 286K initiative, and we have leveraged KDOT funds through the RSIF as match funds for several federal grant opportunities with both CRISI and TIGER. Over the last three years that amounts to 29 projects and just over $100 million in total project costs. I will say we have leveraged federal funds through this program for a TIGER 2, a TIGER 3, a TIGER six, seven, and nine, and then of course a CRISI as well. It really works out very nicely for not only projects in Kansas but with federal projects that span multiple states. In our case that is Kansas, Colorado, and New Mexico. The TIGER projects have been directed specifically at the BNSF Amtrak line that carries the southwest chief, so we are going to see dual benefits there not only for freight movement but also to get the southwest chief class rating backup to 79 miles per hour and get everything back in order with that service.
The latest project that we received through CRISI is a big one and KDOT was the sponsor, the applicant, and the Oklahoma D.O.T. is also participating as well as the South Kansas and Oklahoma Railroad, which is a Wyco property. You can see on the slide the project components. But when all is said and done and we look at the grant and we look at match funds, this is going to be just over $40 million on a bi-state project which will bring about 80% of that entire system in Kansas and Oklahoma up to 286K, so we will take a pretty big chunk out of that issue in both states. The railroad can reduce transportation costs, improve utilization crew time and fuel, their velocity will improve, and their operations will improve. And then shippers in both states (cement materials, grain, chemicals), all will see benefits from this project. Right now, and I am sure that this will increase the annual carloads are running just over 30 thousand annually on the system.
Another project that we are doing through the Rail Service Improvement Fund that is quite unique is a new build at a liquid methanol rail unload facility in Wichita. Currently they have no rail service. For a total project cost, at least on the rail side of it, of $300,000, they will now have rail service for tanker cars. The company is doing many millions of dollars of other work on the facility. And the key thing about this is it will again divert truck to rail, help the transportation costs and operating, and certainly improved safety. And very quickly, a picture is worth 1,000 words. This map shows the various programs and fiscal years of projects that have been recently completed or in progress or will be starting. We have 105 counties in Kansas and there will be some type of rail project activity in 36 of those 105 counties.
So, when we take a broad look at the program, the RSIF has been around for over 20 years and in looking at the new Short Line program and then federal grant projects that we have been able to do with TIGER and CRISI, we have done 98 state rail projects since 2000 and 13 federal grant projects at about $460 million; that is loans, grants, various match funds and that is the total. Again, with all of our rail projects, the benefits as you look at the bullet points are very solid as far as railroad operations, reduced fuel consumption, and reduce environmental impacts. Then of course the service to the shippers and the local farmers, safety, reduction in truck traffic, this program over the years has proven out to be very beneficial to a lot of the partners throughout the rail system and shippers, local units of governments, and a lot of different folks.
We have two other state-funded rail improvement programs. I do not administer those programs, but if there is a rail project, we provide rail project oversight. One is the cost share program that is multimodal. So, we get a lot of applications for a lot of different modes. We have done two rail projects through this program – one down in Southeast Kansas off of a Class 1 and we did a switch lead and railyard improvements for wind energy laydown yard, and then one out in Northwest Kansas, again Class 1 access where we built an agricultural fertilizer facility rail offload unit. They will now be able to accept product by rail whereas in the past they could only accept it by truck. And then with our Eco-Devo program we have a project pending. I am thinking that will get started within the next 60 to 90 days. It is to construct a new industrial lead for plastics manufacturing facility in southcentral Kansas; that is off a short line, so we look forward to getting that project started soon.
The one last thing that I'd like to point out is an initiative we did in 2015 that came about through our Kansas Freight Advisory Committee to develop transload facilities in the state. These are scaled-down versions of what you would see at a Class 1 intermodal facility. We had four different phases with 111 proposed sites that were submitted to us. We ran a variety of analyses, questionnaires, etc., interviewed the railroads. It was a very thorough process to work through 111 proposed sites. As we worked through that, we ended up with seven finalists who made it to Pier 1. We did interviews with a special committee that was assigned by the secretary to assist with this development. The two selected sites, one was in Great Bend out in Southwest Kansas, a Class 1 BNSF, and the other was on a short line in Garden City, KS. These have proven out to be very successful with wind energy, aggregate, agricultural products; it has worked out quite well, not only for the entire state but for the areas around those sites. And just a quick look on both of those facilities, there was a KDOT investment, a private sector investment; on the Great Bend facility we came in at a $8.25 million on total investment, and then out in Garden City it was about $13 million. So, excellent public-private partnership projects.
We are treading new water, if you will, at KDOT. We have submitted an EPA DERA (Diesel Emissions Reduction Act) Grant to retrofit seven locomotives with auxiliary power units that will allow them to reduce idling hours when the air temperature hits 40 degrees or below. That certainly is going to be a positive impact on the environment. It will benefit the railroad with reduced fuel consumption and operational efficiencies. No announcements yet but I certainly we hope this works out for KDOT and for the railroad and it would certainly open some new doors on different federal grant opportunities that we can utilize. I have reached the end of my presentation. I thank everyone for being here today. As Jennifer said, I will have to leave at about 1:00 are a little bit after. But if I cannot participate in the questions and answers, certainly email me any questions you have regarding the programs that I administer. Thank you.
Jennifer Symoun
Thank you, John. If you want to, you can also type short responses to any questions in the chat pod if you would like. Otherwise, we will get them to you after the webinar. So, we will move on to our next presentation, which will be given by Luisa Fernandez-Willey, an assistant vice president of policy and economics at the Association of American Railroads. Louisa conducts economic and statistical analyses on a broad range of issues affecting the freight railroad industry. Prior to joining the AAR, Luisa's professional experience included financial management consulting, economic research supporting government and private sector clients, as well as academia. Luisa, I will bring up your presentation and you can go ahead.
Luisa Fernandez-Willey
Great, thank you, Jennifer. Good morning or afternoon, everyone. Like Jennifer said, I am Luisa, Fernandez-Willey, and for those of you who are not familiar with the AAR, we represent the nation's railroads; the Class 1s which are the largest in the country, and short line railroads (Amtrak, some suppliers and manufacturers to our associate program). Now, the agenda for today, I am going to start with the big picture COVID impacts, basically total carload business. Then I am going to jump talk specifically about three commodity groups, then growth opportunities for rail, and then I will finish up with two economic indicators that kind of show the ongoing recovery.
So, for the COVID impact, at the AAR we track 20 commodities on a weekly basis. So, that would be things like grain, chemicals, metallic ores, petroleum products, and whatnot. The total railcar looks at the combination of those 20 carloads. And in 2020, the freight railroads definitely faced unprecedented challenges, but as one of the nation's oldest and most resilient industries, we continued to deliver the goods to customers in the US economy. When you look at this chart you can tell that there wasn't a single rail customer who was not impacted in some way by the pandemic. For some, the pandemic led to higher rail volumes, but for most, it meant lower volumes. And, in 2020 carloads were down 13% from 2019 and is by far the lowest annual total since some time in 1988 when our records began. And in 2020, just three of those 20 commodities that we track had year over year carload gains and that included grain and [indiscernible] products. The biggest drag were energy related products which is coal, petroleum, petroleum products, and praxium. Now, this huge dip that you see you might wonder what that is all about in 2021. That is related to the winter challenges in February in Texas and across various states in the U.S. that basically brought the total carload down in 2021 to very low numbers. But in March as a whole the total carloads were up 4.1% from 2020, but they were down 4.3% in 2019. The reason why I'm showing you the comparison between 2020 and 2019 is because now that the pandemic has been happening for a year, when we are doing these comparisons, we are going to get to a point where these comparisons because it was so low in 2020, they're going to look awfully optimistic or too bright that doesn't really give the right picture of where we are. That is why I think it is important to mention comparing it to 2020 and 2019 so you have a good idea of where we are.
I'm going to move on now to the key commodities. And for the key commodities, I will talk about three different groups. So, that would be industrial products, which is a grouping of various commodity groups, and then I am going to talk about products and coal. Now industrial products, the reason I combined several commodities, is because it includes chemicals, paper, metallic products, autos, crushed stone sand, metallic ores, and stone and glass products. And this grouping tracks very well with manufacturing activities. So, if you want to get a sense of industrial output or how manufacturing is working, this is a good subgroup that you can look at.
As you can see here, we have 2019 is the red line and blue is 2020 and this trend is very consistent with the reopening of the economy that happened around week 22 which is around May of 2020. Some commodities in this group fare better than others. Chemicals did not have a good year in 2020. The one group of chemical that did well were the ones that were utilized for personal protective equipment. And also, some fertilizers did well, as well as [indiscernible] pellets. The crushed sand, which is part of the fracking sand, which is part of the crushed stone sand and gravel, it was actually a drag in this category because it is primarily used for fracking and that is energy related commodity. But when you think about construction sand, construction actually did well so there have been some pluses and minuses, but as a whole when you look at 2020, basically total industrial products was below what we would have seen in 2019. For the month of March, you saw that big weather effect in weeks five, six, and seven. That is what happened in Texas and across various parts of the United States. So, industrial products were up 1.1% but they were down 6.5% from 2019.
When you think about industrial products, what is the largest share, what is the largest component, this image gives you a good idea of the total of these commodities against the total in industrial product. So, the largest share of industrial products is actually chemicals which is about 36%. Motor vehicles and parts is 16%, and crushed stone, sand, and gravel is 18%. So, again, when you look at where industrial products is, you see that chemicals makes sense that it's not as high as it is because of the weather and when the weather hits like in Texas, these chemical manufacturing plants had this shutdown so the energy could be rerouted to other places in Texas. And because the processes for producing these chemicals is so complex, it's not like you can switch the on button and everything goes back to normal, so it took a while for chemicals to get back to where they needed to be. Then for vehicles, we are also starting to see declines, and I will talk about that in the next slide, but that is primarily due to shortages for semiconductors. And the crushed stone sand and gravel as I mentioned earlier was due to fracking.
For autos, I actually really like this particular chart. The reason why I included it is that during the pandemic, a lot of economists were thinking about what does recovery look like. A lot of folks were saying it is just going to look like this perfect V-shape recovery. And this one looks like a U, but just pretend it is a V-shape, but it really shows you the journey that this particular commodity went through when it just hit rock bottom around week 16 or week 17. And I remember seeing some of those weekly numbers when we were comparing 2020 with 2019 and the declines were like 97% down or something like that, which was astonishing. If someone were to tell me that I would never have believed something like that could ever happen. There was a major recovery for auto parts. When they finished the year, they were still down 19% from 2019. We saw a huge improvement during the summer and there are still challenges ahead. And now, the challenges that the auto industry is experiencing is the shortage of semi-conductor chips utilized in things like entertainment systems and power steering and brakes and things like that. Now that you don't have that critical component, I have seen in the news that several automakers are slowing down production and, in some cases, they are sitting idle because they do not have this particular component. So where are we in March? During March, carloads of auto parts are down 3.5% from 2020 and 15.2% from 2019. Now, as you think about our logistics and our supply chain and those challenges with the auto industry, I want you think how all of these different things are interconnected, all these different components. When it effects one particular commodity or one industry, it impacts across the board. So, when you think about that we are not moving a lot of vehicles and parts but that impacts not just the finished vehicles but the auto parts and moving containers, but also some of the materials utilized for manufacturing a car. That would be plastics, steel, the aluminum, the sand for glassmaking and such. There are other impacts you also have. When you have a lower demand for gas, it impacts the production of ethanol. And then, when you decrease the production of ethanol, that will also decrease the production of dry distillers' grain which is a by-product of ethanol, and then in turn that reduces animal feed. When we think about how complex the supply chains are, everything is connected. So, when you have a shock somewhere in the system or in one particular industry, it just hits everybody at some point.
Coal has been declining for years. This particular chart shows you this decline. The peak year for coal was in 2008. But now as you can see where we were in 2020, it was the lowest annual amount on record. Basically, total carloads of coal were down 26.7% from 2019. You may wonder what is with this huge decline, what's happening? Well, the vast majority of coal in the United States is used to generate electricity. So, that is about 90-95%. From that perspective, what is the breakdown? Back in 2000 coal accounted for 52% of electricity generation and natural gas was only 16%. But now, because natural gas is considerably cheaper than coal and it is abundant, coal only accounts for 19% of electricity generation and natural gas is 37%. The good news with coal is, according to the Energy Information Administration, electricity generation from coal is expected to grow this year from 19% of last year to 22%. Now, where are we in terms of carloads so far in 2021? Coal rose 7.6% from last year, but it is down 11% from 2019. So, you can still see where we are in 2019 versus 2020, so this is kind of where we are.
I am going to go now to growth opportunities for rail. I wanted to focus on a few areas where we at the ARR see some bright spots and growth opportunities for railroads as we move into and beyond the COVID recovery. The first area we are going to talk about is grains, then intermodal, and then environmentally responsible transportation solutions to help customers recognize their logistics chain and advance in their efforts to produce less emissions.
The first is grain. Grain had a fantastic year last year. Grain moves up and down for reasons that have little to do with the health of the economy. About 60% of grain movements are for domestic use and usually it's fairly stable and moves with population growth. But then you have that other 40% that's super volatile and related to exports and now to policy. In 2020 they were up 4.5% due to exports of grain, primarily soybeans. Now, look at this part right here basically the last part of 2020, these were record-breaking numbers. Particularly in the fourth quarter we show numbers we haven't seen since the 1990s. In fact, grain carloads were up in the fourth quarter of 2020 25.6%. It was their best quarterly gain on record ever. In order to keep pace with this surge the railroads have to run shuttle trains which are basically a dedicated trains that goes back and forth from various locations. So, these were shuttle trains going from the Midwest to the Pacific Northwest and then to the Gulf just to keep pace. Where are we in terms of grain? Grain led once again in the carload gain in March. Carloads were up 25.5% over 2020 and 18.1% over 2019. The weather did obviously hit grains, but besides that they were still ahead.
Let me focus a little bit more on exports. This particular chart is pretty awesome, if I may say so. It shows you here what we are talking about with different types of grains. Soybeans was definitely off the charts and you can just see this huge spike in the second quarter of 2020. They are definitely doing really well Those were soybeans that were actually going to China. Soybeans are utilized for animal feed. But also, believe it or not, sorghum is also a bright spot for our grain exports. I know it doesn't look like much, but this is actually a pretty big number for sorghum. Corn has also been going up a lot and it actually goes to Mexico. And in terms of wheat, wheat has been pretty constant throughout this entire period. So, that gives you an idea of where we are in terms of exports by looking at different types of grains. Let me go back to this. The data here only goes back as far as February and I haven't seen the data for the recent months. And you are wondering why is this so low again? This is all related to the weather issues. But then look at this other chart that shows carloads of grain for Mexico and it shows you it will recover and we should expect to see the data from the USDA to show these exports for soybeans and corn and sorghum to actually recover. If you can see, for instance the chart here for 2020 versus 2019, the volumes are twice as high from where they were in 2019. And look at where we are now for 2021 which is way ahead of the previous two years. In terms of bright spots or areas of growth, we definitely see that grains continue to deliver.
Let's move on to the intermodal sector, which was also a bright spot for the railroads last year. Last year in 2020 was the fourth highest annual total in history, and that is behind 2017, 2018, and 2019 and it was only down 2% from 2019. Intermodal set several records. There were several weeks that were in the all-time top 10. We saw sharply higher port volumes especially on certain imports from China which helped explain how intermodal was strong in the second half of the year. Obviously, it is all related to consumer goods and there was a shift on how folks were spending money. We went from spending money on experience versus purchasing goods. So, there has been an influx of goods and things you would find in big box stores and things like that. In terms of what is going to happen with intermodal, the best source to see the expectation of what is going to happen for intermodal is looking at reports released by the National Retail Federation's Global Port Tracker Reports and what these folks said is that basically the retail container imports are expected to grow dramatically. This will continue through the summer months. Basically, retailers are focused on meeting high-level demands of consumer demands.
Now, what is happening with the ports? This particular chart shows you the west ports, and that includes BNSF, CN, CP, and UP combined. And then, in terms of the ports, it looks at Long Beach, LA, Oakland, Prince Rupert, Seattle, Tacoma, and Vancouver. These are basically the data on three-month moving averages, and this is the percent they change of volumes in comparison to the previous year. Take a look at where the numbers are since the middle of 2020. They are off the charts. They are at levels we haven't seen in a long time. That is basically the same story on both ports, so that would be the east and the west coast. Let me just show you what is going on with the East Coast ports. For the East Coast that includes basically CSX and Norfolk Southern. And back to what the National Retail Federations said is that they expect to see about 2 million TEUs to be like those levels of volume until August of 2021. The last time we had 2 million TEUs was back in October 2018.
So, where do we go from there and why is that intermodal so important? Well, intermodal is a partnership, so we work with our trucking partners. And for the last mile we will always need to work with our trucking partners because we have to think about the huge business of transloading and the feature clearly involves both of us. As we look forward to the future, companies across the spectrum are looking to reduce emissions across their operations and railroads offer a unique opportunity to dramatically cut a businesses cumulative emissions in the short term without sacrificing the reliability that they demand. If you want to take away a key factor, that would be one train can move one time about 480 miles on one gallon of fuel. That is quite a statistic. So, when you look at different modes of transportation, it is evident that the railroads have the lowest carbon footprint.
Now to close, since I have been talking about the economy and the recovery and intermodal and whatnot, how does that all go together with the economic recovery? My presentations would not be complete if I didn't talk about the economy. I am only going to talk about two microeconomic indicators. So that would be gross domestic product and consumer spending. Now, for those of you who were not familiar with GDP, this is a quick economics 101 explanation. GDP is composed of four different components: consumption, government spending, investment, and imports and exports. Consumption is the largest component of gross domestic product and it is basically the consumption of goods and services. What we spend, as in you and I and businesses, it basically takes the largest share of GDP. It took a huge hit when everybody was at home and a lot of people lost their jobs in the service industry was impacted heavily. So, look at the number for the second quarter of 2020 where GDP declined 31.4%. As an economist I have never seen a number this low in my life. But then, we bounced back in the third quarter and the fourth quarter we are kind of getting there. Now, the expectation is that the GDP will continue to grow in the next quarters and the Bureau of Economic Analysis has not released the latest numbers for the first quarter, but according to many economists the consensus is that GDP is going to grow by about 6% and that it will continue to grow at a sustaining pace because the economy is reopening, the vaccination rollout, and also things are starting to get back to normal. So, that is what is going on with the economy. Now, like I mentioned, the largest component is consumption, so that would be the [indiscernible] component or what we spend on consumer goods and services. Consumer spending is actually rebounding really well. I know I am saying really well and then the next thing I'm showing you is a decline here for the last month, but we are going to expect that with the business kind of related to the weather and whatnot, so we are expecting with the additional stimulus check we are going to see a nice bounce back in consumer spending. People are feeling more comfortable going out and spending more and we expect people will be buying things online and whatnot. So, consumer spending will continue to be strong according to what I have seen from a lot of the economic literature. That is pretty much all I have for my presentation. Thank you for your time and I hope you found it informative.
Jennifer Symoun
Thank you, Luisa. It looks like we do have a number of questions in there and we will get to those after the final presentation. Our final presentation will be given by Joe Arbona, Assistant Vice President Government Affairs for Genesee and Wyoming Railroads Services, Inc. He's responsible for government relations for the company's railroads in Alabama, Arkansas, Georgia, Florida, Kentucky, Louisiana, Maryland, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, and Virginia. Joe joined Genesee and Wyoming after serving as General Director of Policy and Partnerships for Union Pacific Railroad where he directed systemwide policy matters, public-private partnerships, and participation in national government and political organizations. While at Union Pacific, he also directed regional public affairs and media for the company Southern Region. Joe, I will bring up your presentation and you can go ahead.
Joe Arbona
Jennifer, thank you so much for the kind introduction. I'd like to thank you all for this opportunity to present to you the short line perspectives on this topic. I also wanted to give my apologies on behalf of Kimberly Thompson, she is the Vice President of Marketing and Sales for the southern region of Genesee and Wyoming who was supposed to present today. She is a much better presenter than me, but, unfortunately, she had a very hard travel conflict that she could not get out of. I am here to cover this for her today. Hopefully the information will be helpful. I'm going to do something a little bit different. When we normally do these presentations, you hear me talking about our company giving a little bit of background, but before I do that, I wanted to provide some context for folks on the webinar about short lines, where we come from, and basically how we work in the freight rail industry and network; not to assume that everyone knows this stuff as we sometimes have a tendency of doing. Also, I wanted to be able to put the issue that we are discussing today on complexities and opportunities in context.
Short line railroads are, for the most part as you will see here, our state economic drivers and also considered the small businesses of the rail industry. All of you probably know, and I think Luisa and John mentioned, that we have seven Class 1 railroad companies in the United States. These are Union Pacific, BNSF, CSX, Norfolk Southern, Kansas City Southern, Canadian National, and Canadian Pacific. But what you probably don't know is that around the country we have 500 short line railroads and most of them were once part of the Class 1 network. Some of them were spun off at some point by a Class 1 when they couldn't make enough profit, probably because they lost some customers and volumes. And as they tried to make these lines work, some of them had to reduce their investment. And so, unfortunately, some of the lines degraded over time. And so, when they were basically spun off and sold some of them had a lot of years of deferred maintenance. And these lines that were spun off were in some cases purchased by individuals, some by families that run the railroad, and others by short line operators like our company. Again, this is how we became the small businesses of the rail industry. On average, short lines are about 20-25 miles in length and they usually have 4 or 5 customers with one of them being the big anchor customer that keeps the lights on, if you will. We are also considered the county roads to the railroad industry, whereas the Class 1s are the highways that basically connect our rural customers to larger metropolitan markets and also to the international seaports and Canada and Mexico. We are usually the first and last mile of freight rail services which is why you might see that our main competition is the trucking industry, although we have great partnerships with trucking companies. Short lines usually have a maximum speed, as John alluded to, of sometimes 10 miles an hour. I was talking to a colleague of mine who was talking about a little railroad he had that only goes 5 miles an hour; imagine how slow that is. But many are between 10 and 25 miles an hour. And some of them, as John talked about, have the challenge that their bridges needed restrengthening to be able to handle the industry compatible 286k pound maximum weight railcars. Short lines do provide a great benefit which is that some of them can connect shippers to more than one Class 1 railroad, which is something that is very coveted by industrial developers and economic development agencies. And you can imagine the reason for that is because it gives businesses the opportunity to have two Class 1s or more compete for their business, so they get some pretty competitive rates. And, of course, it is also attractive because new industry is always looking for lines where they have more than one Class I access, and so short lines provide that. One challenge that kind of leads us into this topic today is the short lines make up about 29% of the rail national rail network, but unfortunately, they only generate about 6% of industry revenues. So, if you flip that around, short lines have to maintain 29% of the national network with only 6% of industry revenue. So, the challenger there for short lines is that we have to get really creative and entrepreneurial and in some cases be very aggressive about keeping the customers we have and do whatever we can to grow them and get new customers.
As we go into the actual presentation, I want to provide a little bit of background about our company for those of you who don't know us very well. Here is a photograph of our Board of Directors back in 1899. Before we were acquired by Brookfield Infrastructure, this was actually a public company, but ownership came from the Fuller family. There in the middle is our founder, Mr. Fuller, whose great-grandson was actually our last chairman before we were bought by Brookfield. The next slide shows where Genesee & Wyoming started back in 1899. And we were really just a typical short line, a 14 mile short line in upstate New York. We actually served one customer which we are glad to say are still our customer today. Obviously, that shows you how important customer retention is to us. Here is a photograph of the Rest of Salt Mine in Livingston County, NY, which is our customer. So, you can see that, for us, customer retention is not just something in our history, but it is also part of our DNA. If you talk to any of our folks in customer service and marketing and sales, we are constantly focused on customer retention and keeping them happy and growing their business.
Here is one of our old locomotives back in the turn of the last century. This actually shows you how far we have gone from the 1899 founding to today where Genesee and Wyoming is the largest holding company of short line railroads in the world. We have about 116 railroads in seven countries, 7,300 employees, and 3,000 customers and we handle about $2.4 million carloads. For the North American region, we serve 42 U.S. states and 4 Canadian provinces, and they include about 113 short lines and regional freight railroads that have more than 13,000 track miles. I should also point out, when you think of 42 states, that is more than any one single Class 1 railroad operating in the United States. That is actually a lot of territory that we cover and that is why you saw on my list of states I have 13 of them, it's quite a bit. G&W also has operations in the UK and Europe and that region includes the UK's largest rail maritime intermodal operator and the second largest freight rail provider as well as the regional rail service in continental Europe. We also have subsidiaries and joint ventures that provide rail service to about 30 major ports and we have a rail ferry service between the US southeast Mexico that is actually out of Mobile, Alabama down to Coatzacoalcos, Mexico. And we have transload services through our choice transload services, and contract coal loading in the Wyoming Powder River Basin, and we have railcar switching and repair.
Something that is extremely important to us for maintaining our customer share and be able to grow businesses is safety. I think I speak not just for Genesee and Wyoming, but also just the industry in general that safety is extremely important to us. At G&W our goal is to be the safest and most respected transportation service provider in the world, and I think we are achieving that. We are very committed to safety of our employees, our customers, and the general public. As you will see in this graph, our safety record is very good, and we are very proud of that. You will see that in 2015 we had a little bit of a bump in our safety and that showed that it was when we acquired the freightliner operation in the UK. They were having some safety concerns that obviously had been addressed as you can see in that line, it has just flatted out. That is also a way that we measure when we do an integration of an acquisition is when their safety numbers improve, and you can see that here very clearly.
Another extremely important point and one that you heard me touch on is the need for us to keep our customers happy. It is much easier to keep a customer than get a new one. For those of us who have done any industrial development work it is a very challenging effort, and so it is critical to keep those customers happy. And at Genesee and Wyoming we actually have a pretty good customer service record. Every two years we have J.D. Power and Associates run a survey on our customers in several categories. I am pleased to say we have come pretty close in the last few years to reaching our 8 out of 10 goal which is basically a point where a customer becomes as we say sticky or loyal and is more likely to stay with us. This year we will be conducting our survey again and we are hoping for some good scores again.
Getting into some of the discussion that you heard Luisa touch beautifully, I will show that one of the things that we have seen at Genesee and Wyoming is also that decline in coal. But as you will see in our North American commodity mix, we really try very hard to keep a balance mix with no single commodity holding over 14% of that share. Of course, this reduces the vulnerability to market swings and things like that. But as you can see, and you heard Luisa talk about that, there has been a significant drop in coal over the last few years. At one point at G&W, coal made up 1 out of every 5 carloads and now it's more like 1 out of 10 with other commodities actually making up the difference. Two ways that we do that is through strategic acquisitions where we help G&W steer away from dependency on coal and other types of heavy commodities. We have done, for example, in the past 7 years the Rapid City, Pierre, and Eastern Railroad out in South Dakota and also the Providence and Worcester Railroad in New England. The other way that we helped with the commodity mix and the diversification of our business is having our sales and marketing people literally go door-to-door on our lines talking to businesses and finding those flexible categories of freight that can switch from truck to rail. Those tend to be categories like paper, construction materials, auto parts, retail, things that are not time sensitive or perishable. So, our teams will go down door-to-door and talk to people and say you may not need rail today but as fuel costs increase and trucking becomes more expensive, please consider us. Many times, we will hear our customers say "we may not use rail today but we certainly don't want you to go away because we are able to leverage the fact that your line is on our business and we can leverage that to keep trucking rates low." So, even though these customers may not be using rail, they are able to use our presence to keep their rates competitive. That is another public good that we bring. And, of course, as Luisa mentioned, the challenges for 2020 were crazy, but one of the things that short lines like G&W were able to do is we are very flexible and nimble, we can move quickly. We were able to bring down costs quickly and with the loss of shipments we were able to shift our opportunities to help customers with car storage services which helped to offset the losses that we had during the pandemic. Fortunately, we did not have any layoffs as a result of it, which we were very pleased we were able to survive and that those short-term needs. Our customers are now getting back to where they were and their railcars back are back in service again. And, of course, G&W through its new ownership is still looking at acquisition opportunities and aggressively looking at where we can find some acquisitions that would make sense.
One other point I want to talk about is how we are able to grow our business. It is also through our Class 1 partnerships. As you can tell, we have a great deal of interchange with Class 1s. G&W actually interchanges about 1.7 million carloads with Class 1 partners and those are critical to get our customers to the national and international markets. G&W also has some good relationships with trucking companies, as I mentioned earlier, and we are able to provide door-to-door service through our Choice Transload Terminals. That is a great way to compete and be able to provide that critical service the customers need. Of course, the challenge for us that I alluded to in our presentation here is that commercial trucking will always be a very significant competitor for us. They are able to provide great service from origin to destination and also through transload operations they are able to cut short lines out of the move altogether. And this is possible because railroads are extremely capital intensive, they require significant reinvestment back into the privately owned infrastructure. But trucking has extremely variable costs and they own very few fixed assets, so they are paying partially for use of public infrastructure. So, railroads are limited on how they can get goods door-to-door and then also we have limits just through the regular national rail network and trucks have an almost universal reach. That is obviously a challenge that we are trying to address by being more competitive and introducing new technology that I will talk about here shortly. But also, rail has great environmental and safety points that a lot of shippers take into consideration. There are also great public benefits. We always want to remind folks in public policy that we are a great success story, and we would like the status quo to continue to allow railroads to compete against trucks without expanding subsidies for trucking. So, that is obviously important to us.
Real quickly, I'd like to talk about a classic public-private partnership where basically we were able to help our customers to have their shipments move much faster and actually provide that 286k car capacity that John talked about. This particular public-private partnership happened in three states: Oklahoma, Texas, and Arkansas. We partnered with the Oklahoma D.O.T. to seek a CRISI grant from the federal government. And basically, this project is going to allow us to provide a much better and faster service to folks on the Kiamichi Railroad, which is a very important corridor for businesses there. For example, just to give you a sense there is a new Tyson mega feed mill being located on the eastern side of this line in Arkansas. Basically, by providing those same weights and the 286k lb railcars that the Class 1s that they connect to will provide it will give them one hell of a competitive edge and improve economic development for other businesses. This partnership would not have been possible without the Oklahoma D.O.T. and the Choctaw Nation in Oklahoma that was very helpful in getting this going. That is a great way for us to help customers. Another way is through innovation. There were several projects going on right now that I can't really talk about, and I apologize about that, but this particular one is a partnership that sought a CRISI grant with the Pennsylvania D.O.T.; it is Genesee & Wyoming, Norfolk Southern, GATX, Watco, and Trinity Rail and we are trying to adopt GPS and other telematic technologies on the North American Rail Fleet. Since these partners own about 20% of the North American Rail Fleet, we look forward to being able to introduce this which will provide high quality door-to-door estimated times of arrival, fleet location and condition status, and also be able to help customers use this technology for merchandise growth and increase productivity of their supply chains. This will actually go into effect, we hope, at the end of 2022. So, with that, I know we are short on time on questions, so I apologize if I ran a little long. I was trying to move as quickly as possible. I'd like to thank you all again for the opportunity and at this time I think we will start answering questions.
Jennifer Symoun
Thank you, Joe. Please continue typing any questions in there for Joe if you think of any. I know that John did type responses to his questions, and he did give his email address if you have any additional questions. What I am going to do is start off with questions for Luisa right now. I don't see anything for Joe in their yet, but again, if you do think of anything, please go ahead and type it in. What good is typically diverted from truck and for what distance truck move?
Luisa Fernandez-Willey
That is an excellent question, but I wouldn't be able to tell you that.
Joe Arbona
I might be able to address that if I could, Jennifer. It's interesting, Oliver Wyman did a great presentation not very long ago at the Transportation Research Board annual meeting where they talked about something I think would've been appropriate to address this question. Basically, you've got the rail centric type of commodities that are usually heavy, low-volume stuff like coal and things along those lines. And then you also have the truck centric stuff that are time sensitive and perishable goods and things like that really need to get to market quickly. And then there is that flexible category. And that is where I think the whole industry knows that there is a great opportunity there. There are things like autos, construction materials, paper, some retail, waste materials, energy, things like that that trucking is very good at competing against rail but there is still an opportunity for us there. If we are very competitive and we are able to provide that service and wherever possible use transloads to try to get things door-to-door, I think that that is the type of commodities that we can move. And it is a little challenging for Class 1 sometimes to do that, because they tend to do long hauls. Short lines, hey, we love carload stuff. We want to fill up one car, two cars, three cars, that's good business for us. Again, we are out there knocking on doors and we are trying to get that business. We think that there is a much better opportunity for us to do that at the short line level.
Jennifer Symoun
Thank you. And yes, I should've mentioned, feel free to jump in and respond as well. So, Luisa, the next question for you. Would car parts be down and part of diversion to make PPE and respiratory equipment?
Louisa Fernandez-Willey
Now, so for auto parts, that's actually an interesting question. So, you're going to have to think about for auto parts there was a lot of production also in Mexico and in the United States in February. And when we had the tremendous storm – I know I keep blaming the storm, but seriously, that storm did wreak havoc across the board – there was also that Mexico had unseasonably cold weather that caused severe power outages across the north of Mexico which has a lot of manufacturing plants and that's where a lot of our auto parts come from. So, it was a very challenging time. That was one of the reasons why auto parts were actually down.
Jennifer Symoun
Alright, thank you. Next question for you. What is the current trend in on-dock and near-dock rail service to coastal and inland ports? Are we reestablishing more service than we are losing?
Louisa Fernandez-Willey
Okay, thank you for that. We will continue working with our customers to basically help them unload and move their goods as fast as we can. So, I know that there are some challenges, but we will continue moving goods and work with our customers as much as we can.
Joe Arbona
Hey, Jennifer, I might be able to add a little bit to that as well. Obviously, this is for the most part very focused on Class 1s and obviously Class 1s have great relationships with ports. But sometimes short lines have great relationships as well. So, I think that is a great point that anything we can do to try to get on-dock access is critical. I know in some situations with ports we may not have access to on-dock and we are looking at having to dray a portion of moves to a short line, and that just makes the cost too high for shippers to inland ports and such. So, it is a challenge, but I will tell you that we are working on some exciting stuff that will make it possible to be more competitive and be able to better serve ports from a short line point of view.
Jennifer Symoun
Alright, thank you. Luisa, next question, and also Joe if you want to respond. With regard to ports, has the introduction of Panamax class ships had an impact on rail usage?
Luisa Fernandez-Willey
I want to say a few things. I mean, go back to that slide that I show all of the intermodal volumes for both ports, particularly for the East Coast. Basically, you can just see the search that's been happening and shows that we are working with different customers. So, that kind of gives you the answer, but if you are actually looking for very specific data, we encourage you to look at the data from the ports. They have fast amounts of information on their websites so they can give you more detail on that. If you were to look for a picture that's worth a thousand words and this particular picture that shows you the eastern ports kind of gives you a sense of how we are working to receive all these different additional shipments.
Jennifer Symoun
Alright, thank you. Joe, I think this one is for you. What is the short-line perspective on precision scheduled railroading? Does this create challenges and if it's the latter, what are the challenges?
Joe Arbona
Sure, that's a great question at this time. You know what, I think as an industry we can all say that there is always room for improvement and improving operations and efficiency and obviously about what is going on in the Class 1 industry right now, there was some room for improvements, and they are working on those. We are doing our best in dealing with these situations and I think we have been fortunate with our Class 1 partners. I have heard some stories from other short lines that have had some issues. They seem to be working through them and, in some cases, they get addressed. But there will always be some sort of reaction to change and things like that and that can be problematic. At this point, I don't know if I would say it necessarily creates challenges, I would say it is just for us a way to be more efficient and we need to learn from that. At the end of the day, it is a matter of maximizing the efficiency of the system so we can provide customers and the public that benefit. So, at one point maybe early on it was problematic, but I think things have gotten a lot better.
Jennifer Symoun
Thank you. I am not seeing any additional questions. We do have a few minutes left. We can see if anybody has any questions over the phone. If you do want to ask a question over the phone press *5 . Again, that is *5 if you have any questions. Well, I'm not seeing any questions coming in over the phone either. And yes, you can send in questions. In the meantime, I will start to close out. If you do think of any questions, please feel free to type them in and I will stop and get to them. I do want to thank all three presenters for presenting at today's webinar. Also thank you, everybody, for attending. I will send out the link to the recording within the next few days. If you'd like to apply for credits or a certificate of participation, I will put the link in the pod momentarily and I will include the link in the email. You must request the certificate of participation by next Wednesday and then certificates will be emailed on Thursday. The May Talking Freight is not yet available for registration, but once it is an announcement will be sent out through the Freight Planning List Serve. The Freight Planning List Serve is the primary means of sharing information about upcoming Talking Freight seminars as well as other freight information. So, I do encourage you to join if you haven't done so. The link is showing on your screen.
I am going to pause; I do see another question that came in. So, I will put this out and Joe, if you'd like to respond and Luisa if you have any thoughts, too. How big of an issue is 286k pounds and what are short lines doing to increase their capability to accommodate these larger rail cars?
Joe Arbona
Oh wow, well, if you heard me talk about it, it is a huge issue. For us to be competitive we've got to be able to provide 286k lb car capabilities. I would be remiss if I don't give a shout out to the great states out there that do provide short line improvement programs. States like Florida, Virginia, North Carolina, Tennessee, Mississippi and so many others. I am just talking about some of them in my region, but I know there are so many great eastern states, Ohio, Pennsylvania, New York, and others that do. It is a huge issue for us. It makes such a huge difference to be able to make those changes. And we have been doing it gradually over and over again. You see a lot CRISI grants going to 286 improvements, so that is huge for us to be competitive. Nowadays, it is almost impossible to get a company to get sited by a short line that doesn't offer 286k. I mean, it is really challenging. So, it is a huge issue for us.
Jennifer Symoun
Thank you. I do not see any additional questions coming in at this time and I don't see anything on the phone either, so we will go ahead and close out. Again, thank you to all the presenters and thank you, everybody, for attending. I have put the information in the chat pod to either get AICPCM credits or a certificate of participation. Thank you, everyone and have a great day.
