Automaker woes hurt Eastern Rails

Market Shifts hurt NS and CSX Most.

Last month Toyota Motor Corp. took over the top slot in US car sales for the first time.   At the same time US automakers like Ford Motor Co. are shutting down assembly plants in locations like Norfolk, Va. and Hapeville, Ga. Norfolk produced the Ford F-150 pick up truck and Hapeville was the production facility for the Taurus.

Railroads supported those facilities with inbound auto parts and frames, while outbound vehicles are shipped nationwide on auto carrying trains. Automakers accounted for about 8 percent of total rail transport in 2006. Japanese automakers that have US  assembly plants in locations like Marysville, Ohio and Georgetown Ky., tend to supply factories more by truck, staging vendor material closer to the factory in support of their lean logistics manufacturing techniques.

The decline of the US automaker is likely to continue as Ford, Chrysler, and General Motors all cut production due to a softening economy and a blurring of consumer brand values. The down trend in automobile movement by rail will hurt eastern railroads Norfolk Southern and CSX the most.  Union Pacific and BNSF are hurt less due to their western route structure.   UP/BNSF tend to haul more imported vehicles from Asia.

What is "American Made" any more?

Automobiles in the US today are a product of a global economy. Ford trucks have transmissions and gearboxes made in Brazil. Seats and other parts are made in Mexico. Toyota and GM even share the assembly line in California that builds the Toyota Corolla alongside General Motors cars. Competitive environments can force strange alliances in order to gain share production efficiencies.

Transportation follows the freight. As top level manufacturers shift production locations and the logistics requirements to serve inbound and outbound transportation,  railroads and other modes will have to shift to follow available tonnage.  On a global scale this impacts container shipping as well.  Routes are made by trade patterns. In the meantime, carriers will suffer losses in volume while the reconfiguration takes place.

The automaker market transition isn't the only issue railroads are likely to face in the medium term. Movement of coal by slurry pipeline, increased use of biofuels by consumers and industry, an aging work force all are factors that will shape railroading in the next few years.

clipped from www.stltoday.com Railroads feel profit pinch as U.S. automakers trim production By Angela Greiling Keane BLOOMBERG NEWS 05/29/2007 Norfolk Southern Corp. trains rumble to and from Ford Motor Co.'s factory in Norfolk, Va., delivering fenders, frames, axles and engines and then hauling off finished F-150 pickups. That's about to change. When Ford shuts the plant next month and moves production to Dearborn, Mich., trucks will fetch parts from suppliers nearby. Only completed pickups will travel on Norfolk Southern trains. The shift is part of a historic transition for U.S. automakers and a profit drain for railroads, especially Norfolk Southern, the largest auto carrier. As Ford and its peers cut output, Asian automakers led by Toyota Motor Corp. are adding U.S. factories that rely less on rail shipments. "This auto slowdown is significantly sharper than what we usually see," said independent rail analyst Tony Hatch, who is based in New York. Norfolk Southern, Burlington Northern Santa Fe Corp. and CSX Corp. all cited declining auto shipments as a reason for lower first-quarter profit, along with harsh weather and weakness among house builders. Union Pacific Corp. was the only major carrier to boost earnings in the period. Auto cargoes are down this quarter, too, according to the companies, and railroads don't predict a rebound this year. Investors might have reacted more harshly to the decline had billionaire Warren Buffett and U.K.-based hedge fund TCI Fund Management LLP not revealed rail holdings in April. "Fundamentals likely do not matter as much," as purchases by Buffett and others buoy shares, analyst Edward Wolfe of Bear Stearns Cos. in New York wrote last month in a note to investors. The Standard & Poor's 500 railroads index has gained 23 percent this year, extending gains from 2006, when profits grew.

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