Thursday, February 20, 2014

2014 capital expenditures strike steady pace

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CSX capacity improvements along the S-Line in central Florida.
Norfolk Southern’s Charlotte Intermodal Facility was built in between two airport runways.
Surfacing work being performed on BNSF’s Bellefontaine Bridge.
CSX capacity improvements along the S-Line in central Florida.

 

North American railroads plan to spend an equivalent amount to last year on total capital spend.

In 2013, Class 1 North American railroads and Amtrak spent nearly $14 billion on capital expenditures. At press time, only about four of the Class 1s had solid numbers on total 2014 capital expenditures. However, the remaining railroads expected their numbers to be consistent with what was spent in 2013. Because engineering accounts between 50 and 75 percent of expenditures, RT&S expects another robust year for infrastructure investment.

Core maintenance will continue to be strong with all railroads continuing to focus on rail, crosstie and bridge work. Additionally, capacity enhancements in terminals to account for increased intermodal and energy traffic can be seen.

In our annual RT&S survey, we asked all the major railroads for a breakdown of their expected spending during the next year. In addition to the information gathered from the survey, supplemental sources, such as earning reports*, industry association presentations and general reporting were used to gain a full picture of what the next year will bring. All dollar figures should be read as estimates and are subject to change.

Amtrak

Amtrak reached agreements in the fall of 2013 with 19 state transportation departments and other entities to increase state control and funding of 28 current passenger rail routes.

The agreements fulfill Section 209 of the federal Passenger Rail Investment and Improvement Act of 2008, which required states to share costs with Amtrak under a consistent formula for all routes of less than 750 miles, excluding the Northeast Corridor. State partners will pay for approximately 85 percent of operating costs that are attributed to their routes, as well as for capital maintenance costs of the Amtrak equipment they use and for support costs, such as safety programs and marketing. Amtrak will pay about 15 percent for backbone costs, such as centralized dispatching and services and back shops.

The agreements allow Amtrak to focus its 2014 engineering budget in improvements needed in the northeast along the New Brunswick to Trenton Line, Springfield Line, Hudson Line, as well as improvements to its Michigan Line.

Amtrak's Northeast Corridor work will focus on 300 bridge timers and see close to 65,000 concrete crossties installed, but more than 60,000 of these are to replace defective ties.

Amtrak's New Jersey High Speed Rail Improvement Project between New Brunswick and Trenton will see upgrades to bridge structures, signals and catenary systems, as well as an interlocking turnout replacement and two new interlockings.

The passenger carrier's Springfield and Hudson Lines will see new concrete and wood ties; a combined 520,000 lineal feet of continuous welded rail; bridge and culvert rehab. The Springfield Line will also see 13 improved grade crossings, 27 miles of new double track and station improvements. The Hudson Line will see 29 wood turnouts for station re-configuration and 19 wood turnouts for double track.

BNSF

BNSF has set another capital program record, committing $5 billion in 2014. The railroad will spend 46 percent of the program, $2.3 billion, on its core network and related assets. In addition, the program includes about $200 million for continued PTC installation and approximately $900 million for terminal, line and intermodal expansion and efficiency projects.

BNSF plans to lay 1,027 miles of rail relay; install 3.8 million crossties and perform 650 miles of undercutting. BNSF also anticipates a 2014 bridge program that reflects a 15 percent increase over 2013. Currently, the railroad plans 225 bridge projects focused on rebuilds, bridge fills and redecks.

Canadian National

Canadian National estimates its 2014 spend on basic and special capital to be approximately $1.18 billion. Efforts to replace crossties and rail will be neck-and-neck with the railroad spending 26 percent and 25 percent, respectively, of its capital on those assets. CN will also focus on its bridge and rail-flaw detection efforts. The railroad will complete four-year projects on the Sault Ste. Marie Bridge and Dubuque Bridge.

CN will also work on the second phase of its Edmonton to Winnipeg capacity initiatives, which includes 10.5 miles of double track and an additional two-mile long siding on the Prairie North Line that runs parallel to CN's mainline and acts as a relief valve for the railroad.

Additional special capital projects in 2014 include engineering work on the Ashcroft Rock Shed/Slope Mitigation project; safety initiatives, such as wayside detector work; interlocking and crossing upgrades in Gilman, Ill., and wayside inspection system respacing in both the Western and Southern Regions.

PTC will also have its impact on the railroad in 2014. During CN's Q4 2013 earnings call, Luc Jobin, chief financial officer and executive vice president, said CN has $300 million to "fulfill the full program" and will probably invest $50 million in 2014.

Canadian Pacific

During Canadian Pacific's Q4 2013 earnings call, Keith Creel, president and chief operating officer, expects 2014 will be another strong year. The railroad invested heavily in its sidings in 2013 and Creel said the focus would remain on CP's yards.

"...from a capital investment standpoint, we're going to continue to strategically invest in our network to increase the reliability...we're investing additional steel, we're investing in an additional 11 sidings by the end of the year, with a focus instead of bringing all those sidings on toward the end of the year, we're going to pick the one strategically to give us the most bang for the buck from a velocity standpoint, from a service reliability standpoint and concentrate our assets and resources to bringing them online based on that sequence in priority through the year," said Creel.

Creel pointed to total 2014 capital expenditures to be between $1.2 and $1.4 billion.

"It's more about optimizing the network. It's more about strategic investments in sidings. On the capital investment side, we're going to be focused on siding investments and some tweaks to some of the yards finishing out multiyear plans. Some we're going to spend in St. Paul, as well as a little bit at Chicago," said Creel.

CP's Chief Operating Officer E. Hunter Harrison added, "The biggest call on the capital, right now, and I think that will continue for the next year or two is that we have some -- a few weak links in the network that we're going to get the basic fiscal plan and propel it to where it ought to be."

CSX

Clarence Gooden, executive vice president, sales and marketing, told listeners to the railroad's Q4 2013 earnings call that intermodal will continue to be the railroad's major growth engine and its capital investments will reflect that.

More than half of the railroad's 2014 capital investment of $2.3 billion will be used to maintain core infrastructure. Currently, 90 percent of the railroad's intermodal traffic moves on double stack cleared lines and that percentage will grow in 2014 with work, such as that taking palce in Washington, D.C., on the Virginia Avenue tunnel clearance project.

CSX will also invest in terminal and network capacity with nine bridge projects, a new Montreal terminal, capacity expansion of its northwest Ohio intermodal hub, as well as terminal expansion projects in New Orleans, La., and Savannah, Ga.

Capacity improvements on CSX property will include constructing 70,100 lineal feet of new track, 16 turnouts, two, 10,000-lineal-foot sidings and three bridges at locations in New York, Alabama, Quebec and on the Monon Subdivision.

CSX is also partnering to push forward several public-private projects in Illinois, Florida, New York and Virginia.

Concerning PTC, Fredrik Eliasson, executive vice president and chief financial officer, said CSX is expected to spend $1.7 billion on the mandate, including $300 million in 2014, which leaves the railroad approximately $500 million to be spent to complete the project.

KCS

During its Q4 2013 earnings call, Kansas City Southern addressed a dip in its maintenance-of-way spending. KCS says it is not deferring maintenance, but rather, has invested so heavily during the past five years that the condition of its mainline demands a more cyclical approach to maintenance.

In his annual State of the Railroad letter, Kansas City Southern's President and CEO David Starling said KCS is operating well over solid infrastructure and that the company is seeing unprecedented new business growth. In 2014, Starling says the railroad's focus will continue to be executing its strategic plan, specifically concentrating on those areas of fastest growth, including automotive, frac sand, cross-border intermodal and crude oil.

Starling said 2014 will be another big year for track, capacity and capital projects tied to new business development. Domestically, major projects include replacing 650,000 ties across the U.S. network including major rehabilitation projects; replacing 40 miles of rail across the U.S. network; adding three R&D tracks at Jackson, Miss., and an intermodal facility expansion at Kendleton, Texas, as well as the start of construction of a new intermodal facility in Wylie, Texas.

Additional projects planned for KCS' Mexico property in 2014 are a continuation of the Monterrey to Nuevo Laredo track upgrade with new rail and ties and additional expansions at Sanchez Yard, Interpuerto San Luis Potosi and the continued development of the double track corridor between Sanchez and Nuevo Laredo.

Norfolk Southern

Norfolk Southern has planned a $2.2-billion 2014 capital investment budget, which is 12 percent above its 2013 numbers. Of those funds, $1.2 billion will be spent on engineering, including PTC work. During the railroad's fourth quarter earnings call, Marta Stewart, chief financial officer and executive vice president said roughly two-thirds of the 2014 spend will be invested in replacement and core projects, a quarter of the budget will support traffic growth or productivity projects and 10 percent, roughly $214 million, will be spent on PTC.

Specific highlights from the engineering side of the capital spend includes 501 miles of new or relay rail, 2.42 million crossties and 2.6 million tons of ballast. NS will spend $806 million on system level maintenance, such as crossings, tie unloading and cleanup and plate handling. The railroad will also continue its in house panel turnout construction work, thermite welding, using 14 trucks for rail defect testing, rail grinding, vegetation management and bridge work.

The railroad will continue to invest in its intermodal facilities by spending $487 million on six major projects scheduled in 2014.

Union Pacific

Union Pacific's Board of Directors is scheduled to approve its 2014 capital spend at its February meeting, but Lance Fritz, executive vice president operations, told attendees on the railroad's Q4 2013 earnings call that 2014's numbers "will likely exceed last year's spending." UP spent $3.6 billion on its network in 2013 with more than $2.1 billion in replacement capital.

On the same earnings call, Jack Koraleski, chief executive officer and president, said "Our capital investment strategy will be another key part of UP's success going forward. We are making investments today, building the capacity that we need for tomorrow. Longer term, we remain bullish on our future prospects. We'll continue our unrelenting focus on both safety and service to our customers."

"At the end of [2013], over 99 percent of our network was free of slow orders. Spending for service growth and productivity totaled around $1 billion, driven by investments in capacity, commercial facilities and equipment. Major projects included are $400 million investment in our Santa Teresa, N.M., facility and more than $200 million of capacity work in the south to support our diverse and growing book of business in that region. In addition, we invested another $420 million in positive train control during the year, bringing our cumulative PTC investment to $1.2 billion of our estimated $2 billion projected spend. Although it's unlikely the industry will meet the 2015 deadline, we're making a good-faith effort to do so and are working closely with regulators as we implement this new technology," said Fritz.

He continued, "For 2014...we'll continue to make capacity investments in our southern region while also advancing capacity projects across other parts of our network. Although some buckets will fluctuate year-over-year, our core investment thesis will not, which is to maintain a safe, strong and resilient network and invest in service growthand productivity projects that meet our aggressive return thresholds."

The railroad is expected to continue its strong replacement capital in 2014, with a strong focus on crosstie and rail replacement. Its growth capital is expected to target operational bottlenecks and new commercial opportunities, specifically in the southern United States to support traffic generated by the crude and gas industries.

 

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