Monday, September 16, 2013

Genesee & Wyoming doubles down

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After its largest acquisition to date,GWI plans a capital program for 2013 to continue its growth and development.

 

Genesee & Wyoming Inc. (GWI) was well acquainted with the ins and outs of acquiring shortlines, having integrated 65 railroads through 36 acquisitions since 1985. However, the shortline holding company took on a challenge when it announced its largest acquisition in July 2012: The 45 railroads of competitor RailAmerica.

With the Surface Transportation Board's approval of the acquisition in December 2012, GWI began the task of integrating the two companies. GWI's corporate statistics took a sizable increase with the acquisition to include 111 freight railroads (108 in North America), 15,100 miles of track (12,900 in North America), 1.8 million carloads (1.6 million in North America), 1,000 locomotives (900 in North America) and 4,300 employees (3,900 in North America).

Regarding GWI's increased network reach, Jack Hellmann, president and CEO of GWI commented during the acquisition's initial announcement, "From a commercial standpoint, we believe that this footprint not only provides us with strong leverage to any eventual recovery of the U.S. economy but also creates a powerful platform for future industrial development along railroads in the 37 U.S. states in which we will do business."

Part of creating the platform for development was a solid capital program that continues the groundwork separately laid by the two companies and combined to reach a common goal.

David Brown, GWI chief operating officer, presented the company's 2013 capital investment plans at the National Railroad Construction and Maintenance Association's annual meeting in January. The overall capital budget for 2013 increased more than $100 million to $340 from $238 million in 2012.

Brown told Roy Blanchard for Railway Age in April, "RailAmerica did a good job of maintaining track to the level required for the service. If 10 mph would do, that's what they did. We're the same way."

GWI's corporate structure groups its railroads into nine regions, which allows its individual properties a certain amount of autonomy with each of the nine regions headed by a regional senior vice president. With the RailAmerica acquisition doubling the company's track miles, GWI centralized the oversight of its track investment and equipment management with a new chief engineer and new chief mechanical officer to help the regional senior vice presidents with planning.

Brown shared with Railway Age, "Track speed is key to all our infrastructure capital expenditures. For example, our $17 million Arizona Eastern project is raising track speed, resulting in a redesigned, improved and more reliable service plan, in turn resulting in higher traffic levels as the improved service encourages our principal customer to put more business on the rails. It's a classic case study of how the shortline industry has matured: better track, improved locomotive reliability, faster transit times and lowered supply chain expense for the beneficial owners of what's in the cars.

"Reliable infrastructure and locomotives give us the means to run to plan. Even on a shortline, time is money and doing things the same way every day is crucial to the success of the organization. On-time is on-time, not on-time plus two hours because if that's your measure, trains will run to that. We're taking down the interval between interchange-on and interchange-off and have even developed our own report card to keep our connecting Class 1's apprised of our progress."

The largest expenditure in GWI's planned 2013 capital investment is the estimated $220 million for track maintenance, which includes rail, surfacing, signals and ties. The company also estimates it will spend $32 million on bridges, $34 million on equipment, $44 million on new business development and $10 million for other investments, such as environmental and info systems.

Several major initiatives have been planned in 2013, as well. Those initiatives along the former RailAmerica properties include:

  • The Alabama & Gulf Coast Railway will see work progress on the $12.3 million Genesis Crude Oil Project, as well as an additional $3.1 million for crossties, surfacing, bridges, signal and rail.
  • The Cape Breton & Central Nova Scotia Railway will further its $1.5 million 286k infrastructure upgrade with an additional $1.4 million for bridges, signal, crossties and surfacing.
  • The Central Oregon & Pacific Railroad has $5.7 million in rail and tunnel projects planned and an additional $1.9 million budgeted for crossties, surfacing, rail and signal work.
  • Indiana Southern Railroad has $2.2 million scheduled for the Elnora Siding Project with an additional $2 million for crossties, signal, rail, surfacing and turnouts.
  • An estimated $8.1 million is planned for the KYLE Railroad to upgrade track in north central Kansas to avoid rail abandonment and operate 286k cars. The project will also provide new signage and other safety improvements at 24 highway crossings. The Kansas Department of Transportation was awarded a $6.5 million Transportation Investment GeneratingEconomic Recovery (TIGER) grant for this project in 2011. An additional $2.8 million has been planned for crossties, surfacing, signals, rail and bridges.

 

One of the larger initiatives to take place on a former RailAmerica property is the estimated $11.2 million for New England Central Railroad (NECR) to upgrade 18.8 miles of track between St. Albans, VT, and the Canadian border. The Vermont Agency of Transportation was awarded a $7.9 million TIGER grant in 2012 to make the track capable of carrying 286k, allowing more efficient movement of goods throughout the region and internationally. GWI also estimates it will spend an additional $1.9 million on NECR for crossties,surfacing, bridges and signal work.

Key initiatives in 2013 on native GWI properties include:

  • $10.9 million for track and bridge work on the Arizona Eastern Railway.
  • $5 million on the Apalachicola Northern Railway for track and bridge rehabilitation.
  • The Portland & Western Railroad has $2.9 million planned for the Banks Connection and $4.7 million planned for the A-Line Track Project.
  • The Buffalo & Pittsburgh Railroad has several projects planned including $3.1 million for the Riker Yard Rehab, $2.5 million for the Buffalo Creek Yard Rehab; $4.2 million for the Northern Sub Bridges/Trestle and $2.0 million for crossties, signal, rail, surfacing and turnouts along the property.

 

GWI will also further is KeRail Project in its Canada Region and has budgeted $30.3 million for it in 2013. KeRail Inc. is a GWI subsidiary that will construct an approximately 21-kilometer (13.04-mile) rail line that will connect a mine owned by Tata Steel Minerals Canada Ltd. to the Tshiuetin Rail Transportation interchange point in Schefferville, QC.

Jack Hellmann, GWI's CEO, told Railway Age, "Our track infrastructure has never been in better shape. We have strong cash flow from operations to fund our own program maintenance and capital programs. In addition, 'external' funds, such as government grants and the 45G shortline tax credit give us the opportunity to accelerate track programs to the benefit of all our constituents."

One element that can't be budgeted into a capital program, but is still a primary focus for GWI is safety.

During a conference call to discuss 2012 Quarter 4 earnings this past February, Hellmann said, "You will see that we have completed 2012 with an FRA reportable index of 0.48 injuries per 200,000 man-hours. This was the best safety results in [our] history, as well as the best result in rail industry for the fourth consecutive year.

"With the acquisition of RailAmerica, the challenge of implementing [our] culture of safety has just begun. If [GWI] and RailAmerica had been a single company in 2012, our combined safety index would have been 0.9. So we have plenty of work to do in order to reach our ultimate goal of no personal injuries to any of our 4,600 employees.

"Given that our top priority is to impart [our] safety culture, [our] business culture and [our] decision making frameworks, what might seem to be a daunting task, with 45 new railroads is actually quite manageable thanks to the accountability of our regional leadership."

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