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  • sollid_companiess_only sollid_companiess_only Jan 5, 2013 8:30 AM Flag

    NSC vs CSX vs UNP

    Article providing more info on the Panama Canal expansion in regards to CSX and NSC:

    Panama Canal Expansion will Change the Landscape for Freight

    By Daniel Ferry - June 20, 2012

    A century after opening, the Panama Canal is due to inaugurate a third set of locks in 2014. This added capacity will not just increase the throughput of the canal, it will also accommodate significantly larger vessels. Today, the Panama Canal is one of the most notorious bottlenecks in global trade, with a particular class of ship, the Panamax, designed specifically to be the largest vessel that can still fit through the canal's narrow locks. The lifting of these constraints could change the face of global freight movement.

    While Panamax ships have an advantage in accessing more ports, they're not as cost-effective as larger vessels. The biggest container ships can move freight for as much as 50% less per container than Panamax ships. Because the largest ships can't reach the US East Coast from Asia without a lengthy diversion around the tip of South America or through the Suez Canal, West Coast ports accept around 75% of Asian traffic, and freight is sent on Class I railroads like Union Pacific (NYSE: UNP) and Canadian National (NYSE: CNI) to reach the Midwest and beyond. I've written before on how natural gas could affect railroads, but the Panama Canal project will change their geography.

    The expansion will nearly triple the Canal's capacity, increasing the maximum vessel size from 4,400 TEUs to 12,600 TEUs (a TEU, or twenty-foot equivalent unit, is about the size of one intermodal container). This means that larger, more cost-effective vessels will be able to call on East Coast ports, bypassing the transcontinental trip on western railroads. Most eastern ports are building out new capacity in anticipation of larger ships, and ports like Houston, Charleston, Hampton Roads, and New York expect dramatically greater volumes after the Canal expansion. A report from MIT academics estimates that East Coast ports will capture 20–35% of current West Coast volumes after the expansion.

    Typically, rail captures a greater share of the freight market at West Coast ports than at East Coast ports, leading CSX (NYSE: CSX) CEO Michael Ward to claim, “Quite frankly, we’d prefer West Coast port growth.” This is because the densely populated East Coast is more amenable to the flexibility and short distances offered by trucking. However, with highway congestion increasing and fuel prices volatile, eastern railroads are making big investments in building rail corridors to the Midwest. Norfolk Southern (NYSE: NSC) invested more than $320 million in 2010 in its Heartland Corridor, connecting the Hampton Roads port to Columbus, Cincinnati, and Chicago. So far CSX has committed $575 million of the total $850 million in expected costs to fund the National Gateway initiative, whereas the remainder of the funds will come from state and federal coffers. Upon completion, the National Gateway project will allow double-stacked intermodal containers to travel on the railroad's lines from eastern ports all the way to the Midwest.

    Eastern railroads also stand to benefit in the export market. Ships that come into Hampton Roads full of Chinese-made consumer goods may well leave full of food and coal. After the expansion, eastern ports and railroads will have better access to America's breadbasket of the Midwest than their western counterparts, and China's appetite for American foodstuffs -- nearly $50 billion in 2010 -- is growing robustly. And as domestic demand for dirty bituminous coal mined in Appalachia cools, China, with its lack of environmental regulations and pressing need to generate more electricity, may prove a willing buyer.

    And yet, while the expansion project looks poised to benefit eastern ports and railroads tremendously, it isn't clear that the West Coast infrastructure providers actually stand to lose. The biggest constraint at West Coast ports is congestion, and with trade volumes growing every day, western infrastructure is stretched to its limit in accommodating freight growth. Even with the planned construction of six new terminals in Washington and Oregon, it seems like West Coast ports and railroads have more than enough volume to keep them busy and growing. The Panama Canal expansion seems to offer the prospect of actually adding value to the American import/export industry as a whole, rather than simply shifting value from the west to the east.

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