More on Crude By Rail

As I said on my last post I would come back to this topic as it truly has become the most interesting transportation topic to come up in a while.  Not only are there articles being written about this but tonight on Mad Money Cramer talked about it.  He thought the Union Pacific was to become the big benefactor of this operation.  Really interesting and starts putting meat on the bone for those who are shipping retail products.  If Cramer is right, UP resources will turn to CBR and they most likely will leave your freight at the side of the track.

I am not saying this will happen. What I am saying is anyone using these rail lines should keep very close to this development and ensure you have a contingency plan if your freight is no longer seen to be competitive to the CBR freight.

Awakening the Sleeping Giant - Crude by Rail

I am short on time as I am heading to the Alternative Fuels Conference (ACT 2013).  I wanted to give the light of day to this article on the growth of Crude by Rail (which I mentioned as a trend back here).  This has huge impact on the movement of crude and will likely impact the movement of retail goods.  Think about things such as priority of movement on track, where capital spending will go and the locomotive resources.

More to follow.  Be ready.. whatever industry you are in you will be affected by this.

Crude By Rail is The New Hot Thing

Many have always said crude by rail was just a "stop gap" until new pipelines are built out to support the new finds of oil all over North America.  However, as this article in the WSJ points out (subscription required) Kinder Morgan is canceling a $2Bl pipeline project because West Coast refiners want the crude delivered by rail.  Pipelines lock contracts for a long time where rail is far more "variable".

For a while manufacturers and retailers were the beneficiaries of low utilization in rail due to the coal drop off and the switch to natural gas.  Then, an odd thing occurred which is crude by rail started and most people thought this was a stop gap to new pipelines which would eventually depress the crude by rail market.  However, this new development, and other information I have received, says that the refiners such as Valero and Tesoro value the flexibility that crude by rail brings to them very highly.  High enough that they would not meet Kinder Morgan's requests and lead the cancellation of this pipeline.

What does this mean for the average shipper?

1. Don't expect the lack of coal argument to go far in negotiations - they have found alternatives and it looks to be a very good alternative
2. Don't expect the "glut" of North American crude to depress prices very far.   One reason why the refiners like this is they can "shut off" the flow much more quickly when prices depress too far.
3. Expect a lot of capital investment to go into this segment of rail - and since there is not an infinite pot of money this will mean less investment in other areas of rail.