Perspectives on Railroads for Port Commissioners June 18, 2019 - - PowerPoint PPT Presentation

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Perspectives on Railroads for Port Commissioners June 18, 2019 - - PowerPoint PPT Presentation

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Perspectives on Railroads for Port Commissioners June 18, 2019 Established in 1995 in Philadelphia to advise short John Elliott, Senior Vice President line railroads and companies in the rail industry, jelliott@strategicrail.com SRF has

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Perspectives on Railroads

for Port Commissioners

June 18, 2019

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John Elliott, Senior Vice President jelliott@strategicrail.com Strategic Rail Finance 1700 Sansom Street, Suite 500 Philadelphia, PA 19103 (215) 564-3122 strategicrail.com

  • ntracknorthamerica.org

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 2

Established in 1995 in Philadelphia to advise short line railroads and companies in the rail industry, SRF has advised on projects in 43 US states and Canadian provinces Currently advising on $1.4B in port-rail projects

  • Public and private finance
  • Business sales and acquisitions
  • Transportation planning and policy
  • Business development and site selection

Created OnTrackNorthAmerica in 2007, a 501c3 non-profit advancing sound transportation policy and collaborative, holistic growth of the rail industry

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Presentation Outline

Two foundations Railroad industry as context Port-Rail opportunities for partnership

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 3

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385,000 people working in and for the port

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 4

13,090 acre land area

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385,000 people working in and for the port

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 5

13,090 acre land area

We think about the port authority as a

“Freight-Based Industrial Development Agency”

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  • 1. Planning
  • 2. Policy
  • 3. Parameters
  • 4. Pneumatics
  • 5. Political Support

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 6

Five “Ps” of Board Good Governance

An Executive’s Perspective

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AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 7

  • 1. Planning – where can we go with our rail relationships?
  • 2. Policy – what should we require in rail partnerships?
  • 3. Parameters – how does this effect our executive’s boundaries?
  • 4. Pneumatics – how are the winds blowing in the rail industry?
  • 5. Political Support – what should the public hear about port-rail?

Five “Ps” of Board Good Governance

An Executive’s Perspective

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Railroad Industry Context

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 8

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AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 9

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Structure of the North American Rail Industry

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 10

Class I Railroads Class II and III Railroads Industrial Rail Shippers 7 600+ 3000+

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AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 11

7 600+ 3000+

$- $5.0 $10.0 $15.0 $20.0 $25.0 UP BNSF CSX NS CN CP KCS G&W SPB Ports

Operating Revenue ($B) Seven Railroads ... and One Holding Company

Railroad Annual Revenues

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Comparison of Railroad Types

Class I and Regional Railroads

  • Long-haul carriers
  • The railroads are “public” like a

utility but without price controls

  • Railroads privately fund the

infrastructure and locomotives

  • Railroads maintain exclusive
  • perational control over tens of

thousands of route miles

Terminal (Class III) Railroads

  • Last-mile carriers
  • Typically operate a few miles of

track and switching yards

  • Many public, private and hybrid
  • wnership / operation models
  • Perform the blocking and

interchange for Class Is and switching for customers

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 12

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AAPA Commissioners Conference Strategic Rail Finance June 19, 2019 - Page 13

Im Import-Exports moved by Rail il

500M+ tons, $178B last year

Source: Association of American Railroads

Global Trade North American Trade

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Precision Scheduled Railroading makes railroads run more like airlines: on a set schedule Increase reliability Lower operating cost Decrease customized service

6/24/2019 Pier B Value Report - Strategic Rail Finance June 18, 2019 – Page 14

Precision Scheduled Railroading

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Port - Rail Opportunities

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 15

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3:1

SRF’s recent calculation of the ratio between benefits to commercial parties to the benefits accruing to the port and general public from a 100% port-funded rail project

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 16

Port Benefits Public Benefits Commercial Benefits

The Challenge: Match th the Returns and In Investment

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Ex Examples of

  • f Prog
  • grammatic

ic Retu turns on

  • n In

Investment ✓ Job creation ✓ Tax base ✓ Increasing exports ✓ Infrastructure development ✓ Attracting investment ✓ Congestion reduction ✓ Air and water quality

Two forms of Return on Investment

  • 1. Financial returns
  • 2. Programmatic returns

Private entities focus on #1 Public on #1 and #2 Port Hurdle Rate: 5% to 8% Railroad Hurdle Rate: 25% +

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 17

Two forms of “ROI” Return on Investment

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Acquire the Essential Rail Assets

Ensure adequate capital investment Manage pricing of services Hold operations accountable Deliver required switching services Deliver required support services

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 18

Valuation and Acquisition Advisor

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Create the Required Rail Operation

Ensure adequate capital investment Manage pricing of services Hold operations accountable Deliver required switching services Deliver required support services

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 19

SRF is advising a Development Agency in combining 16 miles

  • f industry track and 1 mile of Class I track to establish a

new short line to serve existing industry, improve local rail services, and select a rail operator / business development partner for a 1100+ acre redevelopment area

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Develop Your Essential Rail Assets

Create assets required to achieve your Port’s goals Support Port tenant needs, improving attractiveness and competitive position Deliver public benefits resulting from increased rail traffic Improve your reach to inland markets

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 20

$870M project to increase on-dock rail percentage, support more and longer intermodal trains, decrease highway and gate congestion, and increase port terminal efficiency.

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Invest in Your Essential Rail Assets

Take advantage of the Port’s access to low cost capital Demonstrate patience to achieve returns on investment Benefit from multiple value streams, like wharfage fees and land rents

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 21

$6M project to increase on-dock rail capacity, provide covered storage for railcar loading. In 2018, Port of Everett received the first ever US DOT Railroad Rehabilitation and Infrastructure Financing loan to a port authority (at 3.32% for 30 years)

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Manage in Your Leased Rail Assets

Align interests with collaborative business development and revenue sharing Insist upon accountability in service levels and service charges Beware of very long-term agreements and automatic extensions

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 22

SRF is advising three public agencies on renegotiating

  • r rebidding old rail operating concessions, adding key

performance indicators, service accountability, revenue sharing, and creating structures for future capital investment.

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Funnel Freight with Your Rail Assets

Connect the port to industrial sites with shuttle services Connect the port to lower-cost land with better highway connections with an inland port

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 23

A long-sustained initiative to develop container transfer service 220 miles inland with 5-day intermodal service. 78,000 TEU capacity with FTZ and US Customs port of entry

  • services. Initially moving frozen chicken and logs, it’s now

also the location of Rite Aid, Dollar General, Home Depot, Kohl’s, Red Bull and other DCs and warehouses.

Virginia Inland Port at Front Royal

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Summary

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 24

Concluding where we started…

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AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 - Page 25

We’re thinking about the port authority as a

“Freight-Based Industrial Development Agency”

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  • 1. Planning
  • 2. Policy
  • 3. Parameters
  • 4. Pneumatics
  • 5. Political Support

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 26

Five “Ps” of Board Good Governance

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AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 27

  • 1. Planning – every port should have a rail strategy
  • 2. Policy – require rail partner accountability and shared benefit
  • 3. Parameters – empower your executives with rail engagement
  • 4. Pneumatics – operations and finance drive railroad partnership
  • 5. Political Support – benefits the economy, community, environment

Five “Ps” of Board Good Governance

and Port-Rail Opportunities

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John Elliott, Senior Vice President

jelliott@strategicrail.com 1700 Sansom Street, Suite 500 Philadelphia, PA 19103 (215) 564-3122 strategicrail.com

AAPA Commissioners Conference Strategic Rail Finance June 18, 2019 – Page 28

Thank You!