Bad News ks!
Coal trains crawl along, sidetracking shipments
Friday April 23, 11:43 am ET
By James Paton
NEW YORK, April 23 (Reuters) - Coal producers are enjoying a revival, with power companies increasing their consumption of the fuel to generate electricity, but one issue is fast becoming a thorn in their sides.
Coal companies are seeing deliveries to their customers delayed, slowing sales, as train operators face service problems and derailments. A recovering economy has boosted demand for rail service, putting pressure on the industry.
"Perhaps our biggest concern during the remainder of the year is rail service," Arch Coal Inc. (NYSE:ACI - News) Chief Executive Steven Leer told analysts in a conference call on Wednesday.
Arch Coal, the second biggest U.S. coal producer, has so far dealt with the nagging problem of getting its shipments to power plants, Leer said, but if the bottlenecks persist, it "is something that could affect operations moving forward."
Coal shipments from Arch Coal's West Elk mine in Colorado were delayed in February when a bridge partially collapsed and a Union Pacific Corp. (NYSE:UNP - News) train derailed. Union Pacific has had seven trains derail since early February as congestion on the tracks has risen, a spokesman for the company said.
Union Pacific is experiencing an increased appetite for its rail service, while suffering from a crew shortage. Under pressure to keep up, the company is asking some customers to shift their shipments to trucks.
The largest U.S. grain hauler, Burlington Northern Santa Fe Corp. (NYSE:BNI - News), also is trying to keep pace.
Meanwhile, Peabody Energy Corp. (NYSE:BTU - News) Chief Executive Irl Engelhardt told analysts earlier this week that there have been "an unusual number of derailments" out West. Shipments, he said, also have suffered from snow and ice storms in the East, and that "the net of all of that was to affect our sales.
"We expect the Western rail issues to continue for a month or two," the head of the St. Louis-based coal company said. "But we are hopeful that they will be behind them and things will move very smoothly."
Coal producers such as Arch Coal, Peabody, Consol Energy (NYSE:CNX - News) and Massey Energy (NYSE:MEE - News) showed this week they are in good shape, reporting big improvements in their earnings. Still, analyst Bill Burns of Johnson Rice & Co. said the rail issue is boosting costs and holding up sales.
"If you're supposed to deliver a ton of coal at the end of the quarter, and you can't get it done, and you have to wait until next quarter, you've incurred those costs, but you don't get to book those revenues," he said.
The rail companies are moving to address the situation, with Union Pacific planning to add 4,200 jobs this year, the company's spokesman said.
Coal CEOs trust the rail operators can iron out the wrinkles, and are keeping a watchful eye on the railroads.
"Their business is very robust across maybe all of their business segments, and that is obviously putting pressure on the rails," Leer said in the conference call. "So to say we're concerned is very accurate. We're watching it very closely." |
