Heidi Zemach for SCN
In the Alaska Railroad Corporation’s newly released “2013 Report to the State,” ARRC predicts a bleak financial outlook for 2013 and the next five years. In its long-range capital improvement plan for 2013-2017, railroad President & CEO Christopher Aadnesen lists a number of factors causing the outlook for the railroad, whose net income is expected to drop from an estimated $11.6 million by the end of this year to just $2.9 million in 2013.
It had been at $13.4 million just two years ago.
One of the main factors is a reduction in freight caused by poor global markets for coal exports. The railroad estimates a drop of at least 30 percent from its 2012 export coal shipping levels.
Seward has been busy with long coal trains being loaded onto the MV Fortune Iris at the cruise ship/coal terminal for shipment overseas. But this is the only coal barge that Seward will get for the month of December, and as few are predicted in the coming months.
Another freight income in decline affecting the railroad is due to North Pole Refinery’s closure of the second of its three crude petroleum processing towers in July, effectively cutting the railroad’s fuel-hauling business to its lowest volume in two decades. The amount of fuel that the railroad had been transporting from the refinery had been reduced by more than half over the past decade, but it had increasingly been transporting less and less. An additional reduction of 10 percent in fuel freight is projected for 2013.
ARRC expects a $10 million drop in combined freight revenues (from both coal and fuel) in 2013 compared to 2011.
Some ripple effect is already beginning to be felt here in Seward with fewer trains and coal ships expected, and a layoff of several full-time employees at Aurora Energy Services Inc., which runs the coal transfer facility here on behalf of the railroad. An Aurora official would not say how many employees were laid off, but and said they hoped to be able to hire them back again, and add more when the global coal market picture improves. Aurora Energy Services generally has employed 16 people full-time in Seward, and there are 53 other jobs to related coal export activity, according to the ARRC website
The number of coal trains also will be cut back, said Alaska Railroad Corp Manager of External Affairs, Tim Sullivan. “The number of trains to Seward will be reduced in December because of the holidays but, starting in January, we will reduce the number of coal trains to Seward from approximately four per week to two per week because of the reduced demand.”
“In 2011 we shipped 1.091 million metric tons of coal to Seward. By year end 2012 we estimate shipping 874,000 metric tons,” he said
The Usibelli Coal mine in Healey, which mines the coal that is transported to Seward, now forecasts a 30 percent drop in export coal shipping levels from 2012. “At this point in time, the next ship due in will be early December, followed by another one in February,” Robert Brown, the Vice President of South Central Operations for Usibelli Coal Mine, Inc, who oversees AES said recently.
Brown credits a glut in the international coal market to the difficulty in finding buyers for the Usibelli coal: “We sell coal to Chile, Korea and Japan, and it’s across the whole Pacific Rim right now, an abundance of supply and a reduction in demand,” Brown said.
The Seward coal transfer facility has been credited with being a major factor in helping maintain the viability of ARRC generally, and with being the reason it can bring visitor trains here during the summer tourist season.
Even with reductions next year, freight is expected to account for $91 million, or 67 percent of ARRC’s total revenues. By contrast, passengers are expected to account for only $24.5 million or 18 percent of 2013 revenues, while real estate will make up 12 percent of revenues.
Despite these dire economic predictions, ARRC’s five-year capital plan for internal funding still lists $350,000 for upgrades at the Seward Coal facility in 2013, and $750,000 in each of the subsequent four years.
Another major challenge to the railroad’s capital budget is a reduction in federal transit- funding, under the federal MAP 21 Transportation Reauthorization law which passed in the middle of the year, and is projected to reduce FTA formula funding for the railroad from $36 million a year to $31 million. To make matters worse, a technical error in MAP 21 occurred in October that could reduce FTA funding to $27 million next year if not corrected, Aadnesen said. Alaska’s delegation is working on fixing it, but there are no promises, he said.
The new FTA grant law also requires a 20 percent local match, rather than the nine percent match previously required, meaning that ARRC will have 50 percent fewer internally-generated funds to dedicate to capital projects next year, he said.
The railroad is required to invest much of its own capital investment funds in meeting a new federal requirement for a Positive Train Control, PTC system, a safety system meant to prevent crashes and derailments caused by human error. Railroads are required to implement their PTC by the December 2015. The railroad has already spent $50 million toward a PTC system, but expects to have to spend “substantially more” to fully implement it, thus leaving the railroad with “a critical financial dilemma,” Aadnesen said.
The railroad will attempt to “think creatively” and make “bold adjustments” to restructure its services and organization to absorb some of the expected losses and improve its revenue picture, Aadnesen said. ARRC recently announced it will save nearly a million dollars a year by instituting a new fuel-conservation effort through an additional locomotive idle-reduction initiative.