Sunday, August 26, 2012

A "Faux"; All Aboard Florida

In all likelihood, readers of this material are aware that there has been a proposal set forth by the Florida East Coast Railway to enter the intercity passenger train business and operate trains for their own account, i.e. a private concern prepared to risk loss in the expectation of earning a profit, between Miami over their existing lines to Cocoa, then over a line that they will build from there to Orlando.

Quite simply, there will never be a passenger train operating over the Florida East Coast Ry for their own account. I give Amtrak operation over the FEC, which is independent of this proposal, at best a 50-50. So long as Martin County FL remains "train hating", Fox News watching, country, I do not foresee any northward expansion of Tri-Rail to locations such as Stuart (FEC) or Northwestward to, say, Indiantown (CSX) as Florida law requires any county desiring rail service to impose a tax (ad valorem or excise) dedicated to that rail service's funding.

But there are unfortunate facts of life that need be addressed. Despite the appearance of a well run railroad, the FEC simply is not “making it” The 2010 Florida East Coast Annual Report reports the FEC made some $43M from railroad operations during that year. However, owing to the "leveraged buyout" debt on which the debt service cost is some $66M, FEC had a Net Loss of some $23M. Possibly the only sale, given the bleak earnings outlook, is to a public agency. I think the FEC is so over leveraged that a private investor would be scared away. Even a minor recession, a Longshoreman strike, or a natural disaster, could have FEC in deep trouble. But to reiterate, with the commitment being made to have the post-PANAMAX Port of Miami something beyond where the Love Tubs tie up, the State has a vested interest in the FEC remaining a viable, and independent, line.

While on a national level, government is averse to go into profit seeking ventures in competition with the private sector, there is no law precluding them from doing so. Florida, with its conservative governance at present has nevertheless committed massive public funds build "world class' maritime ports at both Miami and Port Everglades and may want control of the FEC to protect their investment in such so that, in a post PANAMAX world, they are competitive. An open access railroad which has a 350 mile captive line haul to Jacksonville, would ensure that either Norfolk Southern Railway and CSX Transportation can access the traffic affording the shippers of the "competitive route" they desire and yet having a favorable division of the line haul with FEC. .

Even if either NS or CSX were "interested" (and again with the debt structure, I doubt if they are), the public sector party that is bankrolling the improvements to Miami, wants to be able to tout to the maritime industry "we have competitive rail routings" (never mind such is 350 miles away). If FEC ever got into CSX or NS hands, either would have no reason to provide good service as they collectively serve every major East Coast port as is. FEC would simply become a long branch line and maybe even abandoned. As previously noted, neither of its JAX interchanges is interested in acquiring it owing to the debt structure - and the shippers, be they in place or "in waiting" post-PANAMAX, do not want any merger either, for they want the South Florida maritime ports to be "open", i.e. there is a competitive rail service, albeit in this case it is 350 miles away. However, there is a caveat to any Port commission/authority and to anyone who follows maritime affairs. This is a recent report in The New York Times, that the East Coast may have overbuilt its ports anticipating a post-PANAMAX traffic boom. There is distinct possibility that these ports, of which Miami is one of such, may be on a ruinous competitive run. The unfortunate outcome could be they are all getting ready to throw a post-PANAMAX party - and nobody came.

So how does this passenger service initiative play into the picture? What better way would there be to get "man on the street" support than to tout "we will give you some trains - and you won't have to pay for them unless you choose to ride'. Politicians since the Roman Empire have bemused the Proletariat in such a manner. It simply generates public visibility so that when the private equity concern that owns FEC approaches a public agency such as the State to buy the road, all this public excitement about passenger trains will translate to voters saying "buy it" (or we'll find someone else to vote for). But since the political climate in Florida, with its ever increasing conservative tilt, will have nothing to do with publicly funded passenger trains beyond the existing Tri Rail and the "in the works" Sun Rail, this passenger service proposal simply represents a "faux". Should such a sale be consummated, the passenger initiative will sort of go the way of Sunset East, or otherwise “Adios“.

“All Aboard Florida” is a ploy; enjoy the fun and dreaming while it lasts.