| AggBeat |
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April 2007
by , Senior Editor |
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The Surface Transportation Board has ruled that rail carriers may no longer base their rail fuel surcharges on revenue, which prohibits the assessment of fuel surcharges based on a percentage calculation of the base rate charged to freight railroad customers. The STB has disallowed this practice because it says that it does not directly correlate with actual fuel costs. What’s more is that the STB now also prohibits applying a fuel surcharge to freight and a rate increase that includes both a cost index and a fuel component — a practice known as “double dipping.” According the STB’s decision, the railroad shipping community, aggregates producers effectively argued that “calculating a fuel surcharge as a percent of the base rate results in collecting from captive shippers more than the increased fuel costs associated with their particular traffic...[they] argued...that transparency is needed for rail fuel surcharges....” To ensure that these directives are implemented, the STB also has mandated a reporting requirement on all Class 1 railroads. (See sidebar for a list of Class 1 railroads.) The board’s decision came on Jan. 23, following a board hearing on May 11, 2006, and subsequent decision-making time. At Aggregates Manager press time, how each railroad would implement changes was unclear. However, as this issue is being read, railroads will have put procedures in place to handle the changes. Railroads were given a 90-day transition period from the Jan. 23 decision date to adjust their fuel surcharge programs. Strong support has been given to a proposal for railroads to apply a single, uniform index to measure changes in fuel prices — such as the EIA (Energy Information Agency) Index. However, the railroads concede that their fuel surcharges are not tied to the fuel consumption associated with individual movements to which they are applied. They also defend their fuel surcharge calculation methods, saying they are fair, equitable, and easy to administer, according to the STB proceedings. Most shippers are supporting a requirement that fuel surcharges be linked to a movement that directly affects the amount of fuel that is consumed, such as mileage or weight. Some shippers also suggest that fuel surcharges be limited to the changes in fuel prices from a defined starting point and that they be able to separately challenge surcharges that exceed the change in fuel costs for the particular movement. Several railroads challenge the STB’s authority to regulate fuel surcharge programs as an “unreasonable practice.” Additionally, some rail carriers are questioning the benefits to be gained by moving away from rate-based fuel surcharges. Canadian National and Canadian Pacific railways argue that a mileage-based or a weight-and-mileage-based fuel surcharge would not be any more precise or fair in allocating fuel costs among shippers than a rate-based fuel charge, according to the STB proceedings. “They point out that there are many other factors in addition to mileage and weight that can affect fuel costs, including speed, intensity of local switching, empty return ratio, track conditions, geography, grade, curvature, drag and resistance, weather conditions, and overall operating conditions,” the STB report points out. Class 1 Railroads
Mergers & AcquisitionsIndustry M&A activity has increased at a strong pace in the first quarter of 2007. On Jan. 26, 2007, Vulcan Materials Co. (Vulcan) announced two bolt-on acquisitions: (1) Burke County Stone Quarry in North Carolina and (2) Avery Gravel Company Quarry in Illinois. Both acquisitions further strengthen Vulcan’s existing presence in the western North Carolina and Chicago-area markets. Transaction terms and conditions were not disclosed. On Jan. 30, 2007, Rinker Group Limited (Rinker) continued its string of recent transactions with the acquisitions of JR & Sons Ready Mix and the Union Concrete Co. JR & Sons Ready Mix operates a quarry, other aggregates assets, and four ready-mixed concrete plants principally in the southern Utah markets. In particular, the business is near the fast-growing St. George area and represents an attractive bolt-on to Rinker’s existing Las Vegas presence (approximately 120 miles northeast of Las Vegas). Union Concrete Co. operates three ready-mixed concrete plants around Knoxville, Tenn., and serves as an attractive bolt-on to Rinker’s existing operations in Tennessee and Kentucky. Transactions terms and conditions were not disclosed for either acquisition. Of note, the purchase of these companies represents five acquisitions for Rinker since Cemex emerged as a hostile bidder for the company in October 2006. On Feb. 5, 2007, Capitol Aggregates, Ltd. (Capitol), an affiliate of Zachry Construction Corp., sold four of its ready-mixed concrete operations in central Texas to Texas Concrete Materials Ltd. (Texas Concrete). The locations sold were located in the Austin, Texas, market. The transaction enables Capitol to focus on its efforts on its core aggregates and cement business and also enables Texas Concrete to more than double the size of its business in a key territory. Capitol will continue to supply the divested ready-mixed concrete locations with aggregate. No other transaction terms or conditions were provided. On Feb. 12, 2007, Silver State Materials, LLC (Silver State), a portfolio investment of Audax Group, announced the acquisition of Casino Ready Mix, Inc. (Casino). The acquisition of Las Vegas-based Casino further strengthens Silver State’s expanding presence in the market. Transaction terms and conditions were not disclosed. On Feb. 15, 2007, Martin Marietta Materials, Inc. (MMM) announced the acquisition of three ready-mixed concrete locations from San Antonio, Texas-based M.C.C.I. Ready Mix Concrete, Ltd. and Paladin Services, Ltd. The acquired operations complement MMM’s existing presence in the San Antonio market, and particularly strengthen its position in the faster-growing east and west corridors of the city. Transaction terms and conditions were not disclosed.
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Reprinted from Aggregates Manager Magazine |
