July 15, 2025 • 42 mins
Short-line railroads are a critical and sometimes underappreciated part of local, national and global supply chains. They provide first-mile and last-mile services to connect shippers and extend the reach of Class I rails. In this Talking Transports podcast, Michael Miller, the CEO of Genesee & Wyoming, joins Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, to share his insights about the evolution of the company from a consolidator to one focused on organic growth and how it benefits from being private and investing through the cycle. Miller also talks railroad demand, consolidation, regulations, technology, pricing, free cash flow, tariffs and how his wife got him into railroading.
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Episode Transcript
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Speaker 1 (00:07):
Hi everyone, this is Lee Clasgow when We're Talking Transports.
Welcome to the Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Clasgow, senior Freight, transportation and logistics analysts at Bloomberg Intelligence,
Bloomberg's and house research of almost five hundred analysts and
strategists around the world. Before diving in a little public
service announcement, Your support is instrumental to keep bringing great
(00:29):
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your support. So please, if you enjoy this podcast, share it,
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any ideas for future episodes, or just want to talk transports,
please hit me up on the Bloomberg terminal, on LinkedIn
or on Twitter at Logistics Lee. Now onto our episode.
I'm very excited to have Michael Miller with us today,
(00:52):
the CEO of Genesee and Wyoming, a role is hell
since twenty twenty three. His fifteen year tenure at the
company also includes role as President of Genesee Wyoming North America,
overseeing both commercial and operating functions, and Chief Commercial Officer
of North America, responsible for all commercial functions. Prior to that,
(01:13):
Michael managed Norfolk Southern's Moralistic supply chain organization and was
VP of Strategic Development Adruvian and held numerous logistics related
positions with both Georgia Pacific and Roadway Express. Michael currently
serves on the board of Directors for the Association of
American Railroads and Cargo Maddic. Welcome to Talking Transports, Michael,
(01:37):
Thanks for being here.
Speaker 2 (01:38):
Thanks Lee, good morning.
Speaker 1 (01:40):
So your story is a little different because most people,
when I think of railroads, think of the large class ones.
Gennesee Wyoming is not one of those. Can you talk
about you know, what is Genesee Wyoming?
Speaker 2 (01:53):
What do you do? And just go a little brief
history of the company.
Speaker 3 (01:57):
Sure, So for those that don't know NESC Woming, it's
actually a very historic company.
Speaker 2 (02:03):
It dates back to eighteen ninety nine.
Speaker 3 (02:06):
We actually celebrated our one hundred and twenty fifth anniversary
last year, and believe it or not, we still operate
the original fourteen mile railroad that served a predecessor of
gnw's first customer just outside of Rochester, New York.
Speaker 2 (02:23):
You know, as the.
Speaker 3 (02:25):
History of this company was built off serving that one customer.
That's really what makes short lines who they are today.
It's typically first mile last miles serving customers and connecting
to the North American freight network. G ANDW has grown
a lot since eighteen ninety nine. We've made a lot
of acquisitions over that time, really most of those acquisitions
(02:46):
occurring over the last forty years. And GNW has one
hundred and ten railroads, thirteen thousand track miles that extend
across forty one states in five Canadian provinces. So that's
a little bit of about who GNW is and the
history of the company.
Speaker 2 (03:03):
Right.
Speaker 1 (03:03):
And you're a private organization now used to be a
public company.
Speaker 2 (03:07):
You're owned by private equity.
Speaker 3 (03:09):
We are we're owned by Brookfield Infrastructure and g C.
You know that the acquisition of GMW curtain twenty nineteen,
and it's actually been a really nice transition moving from
the public market to the private ownership, particularly for an
asset class that is really long lived assets. You know,
(03:32):
during COVID, as an example, we made investments and a
lot of new locomotives to help upgrade our locomotive fleet
that would have been very difficult to do as a
public company during COVID, and you know, we actually got
really good deals on those assets because people were looking
to monetize those during a down market. So things like
that really make being a privately held company a good
(03:54):
opportunity for assets like railroads.
Speaker 2 (03:58):
Okay, great, so you mentioned short line. Can you just
talk briefly what a short line is relative to a
regional and a Class one. Yeah.
Speaker 3 (04:08):
So when you think about short line railroads, think about
a regional airline carrier, or an Amazon delivery truck or
ups the brown bands that delivery ups. You know, it's
it's going basically from major hubs to this, you know,
the small markets into those local customers, and the Class
(04:29):
one railroads are actually moving from major city to major
city long haul carriers. You know, when I think about
it from a delta, you know, regional airline standpoint, you
think about the regional commuter jets, that's what a short
line is. And you look at the big you know,
seven fifty seven seven seven sevens, you.
Speaker 2 (04:48):
Know, those are what the class ones are.
Speaker 3 (04:50):
They're moving a lot of volume across high density lanes,
and we're actually moving smaller volumes into those local service markets.
Speaker 2 (04:57):
And that's really what a short line is.
Speaker 3 (04:59):
Mean up up typically lower density, higher touch, and you
know that allows us to operate not a network, but
really a customized service for those local customers. And that's
that's really what differentiates a short line from the larger,
larger class ones.
Speaker 1 (05:18):
And from what I understand, you know, all those class
ones are all partners of yours.
Speaker 2 (05:23):
You do you touch all them? Mostly?
Speaker 1 (05:26):
You you interact with csx U, N P and R
for Southern, But have you know relationships and activity with
all the class ones? So who owns the customer? When
you're working with the class one? Does the short line
like a Genesee wyoming on the customer or is it
the class one?
Speaker 3 (05:44):
Well, I would say we both own the customer. You know,
we sell an interline service product. It's an integrated service.
Our customers don't really care how.
Speaker 2 (05:52):
Good we do.
Speaker 3 (05:53):
They care about how good the interline service product is.
In many cases, i'd say the short line is closer
to the customer since we operate locally, particularly the local plants,
so we have more day to day interactions with them.
But with all that being said, I would say the
customer makes the ultimate decision. Who owns the relationship? I think,
(06:16):
getting the words of Sam Walton, the only boss is
the customer and they can fire everybody from the CEO
down to the frontline operator, right. And I think for
us as an industry to excel, we have to think
about how do we offer that integrated service product and
make it easier for our customers to do business with
the railroad. So I think fragmenting that relationship makes it harder.
(06:40):
Integrating it and giving it to the customer the easier
to serve kind of service product makes it easier.
Speaker 2 (06:46):
And that's that's where we focus at.
Speaker 3 (06:48):
It's not about trying to say who owns the customer.
We both own the customer, and our job is to
provide the best service product to that customer we possibly can't.
Speaker 1 (06:56):
Speaking of service, you know, services is a key, you know,
working with your rail partners. How has service been over
the last couple of years and or the last couple
of months?
Speaker 2 (07:07):
Should say yeah, I would.
Speaker 3 (07:09):
Say overall, the North American rail network is operating relatively well,
but there is always some localized or episodic issues. This
is an outdoor sport, so there's always things that pop up,
you know. With that said, I would say, note the
adverb that I use relative, right, I think our industry
(07:30):
measures service relative to history and I think in order
for us to move to the next level for growth,
we have to measure our service against our competition, and
not just on speed or reliability, but also on the
overall service experience. I would know, you know, there's a
few Class Ones that have created this first mile last
(07:52):
mile programs that has really been beneficial to address. You know,
I would say short line service issuance with Class Ones,
and that has actually helped improve the service product we
get delivered our customers. So, you know, i'd say overall,
it's better than it has been over the last several years.
(08:12):
And I feel good about where we're headed as an industry.
I think that every railroad's invested a lot in infrastructure,
every railroad's kind of went through PSR and optimized their business,
and they're operating relatively well. And almost every railroad we
talk to has pivoted to really focusing on how do
they grow the business. So with that, I feel pretty
good about where the industry is right now.
Speaker 2 (08:35):
All right, Well, speaking of growth, how is demand on
your network?
Speaker 3 (08:40):
You know, I would say it's it's okay, it's not great.
I think we came into twenty twenty five thinking we
would see a pretty strong market in twenty twenty five.
You know, we've been kind of in this freight recession
for a bit now, particularly in the trucking side, and
it's just been kind of a okay. You know, the
(09:01):
year started off slow with a lot of weather challenges,
particularly for us, and then you've had a lot of
uncertainty around the tariffs, which is slow down decision making
for our customers, and because of that, I think we've
just kind of seen just steady state. Hopefully we'll see,
you know, the market kind of firm up once tariff
(09:23):
stuff kind of works its way through, and hopefully we'll
start to see some additional industries pick up some investments
and we'll see where it goes. But I'd say it's
just been kind of okay, and in this uncertain market conditions,
I don't see anything changing really in the short term,
you know.
Speaker 2 (09:39):
I think we'll probably work through that through the rest
of this year. So it's Tennessee Wyoming, you know.
Speaker 1 (09:44):
I know, historically, you know, you've grown through acquisitions and
have done a lot of them over the years. Today,
is the majority of your growth organic or is it
continued to be through acquisitions?
Speaker 3 (09:57):
No, I would say we have since we were acquired
and became private company, we've really spent a lot of time, energy,
and effort focused on organic growth. Obviously, organic growth is
critical to any business, and we have intently focused on
that over the last few years, really just because the
M and A market has been more challenging and more competitive.
(10:19):
You know, as you noted, GMW has been built on
opportunistic M and A a strategy over the past forty years.
And we'll always look at acquisition targets, but they need
to be a creative to the business. And you know,
with with our acquisition, with the CACS acquisition and the
(10:39):
limited nature of rail assets, it's a very competitive market
and people want to own rail rail assets. So you know,
we're not going to stretch ourselves to make an acquisition.
We're going to continue to invest in our organic growth strategy,
which is really track capacity, new rail cars, new locomotives technology.
(11:00):
But when there's a good opportunity to make up make
an acquisition, it's a good strategic fit, it's a good price,
and it's a creative you know, we're always looking, but
I would say right now our focus has been primarily
on organic growth.
Speaker 1 (11:14):
And then you know, some CEOs on the Class One
have been talking about or been asked about consolidation, you know,
speaking of mergers within within the rail industry. Obviously after
the CP Kansas City merger, it's going to.
Speaker 2 (11:29):
Be a lot tougher.
Speaker 1 (11:31):
What are your thoughts of on consolidation. Is it good
for the industry? Is it good for Gendesee and Wyoming?
Speaker 3 (11:37):
Yeah, I would say overall, I'm a little bit I
have mixed thoughts on it.
Speaker 2 (11:45):
You know.
Speaker 3 (11:45):
I think in a perfect world, it could yield a
better service product, and it obviously can con create some
operationally colls advantages, but it does potentially limit competition. As
I say earlier, this is a you know, this is
an ecosystem environment. We all are interconnected, and in order
(12:08):
for an ecosystem to thrive, everybody has to have share
values inside of that ecosystem. And obviously the fewer players
you have an ecosystem, the better chance you have of
people collaborating, working together. So I think with an acquisition,
it kind of reduces those competitive tensions and probably creates
a little more competition, a little more of a seamless
(12:31):
product to our customers. So I think there's going to
be service advantages, but I'm not so sure it'd be
competitive advantages for our customers with that set selfishly, it's
probably creates opportunities for short lines. Obviously, as people integrate
and put businesses together, there'll be assets that they just
don't fit the integrated network, and that may be things
(12:52):
they want to short line. And obviously when you go
through these complicated major transactions, there's an opportunity to kind
of chime in for things with the STB or as
you go through the regulatory review process, and that may
create opportunities for short line as well. So I'd say
I have mixed emotions on it, but I do think
(13:15):
the more integrated service product we can create in this ecosystem,
the better chance we have to compete with our competitors
and provide a better service product for our customers.
Speaker 1 (13:26):
Got ya, And you know you were talking about you know,
as a private company, you really focus on organic growth.
So outside of your your your customers just producing more
widgets or whatever it is that they do, how do
you grow? Is it through industrial development? Are you very
active in like in that? Like the class ones are?
Speaker 3 (13:45):
We we are and we've we've actually been very successful
over the last several years. On the industrial development side,
we've we've taken concerted effort over the last i'd say
five or six years and invest it in, you know,
really getting out front of customers, getting out front of
economic development agencies, getting out front of utilities, site selection consultants,
(14:08):
and you know, short lines have a unique offering in
that you know, if they locate a customer on them,
potentially the customer has the ability to connect a multiple
Class one railroad. So it creates more competitive options for
our customers. And when you look at some of our
largest growth opportunities over the last two three four years,
(14:29):
you know, we landed the new Hondai facility in Georgia
and that's an autopponent plant that it's the largest one
that Hondi will be building. It's a metaplant, you know,
we connect to both n S and CSX there and
create options for that customer. We just are working with
a GP to develop a new expanded export facility out
(14:51):
of the Pacific Northwest and that'll double the capacity. And
that facility is served by US the Puget Sound and
Pacific Railroad, but it connects the the being and up
serving a GPS facilities in the Midwest and so that
creates options for them, and then you look at you know,
another growth area for US has been the waste industry
(15:12):
with landfills, you know, reaching capacity, particularly in metropolitan New
England Northeast market. You know, they're not going to be
new landfills building those geographies. So moving that trash further
away creates opportunities for rail. So we're seeing more growth
in our waste business as we move more and more
trash and waste with rail solutions going to landfills on
(15:36):
T ANDW.
Speaker 2 (15:37):
So we are we.
Speaker 3 (15:38):
Are out there selling the site, selling the service, selling
the dual connectivity, and it's actually probably been one of
our biggest success stories. When you look at our opportunity pipeline,
it's as robust as it has been in our history.
And some of that's just based upon our hustle. Some
of it's based upon you know, new companies like to
follow other companies when they locate eight and you know,
(16:00):
the more success you have as a rail service provider
landing industries, it's kind of deal momentum here when you
know we land one company, another company says, well they
must have a good service offering.
Speaker 2 (16:12):
Let's go talk to them.
Speaker 3 (16:13):
So we're seeing some of that deal momentum flow through
our id efforts and that's that's a good news store
for us over the long term.
Speaker 1 (16:20):
Right, So, Jenessie Will, I mean, it's a little different
story than some of the Class ones because you're really
not that exposed to intermodial, at least from what I
can tell. Could you talk about, you know what the
major commodity subcategories.
Speaker 2 (16:34):
Yeah, so we are not that exposed to innermotive.
Speaker 3 (16:37):
We do serve a couple of ports, and we actually
developed build intermotial trains for our Class one partners, but
intermotive is a very very small piece of our business.
When you go back to the history of g ANDW, GNW,
for for many many years in their history, only had
one commodity, one customer, one geography. So there was obviously
(16:58):
a desire to diversify over time. And you go all
the way back to like the late nineteen nineties early
two thousands, forty fifty percent of gmw's volume was tied
to coal. Today today that's only it's less than eight
percent of our business, and we have become very diversified.
When you look across all the commodity sectors. We touch
(17:19):
almost every major commodity that's moved by rail, agriculture, metals, aggregates, lumber, paper, steel, chemicals, plastics,
all of those. Our largest commodity group is agriculture products,
represents about fifteen percent.
Speaker 2 (17:36):
Of our overall volume.
Speaker 3 (17:38):
But within that commodity group, when you look across our footprint,
you know, it's different geographies. It's the Southeast, it's the
Upper Midwest, it's the you know, the corn belt in Iowa, Indiana,
and we handle corn, soybeans, soy mill, milo, sorgum, wheat.
So we're very diversified inside of that one commodity group.
(18:00):
So even though it represents fifteen percent of our business,
is very diversified from a geography and a subcategory group.
So we feel very good about our commodity mix. And
that's been part of our strategy even through acquisitions, is
does this diversify our book of business to de risk
us on a long term basis, so we're not exposed
to one commodity or one geography or one customer. And
(18:23):
that's been part of our strategy over time is as
we acquire, as we develop, we want diversity and we
want to de risk the portfolio, so if one commodity
has a bad, bad year, it doesn't flow through an
impacted company as a whole.
Speaker 2 (18:38):
Right, And speaking of diverse you know a diversified network.
Can you talk about your exposure outside of the United States.
Speaker 3 (18:48):
Yes, so you know, obviously when the tearfund certainty hit,
there was a real big concern from our shareholders and
from everybody what does that mean to our book of business?
And really our cross border traffic and our international business
represents about nine percent of our overall book of business,
and inside of that nine percent, a big chunk of
(19:10):
that stage within say Canada as an example, we have
operations in Canada, so Canadian traffic moves inside into Canada.
Speaker 2 (19:19):
We do have cross border traffic, and.
Speaker 3 (19:23):
We had some concerns what that made look like on
the tariff side, but we really haven't seen any major impact. Obviously,
freight flows in the most efficient supply chains. When you
when you really unpack everything, freight will typically find the
cheapest and easiest way to move.
Speaker 2 (19:41):
It's kind of like water.
Speaker 3 (19:44):
And when tariffs come in and actually impact that, it
actually changes how freight is actually sourced or moved, and
that may actually create even more upside opportunity for some
of our properties. You know, a great example would be lumber,
Canadian lumber that comes across the border into the New
England market. If tariffs were actually to push some of
(20:04):
that lumber away and keep it north of the border,
we may actually pick up some southern yellow pine traffic
moving from the southeast going to New England to replace
that lumber. So we haven't seen a really big impact
on the tariff side of the house. And actually we
don't feel like it's going to be a net negative
(20:25):
for us. Kind of it's net neutral to net positive
over the long term. And you know, obviously if more
facilities move back into the US and more productions moved
into the US, that actually creates more long term value
as well.
Speaker 2 (20:37):
Oh and that's that's very interesting.
Speaker 1 (20:40):
So you know, so, you know you mentioned earlier, you know,
the uncertainty created by the tariffs is limiting customers spend
and investments and all that. So is that really the
only impact that you're feeling right now from tariffs, where
the actual tariffs themselves, like you said, as a neutral
to a net positive.
Speaker 2 (20:57):
Yeah, it's really more of the uncertainty right now.
Speaker 3 (21:00):
I mean there's obviously you know, I think you know,
if you're exposed to international intermodal, you could obviously see
some fits and starts on that for sure, But we
don't have that much exposure there. And when you look
at what we move, it's really basic materials and things
that are core to the economy. So it's really more
the uncertainty than than just the shifting patterns. I mean,
(21:23):
you know, we're always going to need to move grain.
The questions where does the grain move or when does
the grain move? So I think it's more the uncertainty
that's impacting us right now than anything else.
Speaker 1 (21:35):
So you know, you're a large company, but interesting enough,
a lot of your networks don't touch each other. So
how does this How does your size work in your
favor because I'm assuming it's not easy to move a
locomotive that operates in the in the in the northeast,
uh to the southwest.
Speaker 2 (21:54):
No, it is not.
Speaker 3 (21:56):
You know, I would say our scale helps us in
a couple of areas. One, it obviously helps us relationally
with our customers and with our Class one partners. You know,
size does matter in that regard. The more touch points
we have, the more ability we have to either strengthen
or serve those customers or those partners better. Obviously, the
(22:19):
scale helps us from an operational standpoint, like our railcar
fleet as an example, when I talked about our agriculture business,
we have covered hoppers that support our agriculture business. You know,
if there's a drought in Kansas and we have a
fleet there and the crop is really good in South Dakota,
(22:40):
we can move that fleet up in the South to
CODA and utilize that asset. Other people who don't have
that geographic scale can't do things like that, So that
gives us some flexibility to move the assets around.
Speaker 2 (22:53):
And then when you just.
Speaker 3 (22:54):
Look at our sheer size, things like back office investments.
You know, when you think about what we can do
on the training side of the house, on the technology
side of the house, on procurement, you know, buying ties
for all of gnw's railroads versus in each independent one,
you get some procurement advantages. So scale does help us there,
(23:15):
but operationally it's it's really hard to leverage it because
we're not totally interconnected like a Class one network is.
But it definitely has us advantages. I would say reputational
and relational, so they advantages with customer partners. And then
the scale when you think of economies of scale on
operational efficiency things really helps us there.
Speaker 1 (23:35):
So a couple of things you know, on your employees,
I'm assuming their unionized, and are they all part of
one union? And if you're a person working on a
short line in New Jersey, do they like say, like,
you know, can you move them to another short line
somewhere in the country or are they kind of they
(23:56):
they work for that short line and they stay with
that trial, which I was assuming is good because you
don't have a lot of turnover.
Speaker 3 (24:03):
Yeah, you know, we're not one hundred percent unionized. I
would say we're kind of sixty forty union non union.
We don't operate under a national agreement. Every one of
our railroads has their own agreements that are negotiated with
the local unions there.
Speaker 2 (24:22):
So we tend to like to promote from within.
Speaker 3 (24:25):
So if we have an employee working on railroad that
wants to go some other place and they're a good
employee and good standing and we feel like they have
growth opportunities, we're more than happy to try to accommodate
that move. Obviously, one of the advantages of short lined
is we don't have people don't have to move. They
get to be home every night, they get to spend
time with their family, they get to.
Speaker 2 (24:45):
Be in the communities they grew up in.
Speaker 3 (24:47):
And we don't see people, particularly at the craft level,
wanting to move that much. So that's one of the
big advantages we try to try to leverage is the
fact that you know, our people can stay home, they
can be part of the communityity. You know, their kids
get they get to go watch their kids baseball games
and are going to be staying away in a hotel
and you know from big line hall move and those
(25:08):
are advantages that we try to sell and we definitely
leverage that. But you know, we're open. We definitely want
our employees to be have the ability to move if
they can, if they're good employee, well we'll work with them.
Speaker 1 (25:19):
You know, not to go back to the pandemic, but
a lot of class ones kind of didn't do a
great job but managing their resources. You know, they kind
of furlough too many and demand snap back to did
you guys have any of those sort of problems?
Speaker 3 (25:34):
You know, I would say this is probably one of
the things I'm very proud of, and it helped us.
Being a private company, we didn't furlough any employees during COVID,
and when the volume snapped back, we had unbelievably good
service levels, and we survey our customers, every one of
our customers every two years, and our satisfaction survey scores
(25:58):
in twenty twenty one were the best they've been in
our entire history. And the delta between US and other
railroads and US and the trucking industry was by far
the greatest delta that we've ever seen, and it was
because we didn't furlow people. And part of the reason
we didn't furlough people was because we felt a need
(26:22):
to really protect our people, and not knowing how long
COVID was going to last, we just said, look, you
know what, let's make the investment, let's keep people working.
Volumes were down twenty percent, but we wanted to make
sure we took care of our people.
Speaker 2 (26:36):
And it really paid dividends for us after COVID. That's great,
that's really great.
Speaker 1 (26:42):
You know you mentioned earlier PSR, and for those that
don't know psr's Precision Scheduling Railroading, it's pretty much six
sigma for the rail industry, as that we had to
operate kind of in a lean matter.
Speaker 2 (26:54):
Do you guys deploy PSR Genesseee, Wyoming? I would say
we don't.
Speaker 3 (27:00):
You know, each one of our operations is very independent,
so it's not a network, and we're very dependent upon
what our Class one partners do. So when you think
about PSR, it's really governed by seven service design principles.
And obviously some of those service design principles would apply
(27:21):
to short lines, like minimizing car dewdoil or minimizing car classifications,
handling or you know, balancing train mode things like that,
But in general, when you think about short lines, we're
just built different. You know, we're built to serve customers
and we're built to serve Class ones at the highest level.
And Class one interchanges can change with us. So one
(27:44):
day they may bring fifty cars to us at three pm.
The next day they may bring us twenty five cars
at five pm. And it's really hard to run a
precision schedule wheilroad with that level of variability. So our
focus has been look, just be flexible, be nimble, and
provide the highest level of service we can to our
(28:05):
customers based upon what our Class one partners provide us.
That doesn't mean we're going to operate inefficient and we're
not going to utilize assets the best we can. But
our ultimate goal here is to differentiate ourselves at the
customer service level, but also provide value to the Class
one and try to help them. We kind of view
ourselves as a shock absorber in the supply chain because
(28:28):
you know, we can actually kind of take on some
of the changes that happen at the Class one level
or the customer level and mitigate that as we interchange
with our partners or serve our customers.
Speaker 2 (28:39):
Gotcha.
Speaker 1 (28:41):
So you know one of the reasons why I guess
Wall Street loves PSR. It kind of pushes margins up
where operating ratio is down, which is good for profitability.
And Wall Street tends to be a little myopic when
when they're looking at margins. You know, I'm kind of
a fan of profitable growth. So, you know, how do
(29:03):
you how do you benchmark your business as a private
because it's private, so obviously it's not it's all about margins,
is about our return invested capital. How do you kind
of measure financial success to the company I mean, all
the metrics you know, are very similar.
Speaker 3 (29:18):
I mean, you know, we can look at operating ratio,
we can look at return on invested capital, and all
those are really kind of important, but we don't really
have a true benchmark. What we look at is really
free cash flow generation. What we want to do is
try to generate as much free cash flow as we
possibly can from the assets we have. So you're you're
managing operational efficiency, you're managing pricing, you're managing growth, you're
(29:41):
managing capital deployment, all of those things. And really, when
you look at railroads, we're a high fixed costs industry.
The ultimate value creation we can do is put more
business through these fixed cost assets. The most profitable railcar
is the last railcar you put on the train.
Speaker 2 (30:00):
I mean, it's just like lying on a plane.
Speaker 3 (30:01):
So our view is as we really focus on growth
and we really try to put as much as we
can through the physical plant, because the most profitable, the
most you know, free cast flow jender to you know,
railcar is.
Speaker 2 (30:14):
Going to be that last railcar we put into our operation. Guy.
Speaker 1 (30:17):
You know, you mentioned railroading is obviously acid intensive, so
there's got to be you know, a large amount of
cap backs that you're pouring back into the to the network. Roughly,
what percentage of your revenue, Uh, do you guys spend
on cap backs and what percentage at as maintenance versus growth?
Speaker 3 (30:34):
Yeah, I would say it's super dependent depending upon what
I mean. Last year as a great example, and you
know we're not public so I don't want to get
into much of the information on the private side of
the house. But you know, we invested more capital in
gnw's infrastructure last year than any time in our history,
and that was driven primarily by two things. One is,
(30:56):
you know, growth as well well as some of the
things we're able to secure on the grant side of
the house.
Speaker 2 (31:05):
You know, when you.
Speaker 3 (31:05):
Think about our core capital and our maintenance capital, I
would say not a lot has changed since we're publicly traded.
I think when we're publicly traded, if you go back
and look in twenty eighteen, twenty nineteen, or two hundred,
two hundred and twenty five million dollars a year of maintenance.
Speaker 2 (31:20):
Capex when you look at our physical plant.
Speaker 3 (31:23):
But we have certainly expanded on that as we look
to grow, invest in new locomotives, invest in new expansions
to support this organic growth. And then on the grand side,
you know, we're really looking to really invest and upgrade
some of the infrastructure. So over the next twenty thirty
forty years, your maintenance capex may come down because you've
(31:45):
replaced a lot of rail you replaced bridges, and a
big thing around maintenance capex for short lines.
Speaker 2 (31:51):
When you think about it.
Speaker 3 (31:53):
These lines were lines that came from Class one railroads
that were under invested that they actually leased or sold
these lines because they couldn't reinvest in them. So now
twenty years thirty years later, they're coming due for a
big capital infusion. So our focus is how do we
get that infusion in there at the lowest cost dollar,
(32:13):
because once it's in there, you've got another thirty or
forty years of life in that asset.
Speaker 1 (32:17):
G You know, on the pricing front, you know, the
Class ones are able to you know, they've have pricing
power for quite some time. You know, they most years
are able to raise rates to you know, cover their
rising costs. As a short line operator, what kind of
pricing power do you have? Are you able to kind
of offset inflationary factors? Yeah, we typically in aggregate can
(32:43):
offset inflation. Obviously, every road's a little bit different. Some
of our roads we have pricing freedom. Some of our
railroads we have index based pricing. Some of our roads
we have agreements that we get in the same pricing
increases as our partners do.
Speaker 2 (32:59):
So you know, it's a mix of everything there, and.
Speaker 3 (33:03):
Because of that, I would say on a weighted average basis,
we typically get you know, we're not going backwards typically
some of these agreements. Historically, you know, when you have
high inflation, you may get behind the eight ball a
little bit. But obviously our partners understand what high inflation
looks like and they don't want us to go backwards.
(33:24):
So we negotiate with them and work out, you know,
things where we're trying to make sure we're not falling
behind and we're not digging ourselves a whole over the
long term.
Speaker 2 (33:33):
But our goal is to price at or above inflation
for sure.
Speaker 1 (33:37):
And you know, for productivity gains, obviously a lot of
people are deploying new technologies. I'm assuming you guys are
as well. Are you investing in machine learning or AI
or any other productivity tools.
Speaker 3 (33:50):
Yeah, I would say on the technology front, that's one
area GNW has done a lot more investing over the
last three to five years, and we're obviously looking at everything,
whether that's just technology from an AI standpoint, or technology
from an autonomy standpoint, or technology we can take better
(34:11):
you know, testing and inspection of technology, whether that's camera,
machine learning, visioning, things like that. All of those have
a real application across our industry. It's also one of
the areas where we've had some of the biggest challenges
from a regulatory front. You know, when you think about autonomy,
rail is a great I would say probably the best
(34:35):
place to deploy autonomous solutions because it's it's integrated, it's
a closed network, it's not intertwined into the highway system
with passengers, it's two dimensional. But we've obviously had more
challenges deploying autonomous solutions in the US and we're working
through that. We're actually in the in the midst of
(34:55):
a pilot program with a company called Parallel Systems in Georgia,
and and you know, we have a waiver that we
got from the FRA and we're going through a pilot
program to test seven phases of this autonomous solution and hopefully,
you know, we'll get that progress, we'll get that solution
that I'll create a new growth avenue for us.
Speaker 2 (35:14):
As a short line, you know, we were talking about
margins earlier.
Speaker 1 (35:18):
I'm assuming you know, is there a big delta between
your different networks in terms of.
Speaker 2 (35:23):
The margin profile that they have or are they kind
of all around the average for the most part, Like
do you have things that are operating at a ninety
five operating ratio and some things that are operating at
a forty five operating ratio?
Speaker 3 (35:37):
Like yeah, It's it's all over the board, and you know,
some of that's driven by the asset itself. Obviously, you
need to have more margin in a railroad this six
hundred miles long than a railroad this two miles long,
because you're investing a lot more capital back in that
larger asset. So it's kind of all over the board.
It depends on our commercial arrangements, it depends on the
(35:57):
asset itself, it depends on the cap the intensity of
that asset. And like I said, we're not looking just
at o R or margin, We're looking at free cash
flow generation. So if you're not deploying as much capital
support that asset, a ninety operating ratio maybe be just
fined from a free cash flow generation standpoint, and that's
(36:17):
a good business to own and operate.
Speaker 2 (36:19):
So that's kind of how we look at it.
Speaker 3 (36:21):
Obviously, you want to be as efficient and have the
highest margin you possibly can, but you know, the market
dictates what margin what what what can be born in
the market.
Speaker 1 (36:30):
Okay, you know you mentioned you know, regulatory hurdles that
you're dealing with with autonomy is the new you know,
Chairman of the STV and you know the Trump administration
obviously they're more you know, light or more business friendly.
Speaker 2 (36:47):
Is uh Are those.
Speaker 1 (36:48):
Changes good for you guys or are there any regulatory
things happening that are concerned now?
Speaker 3 (36:55):
I would say all the changes we've seen to date
under the new administration and new leadership in the regulatory
side of the house is all positive. You know, we
always have our goal is to have great relationships with
our regulators, whether that's the STB or the FRA. But
I do think there's a sense of more business focus
(37:17):
from the regulatory environment today. You know, the Chairman of
the STB really wants to try to speed up the
processing of rulings through the STB.
Speaker 2 (37:25):
He understands time kills deals.
Speaker 3 (37:29):
Also, the FRA is much more focused on technology and
innovation now than the previous leadership of the FRA, So
I think that'll help the industry as well.
Speaker 2 (37:39):
And we're seeing some of that flow through in this
like this waiver.
Speaker 3 (37:43):
That they gave us to test the autonomous vehicle in
Georgia that was done under the current administration.
Speaker 1 (37:49):
So those are positives for us for sure. Gotcha, and
so just you know, switching gears a little bit. How
did you get into the railroading business.
Speaker 3 (37:57):
Yeah, so I actually started my career in the trucking industry.
I grew up in trucking. My dad was a terminal
manager for LTL carriers his whole life, so I spent
sundays on the dock, you know, playing on forklifts.
Speaker 2 (38:11):
I started my career in trucking.
Speaker 3 (38:13):
I worked through a teamster strike and realized as I
was loading trucks it was a lot more efficient to
move containers by rail. It took you know, a crew
to move three hundred containers, and it took me three
hundred drivers to move the same amount of traffic.
Speaker 2 (38:29):
So I thought rail would be a good space to
go into.
Speaker 3 (38:35):
I went towards rail when I went to work for
GP as a customer of the railroads. And believe it
or not, my wife actually worked at Norfolk Southern and
we lived in Atlanta.
Speaker 2 (38:45):
I worked for GP.
Speaker 3 (38:46):
GP wanted us to relocate and she didn't want to
relocate from Atlanta, and I said, well, I need another job,
and I gave her my resume and ultimately I got
a job at Norfolk Southern.
Speaker 2 (38:58):
And that's kind of how I got into railroading.
Speaker 3 (39:01):
After my wife got me the job, she decided we
would have kids and she retired, so so she.
Speaker 2 (39:08):
She got me in and that's where I've been. It's
it's been a really good career. That sounds fantastic. And
what at your current job, you know, what do you
like most about it?
Speaker 3 (39:17):
I would say the best job I've ever had is
the chief commercial officer. I love selling, I love being
in front of the customers. But what I really like
about this industry is the history. You think about railroading,
it really built America. It made us what we are today.
But it's also an industry that we should all be
(39:37):
very proud of. It's the safest mode of land form transportation,
it's the most environmentally form of land transportation. It pays
for its own infrastructure. It doesn't tear up roads. It
keeps you know, freight off the highway, so you know,
my family can move up and down the highway less
trucks on. It is safer, It requires less capital from
(40:00):
from taxpayers because we pay for own infrastructure. There's so
many positives of the rail industry. It checks the box
for customers, for communities, for employees, for you know, the
environment is so good that it makes you proud to
be part of it. And the other thing about the
rail industry that it's also really good. As big as
(40:22):
we think we are, we're actually a relatively small industry
and it's pretty interconnected. So you know your partners, you
know your vendors, you know, you know most people in
this space. So you create really good relationships with those people.
And it makes for a fun day in the office
when you can check all those boxes, have great relationships
and do a lot of good for the country.
Speaker 1 (40:44):
And you know, before I let you go, I always
like to ask my guests, you know, if they have
a book about the industry that they work in or
in leadership that's kind of close to your heart that
you'd recommend to our listeners.
Speaker 3 (40:57):
Yeah, I would say my focus is on leadership because
you know, I think leadership is foundational in any great company,
and it'd be hard not to say Good to Great
by Jim Collins is a great leadership book. One that
I pass around in our organization is The Ideal Team
Player by Patrick LYNCIONI. And you know I'm a man
(41:21):
of faith, so my all time favorite is the Bible
and the Servant Leadership Principles Demonstrated demonstrated by Jesus Christ.
So those are kind of three leadership books that I
focus a lot of time on. But I think it's
really important for people that sit in a seat like mine,
uh to be a good leader, to be a good
servant to the people we lead, because leadership is a
(41:43):
gift and it's given to us by those who follow us,
and it's.
Speaker 2 (41:47):
Our job to be good shepherds of that. All right, great, well, Michael,
I really want to thank you for your time.
Speaker 1 (41:53):
It was great, you know, meeting you and catching up
on the Genesee, Wyoming story.
Speaker 2 (41:58):
Thanks Lee, and look forward to catching up sometimes in
the future, I hope so.
Speaker 1 (42:03):
And I want to thank you for tuning in if
you liked the episode, please subscribe.
Speaker 2 (42:07):
And leave a review.
Speaker 1 (42:08):
We've lined up a number of great guests for the podcast,
so please check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
want to learn more about the freight transportation markets, please
check out our work on.
Speaker 2 (42:24):
The Bloomberg Terminal at BIGO and on social media.
Speaker 1 (42:28):
This is Lee Glasgow signing off and thanks for talking
transports with me.
Hi everyone, this is Lee Clasgow when We're Talking Transports.
Welcome to the Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Clasgow, senior Freight, transportation and logistics analysts at Bloomberg Intelligence,
Bloomberg's and house research of almost five hundred analysts and
strategists around the world. Before diving in a little public
service announcement, Your support is instrumental to keep bringing great
(00:29):
guests and conversations to you, our listeners, and we need
your support. So please, if you enjoy this podcast, share it,
like it, and leave a comment. Also, if you have
any ideas for future episodes, or just want to talk transports,
please hit me up on the Bloomberg terminal, on LinkedIn
or on Twitter at Logistics Lee. Now onto our episode.
I'm very excited to have Michael Miller with us today,
(00:52):
the CEO of Genesee and Wyoming, a role is hell
since twenty twenty three. His fifteen year tenure at the
company also includes role as President of Genesee Wyoming North America,
overseeing both commercial and operating functions, and Chief Commercial Officer
of North America, responsible for all commercial functions. Prior to that,
(01:13):
Michael managed Norfolk Southern's Moralistic supply chain organization and was
VP of Strategic Development Adruvian and held numerous logistics related
positions with both Georgia Pacific and Roadway Express. Michael currently
serves on the board of Directors for the Association of
American Railroads and Cargo Maddic. Welcome to Talking Transports, Michael,
(01:37):
Thanks for being here.
Speaker 2 (01:38):
Thanks Lee, good morning.
Speaker 1 (01:40):
So your story is a little different because most people,
when I think of railroads, think of the large class ones.
Gennesee Wyoming is not one of those. Can you talk
about you know, what is Genesee Wyoming?
Speaker 2 (01:53):
What do you do? And just go a little brief
history of the company.
Speaker 3 (01:57):
Sure, So for those that don't know NESC Woming, it's
actually a very historic company.
Speaker 2 (02:03):
It dates back to eighteen ninety nine.
Speaker 3 (02:06):
We actually celebrated our one hundred and twenty fifth anniversary
last year, and believe it or not, we still operate
the original fourteen mile railroad that served a predecessor of
gnw's first customer just outside of Rochester, New York.
Speaker 2 (02:23):
You know, as the.
Speaker 3 (02:25):
History of this company was built off serving that one customer.
That's really what makes short lines who they are today.
It's typically first mile last miles serving customers and connecting
to the North American freight network. G ANDW has grown
a lot since eighteen ninety nine. We've made a lot
of acquisitions over that time, really most of those acquisitions
(02:46):
occurring over the last forty years. And GNW has one
hundred and ten railroads, thirteen thousand track miles that extend
across forty one states in five Canadian provinces. So that's
a little bit of about who GNW is and the
history of the company.
Speaker 2 (03:03):
Right.
Speaker 1 (03:03):
And you're a private organization now used to be a
public company.
Speaker 2 (03:07):
You're owned by private equity.
Speaker 3 (03:09):
We are we're owned by Brookfield Infrastructure and g C.
You know that the acquisition of GMW curtain twenty nineteen,
and it's actually been a really nice transition moving from
the public market to the private ownership, particularly for an
asset class that is really long lived assets. You know,
(03:32):
during COVID, as an example, we made investments and a
lot of new locomotives to help upgrade our locomotive fleet
that would have been very difficult to do as a
public company during COVID, and you know, we actually got
really good deals on those assets because people were looking
to monetize those during a down market. So things like
that really make being a privately held company a good
(03:54):
opportunity for assets like railroads.
Speaker 2 (03:58):
Okay, great, so you mentioned short line. Can you just
talk briefly what a short line is relative to a
regional and a Class one. Yeah.
Speaker 3 (04:08):
So when you think about short line railroads, think about
a regional airline carrier, or an Amazon delivery truck or
ups the brown bands that delivery ups. You know, it's
it's going basically from major hubs to this, you know,
the small markets into those local customers, and the Class
(04:29):
one railroads are actually moving from major city to major
city long haul carriers. You know, when I think about
it from a delta, you know, regional airline standpoint, you
think about the regional commuter jets, that's what a short
line is. And you look at the big you know,
seven fifty seven seven seven sevens, you.
Speaker 2 (04:48):
Know, those are what the class ones are.
Speaker 3 (04:50):
They're moving a lot of volume across high density lanes,
and we're actually moving smaller volumes into those local service markets.
Speaker 2 (04:57):
And that's really what a short line is.
Speaker 3 (04:59):
Mean up up typically lower density, higher touch, and you
know that allows us to operate not a network, but
really a customized service for those local customers. And that's
that's really what differentiates a short line from the larger,
larger class ones.
Speaker 1 (05:18):
And from what I understand, you know, all those class
ones are all partners of yours.
Speaker 2 (05:23):
You do you touch all them? Mostly?
Speaker 1 (05:26):
You you interact with csx U, N P and R
for Southern, But have you know relationships and activity with
all the class ones? So who owns the customer? When
you're working with the class one? Does the short line
like a Genesee wyoming on the customer or is it
the class one?
Speaker 3 (05:44):
Well, I would say we both own the customer. You know,
we sell an interline service product. It's an integrated service.
Our customers don't really care how.
Speaker 2 (05:52):
Good we do.
Speaker 3 (05:53):
They care about how good the interline service product is.
In many cases, i'd say the short line is closer
to the customer since we operate locally, particularly the local plants,
so we have more day to day interactions with them.
But with all that being said, I would say the
customer makes the ultimate decision. Who owns the relationship? I think,
(06:16):
getting the words of Sam Walton, the only boss is
the customer and they can fire everybody from the CEO
down to the frontline operator, right. And I think for
us as an industry to excel, we have to think
about how do we offer that integrated service product and
make it easier for our customers to do business with
the railroad. So I think fragmenting that relationship makes it harder.
(06:40):
Integrating it and giving it to the customer the easier
to serve kind of service product makes it easier.
Speaker 2 (06:46):
And that's that's where we focus at.
Speaker 3 (06:48):
It's not about trying to say who owns the customer.
We both own the customer, and our job is to
provide the best service product to that customer we possibly can't.
Speaker 1 (06:56):
Speaking of service, you know, services is a key, you know,
working with your rail partners. How has service been over
the last couple of years and or the last couple
of months?
Speaker 2 (07:07):
Should say yeah, I would.
Speaker 3 (07:09):
Say overall, the North American rail network is operating relatively well,
but there is always some localized or episodic issues. This
is an outdoor sport, so there's always things that pop up,
you know. With that said, I would say, note the
adverb that I use relative, right, I think our industry
(07:30):
measures service relative to history and I think in order
for us to move to the next level for growth,
we have to measure our service against our competition, and
not just on speed or reliability, but also on the
overall service experience. I would know, you know, there's a
few Class Ones that have created this first mile last
(07:52):
mile programs that has really been beneficial to address. You know,
I would say short line service issuance with Class Ones,
and that has actually helped improve the service product we
get delivered our customers. So, you know, i'd say overall,
it's better than it has been over the last several years.
(08:12):
And I feel good about where we're headed as an industry.
I think that every railroad's invested a lot in infrastructure,
every railroad's kind of went through PSR and optimized their business,
and they're operating relatively well. And almost every railroad we
talk to has pivoted to really focusing on how do
they grow the business. So with that, I feel pretty
good about where the industry is right now.
Speaker 2 (08:35):
All right, Well, speaking of growth, how is demand on
your network?
Speaker 3 (08:40):
You know, I would say it's it's okay, it's not great.
I think we came into twenty twenty five thinking we
would see a pretty strong market in twenty twenty five.
You know, we've been kind of in this freight recession
for a bit now, particularly in the trucking side, and
it's just been kind of a okay. You know, the
(09:01):
year started off slow with a lot of weather challenges,
particularly for us, and then you've had a lot of
uncertainty around the tariffs, which is slow down decision making
for our customers, and because of that, I think we've
just kind of seen just steady state. Hopefully we'll see,
you know, the market kind of firm up once tariff
(09:23):
stuff kind of works its way through, and hopefully we'll
start to see some additional industries pick up some investments
and we'll see where it goes. But I'd say it's
just been kind of okay, and in this uncertain market conditions,
I don't see anything changing really in the short term,
you know.
Speaker 2 (09:39):
I think we'll probably work through that through the rest
of this year. So it's Tennessee Wyoming, you know.
Speaker 1 (09:44):
I know, historically, you know, you've grown through acquisitions and
have done a lot of them over the years. Today,
is the majority of your growth organic or is it
continued to be through acquisitions?
Speaker 3 (09:57):
No, I would say we have since we were acquired
and became private company, we've really spent a lot of time, energy,
and effort focused on organic growth. Obviously, organic growth is
critical to any business, and we have intently focused on
that over the last few years, really just because the
M and A market has been more challenging and more competitive.
(10:19):
You know, as you noted, GMW has been built on
opportunistic M and A a strategy over the past forty years.
And we'll always look at acquisition targets, but they need
to be a creative to the business. And you know,
with with our acquisition, with the CACS acquisition and the
(10:39):
limited nature of rail assets, it's a very competitive market
and people want to own rail rail assets. So you know,
we're not going to stretch ourselves to make an acquisition.
We're going to continue to invest in our organic growth strategy,
which is really track capacity, new rail cars, new locomotives technology.
(11:00):
But when there's a good opportunity to make up make
an acquisition, it's a good strategic fit, it's a good price,
and it's a creative you know, we're always looking, but
I would say right now our focus has been primarily
on organic growth.
Speaker 1 (11:14):
And then you know, some CEOs on the Class One
have been talking about or been asked about consolidation, you know,
speaking of mergers within within the rail industry. Obviously after
the CP Kansas City merger, it's going to.
Speaker 2 (11:29):
Be a lot tougher.
Speaker 1 (11:31):
What are your thoughts of on consolidation. Is it good
for the industry? Is it good for Gendesee and Wyoming?
Speaker 3 (11:37):
Yeah, I would say overall, I'm a little bit I
have mixed thoughts on it.
Speaker 2 (11:45):
You know.
Speaker 3 (11:45):
I think in a perfect world, it could yield a
better service product, and it obviously can con create some
operationally colls advantages, but it does potentially limit competition. As
I say earlier, this is a you know, this is
an ecosystem environment. We all are interconnected, and in order
(12:08):
for an ecosystem to thrive, everybody has to have share
values inside of that ecosystem. And obviously the fewer players
you have an ecosystem, the better chance you have of
people collaborating, working together. So I think with an acquisition,
it kind of reduces those competitive tensions and probably creates
a little more competition, a little more of a seamless
(12:31):
product to our customers. So I think there's going to
be service advantages, but I'm not so sure it'd be
competitive advantages for our customers with that set selfishly, it's
probably creates opportunities for short lines. Obviously, as people integrate
and put businesses together, there'll be assets that they just
don't fit the integrated network, and that may be things
(12:52):
they want to short line. And obviously when you go
through these complicated major transactions, there's an opportunity to kind
of chime in for things with the STB or as
you go through the regulatory review process, and that may
create opportunities for short line as well. So I'd say
I have mixed emotions on it, but I do think
(13:15):
the more integrated service product we can create in this ecosystem,
the better chance we have to compete with our competitors
and provide a better service product for our customers.
Speaker 1 (13:26):
Got ya, And you know you were talking about you know,
as a private company, you really focus on organic growth.
So outside of your your your customers just producing more
widgets or whatever it is that they do, how do
you grow? Is it through industrial development? Are you very
active in like in that? Like the class ones are?
Speaker 3 (13:45):
We we are and we've we've actually been very successful
over the last several years. On the industrial development side,
we've we've taken concerted effort over the last i'd say
five or six years and invest it in, you know,
really getting out front of customers, getting out front of
economic development agencies, getting out front of utilities, site selection consultants,
(14:08):
and you know, short lines have a unique offering in
that you know, if they locate a customer on them,
potentially the customer has the ability to connect a multiple
Class one railroad. So it creates more competitive options for
our customers. And when you look at some of our
largest growth opportunities over the last two three four years,
(14:29):
you know, we landed the new Hondai facility in Georgia
and that's an autopponent plant that it's the largest one
that Hondi will be building. It's a metaplant, you know,
we connect to both n S and CSX there and
create options for that customer. We just are working with
a GP to develop a new expanded export facility out
(14:51):
of the Pacific Northwest and that'll double the capacity. And
that facility is served by US the Puget Sound and
Pacific Railroad, but it connects the the being and up
serving a GPS facilities in the Midwest and so that
creates options for them, and then you look at you know,
another growth area for US has been the waste industry
(15:12):
with landfills, you know, reaching capacity, particularly in metropolitan New
England Northeast market. You know, they're not going to be
new landfills building those geographies. So moving that trash further
away creates opportunities for rail. So we're seeing more growth
in our waste business as we move more and more
trash and waste with rail solutions going to landfills on
(15:36):
T ANDW.
Speaker 2 (15:37):
So we are we.
Speaker 3 (15:38):
Are out there selling the site, selling the service, selling
the dual connectivity, and it's actually probably been one of
our biggest success stories. When you look at our opportunity pipeline,
it's as robust as it has been in our history.
And some of that's just based upon our hustle. Some
of it's based upon you know, new companies like to
follow other companies when they locate eight and you know,
(16:00):
the more success you have as a rail service provider
landing industries, it's kind of deal momentum here when you
know we land one company, another company says, well they
must have a good service offering.
Speaker 2 (16:12):
Let's go talk to them.
Speaker 3 (16:13):
So we're seeing some of that deal momentum flow through
our id efforts and that's that's a good news store
for us over the long term.
Speaker 1 (16:20):
Right, So, Jenessie Will, I mean, it's a little different
story than some of the Class ones because you're really
not that exposed to intermodial, at least from what I
can tell. Could you talk about, you know what the
major commodity subcategories.
Speaker 2 (16:34):
Yeah, so we are not that exposed to innermotive.
Speaker 3 (16:37):
We do serve a couple of ports, and we actually
developed build intermotial trains for our Class one partners, but
intermotive is a very very small piece of our business.
When you go back to the history of g ANDW, GNW,
for for many many years in their history, only had
one commodity, one customer, one geography. So there was obviously
(16:58):
a desire to diversify over time. And you go all
the way back to like the late nineteen nineties early
two thousands, forty fifty percent of gmw's volume was tied
to coal. Today today that's only it's less than eight
percent of our business, and we have become very diversified.
When you look across all the commodity sectors. We touch
(17:19):
almost every major commodity that's moved by rail, agriculture, metals, aggregates, lumber, paper, steel, chemicals, plastics,
all of those. Our largest commodity group is agriculture products,
represents about fifteen percent.
Speaker 2 (17:36):
Of our overall volume.
Speaker 3 (17:38):
But within that commodity group, when you look across our footprint,
you know, it's different geographies. It's the Southeast, it's the
Upper Midwest, it's the you know, the corn belt in Iowa, Indiana,
and we handle corn, soybeans, soy mill, milo, sorgum, wheat.
So we're very diversified inside of that one commodity group.
(18:00):
So even though it represents fifteen percent of our business,
is very diversified from a geography and a subcategory group.
So we feel very good about our commodity mix. And
that's been part of our strategy even through acquisitions, is
does this diversify our book of business to de risk
us on a long term basis, so we're not exposed
to one commodity or one geography or one customer. And
(18:23):
that's been part of our strategy over time is as
we acquire, as we develop, we want diversity and we
want to de risk the portfolio, so if one commodity
has a bad, bad year, it doesn't flow through an
impacted company as a whole.
Speaker 2 (18:38):
Right, And speaking of diverse you know a diversified network.
Can you talk about your exposure outside of the United States.
Speaker 3 (18:48):
Yes, so you know, obviously when the tearfund certainty hit,
there was a real big concern from our shareholders and
from everybody what does that mean to our book of business?
And really our cross border traffic and our international business
represents about nine percent of our overall book of business,
and inside of that nine percent, a big chunk of
(19:10):
that stage within say Canada as an example, we have
operations in Canada, so Canadian traffic moves inside into Canada.
Speaker 2 (19:19):
We do have cross border traffic, and.
Speaker 3 (19:23):
We had some concerns what that made look like on
the tariff side, but we really haven't seen any major impact. Obviously,
freight flows in the most efficient supply chains. When you
when you really unpack everything, freight will typically find the
cheapest and easiest way to move.
Speaker 2 (19:41):
It's kind of like water.
Speaker 3 (19:44):
And when tariffs come in and actually impact that, it
actually changes how freight is actually sourced or moved, and
that may actually create even more upside opportunity for some
of our properties. You know, a great example would be lumber,
Canadian lumber that comes across the border into the New
England market. If tariffs were actually to push some of
(20:04):
that lumber away and keep it north of the border,
we may actually pick up some southern yellow pine traffic
moving from the southeast going to New England to replace
that lumber. So we haven't seen a really big impact
on the tariff side of the house. And actually we
don't feel like it's going to be a net negative
(20:25):
for us. Kind of it's net neutral to net positive
over the long term. And you know, obviously if more
facilities move back into the US and more productions moved
into the US, that actually creates more long term value
as well.
Speaker 2 (20:37):
Oh and that's that's very interesting.
Speaker 1 (20:40):
So you know, so, you know you mentioned earlier, you know,
the uncertainty created by the tariffs is limiting customers spend
and investments and all that. So is that really the
only impact that you're feeling right now from tariffs, where
the actual tariffs themselves, like you said, as a neutral
to a net positive.
Speaker 2 (20:57):
Yeah, it's really more of the uncertainty right now.
Speaker 3 (21:00):
I mean there's obviously you know, I think you know,
if you're exposed to international intermodal, you could obviously see
some fits and starts on that for sure, But we
don't have that much exposure there. And when you look
at what we move, it's really basic materials and things
that are core to the economy. So it's really more
the uncertainty than than just the shifting patterns. I mean,
(21:23):
you know, we're always going to need to move grain.
The questions where does the grain move or when does
the grain move? So I think it's more the uncertainty
that's impacting us right now than anything else.
Speaker 1 (21:35):
So you know, you're a large company, but interesting enough,
a lot of your networks don't touch each other. So
how does this How does your size work in your
favor because I'm assuming it's not easy to move a
locomotive that operates in the in the in the northeast,
uh to the southwest.
Speaker 2 (21:54):
No, it is not.
Speaker 3 (21:56):
You know, I would say our scale helps us in
a couple of areas. One, it obviously helps us relationally
with our customers and with our Class one partners. You know,
size does matter in that regard. The more touch points
we have, the more ability we have to either strengthen
or serve those customers or those partners better. Obviously, the
(22:19):
scale helps us from an operational standpoint, like our railcar
fleet as an example, when I talked about our agriculture business,
we have covered hoppers that support our agriculture business. You know,
if there's a drought in Kansas and we have a
fleet there and the crop is really good in South Dakota,
(22:40):
we can move that fleet up in the South to
CODA and utilize that asset. Other people who don't have
that geographic scale can't do things like that, So that
gives us some flexibility to move the assets around.
Speaker 2 (22:53):
And then when you just.
Speaker 3 (22:54):
Look at our sheer size, things like back office investments.
You know, when you think about what we can do
on the training side of the house, on the technology
side of the house, on procurement, you know, buying ties
for all of gnw's railroads versus in each independent one,
you get some procurement advantages. So scale does help us there,
(23:15):
but operationally it's it's really hard to leverage it because
we're not totally interconnected like a Class one network is.
But it definitely has us advantages. I would say reputational
and relational, so they advantages with customer partners. And then
the scale when you think of economies of scale on
operational efficiency things really helps us there.
Speaker 1 (23:35):
So a couple of things you know, on your employees,
I'm assuming their unionized, and are they all part of
one union? And if you're a person working on a
short line in New Jersey, do they like say, like,
you know, can you move them to another short line
somewhere in the country or are they kind of they
(23:56):
they work for that short line and they stay with
that trial, which I was assuming is good because you
don't have a lot of turnover.
Speaker 3 (24:03):
Yeah, you know, we're not one hundred percent unionized. I
would say we're kind of sixty forty union non union.
We don't operate under a national agreement. Every one of
our railroads has their own agreements that are negotiated with
the local unions there.
Speaker 2 (24:22):
So we tend to like to promote from within.
Speaker 3 (24:25):
So if we have an employee working on railroad that
wants to go some other place and they're a good
employee and good standing and we feel like they have
growth opportunities, we're more than happy to try to accommodate
that move. Obviously, one of the advantages of short lined
is we don't have people don't have to move. They
get to be home every night, they get to spend
time with their family, they get to.
Speaker 2 (24:45):
Be in the communities they grew up in.
Speaker 3 (24:47):
And we don't see people, particularly at the craft level,
wanting to move that much. So that's one of the
big advantages we try to try to leverage is the
fact that you know, our people can stay home, they
can be part of the communityity. You know, their kids
get they get to go watch their kids baseball games
and are going to be staying away in a hotel
and you know from big line hall move and those
(25:08):
are advantages that we try to sell and we definitely
leverage that. But you know, we're open. We definitely want
our employees to be have the ability to move if
they can, if they're good employee, well we'll work with them.
Speaker 1 (25:19):
You know, not to go back to the pandemic, but
a lot of class ones kind of didn't do a
great job but managing their resources. You know, they kind
of furlough too many and demand snap back to did
you guys have any of those sort of problems?
Speaker 3 (25:34):
You know, I would say this is probably one of
the things I'm very proud of, and it helped us.
Being a private company, we didn't furlough any employees during COVID,
and when the volume snapped back, we had unbelievably good
service levels, and we survey our customers, every one of
our customers every two years, and our satisfaction survey scores
(25:58):
in twenty twenty one were the best they've been in
our entire history. And the delta between US and other
railroads and US and the trucking industry was by far
the greatest delta that we've ever seen, and it was
because we didn't furlow people. And part of the reason
we didn't furlough people was because we felt a need
(26:22):
to really protect our people, and not knowing how long
COVID was going to last, we just said, look, you
know what, let's make the investment, let's keep people working.
Volumes were down twenty percent, but we wanted to make
sure we took care of our people.
Speaker 2 (26:36):
And it really paid dividends for us after COVID. That's great,
that's really great.
Speaker 1 (26:42):
You know you mentioned earlier PSR, and for those that
don't know psr's Precision Scheduling Railroading, it's pretty much six
sigma for the rail industry, as that we had to
operate kind of in a lean matter.
Speaker 2 (26:54):
Do you guys deploy PSR Genesseee, Wyoming? I would say
we don't.
Speaker 3 (27:00):
You know, each one of our operations is very independent,
so it's not a network, and we're very dependent upon
what our Class one partners do. So when you think
about PSR, it's really governed by seven service design principles.
And obviously some of those service design principles would apply
(27:21):
to short lines, like minimizing car dewdoil or minimizing car classifications,
handling or you know, balancing train mode things like that,
But in general, when you think about short lines, we're
just built different. You know, we're built to serve customers
and we're built to serve Class ones at the highest level.
And Class one interchanges can change with us. So one
(27:44):
day they may bring fifty cars to us at three pm.
The next day they may bring us twenty five cars
at five pm. And it's really hard to run a
precision schedule wheilroad with that level of variability. So our
focus has been look, just be flexible, be nimble, and
provide the highest level of service we can to our
(28:05):
customers based upon what our Class one partners provide us.
That doesn't mean we're going to operate inefficient and we're
not going to utilize assets the best we can. But
our ultimate goal here is to differentiate ourselves at the
customer service level, but also provide value to the Class
one and try to help them. We kind of view
ourselves as a shock absorber in the supply chain because
(28:28):
you know, we can actually kind of take on some
of the changes that happen at the Class one level
or the customer level and mitigate that as we interchange
with our partners or serve our customers.
Speaker 2 (28:39):
Gotcha.
Speaker 1 (28:41):
So you know one of the reasons why I guess
Wall Street loves PSR. It kind of pushes margins up
where operating ratio is down, which is good for profitability.
And Wall Street tends to be a little myopic when
when they're looking at margins. You know, I'm kind of
a fan of profitable growth. So, you know, how do
(29:03):
you how do you benchmark your business as a private
because it's private, so obviously it's not it's all about margins,
is about our return invested capital. How do you kind
of measure financial success to the company I mean, all
the metrics you know, are very similar.
Speaker 3 (29:18):
I mean, you know, we can look at operating ratio,
we can look at return on invested capital, and all
those are really kind of important, but we don't really
have a true benchmark. What we look at is really
free cash flow generation. What we want to do is
try to generate as much free cash flow as we
possibly can from the assets we have. So you're you're
managing operational efficiency, you're managing pricing, you're managing growth, you're
(29:41):
managing capital deployment, all of those things. And really, when
you look at railroads, we're a high fixed costs industry.
The ultimate value creation we can do is put more
business through these fixed cost assets. The most profitable railcar
is the last railcar you put on the train.
Speaker 2 (30:00):
I mean, it's just like lying on a plane.
Speaker 3 (30:01):
So our view is as we really focus on growth
and we really try to put as much as we
can through the physical plant, because the most profitable, the
most you know, free cast flow jender to you know,
railcar is.
Speaker 2 (30:14):
Going to be that last railcar we put into our operation. Guy.
Speaker 1 (30:17):
You know, you mentioned railroading is obviously acid intensive, so
there's got to be you know, a large amount of
cap backs that you're pouring back into the to the network. Roughly,
what percentage of your revenue, Uh, do you guys spend
on cap backs and what percentage at as maintenance versus growth?
Speaker 3 (30:34):
Yeah, I would say it's super dependent depending upon what
I mean. Last year as a great example, and you
know we're not public so I don't want to get
into much of the information on the private side of
the house. But you know, we invested more capital in
gnw's infrastructure last year than any time in our history,
and that was driven primarily by two things. One is,
(30:56):
you know, growth as well well as some of the
things we're able to secure on the grant side of
the house.
Speaker 2 (31:05):
You know, when you.
Speaker 3 (31:05):
Think about our core capital and our maintenance capital, I
would say not a lot has changed since we're publicly traded.
I think when we're publicly traded, if you go back
and look in twenty eighteen, twenty nineteen, or two hundred,
two hundred and twenty five million dollars a year of maintenance.
Speaker 2 (31:20):
Capex when you look at our physical plant.
Speaker 3 (31:23):
But we have certainly expanded on that as we look
to grow, invest in new locomotives, invest in new expansions
to support this organic growth. And then on the grand side,
you know, we're really looking to really invest and upgrade
some of the infrastructure. So over the next twenty thirty
forty years, your maintenance capex may come down because you've
(31:45):
replaced a lot of rail you replaced bridges, and a
big thing around maintenance capex for short lines.
Speaker 2 (31:51):
When you think about it.
Speaker 3 (31:53):
These lines were lines that came from Class one railroads
that were under invested that they actually leased or sold
these lines because they couldn't reinvest in them. So now
twenty years thirty years later, they're coming due for a
big capital infusion. So our focus is how do we
get that infusion in there at the lowest cost dollar,
(32:13):
because once it's in there, you've got another thirty or
forty years of life in that asset.
Speaker 1 (32:17):
G You know, on the pricing front, you know, the
Class ones are able to you know, they've have pricing
power for quite some time. You know, they most years
are able to raise rates to you know, cover their
rising costs. As a short line operator, what kind of
pricing power do you have? Are you able to kind
of offset inflationary factors? Yeah, we typically in aggregate can
(32:43):
offset inflation. Obviously, every road's a little bit different. Some
of our roads we have pricing freedom. Some of our
railroads we have index based pricing. Some of our roads
we have agreements that we get in the same pricing
increases as our partners do.
Speaker 2 (32:59):
So you know, it's a mix of everything there, and.
Speaker 3 (33:03):
Because of that, I would say on a weighted average basis,
we typically get you know, we're not going backwards typically
some of these agreements. Historically, you know, when you have
high inflation, you may get behind the eight ball a
little bit. But obviously our partners understand what high inflation
looks like and they don't want us to go backwards.
(33:24):
So we negotiate with them and work out, you know,
things where we're trying to make sure we're not falling
behind and we're not digging ourselves a whole over the
long term.
Speaker 2 (33:33):
But our goal is to price at or above inflation
for sure.
Speaker 1 (33:37):
And you know, for productivity gains, obviously a lot of
people are deploying new technologies. I'm assuming you guys are
as well. Are you investing in machine learning or AI
or any other productivity tools.
Speaker 3 (33:50):
Yeah, I would say on the technology front, that's one
area GNW has done a lot more investing over the
last three to five years, and we're obviously looking at everything,
whether that's just technology from an AI standpoint, or technology
from an autonomy standpoint, or technology we can take better
(34:11):
you know, testing and inspection of technology, whether that's camera,
machine learning, visioning, things like that. All of those have
a real application across our industry. It's also one of
the areas where we've had some of the biggest challenges
from a regulatory front. You know, when you think about autonomy,
rail is a great I would say probably the best
(34:35):
place to deploy autonomous solutions because it's it's integrated, it's
a closed network, it's not intertwined into the highway system
with passengers, it's two dimensional. But we've obviously had more
challenges deploying autonomous solutions in the US and we're working
through that. We're actually in the in the midst of
(34:55):
a pilot program with a company called Parallel Systems in Georgia,
and and you know, we have a waiver that we
got from the FRA and we're going through a pilot
program to test seven phases of this autonomous solution and hopefully,
you know, we'll get that progress, we'll get that solution
that I'll create a new growth avenue for us.
Speaker 2 (35:14):
As a short line, you know, we were talking about
margins earlier.
Speaker 1 (35:18):
I'm assuming you know, is there a big delta between
your different networks in terms of.
Speaker 2 (35:23):
The margin profile that they have or are they kind
of all around the average for the most part, Like
do you have things that are operating at a ninety
five operating ratio and some things that are operating at
a forty five operating ratio?
Speaker 3 (35:37):
Like yeah, It's it's all over the board, and you know,
some of that's driven by the asset itself. Obviously, you
need to have more margin in a railroad this six
hundred miles long than a railroad this two miles long,
because you're investing a lot more capital back in that
larger asset. So it's kind of all over the board.
It depends on our commercial arrangements, it depends on the
(35:57):
asset itself, it depends on the cap the intensity of
that asset. And like I said, we're not looking just
at o R or margin, We're looking at free cash
flow generation. So if you're not deploying as much capital
support that asset, a ninety operating ratio maybe be just
fined from a free cash flow generation standpoint, and that's
(36:17):
a good business to own and operate.
Speaker 2 (36:19):
So that's kind of how we look at it.
Speaker 3 (36:21):
Obviously, you want to be as efficient and have the
highest margin you possibly can, but you know, the market
dictates what margin what what what can be born in
the market.
Speaker 1 (36:30):
Okay, you know you mentioned you know, regulatory hurdles that
you're dealing with with autonomy is the new you know,
Chairman of the STV and you know the Trump administration
obviously they're more you know, light or more business friendly.
Speaker 2 (36:47):
Is uh Are those.
Speaker 1 (36:48):
Changes good for you guys or are there any regulatory
things happening that are concerned now?
Speaker 3 (36:55):
I would say all the changes we've seen to date
under the new administration and new leadership in the regulatory
side of the house is all positive. You know, we
always have our goal is to have great relationships with
our regulators, whether that's the STB or the FRA. But
I do think there's a sense of more business focus
(37:17):
from the regulatory environment today. You know, the Chairman of
the STB really wants to try to speed up the
processing of rulings through the STB.
Speaker 2 (37:25):
He understands time kills deals.
Speaker 3 (37:29):
Also, the FRA is much more focused on technology and
innovation now than the previous leadership of the FRA, So
I think that'll help the industry as well.
Speaker 2 (37:39):
And we're seeing some of that flow through in this
like this waiver.
Speaker 3 (37:43):
That they gave us to test the autonomous vehicle in
Georgia that was done under the current administration.
Speaker 1 (37:49):
So those are positives for us for sure. Gotcha, and
so just you know, switching gears a little bit. How
did you get into the railroading business.
Speaker 3 (37:57):
Yeah, so I actually started my career in the trucking industry.
I grew up in trucking. My dad was a terminal
manager for LTL carriers his whole life, so I spent
sundays on the dock, you know, playing on forklifts.
Speaker 2 (38:11):
I started my career in trucking.
Speaker 3 (38:13):
I worked through a teamster strike and realized as I
was loading trucks it was a lot more efficient to
move containers by rail. It took you know, a crew
to move three hundred containers, and it took me three
hundred drivers to move the same amount of traffic.
Speaker 2 (38:29):
So I thought rail would be a good space to
go into.
Speaker 3 (38:35):
I went towards rail when I went to work for
GP as a customer of the railroads. And believe it
or not, my wife actually worked at Norfolk Southern and
we lived in Atlanta.
Speaker 2 (38:45):
I worked for GP.
Speaker 3 (38:46):
GP wanted us to relocate and she didn't want to
relocate from Atlanta, and I said, well, I need another job,
and I gave her my resume and ultimately I got
a job at Norfolk Southern.
Speaker 2 (38:58):
And that's kind of how I got into railroading.
Speaker 3 (39:01):
After my wife got me the job, she decided we
would have kids and she retired, so so she.
Speaker 2 (39:08):
She got me in and that's where I've been. It's
it's been a really good career. That sounds fantastic. And
what at your current job, you know, what do you
like most about it?
Speaker 3 (39:17):
I would say the best job I've ever had is
the chief commercial officer. I love selling, I love being
in front of the customers. But what I really like
about this industry is the history. You think about railroading,
it really built America. It made us what we are today.
But it's also an industry that we should all be
(39:37):
very proud of. It's the safest mode of land form transportation,
it's the most environmentally form of land transportation. It pays
for its own infrastructure. It doesn't tear up roads. It
keeps you know, freight off the highway, so you know,
my family can move up and down the highway less
trucks on. It is safer, It requires less capital from
(40:00):
from taxpayers because we pay for own infrastructure. There's so
many positives of the rail industry. It checks the box
for customers, for communities, for employees, for you know, the
environment is so good that it makes you proud to
be part of it. And the other thing about the
rail industry that it's also really good. As big as
(40:22):
we think we are, we're actually a relatively small industry
and it's pretty interconnected. So you know your partners, you
know your vendors, you know, you know most people in
this space. So you create really good relationships with those people.
And it makes for a fun day in the office
when you can check all those boxes, have great relationships
and do a lot of good for the country.
Speaker 1 (40:44):
And you know, before I let you go, I always
like to ask my guests, you know, if they have
a book about the industry that they work in or
in leadership that's kind of close to your heart that
you'd recommend to our listeners.
Speaker 3 (40:57):
Yeah, I would say my focus is on leadership because
you know, I think leadership is foundational in any great company,
and it'd be hard not to say Good to Great
by Jim Collins is a great leadership book. One that
I pass around in our organization is The Ideal Team
Player by Patrick LYNCIONI. And you know I'm a man
(41:21):
of faith, so my all time favorite is the Bible
and the Servant Leadership Principles Demonstrated demonstrated by Jesus Christ.
So those are kind of three leadership books that I
focus a lot of time on. But I think it's
really important for people that sit in a seat like mine,
uh to be a good leader, to be a good
servant to the people we lead, because leadership is a
(41:43):
gift and it's given to us by those who follow us,
and it's.
Speaker 2 (41:47):
Our job to be good shepherds of that. All right, great, well, Michael,
I really want to thank you for your time.
Speaker 1 (41:53):
It was great, you know, meeting you and catching up
on the Genesee, Wyoming story.
Speaker 2 (41:58):
Thanks Lee, and look forward to catching up sometimes in
the future, I hope so.
Speaker 1 (42:03):
And I want to thank you for tuning in if
you liked the episode, please subscribe.
Speaker 2 (42:07):
And leave a review.
Speaker 1 (42:08):
We've lined up a number of great guests for the podcast,
so please check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
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check out our work on.
Speaker 2 (42:24):
The Bloomberg Terminal at BIGO and on social media.
Speaker 1 (42:28):
This is Lee Glasgow signing off and thanks for talking
transports with me.
Host
Lee Klaskow
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