Fatal Train Crash Puts Spotlight on Value of Networked Transport
Investing

Fatal Train Crash Puts Spotlight on Value of Networked Transport

An Amtrak passenger train headed southbound from Seattle to Portland derailed earlier this week. Traveling at 80 mph on a stretch of track designated for 30 mph traffic, the commuter train careened off a bridge, killing three and injuring 100.

With modern technologies, this kind of accident should be entirely preventable. However, tragedies like these can ultimately push new policies, and changes for the better.

Since 2008, lawmakers have been urging the rail industry to install Positive Train Control. It is a combination of GPS, radio and computer software. It automatically monitors trains, and slows them if they are traveling unsafely.

The industry objects that the technology is too costly.

In 2015, several rail companies threatened to close key sections of track if Congress did not extend the deadline. The closure would have impaired the regional economy. The transport of most raw materials, and many tractor trailers later moved by trucks, depend on rail. The deadline was pushed back to Dec. 31, 2018.

In the interim, rail derailments have been piling up. In 2013, a commuter derailed in the Bronx, New York when the engineer fell asleep. Four people were killed, 63 were injured. In 2015, an Amtrak train bound for Philadelphia, sailed through a curve at 106 mph. Eight people were killed, 200 were injured. The National Transportation Safety Board concluded both accidents would not have occurred with PTC.

Sensors and software improve safety.

We know this from data. By far, the safest mode of transportation is also the least dependent on humans. Commercial airliners have been largely automated for decades. Given the number of passengers, and miles flown, accidents are very few. Forbes
reports that statistically you are far more likely to die by being run over by a car than flying in a U.S. commercial airliner.

The government knows this, too.

Sensors are coming to many parts of the U.S. economy. They will improve productivity, and they will enhance safety.

I have been telling my newsletter members to begin looking for investments now. One of the truths about this era is that winners are being crowned early. When a company finds a niche, it behooves managers to quickly build a moat around core strengths. They then pull every lever to build greater economies of scale to keep competitors out of the market.

It’s a strange time. Undoubtedly, industrialized economies are headed to an era where sensors will become ubiquitous. Scale is already driving prices lower. The common conclusion is there is no money to be made. On the contrary, it means there are very few competitors. The companies that remain are making a fortune, with a steady stream of income from entrenched clients.

I’ll give you an example. Today, Sony (SNE) makes most of the camera sensors found in smartphones. Because prices have fallen so dramatically, and Sony holds most of the intellectual property, there are very few competitors. Sony’s sensor business is now the jewel of the company.

And Sony is not alone. There are several other companies that have cornered the market for specific sensors. These parts will power the next generation of smart machines.

One of my favorite firms is Cognex (CGNX), which makes the scanners and software that help industrial machines see. As factories become smart, all machines must move from blindness. This is a big opportunity. The company is growing rapidly in a marketplace bereft of competitors.

Another company on my buy list makes solid state memory modules used in surveillance and other cameras. As wireless and GPS networks prevail, more processing will take place at the point where the data is being collected.

These memory modules are essential. The best part is only a handful of these companies now exist. Blame the demise of PCs as a platform, in a networked world.

Regardless, the opportunity for astute investors is huge.

Very often, heavy machinery and humans do not mix well. And unfortunately, the Amtrak crash won’t be the last tragedy we will hear about. But we can focus on the positive changes that often come after events like these. And, in many cases, we can anticipate them … and be prepared when they come about.

Best wishes,

Jon Markman


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Comments 10

Jo Mueller December 26, 2017

The accident shows 2 things:
1. The US has no concept for public transportation. It is a miserable patch work. The Europeans and the Chinese do much better.
2. Companies do not do what makes sense but what “makes” money. Regulations are needed because the companies fail the people.

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Bob H. December 26, 2017

Nice job pushing investing in sensor companies……………however, sensors…sensors…sensors is not the answer.
I have 3-cars, all have check engine lights on, why?? Failed Sensors…Failed Sensors……Failed Sensors!!!
The real problem is the elimination of jobs and being held responsible. We need qualified train-drivers, co-train-drivers and a fireman in the lead locomotive and random drug testing every 6-months. Note: They are not “engineers” most likely high school drop outs high on drugs. Would you fly on a plane with no attendants, no navigator, no co-pilot and an unqualified pilot?? Oh……no problem……we have sensors that FAIL!!

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Robert Clark December 25, 2017

When congress mandated PTC, there were some major problems: PTC was a theoretical construct that did NOT physically exist that had to be developed from literally the ground up FULLY FUNDED by the railroads. To date the cost has been billions with only spotty installation. At the time the radio frequencies and band width needed were not available from the FCC. The several systems developed they were all incompatible and would require a locomotive to be equipped with up to seven different systems for that locomotive to be interchanged between railroads. Needless to say the railroads dug in their heels and insisted on all systems be compatible and interchangeable. Additionally the new systems had to integrate with the existing signal, control and communication systems already in use. Bottom line the idea is good, but the mandate was fantasy and impossible to achieve in the time frame specified in the original legislation.

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A. Woodman December 23, 2017

Perhaps Positive Train Control should first be required only for trains that transport people.
This would more safely handle the loss of life issue while permitting the railroads to continue to transport goods and equipment without added cost. The obvious question is why this has not been proposed as an interim solution?

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John Draughon December 23, 2017

Does positive train control work on trains that are supposed to be parked like the train that caused 47 deaths in
Lac- Magantic?

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Joel Dee December 23, 2017

Before everyone gets carried away, there are signs/signals controlling all track aspects for the engineers to follow.
These are in place, as is the engineer and fireman, in case all this wiz-bang alarmist software fails for more reasons
than we wish to list. One should spend more time questioning these “absolute” safety features, where were
they located, what was observed from the cab, what orders were being repeated by the second, and what was stipulated on the train engineers Order Sheet. Question the obvious and not the media misinformation and lagging
further misinformation. The talking heads are not investigative reporters, but robotic talking heads.

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Tim Warburton reply_all Joel Dee December 26, 2017

Well said…..
It is worth adding that requiring certain personal to where sleep sensors does make sense.. as they begin to lull off they could be awakened by a loud bell that would warn others at the same time.

As for the size of the sensor market, this is a good question, and I am sure the « sensor » industry has plenty of information out there as to the potential growth prospects. Mr. Markman brings a good issue to light, and his point might be better buttressed with some definitive industry facts.

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Tim Warburton reply_all Tim Warburton December 26, 2017

Oops..
« …personnel to wear.. »

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Gabriel Nave December 22, 2017

John,
Thanks for the article and the important issue it raises. From an investor persepctive, the recommendations in the latter half seem disconnected. What are there companies that will materially benefit directly from adoption of Positive Train Control? Is it big enough of a market to care about?

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Dwyer Wedvick December 22, 2017

Dear Mr. Markman, Of course, this accident should not have happened ! 3 dead and 100 injured ! It is likely it happened because the engineman ( engineer ) got distracted. Understand there was a student conductor in the cab. In the old days there would have been a fireman in the cab for the student to talk with. In those days the fireman ( in addition to his other duties ) and the engineman would call the signals to each other to make sure the engineman got it right, meanwhile the engineman focused on driving the engine and what lay up ahead but never turning his head. Positive Train Control is nice Jon, but what if it brakes down or, as in this case the train didn’t have it…. The engineman HAS to stay focused on his job. Best Wishes ! Merry Christmas !
Dwyer Wedvick PS. “High Green and the Bark Peelers” by R. M. Neal, Duell, Sloan & Pearce, 1950, NYC, describes this concentration perfectly over and over. dqw

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