A Switch on the Tracks: Railroads Roar Ahead
Global Trade, Fuel Costs Add Up To Expansion for Once-Dying Industry
Monday, April 21, 2008
RADFORD, Va. -- When Bob Billingsley hired on with Norfolk Southern railway 31 years ago, he was a rookie on work crews that were closing unused lines as the nation's economy turned its back on the railroads.
Now he's in charge of raising the roof of a Norfolk Southern tunnel in southwestern Virginia to clear headroom for the double-stacked container cars that have become the symbol of the industry's sudden surge thanks to a confluence of powerful global factors.
"For years, we were looking for ways to cut costs to increase profits," said Billingsley, as a train rumbled by. "Now, we're building business to increase profits."
The freight railway industry is enjoying its biggest building boom in nearly a century, a turnaround as abrupt as it is ambitious. It is largely fueled by growing global trade and rising fuel costs for 18-wheelers. In 2002, the major railroads laid off 4,700 workers; in 2006, they hired more than 5,000. Profit has doubled industry-wide since 2003, and stock prices have soared. The value of the largest railroad, the Union Pacific, has tripled since 2001.
This year alone, the railroads will spend nearly $10 billion to add track, build switchyards and terminals, and open tunnels to handle the coming flood of traffic. Freight rail tonnage will rise nearly 90 percent by 2035, according to the Transportation Department.
In the 1970s, tight federal regulation, cheap truck fuel and a wide-open interstate highway system conspired to cripple the railroad industry, driving many lines into bankruptcy. The nation's 300,000 miles of rails became a web of slow-moving, poorly maintained lines, so dilapidated in spots that tracks would give way under standing trains.
The Staggers Rail Act of 1980 largely deregulated the industry, leading to a wave of consolidation. More than 40 major lines condensed into the seven that remain, running on 162,000 miles of track.
But the changing global market has fueled prosperity -- and the need to add track for the first time in 80 years. Soaring diesel prices and a driver shortage have pushed freight from 18-wheelers back onto the rails. At the same time, China's unquenchable appetite for coal and the escalating U.S. demand for Chinese goods, means more U.S. rail traffic is heading to ports in the Northwest, on its way to and from the Far East.
Coal still accounts for the most tonnage hauled by U.S. railroads, but it is the ocean-crossing shipping container -- carrying autos, toys, furniture and nearly every product a consumer will buy -- that has lit a rocket under the railroad industry. Passenger rail traffic is also increasing; 2007 was Amtrak's fifth consecutive year of increased ridership, up 6 percent from 2006.
The zeitgeist has even dropped a "green" gift in the industry's lap. A train can haul a ton of freight 423 miles on one gallon of diesel fuel, about a 3-to-1 fuel efficiency advantage over 18-wheelers, and the railroad industry is increasingly touting itself as an eco-friendly alternative. Trucking firms also use the rail lines; UPS is the railroad industry's biggest customer.
Rail traffic, revenue and profit began to soar in 2002-03 and seem largely immune to the economic downturn. Last Tuesday, for instance, CSX reported a record first-quarter profit. On Friday, the stock price of Western rail giant Burlington Northern Santa Fe (BNSF) hit an all-time high. At the industry's nadir in the 1970s, the average annual rate of return on investment for a railroad company was 1.2 percent. By 2006, that number was 10.2 percent.
And even though the economic slump has reduced key traffic about 4 percent this year compared with last, it has not slowed the railroads' urgent tracklaying. Capital expenditures this year are up, as the railroads think the downturn is temporary, said the industry's trade group, the Association of American Railroads.