Published: August 10, 2008 01:09 am            

Companies turn to tracks for shipping

Rails around the nation have been rumbling more in recent years than they have in a long time.

After decades of decline, railroads are making a comeback as a viable way for businesses to get their goods to and from market — at least for some businesses, according to industry and state officials.

“In some sectors, yes,” said Robin Chapman, spokesman for Norfolk Southern Corp. “Our chairman is fond of saying there are two economies that we’re seeing. There are downturns in some sectors like autos and housing. There is an upturn in agriculture and coal, of course. And we’re seeing more intermodal (traffic). It’s a mixed bag.”

Record-Breaking Years

According to the Federal Railroad Administration, in 2006, the last year for which numbers are available, U.S. rail companies generated $54 billion in revenues and shipped 36 million carloads of freight 1.77 trillion ton-miles over a combined network of 141,000 miles.

The country’s seven Class 1 railroads, those with revenues of $346.8 million or more, accounted for 93 percent of the total industry revenues, according to FRA information.

Also in 2006, West Virginia had 2,250 miles of tracks in operation, according to information from the American Association of Railroads. That year, the state’s nine freight railroads hauled 2.8 million carloads of freight and more than 221 million tons of freight.

And the numbers have continued to rise since then, said Tom White, spokesman for the association. Railroad companies in the U.S. had record-breaking years in 2006 and 2007.

“(Those years) were the two busiest years in history,” he said. “The volume is up a little (over 2007) right now.”

Since late 2007, however, the economic downturn has kept railroad industry growth in check, White said.

“We are seeing some growth, but it’s masked by the economy,” he said.

Despite the economic woes, some companies continue to do well. CSX Corp. announced July 15 record earnings for the second quarter of 2008. The company reported earnings of $385 million for that period, up from $324 million for the same period in 2007.

CSX officials did not return repeated telephone calls requesting interviews. CSX is the state’s largest Class 1 railroad with about 1,300 miles of track operated in the state.

Norfolk Southern also reported record numbers for the quarter, according to information from Chapman’s office. The company reported net income of $435 million, compared with $394 million for the same period in 2007.

Norfolk Southern is the only other Class 1 railroad operating in the state. It has more than 800 miles of track in West Virginia.

Matter of Efficiency

One of the big reasons the rails are becoming more attractive these days is the high price of fuel. With diesel remaining more than $4.50 per gallon, more fuel-efficient locomotives can move more freight longer distances than tractor-trailers can, White said.

Trains are three to four times more fuel efficient that tractor-trailers, he said.

“The figure we started using last year was that (a train can) move one ton of freight 436 miles on one gallon of diesel,” he said.

One reason is that modern trains are more efficient, he said. A diesel engine produces electricity, which is used to power electric motors on the wheels.

Another factor is volume. A typical freight train can haul the equivalent of about 300 tractor-trailers, Chapman said.

“One train can have ... as many as four diesel engines,” he said. “(The train) has a two-man crew.”

One train, therefore, removes 300 trucks from the nation’s highways, Chapman said. That might sound like bad news for trucking companies, but they are increasingly using the rails too.

“A lot of trucking companies will haul their trailers by train between cities,” he said. “... There is a driver shortage for trucks. That plays into it.”

Not-So-Mighty Dollar

The surge in rail traffic also can be partially attributed to an increase in exports from the United States, White said. During the past couple of years, a weaker dollar has led to a an in exports from the United States. Because of the weak dollar, U.S. goods are cheaper in foreign markets.

“The weak dollar has helped coal and grain,” he said.

Hauling coal is a big part of Norfolk Southern’s business in the state, Chapman said.

“The export of coal is major business for us,” he said.

Although most of the coal Norfolk Southern hauls remains in the U.S., most of the company’s freight goes overseas.

Whether importing or exporting, using rail transportation is much easier these days thanks in part to intermodal transportation, White said. In intermodal transportation, containers filled with goods can be loaded in West Virginia factories and shipped by tractor-trailer to a freight train terminal. From there, they can travel to seaports to be loaded on to containerized ships for transport overseas.

“The growth of intermodal trade works to a certain extent to the advantage of railroads,” White said. “... Since 1980, there have only been three years when intermodal didn’t grow.”

Cautious About Earnings

Although the higher profits reported by West Virginia’s Class 1 railroads in July sound like good news for them, the public should be careful about reading too much into the numbers, White said.

“The earnings have increased, but it’s important to remember they had a lot of years where earnings were substantially down,” he said.

The railroad industry is capital-intensive, White said. So a lot of what the companies earn will go back into their infrastructure.

“They always have put a lot of money into their infrastructure,” he said. “They can’t operate more efficiently than their infrastructure will allow.”

Each year, railroad companies typically invest 17 to 18 percent of their earnings into capital improvements, White said. That compares to about 4 percent in manufacturing, he said.

Although the economy is slower now, industry officials said the rails will continue to be busy.

“I don’t foresee it letting up,” Chapman said.

        

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