Burned before, railroads take risks

Written by jrood

February 14, 2001 During the recession in the early 2000s, U.S. freight railroads slashed spending and services. When business revived, they were roundly criticized for bottlenecks and delays, The Wall Street Journal reports. This time around, the railroads have continued to spend heavily, plowing more than $20 billion into capital improvements to widen tracks and tunnels, upgrade cars and engines and enhance their technology.

"Back in ’03 and ’04,
we stumbled a bit. We really cut back too much, and when volume came back we
were caught short," says James R. Young, the chairman, president and chief
executive of Union Pacific, the second largest U.S. railroad by miles of track.
"That is not going to happen again."

All the railroads’ investment
has left them in a position to improve service for their customers, and now
that’s paying off. For the first 23 weeks of 2010, freight volume grew 7.2
percent after plummeting 16 percent in 2009, the biggest decline on record,
according to the Association of American Railroads.

Union Pacific reported the
first growth in two years in the number of rail cars it uses in the first
quarter, with volume up 13 percent from a year earlier. Shipments of cars and
auto parts jumped 75 percent. So far in the second quarter, the company says it
has seen an 18 percent increase from a year ago in goods shipped.

FedEx Corp., which moves
roughly 45 percent of its packages by air and 55 percent by ground, says it
expects to use railroads more for ground shipping because of the railroads’
improved reliability. Currently, FedEx uses rail for only about one percent of
ground shipments.

And United Parcel Service
Inc. says it will continue to use rail as much as possible. "Any
ground-service package that’s going to move 750 miles or more we attempt to put
on the rails" as long as the rails can meet service times, says UPS
spokesman Norman Black.

Kevin Sterling, a
transportation analyst with BB&T Capital Markets, says the railroads
"are absolutely coming out [of the recession] stronger." Truckers and
railroads now split the market roughly evenly for hauls of between about 700
and 1,000 miles, he says. Just four years ago, truckers had 80 percent. While
truckers offer faster delivery, rail is generally cheaper.

In the past year or so,
Union Pacific has replaced or installed about 900 miles of rail, including
expanding its Los Angeles-El Paso route from a single to a double track. On the
Donner Pass, its route through the Sierra Nevada mountain range in California,
Union Pacific widened tunnels so that its double-stacked trains could get
through, cutting 75 miles and three hours from the bulky trains’ journey
between Oakland and Chicago.

To cut the time trains sit
idle at a station, the railroad is equipping its cranes with Global Positioning
Systems so they can get to the right spot faster to load and unload freight.

To transport more freight
per train, the company has made each of its trains 10 percent to 15 percent
longer. Longer — and fewer — trains save on fuel and require fewer employees.
The company says it can add 20 boxes to a train with only a one percent
increase in the train crew.

Union Pacific’s volume of
goods hauled in its first quarter rose 13 percent and profit jumped 43 percent,
while operating expenses rose only two percent.

Union Pacific’s U.S.
"intermodal" business — which involves carrying containers that can
be hauled by at least two types of transportation, such as trains and trucks —
grew 33 percent in the first quarter, aided by the improved economy and the
diversion of business from the highway to rail, the company says.

About seven percent of
Union Pacific’s work force, or 3,300 employees, are still on furlough, down
from a peak of 5,300 in June 2009, but the company "intends to bring them
all back" eventually, Young, Union Pacific’s chief executive, says.

Other big railroads are
also enhancing their networks to allow freight to move more easily across the
country. Like Union Pacific, both Norfolk Southern, in Norfolk, Va., and CSX Transportation
in Jacksonville, Fla., have made accommodating double-stack trains a priority.

Norfolk Southern said last
week that it is doing work on its Columbus-to-Cincinnati line to prepare the
way for double-stack containers. The $6.1-million project is being paid for
with $3.6 million from the American Recovery & Reinvestment Act, as well as
matching funds from both Norfolk Southern and the Ohio-Kentucky-Indiana
Regional Council of Governments.

CSXT, which runs trains in
23 states east of the Mississippi, is spending $400 million to hasten the
movement of freight on double-stack trains from the Midwest to ports on the
mid-Atlantic coast.

"Along the East Coast,
we go through a lot of older cities with old bridges," says Lauren Rueger,
a CSXT spokeswoman. "In order to get double-stacks through them, we have
to raise bridges or lower tracks."

"A lot of people don’t
understand railroads," says Young, the Union Pacific chief. "Their
encounter with railroads was that they rode on a commuter train or sat in a crossing
waiting for the train to let them through. They don’t see what is in the
containers or boxcars. [Nearly] everything you touch in daily life is handled
by rail."

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