The railroad industry is thriving in the midst of the United States' economic ups and downs. Indeed, railroads have been doing remarkably well for the past several years, as the factors that are detrimental to other industries, such as high fuel prices, actually HELP railroads. Railroads are more efficient than trucks and they are much less expensive to operate than airplanes. The weak Dollar also increased railroad industry business. According to Bob Szabo, executive director and counsel for the shipper action group Consumers United for Rail Equity, container export traffic, which has never been a robust type of rail traffic, is now building since U.S. goods are more attractive overseas.)
Now, profits and profit margins are up while railroad transportation remains super-competitive in the current climate of difficult times. More freight is shipped via rail than by any other mode of transportation in the U.S.
The fact is that the economic fundamentals of the railroad industry have never truly been surpassed. Vast amounts of goods transported at great speeds by fuel-efficient engines and cars running on permanent, relatively low-maintenance rails along fixed routes makes insurmountable economic sense. The fuel economy is 423 mpg per ton of freight! Airplanes are quicker and can be more convenient, but they are not as efficient. Individual cars and trucks offer the most convenience but at the price of high maintenance (road upkeep, lots of fuel stops, feeding the drivers, resting the drivers, imported fuel).
This doesn't mean that railroads are without some problems; but while things aren't perfect, those in the railroad industry have more to be glad about now than those in many other industries.
"Some shippers still have service complaints, but they are not as intense as they were when the railroad industry was moving at full capacity," says Szabo.
Brooks Bentz, a partner in Accenture's transportation practice, says, ''Operational improvements are something the railroads work very hard at. There is also a significant effort being made to improve service, as well as add network capacity…but for many it is not perfect and will probably never be. Even if we do get to the point where there is enough capacity, it will lead to the next problem: How do we better utilize what we have?''
The new profitability is helping them answer "how do we better utilize what we have" by giving the railroad industry more money to invest in infrastructure. Since the turn of the 21st century, the railroad industry has spent $10 billion to improve rails, widen tunnels, lay down new tracks, and streamline operations. And while economists and politicians predicted an inevitable recession that arguably never occurred, freight transport stocks performed well and continue to do so. Normally a strong railroad industry indicates robustness in the economy, but the fear of recession has caused this factor to be overlooked.
Commodities and coal are two industry sectors that benefited by the ripple effect from the strength of the railroad industry. Diesel companies benefit, too. "Union Pacific is our largest customer. Union Pacific, with the exception of the U.S. Navy, consumes more diesel fuel than anyone in the world," says Stan L. Hasselbusch, the CEO of the Green Tree, PA-based company L.B. Foster, which also manufactures concrete railroad ties and supplies rails.
Kelly Donley, a spokeswoman for the Association of American Railroads, says, "It's a great industry to be in. There's a rail renaissance because of a combination of economic factors and the environment...We call ourselves the most fuel-efficient ground transportation." The Association of American Railroads has in fact calculated that while it takes 27 gallons of diesel to move one ton of freight from coast to coast via truck, a train can do that for just seven gallons.
"A lot of the countries around the world have been investing in rail systems," says Tim Wesley, a company spokesman for Wabtec. The railroad industry won't be fading away anytime soon.
