Freight rail industry enjoying 'new golden age' thanks to intermodal service
HARRISBURG — It's a Sunday afternoon and there's a huge traffic jam on a bridge that crosses the Susquehanna River, with truck trailers and containers on both sides waiting to get to their final destinations in the densely populated Northeast.
But this gridlock isn't occurring on a highway.
Rather, it's on the century-old, stone-arch bridge that now carries the trains of Norfolk Southern Railway to far-flung destinations such as Chicago, New York, New England, Baltimore and Atlanta. Half a century ago, most of those trains would have carried coal, ore and manufactured goods stuffed into old-fashioned boxcars. Many still do, actually.
But what's causing the traffic jam is something else: The "boxcars" belong to trucking and shipping companies, such as UPS, J.B. Hunt and Schneider International, filled with consumer products bound for the shelves of big-box stores such as Wal-Mart, Target and Home Depot.
If you buy stuff at any of those stores — and most of us do — it got there by train.
More than three decades after the federal government deregulated freight railroads, the industry is enjoying "a new golden age," said Frank Wilner, the author of several books on railroad economics. After being left for dead in the 1970s, railroads reinvested nearly $10 billion in themselves last year alone, according to industry figures, and they haven't received taxpayer bailouts.
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They can't send jobs overseas because their business is literally bolted to the ground.
"They are more efficient than trucks are at moving quantities of freight," Wilner said.
The Interstate Highway System eroded railroads' freight business starting in the 1950s. Railroads tried to win back some of the business by putting truck trailers and containers on flatcars — intermodal service, it's called, because the merchandise can move by road, rail and water — but with a tradition of moving heavy freight at slow speeds, they weren't very good at it.
"When I started, railroads were the laughingstock of intermodal service," said Mark B. Solomon, senior editor at industry magazine DC Velocity and a transportation author and expert who has covered the industry for 30 years and formerly handled public relations for UPS.
Not only is trucking freight rail's biggest competitor, it's its biggest customer. In 2003, intermodal service overtook coal as the leading source of revenue for the freight rail industry.
Solomon and other transportation experts said truckers are losing their edge because of highway congestion, higher fuel costs, driver shortages and pending safety regulations. In the meantime, railroads have made a huge bet on intermodal service, spending hundreds of millions of dollars on new facilities and upgraded tracks to handle the increasing traffic volume.
"The trucking industry has a problem," said Larry Kaufman, a former transportation journalist, industry analyst and communications chief, and author of "Leaders Count," a book about the Burlington Northern and Santa Fe railway.
"Smarter truckers and smarter railroads are seeing this as a synergy," he said.
Now, Solomon said, the advantage goes to freight railroads. The low pay and difficult, on-the-road lifestyle makes it hard for trucking to attract drivers.
"When the economy picks up, you're going to have the worst driver shortage in history," he said.
J.B. Hunt made its first rail shipment more than two decades ago, after its founder rode a Santa Fe Railway intermodal train from Chicago to Kansas City with Santa Fe's president. Recently, the Lowell, Ark., trucking company reported that intermodal operations generated 59 percent of this year's third-quarter revenues.
Matt Rose, BNSF's chief executive, said this isn't your grandfather's railroad business.
"The railroad of today is not the railroad of yesterday," Rose said. "We're a great kaleidoscope of the U.S. economy."
Rose isn't the only one who thinks so. In 2009, billionaire investor Warren Buffett spent $26 billion to buy BNSF in what he described as "an all-in wager" that the economy would come roaring back from recession.
While a robust recovery hasn't materialized, BNSF profits rose 14 percent in the second quarter of 2011.
BNSF's 32,000-mile railroad network, based in Fort Worth, Texas, blankets the western two-thirds of the United States, often within a stone's throw of its archrival Union Pacific — "a great competitor," Rose said of the slightly larger Omaha, Neb., company.
Railroads haul more than 40 percent of the freight in the United States, and they're a pretty good indicator of the health of various sectors of the economy. Rose said it's a mixed picture.
Although the housing bust means that BNSF is hauling less lumber and other construction materials, Rose said the energy sector is a bright spot in the railroad's portfolio. That not only includes an oil- and gas-drilling boom, but also "green" energy such as wind — the railroad transports turbines to sites where they're assembled to generate electricity. BNSF also remains one of the country's top coal haulers; the railroad says it moves enough to power one out of every 10 homes in America.
As a member of President Obama's Council on Jobs and Competitiveness, Rose sits alongside several U.S. business leaders, including Facebook's Sheryl Sandberg.
"We're not an Internet-age company, but very much an industry that helps to allow large segments of the economy to grow," Rose said.