Railroads Picking Up Where Rigs Leave Off
At a time when sky-high energy prices are hampering many sectors, at least one part of the economy appears to be on track. It is, appropriately enough, the railroad industry.
Yes, the railroads. The most traditional of freight-hauling businesses is seeing a fresh burst of growth and innovation by carrying containers and even truck trailers on long-distance routes that historically have been the province of the trucking industry.
Indeed, more and more these days, trucks carry freight to rail yards such as the giant Hobart facility near downtown Los Angeles, where mammoth cranes lift containers or truck trailers onto a flat railcar for their journey to the Midwest or East Coast. Once there, the freight may be reconnected to a truck cab for local delivery.
The whole process is called intermodal transportation, and it has been part of the distribution landscape in America since the 1950s. But suddenly, intermodal haulage is a very fast-growing business.
One big reason is the high price of oil, which Friday climbed to a record $48.88 a barrel on the New York Mercantile Exchange. Although locomotives run on diesel just like 18-wheeler truck trailers, a railroad can do more with less fuel.
“Two people with three or four locomotives can haul 250 containers, using far less fuel than 250 trucks would use,” says John Lanigan Jr., executive vice president of Burlington Northern Santa Fe Corp., owner of the second-largest U.S. rail system.
In all, intermodal business is growing by 20% on an annual basis for such major railroads as Burlington Northern and Norfolk Southern Corp.
The boom isn’t always a boon, however. For the nation’s largest railroad, Union Pacific Corp., intermodal commerce is expanding at such a rapid clip that snags have delayed deliveries of a wide array of products in Southern California, including imported car parts and paper goods. The gridlock, in turn, has enraged Union Pacific’s customers and eroded its earnings.
Nevertheless, the intermodal explosion shows little sign of tapering off.
Even the trucking industry has ceded territory to its longtime rival.
“We’re happy to see our trucking companies deliver freight for the railroads to haul long distances,” says Robert Costello, chief economist of the American Trucking Assn.
This attitude is prompted in large part by a severe labor shortage. Some independent owner-drivers have been idling their rigs lately because high fuel prices make many trips unprofitable.
Beyond that, the industry has been hit by a general dearth of long-haul truck drivers, Costello says, even though the job pays $43,000 a year on average with good Teamsters union benefits. He’s referring to drivers who work for major trucking firms such as Yellow Roadway Corp. and J.B. Hunt Transport Services Inc.
And why should good-paying positions with solid benefits go begging when the labor market remains surprisingly sluggish?
“It’s a lifestyle issue,” Costello says. “Long-haul truckers can be away from home for weeks at a time. You either go for that kind of life or you don’t.”
Whatever the reason, the friendly talk between truckers and railroads is a marked change from decades of intense rivalry -- a competition that became particularly bitter after the building of the interstate highway system. In the eyes of railroad folk, the interstate gave truckers an unfair advantage: a right-of-way supported by all taxpayers while the railroads had to own and maintain their own tracks.
Trucking went on to dominate U.S. distribution, accounting for 70% of all shipments, by tonnage, in recent decades.
Railroads, meanwhile, were relegated to hauling mostly coal, grain and other commodities. Over time, the industry consolidated by merging historic names -- Southern Pacific into Union Pacific, Santa Fe into Burlington Northern.
But the rail business began to pick up over the last 10 years as foreign trade became an ever-more important component of the U.S. economy. About half of most railroads’ intermodal business stems from imports and exports. The other half consists of shippers such as United Parcel Service Inc. using the rails for long hauls, with trucks handling the freight at either end.
Today, intermodal is seeing innovation.
Norfolk Southern, which generates $1.3 billion, or 20%, of its annual revenue from intermodal service, has added a new wrinkle called “Triple Crown”: a specially designed truck that is transformed, voila, into a rail car.
“The rubber wheels fold up and steel wheels go down for the rail journey,” says Jeff Heller, vice president of the Virginia-based company’s intermodal division. “The car becomes a truck again at the other end for direct delivery.”
Investors have taken notice of all the activity. Shares of Burlington Northern, which now gets a third of its $9 billion in annual revenue from intermodal transportation, hit a new high for the year on Friday on the New York Stock Exchange. Norfolk Southern’s stock hit its 52-week high this month.
The outlook is robust. The railroad industry has declared that it will hire 80,000 people in the next five years to replace retiring employees. Railroad jobs pay $60,000 to $80,000 annually, according to the Assn. of American Railroads, with excellent benefits to boot.
In a terribly uneven economy, at least one engine of growth is chugging right along.
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James Flanigan can be reached at jim.flanigan@latimes.com.
