BusinessWeek has had several articles on railroads over the past few
years. I have provided links to them below, along with a summary of
key facts presented in them relating to the competitive and economic
environment facing North American railroads.
Sincerely,
Wonko
"Railroad Stocks: Ready to Roll?" By Eric Wahlgren, BusinessWeek,
February 11, 2004 http://www.businessweek.com/bwdaily/dnflash/feb2004/nf20040211_3022_db014.htm
"Union Pacific's Growth Track" By James Corridore, BusinessWeek,
November 4, 2002 http://www.businessweek.com/investor/content/nov2002/pi2002114_4423.htm
"Railroad Stocks: All Aboard?" By Amy Tsao May 7, 2001
http://www.businessweek.com/investor/content/may2001/pi2001057_395.htm
The most significant economic issue facing railroads at the moment is
rising diesel fuel prices, which is raising their operating costs and
could adversely affect profitability. However, economic conditions
are generally beneficial because of the recovery of the United States
economy. Shipping by train is roughly 10% to 25% less expensive than
shipping by truck, so as the economy and domestic manufacturing
pickup, trains are a popular method for moving goods long distances.
The quest for efficiency among shippers has driven demand for
intermodal shipping, which has increased rail traffic. Furthermore,
the unusually cold winter has increased coal demand, which is a
commodity transported by rail. Natural gas shortages and higher
natural gas prices also have contributed to additional coal
consumption, which is used by utilities to generate electricity.
Consolidation has occurred in the North American Railway market, most
recently with Union Pacific acquiring Southern Pacific and the Conrail
merger involving CSX and Norfolk Southern. Further consolidation is
expected, although difficulties encountered by railroads while
integrating their acquisitions over the past few years and the
economic slowdown may have put a damper on such activities for a
while. New government rules to avoid anti-competitive behaviors may
also have delayed merger activity in the industry.
The industry as a whole has driven to become more efficient by
eliminating unused equipment and reducing headcount. While this has
increased profits, concerns exists that if demand for trains were to
greatly increase in response to continued growth in the economy, the
railroads would have difficulty responding because the industry has
minimal excess capacity.
Railroads are able to compete successfully against trucking because of
their lower costs (trucks require four times the fuel to haul an
equivalent amount of goods). In addition, increasing congestion on
roadways may encourage shippers to utilize railroads to move goods,
particularly when long distances are involved. |
