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Rail News Home Mechanical

September 2009

Rail News: Mechanical

Touchstones, Guidance and Guesswork in Troubled Times


In distressing times, it can be helpful to seek out touchstones of truth for guidance in navigating through the troubles — and for confidence and patience in waiting for the problems to end and prosperity to return. Two such touchstones for the transportation and rail-car industries are: (1) that the economy, as measured by the Gross Domestic Product (GDP), inevitably will begin to rise again; and (2) that railroad ton miles inextricably will rise with it.

Toby Kolstad  
Increases and improvements in
domestic intermodal might
accelerate the containerization of
more than just highway traffic.

The reasons for optimism are simple. Population growth and increases in labor productivity are two of the strongest drivers of U.S. GDP growth. Since the recession began, the population has increased by almost 6 million; nearly 1 million new households have been formed. Moreover, non-farm business productivity, even during economic contraction, increased 2.8 percent in 2008 and 1.6 percent during the first quarter.

Segment Gains & Losses

Railroad ton miles are closely related to GDP, rising and falling with the economy, with a statistical correlation of more than 95 percent. When the GDP begins to grow again, railroad ton miles will increase accordingly. Not all traffic segments will increase or return to pre-recession levels, however; some may even decline. Such has been the history of rail transportation. As major traffic segments and revenue generators such as crude oil and passengers are lost, others arise to more than fill the void.

When merchandise traffic began to shift from box cars to highway trailers in the 1960s, an increase in coal traffic, especially in the West, more than offset the ton miles lost to the interstate system. Along the way, the number of box cars in the fleet decreased while the number of coal cars increased, affecting both builders and owners of those two car types.

Similarly, as railroads withdrew from the pulpwood and woodchip business during the 1970s and handed the traffic over to their trucking competitors, they managed to capture up to 75 percent of the intercity movement of automobiles, taking many of the latter shipments off the highways. As woodrack flat cars and woodchip hoppers and gondola cars disappeared, the multi-level autorack fleet increased and changed the makeup of trains across the country. More recently, ethanol shipments have offset some of the losses in other traffic segments, and long trains of black tanks with yellow markings have become a common sight.

In the future, if global warming activists are successful in their efforts to decrease CO2 emissions, railroad coal traffic may begin to decline. Right now, it is hard to envision this happening; even the U.S. Department of Energy's Energy Information Agency (EIA) does not envision a scenario of decreasing coal production. However, the EIA did not predict the dramatic increase in wind power during the past few years and has not yet accounted for how the continued increase in wind turbine installations will affect the utility industry. If coal traffic does decline, it would be ironic if railroads' efforts to increase domestic intermodal traffic succeeded in replacing some of the lost ton miles of coal with merchandise ton miles. Although box cars would not be involved, the increase in merchandise traffic in intermodal containers would keep ton miles rising — and, possibly, keep railroad revenue and profits increasing.

Moreover, increases and improvements in domestic intermodal service also might accelerate the containerization of more than just highway traffic. Traffic currently moving in other car types (such as box cars, flat cars, mill gondola cars and multi-level autoracks) might migrate to doublestack well cars. Eventually, rail traffic might fall into just two categories: bulk shipments and intermodal movements.

The Fleet Will Look Different

There's another touchstone of truth to keep in mind, though: Rail traffic patterns change at a glacial place, enabling equipment owners enough time to reap their expected returns from past investments and plan new investments for the future. In 25 years, railroad ton miles will greatly exceed the totals recorded just a few years ago, perhaps reaching 3 trillion ton miles compared with the 1.7 trillion ton miles recorded in 2007. That's an easy prediction to make. It is another matter, however, to guess what the various rail-car fleets will look like in 2035. What is certain is this: They will look as different as today's fleets look compared with the 1985 composite view.

Toby Kolstad has been in the railroad industry for more than 30 years, with stints at the Illinois Central Gulf Railroad, Denver & Rio Grande Western Railroad, a car builder and lessor. Currently a consultant on rail-car matters and president of Rail Theory Forecasts L.L.C.

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