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June 2008

Rail News: Rail Industry Trends

Rail reporters ruminate on 'biggest' stories filed (and the ones still to be written)

By Desiree J. Hanford

Dan Machalba, Don Phillips, Larry Kaufman and Rush Loving Jr. have covered or been involved in the railroad industry for more than 100 years combined, working for various newspapers, trade organizations, railroads and government agencies. Below is an edited and condensed version of their insights into the industry’s past and future.

Q. What are some of the top rail stories over the past several decades?

Loving – The Penn Central bankruptcy. It triggered a final realization that the railroad industry, particularly in the Northeast, was dying because of bad regulations. Second was the creation of Conrail. Conrail couldn’t make money so the next big story was the Staggers Act being passed. Those are the triple crown of the railroad industry.

Phillips – Intermodalism has basically taken over railroading. There is more intermodal running now than even coal, or it’s at least close. Along the same line is when the decline in freight stopped and growth began. Highways that were once at 15 percent to 20 percent capacity are now close to 100 percent, at least in the Northeast, and there’s traffic jams in the middle of nowhere.

Machalba – In recent years, we’ve seen demand for freight-rail service surge and that’s allowed rails to raise their rates. Railroads have pricing power, and now they’re expanding facilities and upgrading some of their most important lines to handle greater amounts at higher speeds. The decline of intercity passenger rail in this country is another story.

Kaufman – There was an explosion of traffic earlier this decade. It’s an era that Tony Hatch calls “The Railroad Renaissance,” and he’s correct. It’s a secular shift: Congestion issues won’t significantly get better and oil won’t go back down to $30 a barrel.

Q. What will the biggest railroad industry story be in the coming years?

Loving – It will be how the railroads keep up with the increased freight challenge, and how they deal with passenger rail in the process. They’re running at capacity right now. Studies show they need $149 billion in the next 20 to 30 years for more capacity, and you need a good return on investment to get that capital. How they get it will depend heavily on the government giving them tax breaks, tax incentives, and continued independence from hedge funds and speculators and Wall Street, in general.

Phillips – Railroads have to figure out how to handle all this freight. They’ll have to haul it. The highways can’t. The only thing that can screw it up is if the rest of the world says the U.S. can’t move anything anymore and other countries decide to do something.

Machalba – The sustainability of “The Railroad Renaissance” for freight and whether passenger rail can have a meaningful rebirth with major expansion. Light rail has expanded at some level, but intercity rail hasn’t seen as much. I don’t know if we’re going to see a real renaissance in intercity passenger rail.

Kaufman – Re-regulation. I don’t think it will happen this year, but there’s a real good chance you’ll have a Democratic House, Senate and White House. I’d be very concerned if I was a rail guy, doing everything today so that nothing goes badly for me tomorrow. And historically, railroads have always given a vast majority of money to the GOP. And if enough chemical companies scream about the price of moving chlorine and utilities say they have to raise rates because railroads are charging them to move coal, it could happen.

— Desiree J. Hanford, who worked for Dow Jones & Co. the past 10 years covering the equities market, including transportation, is a Chicago-based free-lance writer.


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