Booming U.S. Freight Rail Industry Could Run into Major Congestion Problems

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Researched by Industrial Info Resources (Sugar Land, Texas)--As oil and resulting gas prices continue to rise, more attention is being paid to problems in the airline, automotive and trucking industries than ever before. Airlines are adding fees to help address rising fuel concerns; automakers are closing or idling plants and laying off workers as they adjust to demand corrections; and trucking companies are finding it increasingly difficult to make a profit with diesel prices increasing almost daily. Meanwhile, the freight rail industry in the United States is booming.

The 140,000-mile rail network that crisscrosses the country carries everything from corn to coal to steel to automobiles to people. As oil prices continue to rise, more products and raw materials have made their way onto freight cars to be transported from point A to point B and beyond. The Association of American Railroads estimates that moving 1 ton of freight from coast to coast takes 27 gallons of diesel by truck, while it only takes 7 gallons of diesel to move the same amount by train. Pure economics dictate that freight transport within the trucking industry will decline while it rises in the freight rail industry, as long as diesel prices remain high.

The problem within the freight rail industry arises from the rail network itself. Currently, the existing rail network requires billions of dollars in maintenance on an annual basis just to maintain current levels of transport. Recent studies have indicated that to meet estimated increases in demand, an additional $148 billion will be necessary over the next 25 years. This money would be used to replace track and support facilities, and, more critically, to rebuild and expand the infrastructure in key areas of the country to allow freight to be moved more efficiently.

Chicago is a perfect example of an area in dire need of an influx of capital in the freight rail arena. Forty percent of all freight transported in the United States by rail passes through the Chicago area on an annual basis. That represents 180,000 trains each year. However, the Chicago freight rail system was developed and built in the mid-1800s, when the city was home to only 30,000 people. Today, the area has more than 10 million residents, people who will certainly be up in arms if rail companies come in and double or triple the tracks running through their neighborhoods.

About 500 freight trains pass through the Chicago area on a daily basis and have to share track with -- or yield to -- 700 commuter trains that also travel the area daily. This can cause massive delays in moving freight through this key region. A five-minute delay in Chicago can force trains to slow or stop in Los Angeles or Baltimore before the day is done. The results of these delays can be shown monetarily. For example, the United Parcel Service Incorporated (NYSE:UPS) (Atlanta, Georgia), which uses 3,000 freight cars each day, estimates that a 5-minute daily delay for each of its drivers costs the company $100 million annually.

Therefore, it is critical for the freight industry's future that bottlenecks such as Chicago, where it can take up to two days for trains to work their way through the city, receive immediate attention in the form of a redevelopment plan and the money to make it happen. Herein lies the problem: estimates for expanding capacity in the Chicago area range from $1.5 billion to $4 billion. Where is this much-needed funding going to come from? Recent debates in the Illinois state legislature have been unable to resolve funding issues for proposed transportation plans statewide, and these plans have been aimed more at road and light/commuter rail issues rather than freight rail.

Other areas of the country are in similar straights. Union Pacific Corporation (NYSE:UNP) (Omaha, Nebraska) maintains critical routes in southern California and the Southwest that are forced to utilize a single track. This causes delays that ripple across the entire network and delay the delivery of key agricultural and Asian trade goods. In Baltimore, the low Howard Street rail tunnel, which is a critical connection between the Mid-Atlantic rail system and the Midwest, also has only a single track, and because of its height, is unable to handle double-stacked rail cars.

Expansion of the freight rail infrastructure is necessary now, and there are no indications that this will change in the foreseeable future, as oil prices are going to remain over $100 per barrel. New routing and track will be necessary at key choke points such as Chicago, and double and triple tracks will be needed elsewhere. The problem, as always, will be twofold: Where does the money come from, and can the freight industry get the public to allow them to expand through suburban areas?

The solution will not be easy to achieve, but now is the time for the players in the industry, along with state and federal governmental experts, to get together and generate a plan to address a situation that only gets worse monthly. If a solution is not found soon, a complete rail system meltdown could be in the works by 2035, as recently predicted by Matthew Rose, CEO of Burlington Northern Santa Fe Corporation (NYSE: BNI) (Fort Worth, Texas), when he addressed fellow industry leaders, where trains would be stopped for days at a time all across the country simply because the rail system has no where to go. The cost of ignoring this problem for much longer will be billions of dollars worth of damage to the U.S. economy, something that the country will certainly not be able to afford.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.