This is a very good article and I highly recommend reading the entire piece if you have an interest in the railroad industry. It provides an overview of the current environment for railroads as well as a basic history and why they're recovering so much these days.
Railroads are enjoying highly profitable revival
...
The freight railway industry is enjoying its biggest building boom in nearly a century, a turnaround as abrupt as it is ambitious. It is largely fueled by growing global trade and rising fuel costs for 18-wheelers. In 2002, the major railroads laid off 4,700 workers; in 2006, they hired more than 5,000. Profit has doubled industrywide since 2003, and stock prices have soared. The value of the largest railroad, the Union Pacific, has tripled since 2001.
This year alone, the railroads will spend nearly $10 billion to add track, build switchyards and terminals, and open tunnels to handle the coming flood of traffic. Freight rail tonnage will rise nearly 90 percent by 2035, according to the Transportation Department.
... But the changing global market has fueled prosperity – and the need to add track for the first time in 80 years. Soaring diesel prices and a driver shortage have pushed freight from 18-wheelers back onto the rails. At the same time, China's unquenchable appetite for coal and the escalating U.S. demand for Chinese goods means more U.S. rail traffic is heading to ports in the Northwest, on its way to and from the Far East.
...
Rail traffic, revenue and profit began to soar in 2002-03 and seem largely immune to the economic downturn. This month, for instance, CSX reported a record first-quarter profit. Shares of western rail giant Burlington Northern Santa Fe are trading near an all-time high. At the industry's nadir in the 1970s, the average annual rate of return on investment for a railroad company was 1.2 percent. By 2006, that number was 10.2 percent.
I'm becoming increasingly interested in railroads. Railroad freight is much more efficient than trucking when facing gas prices closer and closer to $4.00 a gallon. Even in an economic slowdown, freight will be in demand because a lot of what railroads transport is energy (coal) and grains (corn, etc.), which are both in high demand both here and around the world. Of course, railroads transport other things, but I've noticed that a lot of the major items are things that probably won't be seeing much of a drop in demand anytime soon.
I've done company summaries on only a couple railroads so far, but expect more to come in the future. Portec Rail Products and Burlington Northern are the only ones I've done summaries on, and both seem like fine businesses. I'm feeling that I should get some exposure to the railroad industry, so that may very well be my next purchase. In any case, I will continue to follow the companies and industry closely, so stay tuned.
Tags:
burlington northern, coal, freight, portec rail products, railroads
Posted at: 06:34 AM | Add Comment
| 
| 
del.icio.us
