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Freight by Rail Enjoys Comeback


Track being laid for first time in 80 years as fuel costs hurt truckers


RADFORD, Va. -- When Bob Billingsley hired on with Norfolk Southern railway 31 years ago, he was a rookie on work crews that were closing unused lines as the nation's economy turned its back on the railroads.

Now, he's in charge of raising the roof of a Norfolk Southern tunnel in southwestern Virginia to clear headroom for the double-stacked container cars that have become the symbol of the industry's surge, thanks to a confluence of powerful global factors.

"For years, we were looking for ways to cut costs to increase profits," said Billingsley, as a train rumbled by. "Now, we're building business to increase profits."

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 in the industry has doubled since 2003, and stock prices have soared. The value of the largest railroad, Union Pacific, has tripled since 2001.

This year, 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, the U.S. Transportation Department forecasts.

In central Ohio, rail activity is big and could get bigger. Norfolk Southern has operations in the Rickenbacker area, and CSX, which operates a West Side terminal, has expressed interest in expansion elsewhere in central Ohio. In Marion, CSX and others operate an "intermodal" center, moving shipping containers between trucks and railroad cars.

In the 1970s, tight federal regulation, cheap truck fuel and a wide-open interstate highway system conspired to cripple the railroad industry, driving many lines into bankruptcy. The nation's 300,000 miles of rails became a web of slow-moving, poorly maintained lines, so dilapidated in spots that tracks would give way under standing trains.

The Staggers Rail Act of 1980 largely deregulated the industry, leading to a wave of consolidation. More than 40 major lines condensed into the seven that remain, running on 162,000 miles of track.

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, because of China's unquenchable appetite for coal and the escalating U.S. demand for Chinese goods, more U.S. rail traffic is heading to and from ports in the Northwest.

Coal still accounts for the most tonnage hauled by U.S. railroads, but it is the ocean-crossing shipping container -- carrying autos, toys, furniture and nearly every other product a consumer will buy -- that has lit a rocket under the railroad industry. Passenger rail traffic is also increasing; 2007 was Amtrak's fifth consecutive year of increased ridership, up 6 percent from 2006.

Fortune has even dropped a "green" gift in the industry's lap. A train can haul a ton of freight 423 miles on a gallon of diesel fuel, about a 3-to-1 fuel-efficiency advantage over 18-wheelers, and the railroad industry is increasingly promoting itself as an eco-friendly alternative. Trucking firms also use the rail lines; UPS is the railroad industry's biggest customer.

Rail traffic, revenue and profit began to soar in 2002 and '03 and seem largely immune to the economic downturn. CSX reported a record first-quarter profit. This week, the stock price of Western rail giant Burlington Northern Santa Fe hit an all-time high. At the industry's nadir in the 1970s, railroad companies' average annual rate of return on investment was 1.2 percent. By 2006, it was 10.2 percent.

Even though the economic slump has reduced key traffic about 4 percent this year from last year, it has not slowed the railroads' urgent laying of track. Capital expenses this year are up, as the railroads think the downturn is temporary, said the industry's trade group, the Association of American Railroads.

The industry estimates that $148 billion worth of expansion is needed to carry the amount of traffic expected by 2035. Of that, the railroad companies will contribute $96 billion, said the industry's trade group. The rest would have to come from the federal and state governments.

The railroads say that more trains mean fewer trucks on the road and less air pollution, public benefits that the public should help pay for.

They also say they could not achieve the profits Wall Street demands without government subsidies. The railroads seek a tax credit that would help them expand.

The industry's long-standing antitrust exemption has attracted the attention of lawmakers who want to eliminate it and closely examine the rates that railroads charge to haul freight. The industry contends that would cripple its expansion at a critical time.

Information from Dispatch research was used in this story.