Rail traffic will rebound in the second half, Class I officers tell ASLRRA annual conference attendees

by Jeff Stagl, Managing Editor

Jack Koraleski pondered what the short-line set must have been thinking about while he and three of his colleagues offered a presentation entitled “Railroads and a Slowing Economy,” particularly since rail traffic declined in the first quarter after record 2006 carloads.

“Can we sustain the numbers? Apparently not!” Union Pacific Railroad’s executive vice president of marketing and sales joked during the presentation held April 23 at the American Short Line and Regional Railroad Association’s annual meeting in Baltimore.

But the message Koraleski and his counterparts wanted to stress to short liners and other audience members was neither comical nor downbeat.

Koraleski, BNSF Railway Co. EVP and Chief Marketing Officer John Lanigan, CSX Corp. EVP of Sales and Marketing Clarence Gooden and Norfolk Southern Corp. VP of Industrial Products David Lawson outlined why they believe carloads will rebound in the second half.

Asian imports remain strong, industrial development efforts continue to attract new business to rail and transportation capacity — especially in the trucking sector — still is tight.

“We were told that business would flee to trucks when the economy slowed, but that’s not happening,” said Lanigan.

Locked in on LTL
The four Class Is also are pursuing traffic they previously lost to trucks because of rate increases or an inability to compete for less-than-truckload (LTL) shipments.

For example, BNSF is piloting an Assess, Improve and Maximize (AIM) initiative in Denver and Phoenix under which the railroad is targeting general carload business that “still operates in a LTL environment,” says Lanigan.

BNSF salesmen are literally “walking along every mile of track in the markets” and meeting with shippers to determine what the railroad could do to standardize operating practices and provide more efficient service, he says.

“There’s a vast amount of industries on or near our tracks,” says Lanigan. “We want to try to streamline and enhance our service so a customer can get more of their freight on a train. It’s all about bringing the right value to customers.”

It’s also about providing on-time service. If there’s been one benefit from decreasing traffic, it’s the time the slowdown has allotted the Class Is to boost service metrics, says Koraleski.

UP’s average train speed has gone up, while average terminal dwell time and cars on line have gone down the past few months, he says.

In addition, UP is catching up with capacity projects. The railroad’s 2007 capital spending is up about 15 percent to $3.2 billion vs. 2006 primarily to build track and facilities, and prepare for projected volume growth, says Koraleski.

“We still think volumes will grow 3 to 4 percent this year,” he says.

CSX is projecting similar traffic growth, but could use an assist from its 230 short-line interchange partners to increase carloads by 2007’s end, says Gooden.

“If we could get one business opportunity from each short line, that really adds up,” he says.

Short lines are vital to NS’ traffic, as well, adding 1 million shipments to volume annually, says Lawson.

Intermodal, ethanol are key
But intermodal remains the Class I’s bread and butter. Excluding intermodal shipments, NS’ first-quarter traffic volume would have decreased 6 percent instead of 4 percent, says Lawson. To boost carloads, NS will be counting on another key traffic segment: ethanol.

“It’s not often that the phone doesn’t ring at least once a day about an ethanol opportunity,” says Lawson.

At least one audience member was encouraged by the Class I officers’ upbeat forecast on traffic opportunities and their respective road’s financial outlook.

“Interestingly, they all said that they thought they were seeing early signs of an economic turnaround,” says independent rail industry analyst Tony Hatch. “That’s something I hadn’t heard [stated] as strongly in the Class I earnings conference calls.”