Tony Hatch’s Top 6 Reasons the North American Rail Renaissance is Sustainable

1. Ready-Made Infrastructure As infrastructure shortage becomes a crisis, the ready-made, tax-paying (as opposed to absorbing) rail right of way will help the industry gain share from other, more congested modes.
2. True Domestic Intermodal Congestion, diesel prices and driver shortages should make true domestic intermodal come of age in the next cycle as international did in the past cycle — look for 1,000-mile length-of-haul (and less) moves and true truck-rail partnerships to accelerate growth.
3. Globalization Continues Even so, international will still be a growth leader — globalization, with its long supply chains, is perfectly suited for double-stack rail, and trade will resume at its more normal growth rate of perhaps two to two-and-one-half times GDP (perhaps averaging 7 percent), with West Coast cities continuing to serve as the leading ports.
4. Commodity Boom Commodities booming globally will mean that both domestic and export bulks will continue to move strongly and at increasing margins as “unitization” and re-written former legacy contracts add to returns from the old rail standbys, coal and grain.
5. Oil Prices The secular changes in the price of fuel plays well to rail’s cost advantages. Even with a cycle of rising rail rates and the imposition of fuel surcharges, the cost-gap to the highway continues to widen.
6. Rail Rate Sustainability ... and the sixth reason the Rail Renaissance will continue and actually grow is that rail price increases neither will be reversed nor hindered by regulators, and they’ll be accepted by customers. Regulators and customers alike want rail capacity to grow — meaning that rail returns will continue to increase as will capacity ... and the virtuous circle continues ...

Tony Hatch has been a senior transportation analyst on Wall Street for 20 years, and an independent analyst and consultant since 1998.