TORONTO: More than eight months after an extreme winter began snarling North American rail traffic, a Reuters analysis of industry data shows delays lingering, raising the risk of a second winter of chaos on the rails.
Across the continent’s seven largest operators, trains ran almost eight percent slower on average and sat idle at key terminals for nearly three hours longer in the second quarter than a year earlier, data from the main railroads, known as Class 1, show.
While Canada’s rail operators have nearly recovered, many US operators lag far behind.
The concerns are sharpest in the US Farm Belt, with lawmakers fearful that the biggest crops on record may be slow to reach markets or could even rot.
Rail logjams contributed to the economic slowdown early in the year, rippling across corporate America and affecting everything from car makers to ethanol producers.
Many experts blame an incomplete recovery from last winter’s freight backlogs, coupled with record crops and rising competition with crude oil tankers for track space amid an economic recovery.
“It’s like a sinking ship - you’re bailing out at one end, but it’s coming in the other end just as fast, if not faster,” said Citigroup Global Markets transportation analyst Christian Wetherbee.
Performance fell behind as loads grew: between April and June, US rail carload volumes grew 5.4 percent and intermodal traffic, which include shipments partly by rail, rose eight percent, Association of American Railroads (AAR) data shows.
At the same time, the industry is producing “tremendous” margins, profit and cash flow, with some companies setting records, said rail analyst Tony Hatch.
The largest operators plan to spend about 18 to 20 percent of annual revenue this year on new terminals, track, sidings and equipment to help boost capacity and efficiency, according to Thomson Reuters data. That is slightly higher than recent average annual spending.
Some shippers complain that spending hasn’t been sufficient to meet demand, especially in bad weather. Still, many investment projects are multi-year improvements that can’t quickly fix traffic jams.
“We’re criticised ... because we haven’t put infrastructure in to handle the growth. But then when you try to put infrastructure in, the not-in-my-backyard lobby kicks in and says: We don’t want you here,” Canadian Pacific Railway Ltd Chief Executive Hunter Harrison said on a recent earnings conference call.
Over the four decades to 2000, the nation’s major track system shrank by about half, in terms of miles of rails, according to the U.S. Federal Highway Administration.
Although Berkshire Hathaway’s BNSF Railway Co is spending a record $5 billion this year, its performance lagged those of competitors last quarter. BNSF trains traveled 11 percent slower than year-ago speeds, and stayed at terminals for 18 percent longer.
Fadi Chamoun, an analyst at BMO Capital Markets, said BNSF is unlikely to recover until mid- to late-2015 due to the amount of work it must do.
In recent years, BNSF accounted for some 50 percent of the entire rail industry’s volume growth, analysts said. The company says it handles up to 15 percent of US intercity freight.
BNSF declined to respond to Reuters’ questions about its performance metrics. The Fort Worth, Texas-based railway has said it is working closely with shippers to clear backlogs and adding track, locomotives and crews.
The other four US Class 1 railroads are CSX Corp, Kansas City Southern, Norfolk Southern Corp and Union Pacific Corp.
Kansas City Southern and Norfolk Southern did not respond to requests for comment. CSX said it was investing in strategic capacity additions and was adding train crews and locomotives to restore performance and support growth. Union Pacific CEO Jack Koraleski said that the railroad’s performance has been improving even as volumes have been increasing, adding that it has worked hard to address disruptions and customer issues.
Cowen & Co analyst Jason Seidl said winter exacerbated problems for the industry. “As they were trying to dig out, the volumes took off,” he said.
In the United States, more than 40 percent of goods, valued at more than $550bn, are shipped by railroad each year on some 140,000 miles of track. Canada’s 30,100 miles of track carry half of the country’s export goods.
Frozen transportation links contributed to a nearly three percent contraction in the US economy during the first quarter, the New York Federal Reserve said last week.
Reuters
