(The following article by Katherine Yung was posted on the Dallas Morning News website on June 26.)
DALLAS — Trade with China isn’t just about cheaper clothes and computers. It’s also about reshaping and reinvigorating one of the linchpins of the American economy: Burlington Northern Santa Fe Corp.
The nation’s No. 2 freight railroad is thriving as it finds its fortunes increasingly linked to shipments from the world’s fastest-growing economy.
Revenue at the company has been hitting record highs. Demand is so strong that for the first time since the deregulation of railroads in 1980, Burlington has been able to raise its prices, instead of lowering them. After several years of trimming its workforce, the railroad is hiring, too.
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So important is trade with China that Burlington, which operates a 32,000-mile network stretching across 28 states and two Canadian provinces, no longer sees its financial outlook completely tied to the ups and downs of the U.S. economy.
“Gross domestic product growth is not the most relevant issue for us,” Matthew Rose, chairman and chief executive, said in a wide-ranging interview discussing the future of Burlington and the rail business.
“How much more goods are going to be produced in China is really much more important than whether we have 3.1 percent GDP growth or 4 percent or 2.7.”
China has an impact on more than the bottom line. To transport the rapidly growing number of containers arriving daily at ports in Southern California and the Pacific Northwest, the railroad has had to alter the way it operates.
It has been adding a parallel second track on key routes, such as its line between Chicago and Los Angeles. It’s been increasing the number of cars on each train.
Also, a system that once existed to haul raw materials into manufacturing plants and finished goods out now is focusing on its main routes, rather than its branch lines.
The result: The railroad’s network is both simpler and denser.
“More and more U.S. manufacturers, more and more U.S. retailers will be buying more and more goods specifically from China,” Rose said. “We’ve had to change our railroad, our strategy of the entire railroad and the focus of how we handle distribution to accommodate that.”
Since 2000, U.S. imports from China have doubled in value, reaching $197 billion last year alone.
Congested highways, a truck-driver shortage and improvements in railroads’ efficiency and reliability have turned rail into a more attractive option for retailers, manufacturers and others. Now, railroads are prospering and scrambling to find ways to carry more freight.
“We are in the very early innings of a comeback for a very traditional industry,” said Anthony Hatch, an independent analyst who has followed the railroads for two decades. “This is clearly the best time I’ve ever seen since deregulation. We are very clearly in a renaissance.”
With Burlington leading the pack, total industry revenue jumped 13.4 percent in this year’s first quarter from the year-ago period, the largest quarterly increase in more than a decade, according to James Valentine, analyst at Morgan Stanley. Even lofty fuel prices, the bane of airlines, isn’t proving as much of a headache as many had feared. Burlington is offsetting higher diesel costs through a combination of hedging and customer fuel surcharges.
Investors have taken notice. During the past year, Burlington’s share price has shot up more than 50 percent.
The good times mark a profound shift from the past. Since railroads were deregulated a quarter-century ago, the industry has been cutting capacity and merging to cut costs as prices fell year after year.
To survive, many railroads like Burlington began utilizing technology to become more efficient. Technology also has enabled train crews to shrink, from five people to two.