(The following story by Dan Chapman appeared on The Atlanta Journal-Constitution website on August 10.)
AMERICUS, Ga. — Locomotive 3109, with cracked mirrors and chipped paint, plodded across southwest Georgia last week, a slow, yet profitable workhorse in a short-line railroad’s stable.
It delivered lumber to Americus, hominy to a feed mill in Leslie and 10 cars full of rock to Cordele. It chugged along at 25 miles per hour and kicked up enough breeze to temper the cab’s 110-degree heat and keep engineer Bennie Givins in good humor.
“Most of the time we’re running rock, but we also haul a lot of wood. Harvest time is coming up, so we’ll be hauling a lot of corn, too,” said Givins, a 20-year railroad veteran. “You got to be ready to work, 7 a.m. to 7 p.m. I don’t complain about it. You got to keep it rolling.”
Rail freight, on short lines like Givins’ Heart of Georgia Railroad (HOG) or Class A lines like Norfolk Southern and CSX Transportation, rolls toward record profits. Yet much of rail’s success comes at the expense of the trucking industry. Skyrocketing diesel prices have forced thousands of small- and medium-sized companies to park their rigs.
Eight years ago, the HOG moved 3,000 carloads of wood, fertilizer, feed and fuel. This year, the Americus-based short line will haul 10,000 carloads between Preston and Midville.
Stock prices for the nation’s top five railroads, including Norfolk Southern and CSX with a spider web of tracks crisscrossing Georgia, soar. The railroads are even hiring engineers and conductors – in the midst of a sour economy that slows many transportation and freight-related industries.
To combat high fuel prices, the major railroads employ surcharges, prompting accusations of price-fixing, monopolistic practices and lawsuits. But Robert Gallamore, a former Union Pacific Railroad official, dismisses the criticism as unjust while lauding a return to the industry’s golden days.
“What we’re seeing is a renaissance of railroads where they’re really getting back to where God intended them to be,” he said.
A simple goal
Ask industrialists why they locate in Georgia and many will mention the state’s interconnected train, truck, air and port network. Atlanta, nee Terminus, owes its existence to the confluence of three rail lines.
Today, Georgia ranks No. 7 nationally with 4,741 miles of rail line, according to the Association of American Railroads. Twenty-three railroads honeycomb the state.
But the rail industry, both locally and nationally, was on the express train to irrelevance in the 1970s as the interstate highway system, cheap fuel and federal regulations drove many railroads toward bankruptcy. In 1980 Congress deregulated the railroads, allowing freight haulers to set rates and abandon low-dollar lines.
Short-line railroads, with the assistance of state governments fearful of losing tracks and rural communities, picked up some of the Class A rail slack. Their goal was simple: connect local and regional rail lines to the major, nationwide trunk lines run by CSX, Norfolk Southern and others. The HOG, for example, hooks up with five larger lines.
Brad Lafevers, a Texan with a long history of railroading, started the HOG in 2000 by leasing 178 miles of track from the Georgia Department of Transportation. He avoided hauling stuff the bigger lines carried.
“I said, ‘Well, look where we sit? What do we have down here? Wood, dirt and farm products’ ” Lafevers, the company’s president, said last week in an interview at his trackside office in Americus. “The products we had they didn’t want. The big guys got out of the cheap stuff.”
Instead, they concentrated on bigger-dollar, longer-distance coal, car, chemical and grain traffic.
The HOG counts 31 customers today along 150 miles of track. Lafevers and vice president Duane Broxterman also own the Georgia Midland Railroad, which runs another 50 miles of line, as well as 10 locomotives and a railcar repair service. Givins and other engineers also pull tourist trains on the weekend. HOG’s revenues should reach $4.5 million this year, up from about $1 million in 2000, Lafevers said.
In all, the nation’s 550 short line railroads hauled nearly 11 million carloads in 2006, up 9.2 percent from 2004, according to the American Short Line and Regional Railroad Association. Growth has been steady, partly boosted by rising oil prices.
“Five-dollar-a-gallon diesel fuel provides a powerful incentive to ship by rail,” Norfolk Southern CEO Charles Moorman said at a June conference in New York. A month later, the company with a regional headquarters in Atlanta and 1,800 miles of track across Georgia announced net income rose a record 15 percent in the second quarter.
Not to be outdone, CSX, with 2,700 miles of track in Georgia, reported record revenue and operating income that quarter.
Exports of coal and grain helped plump bottom lines. But the doubling in price of a gallon of diesel in a year’s time convinced many shippers to switch from 18-wheelers to more fuel-efficient freight trains. The American Trucking Association reports that roughly 1,000 trucking companies, those operating at least five trucks, have quit the business this year.
Trains, typically, are the cheaper mode of transport beyond 500 miles. The railroads are now trying to capture the under-500-mile freight category. Industry officials note that trains move as much freight as trucks with only one-third the amount of diesel.
“Trucks are bogged down in traffic congestion, particularly in areas like Atlanta, so that more and more of that freight is moving from the highway to the railroads,” said CSX spokesman Gary Sease.
JB Hunt Transport Services, one of the nation’s largest trucking companies, parked 11 percent of its trucks this past year and placed much of that cargo on trains via so-called inter-modal transport.
Standard-sized containers filled with manufactured goods or commodities can be hauled by trucks, trains or ships. A container of Chinese toys, for example, may be unloaded at the port in Savannah, placed on an 18-wheeler, transferred to a freight train in Atlanta, carried to a Milwaukee inter-modal terminal where it will again be placed on a truck for delivery to Wal-Mart.
CSX, with terminals in Savannah, Atlanta and Fairburn, reports that inter-modal transport accounts for 30 percent of its entire transportation volume. Norfolk Southern says that inter-modal makes up 20 percent of its business, up from 13 percent a decade ago.
Diesel-powered trains, of course, aren’t immune from oil’s run-up in price. CSX, for example, says fuel costs rose 81 percent the past year – an extra $220 million expenditure. Fuel surcharges, though, recoup much of those costs, and fuel antagonism toward the railroads.
Collusion charge
Nearly 30 anti-trust lawsuits have been filed against Norfolk Southern, CSX and the nation’s other major railroads, alleging surcharge collusion and price-fixing. Archer Daniels Midland, the agricultural giant, accuses the Big 5 railroads of profiting from surcharges, not using them solely to recoup unanticipated costs.
“The [surcharge] money they derive, which is a pretty significant part of their profits, comes from unrestrained monopolistic power,” said Bob Szabo, executive director of Consumers United for Rail Equity, a nonprofit coalition of freight rail customers.
Robert Martinez, vice president for business development for Norfolk Southern, labeled as “ridiculous” claims of collusion among the rail lines.
“Collusion, of course, would be tantamount to an illegal activity and I assure you that Norfolk Southern is a very ethical corporation,” Martinez said, adding that his company does not overcharge customers.
The industry faces other problems. The U.S. Department of Transportation predicts freight rail traffic will increase 88 percent (over 2002 levels) by 2035. The railroad association pegs the cost of needed upgrades at $148 billion.
Lafevers, with the Heart of Georgia, will leave the billion-dollar headaches to the big boys. He has his own railroad to run.
“A lot of folks would be really hurt if this line didn’t exist,” Lafevers said. “Jobs would disappear. Communities would suffer. So that’s reason enough to get out of bed every morning.”