(The following story by Paul Wyche appeared on The Saginaw News website on May 17. With reporting from The Associated Press.)
SAGINAW, Mich. — Railroad owner James “Jim” George is riding what industry insiders call a “rail renaissance.”
As fuel prices continue to rise, freight railroads chug right along.
The business is enjoying its biggest building boom in nearly a century, a turnaround as abrupt as it is ambitious. Growing global trade and rising fuel costs for 18-wheelers largely are propelling it.
The spiraling cost of gasoline and diesel fuel is leading shippers to reconsider the iron horse.
George is president and chief executive officer of Lake State Railway Co. and Saginaw Bay Southern Railway, both based at 750 N. Washington in Saginaw. His operation hauls coal for Consumers Energy, substances for Midland’s Dow Chemical Co. plus cement, lumber and grain for other clients.
George said revenue rose to $20 million in 2007, a 54 percent increase from the previous year.
“We do expect it to continue,” said George, who began his career as a marketing manager for the Detroit and Mackinac Railway Co. in 1980 before acquiring it in 1992.
“It’s been great, and with planned expansions by Consumers Energy, Hemlock Semiconductor Corp., LS Power and others in the region, growth for the future looks good.”
You might notice the uptick in rail use during longer waits at train crossings. Have a little patience, George said, because the railroad system is helping keep inflation at bay.
“The next time a train is holding them up, people should recognize that it ultimately is saving them some money in their pocketbook,” he said.
Adding workers
Jacksonville, Fla.-based CSX Corp., the nation’s third largest rail system, no longer runs through mid-Michigan after selling its mid-Michigan holdings to George in 2005.
CSX, primarily stationed in the Detroit and Grand Rapids areas, began a surge in business in 2003, said spokesman Garrick Francis.
“The economy has put a dent in things a bit from a volume perspective, but all in all things are real positive,” he said.
CSX posted a double-digit revenue increase in 2007 and reached the $10.2 billion mark for the first time.
The company has 800 miles of track in Michigan, carrying 440,000 carloads annually. Some 300 industries rely on CSX’s 600-member work force, Francis said.
George’s enterprise spans 350 miles of track throughout mid- and northern Michigan. He said other companies can’t pass on the transportation savings the railway affords.
Competitors have taken notice. Some larger railroad companies — which George preferred not to name — have made bids for his non-union company, but he has refused.
“We have one of the strongest short-line railways in the country,” he said. “I know others are being bought by the big conglomerates, but I don’t want that for us.”
In 2002, the major railroads laid off 4,700 workers; in 2006, they hired more than 5,000. Profit nationally has doubled since 2003, and stock prices have soared.
The value of the largest railroad, Union Pacific, has tripled since 2001.
Land of opportunity
At 56, George is fulfilling a lifelong “dream” to make it in America after moving from Madras, India, in 1975.
With a bachelor’s degree in physics, the father of three decided he needed more education and attended New York University to acquire a master’s degree in business management. During that time, he worked for the Eastern Railroad Association based in Manhattan. Upon graduation, he accepted a position with a railroad system in Owosso.
His big break came in 1980, when he went to work for Detroit and Mackinac Railway Co. When the company fell on financial difficulties in the late 1980s, he seized control after convincing a group of investors to back him.
“The guys I worked for at D&M were old school, and they didn’t listen to my ideas,” he said. “Since we’ve taken over, we’ve shared 10 percent of our profits with our (100) employees and haven’t missed one payment into their 401(k) plans.
“They know they have a secure job.”
Especially now.
This year, railroads will spend nearly $10 billion to add track, build switchyards and terminals, and open tunnels to handle the coming flood of traffic. Freight rail tonnage will rise nearly 90 percent by 2035, according to the Transportation Department.
In the 1970s, tight federal regulation, cheap truck fuel and a wide-open interstate highway system conspired to cripple railways, driving many lines into bankruptcy. The nation’s 300,000 miles of rails became a web of slow-moving, poorly maintained lines, so dilapidated in spots that tracks would give way under standing trains.
The Staggers Rail Act of 1980 largely deregulated the industry, leading to a wave of consolidation. More than 40 major lines condensed into the seven that remain, running on 162,000 miles of track.
But the changing global market has fueled prosperity — and the need to add track for the first time in 80 years. Soaring diesel prices and a driver shortage have pushed freight from 18-wheelers back onto the rails. At the same time, China’s unquenchable appetite for coal and the escalating U.S. demand for Chinese goods, means more U.S. rail traffic is heading to ports in the Northwest, on its way to and from the Far East.
Coal still accounts for the most tonnage U.S. railroads haul, but it is the ocean-crossing shipping container — carrying autos, toys, furniture and nearly every product a consumer will buy — that has lit a rocket under the railroads. Passenger rail traffic also is increasing; 2007 was Amtrak’s fifth consecutive year of increased ridership, up 6 percent from 2006.
For some lawmakers and advocacy groups, today’s rail business recalls that of the late 1800s, when the only ceiling on rates was the limit of a rail baron’s avarice. The railroads say today’s rates are reasonable and reflect something the industry has not had in decades: pricing power.
“Customers had gotten used to rates going down all those years, and all of the sudden, they’re not anymore,” said James A. Hixon, vice president of Norfolk Southern Corp. of Norfolk, Va. “They don’t like it.”