(The following article by Desiree J. Hanford was circulated by Dow Jones Newswires on September 13.)
ST. LOUIS — Railroad companies are upbeat about their business for the remainder of this year and next year as demand by customers remains strong.
Top executives gathered here Wednesday for the 2006 North American Railroads Customer Forum, giving their customers updates on their preparations for the peak shipping season that’s underway and their outlooks for 2007.
Executives at the forum, which was sponsored by the Association of American Railroads, said they have added tracks, hired more employees and purchased more equipment thanks to continued strong demand.
The industry and Norfolk Southern Corp. (NSC) continue to see “good pricing and volume growth” going forward, the company’s Chairman, President and Chief Executive Charles Moorman told Dow Jones Newswires. Some areas of the business are softening, such as autos because of the issues facing General Motors Corp. (GM) and Ford Motor Co. (F), the forest products business could slow if the housing market weakens, added Moorman, who is also chairman of AAR.
Although there’s been a bit of softness in some parts of demand, overall it remains “pretty good,” Union Pacific Corp. (UNP) Executive Vice President of Marketing and Sales Jack Koraleski said during his presentation at the forum. Union Pacific, the largest railroad by revenue, expects record volumes to continue during the current peak shipping season, with those volumes about 4% to 5% higher this season compared with last season, he said.
Union Pacific expects its total capital spending to be $2.8 billion this year, money that will be spent on more rails, new locomotives and freight cars, technology and other items, Koraleski said. That amount should rise to $3.2 billion next year, he said. The company doesn’t expect much of a decline in business during the next five years, even if the economy slows, because of secular factors, Koraleski said.
Capital investments at Burlington Northern Santa Fe Corp. (BNI) will also continue increasing. The company expects investment will be $2.6 billion this year, compared with $2.2 billion in 2005 and $1.5 billion in 2002, said Chief Operations Officer Carl Ice. That money will be spent on maintenance, locomotives, expansion and more, he said. Burlington Northern began the year expecting to have a capital investments of $2.4 billion.
The company’s return on invested capital – a key measurement for the industry – rose to 10.1% last year from 6.6% in 2002, said Burlington Northern Santa Fe Chief Marketing Officer John Lanigan.
The growth drivers for the railroad industry include the driver shortage in the trucking industry, highway congestion, trans-Pacific trade, fuel prices, coal productivity and capacity investments, Lanigan said.
At CSX Corp. (CSX), the three weeks prior to Labor Day were the largest volume weeks in the company’s history, Chief Commercial Officer Clarence Gooden said. Coal volume during the week before Labor Day, for example, was “extremely strong,” he said, adding that the strong volume has continued.
Total volume shipments have also been strong at Norfolk Southern, executives said. Volume is up 4% year-to-date compared with the same period in 2005, and the railroad posted 23% volume growth between the first quarter of 2003 and the second quarter of 2006, Chief Marketing Officer Donald Seale said.