(The following story by Jane Roberts appeared on the Memphis Commercial Appeal website on July 27.)
MEMPHIS, Tenn. — In a railroad town like Memphis, last week’s string of mostly positive earnings reports has significant buoying power.
In shipping lingo, Memphis is on the center tine of a metaphorical pitchfork representing the nation’s transportation corridors: two broad tines for each coast and one in the middle for the Mississippi River.
As fuel prices increase, experts say trucking goods across the continent will be cost-prohibitive for companies not using rail for some portion of the journey.
“Railroads are getting hit by fuel a little bit, but nowhere near what trucking is getting,” said Donald Broughton, analyst at Avondale Partners in St. Louis. “It means rails are stealing market share from trucks.”
That, experts say, is good news for Memphis, particularly if fuel prices persist.
Because railroads carry hundreds of containers to every one carried by truck, companies are cutting back on trucking, both to save money and to green up their supply chains.
That combination is fueling a three-year run-up in railroad rates and share prices.
The second quarter results are good examples, said Art Hatfield, senior transportation analyst at Morgan Keegan.
“The season has been good, and earnings are still growing,” Hatfield said. “Price has never been as high as it is right now.”
The nation’s largest rail company, Union Pacific Corp., which has a significant intermodal presence in Marion, Ark., earned $531million, or $1.02 a share, in the quarter, up 19 percent from a year earlier.
While No. 2 player Burlington Northern Santa Fe Corp., faltered, reporting a 19-percent decline in net income late Thursday, analysts say one-time clean-up costs after the Midwest flooding hurt, knocking 31 cents off the share price.
It earned $350 million, or $1 a share, compared with $433 million, or $1.20 a share, a year ago.
Canadian National reported an 11-percent decline in net income but a 4-percent rise in revenue, due to escalating freight rates.
It blamed much of the downfall on exchange rate losses and fuel.
As companies recalibrate to be more centrally located or closer to rail, they’re considering Memphis, said David Wedaman, president and chief executive of Re: Trans Inc., one of the largest third-party logistics providers in Memphis.
“Everyone now is looking at distribution networks and taking miles out,” Wedaman said. “There is a strong possibility they will open more warehouses here as a result.”
Due to the economic downturn, they’ll find plenty of empty space.
About 15 percent of Memphis industrial property was vacant at the first of the year, when the most recent studies were done.
According to research by Cushman & Wakefield, the only city with higher vacancies was Fredericksburg, Va., at 17.9 percent.
Railroads have invested in Memphis for decades. It is one of handful of U.S. cities that has five railroads with annual revenues exceeding $250 million.
It also is one of four cities with railroad crossings over the Mississippi.
With the uptick in demand for consumer goods manufactured in Asia, railroads have been pouring on the investment, spending hundreds of millions to beef up intermodal yards in Memphis, and millions more to improve track leading to it.
In 2009, BNSF will open a $100 million-plus expanded intermodal yard at Shelby Drive and Lamar, improving service for customers who occupy some 75 million square feet of warehouse in southeast Memphis and North Mississippi.
“This is the whole point; this is where the action is,” intermodal manager Scott Jenkins told a tour group finishing up a look at the 185-acre project last week.
Canadian National has found plenty at Frank C. Pidgeon Industrial Park, the 3,000-acre greenfield owned by the city and county.
CN invested more than $25 million there to beef up its intermodal yard, partnering with CSX to give it an east leg out of Memphis.
Union Pacific has a sizable yard in Marion.
“And there rumors of a fourth intermodal center,” said Dan Wilkinson at Colliers, Wilkinson & Snowden. “Rail is the cheapest way to move product. That just has to bode well for Memphis and the whole area as a distribution center.
“We are not going away. Memphis’ future is still bright, although immediately there may be some issues we have to deal with,” Wilkinson said.
While he doesn’t disagree, Hatfield said city image and leadership are detractions.
“If we had smarter people running Memphis, we would be making huge transportation investments in this city,” Hatfield said. “We’re one of the few places that connects east to west. And having highways that meet here makes it an even more critical junction.”