(The following article was posted on the Chicago Tribune website on March 28.)
CHICAGO — Airlines may be the most vocal, but they aren’t the only industry hit by soaring fuel prices.
The nation’s railroads, which consume billions of gallons of diesel fuel each year to power massive locomotives, said soaring prices were beginning to eat into their profit margins.
Richard Davidson, chairman and chief executive officer of Union Pacific Corp., last week warned that the nation’s largest railroad is “recovering about 65 percent of its fuel costs for the first quarter” through a combination of fuel surcharges and higher shipping prices.
Kathryn Blackwell, a spokeswoman for Omaha-based Union Pacific, said: “It is expensive for everyone, and we are the most fuel-efficient means for getting freight cross-country. I can’t imagine what it is like for the truckers.”
Despite the increasing diesel prices, however, Davidson said the railroad’s first-quarter profits could be 90 percent higher than Wall Street analysts are projecting, mostly due to higher volume.
The airline industry, which spent about $6 billion more for fuel in 2004 than it did the year before, has been unable to pass through price increases because of intense competition. Railroads have been able to recover costs through special surcharges, but many in the industry said surcharges were not going up high enough or fast enough.
The surge in crude oil has driven up diesel prices more than 40 percent from two years ago, to $1.40 per gallon from 99.6 cents per gallon. The run-up comes as railroads are using more fuel than ever as the U.S. economic recovery takes hold. Rail operators said carload volumes were up more than 4 percent from a year ago while intermodal volume was up more than 3.5 percent from a year ago.
Fuel costs, which were up 3 percent to $3.8 billion from 2002 to 2003, are estimated to have soared 33 percent in 2004 to about $5 billion as a result of the rapidly escalating price of diesel. Only about half of the $1.2 billion in increased costs in 2004 were recovered by the rail industry through fuel surcharges.