(Reuters distributed the following article by Reshma Kapadia on August 18.)
NEW YORK — U.S. railroads are bracing for the fall peak season, which could test already strained resources after unprecedented volumes this year.
Shippers and regulators will closely monitor how the sector, vital to the economy because it delivers both raw materials and finished goods, handles the traditional peak season when crop harvests and shipments from abroad for the holiday retail season add to freight volumes.
Rail congestion has already hurt companies such as coal miners Arch Coal Inc. and Peabody Energy Corp. and further disruptions could sting many more, analysts said.
“The whole goal is for the transportation supply chain to bend, not break,” said Jason Seidl, analyst at Avondale Partners.
Volumes have surged as companies replenished inventories amid the economic recovery and as the weak dollar boosted imports, but the upswing has not been a windfall for everyone in the sector, which is also contending with high fuel prices.
Union Pacific Corp. and CSX Corp. have scrambled to hire more crew and buy equipment to cover shortages and alleviate bottlenecks. Poor returns on investment and slow revenue growth kept some railroads from spending on infrastructure in the past, and that is hurting them now.
Independent transportation analyst Anthony Hatch said operations seem to have stabilized but the question is what happens if they are hit by a big wave. He expects some delays and prioritizing of what business is taken, based perhaps on the margins.
Norfolk Southern Corp., which invested in tracks and stations a few years ago, and Burlington Northern Santa Fe Corp. have fared better than CSX and Union Pacific.
“There seems to be increasing divergence between two good performing railroads and two poor railroads,” said S&P transportation analyst Andrew West. “From an investor point, what good is a cyclical upturn if, when times should be good, your system isn’t able to handle it?”
The government’s Surface Transportation Board has asked railroads to outline their plans for the peak season and the rails have said they are talking more to customers, boosting hiring, buying more equipment and reopening closed rail yards.
“Certainly, we have seen some improvement in the two railroads having the most difficulty — UP and CSX — and that has given me some hope things won’t get a lot worse,” said Roger Nober, chairman of the Surface Transportation Board. “I’m not going to say we are out of the woods, but everything that can be done has been done.”
“We have seen some spot improvement in different problem areas across North America,” said Bill Huff, director of global rail operations at Dow Chemical Co., which uses the railroads to transport its products. “But we are continuing to see issues around the country that require us to take alternative actions to get our product out.”
Often, shippers turn to truckers if there is rail congestion. But the trucking sector is also facing capacity constraints and a shortage of drivers, leaving railroads some room to raise prices modestly, analysts said.
While some analysts said if the situation worsens significantly there could be a backlash through the economy, most do not foresee a meltdown.
“It’s not as if they are hitting peak season at their absolute worst,” said Lehman Brothers analyst Jennifer Cooke Ritter.