Rail transport sign for economic health
By looking at rail companies’ quarterly earnings, one can get a good idea how the national economy is doing. Large coal transports indicate a need for energy to produce products and power businesses, automobiles and their parts indicate U.S. residents’ willingness to purchase while forest products reflect housing starts.
At present, it doesn’t look good.
Transportation of coal, automobiles, construction materials, consumer goods and more are down across the board. In Burlington Northern Santa Fe Corp.’s latest quarterly earnings report, the company reported a 10 percent drop in coal delivery; a 21 percent decline in agricultural products; a 36 percent decline in consumer products; and a 34 percent fall in industrial products.
In CSX Corp.’s third quarter 2009 earnings, the rail company posted declines in every category, including chemicals (17 percent), forest products (27 percent), metals (47 percent), and automotive (42 percent).
In the United States, freight rail traffic in September declined 14.2 percent from September 2008, making it the 11th straight double-digit monthly carload decline, according to data from the Association of American Railroads.
Times are tough, but future potential is good.
Railroads move more freight than any other mode of transportation, and rail productivity has increased 144 percent since the early 1980s, when Congress reevaluated regulation of the industry.
The U.S. Department of Transportation expects freight transportation demand to grow 92 percent from 2002 through 2035.
Berkshire Hathaway Inc.’s bold buy into Fort Worth’s Burlington Northern Santa Fe Corp. clearly shows some groups’ confidence in freight rail, as well as the fact that over the past five years, publicly traded railroad companies’ stock gained about 49 percent, far outpacing trucking (an 87 percent drop during the same time).
“We think Berkshire Hathaway CEO Warren Buffett values railroading for its bulletproof economic moat via nearly irreplaceable rights of way, a predictable business model, economic efficiency, and strong free cash flow despite heavy demand for capital investment,” wrote a Morningstar analyst.
