The transport of goods by rail rather than by truck is an increasingly attractive option for long distance U.S. shippers because of current high oil prices, analysts said this week.
Investors such as Warren Buffett and Carl Ichan are buying up railroad shares, betting that higher oil prices and surging Asian imports along with congested highways will boost long-term rail demand.
Rail shipment volumes reached a record last year, boosting shares and earnings at the four biggest operators, Union Pacific Corp., Burlington Northern Santa Fe Corp., CSX Corp. and Norfolk Southern Corp. From January to May, as the price of oil climbed 37 percent, shares in Union Pacific gained 24 percent and shares in CSX rose 26 percent.
In 2005, trucks carried 69 percent of domestic U.S. freight, up 3 percent from 1994, according to the American Trucking Associations. Meanwhile, railroads lost 13 percent of their shipments two years ago.
"We expect the rails, after 40 years of ceding volumes to the highway, to take back market share over the next 10 years," Bear Stearns & Co. analyst Edward Wolfe wrote in a May report to investors.
Shipping by truck consumes four times as much fuel as shipping by train does, and shipping rates for trucks are about five times higher than for trains, according to TCI Fund Management LLP partner Snehal Amin. "There's no question that trucking is less competitive now than it was three or four years ago," he said. "Unless oil prices are going to fall, and fall substantially, they're not going to be more competitive" (Angela Greiling Keane, Bloomberg, June 21). -- RJD
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