September 26th, 2004

"Railroad Industry Growing, as Oil Prices Remain High"

Intermodal transportation has been a part of the distribution landscape since the 1950s. After the interstate highway system was built, the railroad industry believed the interstate gave truckers an unfair advantage by giving them a right of way supported by taxpayers while railroads had to own and maintain their own tracks. After this development, trucking dominated the U.S. distribution, accounting for 70 percent of all shipments.

Railroads were left to hauling mostly coal, grain and other commodities. With time, the railroad industry consolidated, with Southern Pacific becoming Union Pacific and Santa Fe becoming Burlington Northern. In the last decade, the railroad industry was able to benefit from the growth of foreign trade in the U.S. economy, and now about half of most railroads'' intermodal business comes from imports and exports, with the other half consisting of shipping services for long hauls, like the United Parcel Service.

With the high price of oil, railroads are now enjoying tremendous growth in their intermodal haulage that does not appear to be slowing any time soon. According to Burlington Northern Santa Fe Corp., the second largest U.S. rail system, railroads have the ability for two people with three or four locomotives to haul 250 containers using much less fuel than 250 trucks would. Burlington Northern and Norfolk Southern Corp. are experiencing growth by 20 percent on an annual basis for intermodal business.

At the nation''s largest railroad, Union Pacific Corp., the growth of intermodal commerce may have actually backfired on the railroad company. The rapid growth in intermodal commerce has caused delays on deliveries of many products in Southern California that has angered Union Pacific customers and eaten away at its earnings. Investors have noticed the railroad industry''s growth. On September 24, 2004, shares of Burlington Northern stock hit a new high for the year on the New York Stock Exchange. Norfolk Southern''s stock hit its 52-week high in September 2004 as well.

The railroad industry has also announced it will hire 80,000 people in the next five years to replace retiring employees. A law originally passed by Congress in 1908 called the Federal Employers'' Liability Act (FELA) is what governs work related injuries to railroad workers. Under FELA, a railroad worker is not entitled to recover monetary damages from the railroad by simply being injured on duty, but must be able to prove from the evidence that the injury was in part or in whole caused by the railroad''s negligence.