US Railroads Park Freight Cars As Demand Slump Intensifies
23 January 2009 - 7:46AM
Dow Jones News
Forget planes parked in the desert. The thousands of empty
railroad freight cars parked on out-of-the-way tracks across the
U.S. provide a potent symbol of the evolving global economic
slowdown.
The three largest U.S. railroads said this week that they have
put 107,000 rail cars into storage among them - 17% of their
combined fleets - amid a deepening slump in freight.
Union Pacific Corp. (UNP), Burlington Northern Santa Fe Corp.
(BNI) and CSX Corp. (CSX), as well as smaller peers and leasing
companies, also have sidelined hundreds of locomotives.
"They're parked in every spare track I could find," Union
Pacific Chief Executive Jim Young said in an interview.
While U.S rail freight volume has been falling since late 2006,
the drop became more pronounced in the final quarter of last year.
Operators remain profitable, helped by continued pricing power,
employee furloughs and other efficiency measures.
Union Pacific, the largest U.S. railroad operator by revenue,
has about 48,000 freight cars in storage out of a total fleet of
289,000. Burlington Northern said it has about 35,000 cars in
storage, while CSX has parked about 24,000.
"It's a very high number," said Young. "There's no question
these are numbers that, at least in current times, I haven't seen
[before]".
Union Pacific's focus on the western U.S. has helped its volume
soar since 2003, as imports and exports boomed from West Coast
ports and agricultural production climbed with record commodity
prices.
But the company's overall freight volume dropped 12% in the
fourth quarter and is off about 18% through the first three weeks
of the year, said Young.
"There's been sort of an unprecedented decline in [freight
volume] in the last two months," Dahlman Rose & Co. analyst
Jason Seidl said. "The last thing you want to do is have the
equipment clogging up [track]."
Railroads have used the falling volume to improve overall
efficiency in key metrics such as dwell time and train
velocity.
Meanwhile, industry executives and analysts said there's little
downside to storing rail cars until demand improves, because they
can be brought back into service quickly.
That contrasts with the expensive process of storing aircraft in
the dry desert air of California or Arizona. Many of the planes
parked over the past year by U.S. and overseas carriers aren't
expected to return to service.
Parked rail cars may become irresistible targets for graffiti
artists, but they don't deteriorate much because they're designed
for hard, outdoor use over several decades or more. Rail cars are
stored in rail yards or on secondary tracks.
While railroads were scrambling a year ago for coal-carrying
cars - still the most buoyant part of the industry - new and used
sales and leases are under pressure with so much capacity sitting
on the sidelines. Manufacturers of rail cars have been wrestling
with oversupply in some sections of the business even before the
latest slump in freight demand.
"The last thing you want to be is somebody that is manufacturing
[transportation] equipment right now," Seidl said. "There's a lot
of pressure on manufacturers and on after-market sales."
GATX Corp. (GMT), one of the largest rail leasing companies,
reports fourth-quarter earnings Friday. Its fleet utilization was
97.8% at the end of September last year, down slightly from 97.9%
in the prior-year quarter and at the end of 2007.
-By Bob Sechler, Dow Jones Newswires; 512-394-0285;
bob.sechler@dowjones.com
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