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 Feature Industry Articles 
Monday, June 03 2019
The Nation's Steel Arteries

By Michael D. White, author and freelance writer

Now spanning a staggering total of more than 140,000 miles of trackage, the network of steel veins and capillaries crisscross the U.S. connecting 49 of the country’s 50 states with each other, as well as Canada and Mexico, carrying the very life’s blood of its vast and complex economy, and, in turn, linking virtually every point in the nation with deep-water ports on four coasts and, thence, with markets and suppliers across the globe. 

According to the Washington, D.C.-headquartered American Association of Railroads (AAR), U.S. freight railroads annually carry nearly 54 tons of freight per American—a staggeringly vast assortment of goods from bananas, steel wire, and automobiles to soybeans, sporting goods and home appliances.

U.S. freight railroads are divided into four categories or ‘Classes’ based on their operating revenues and service activity: Class 1; Class 2, or Regional; Class 3, which offer ‘short line’ or local line haul services; and Class 4 lines, which maintain switching operations at ports and industrial complexes. 

The seven U.S.-based ‘Class 1’ freight lines are considered the ‘Big Boys’ of the industry—the Union Pacific (UP), the Burlington Northern Santa Fe (BNSF), CSX, The Grand Trunk (GT), Norfolk Southern (NS), Kansas City Southern (KCS), and Soo Line (SL). 

The Canadian National (CN), and Canadian Pacific (CP) are also taken into account and considered ‘Class 1’ carriers because of their considerable trackage in the U.S. 

Those carriers can move one ton of freight 475 miles on a single gallon of diesel fuel with new technology constantly being developed to continue to improve fuel efficiency, while, according to one source, freight trains are three to four times more fuel efficient than trucks and generate a carbon footprint that is, on average, 75 percent less than that of trucks.

In fact, if railroads did not move an overwhelming bulk of the nation’s freight, says one industry analyst, “It would take over 120 million additional trucks traveling on public roadways and take four times more fuel than rail to handle the freight Americans rely on every day.”

As a whole, the railroad industry “seems to be poised well not only in the near term but also in the long haul on the back of robust freight demand fueled by a buoyant U.S. economy,” says Southern California-based Zack’s Investment Research. “A strong U.S. economy supports the bullishness of freight railroad operators, as it implies that more goods are being transported across the country.”  

Nature Takes a Toll

Despite the rosy outlook, though, last March, historic flooding in the U.S. Midwest caused havoc for the rail sector—and its vital agricultural base with farmers and ranchers in Nebraska alone facing upwards of $880 billion in losses—as rivers rose to unprecedented levels in more than 40 locations across the region due to record rainfall and melting snow and ice triggered power outages, breached dams and broke levees.

As a result, Federal Railroad Administrator, Ronald Batory, went as far as to declare an emergency event for railroad operations with the country’s two largest rail carriers, the UP and BNSF, diverting service and deploying maintenance-of-way forces to work around the clock to clear trees and other debris from tracks, and to repair track structures in several impacted areas.

As the flood waters slowly receded, BNSF has created a Midwest flooding recovery web page to provide specific information and resources regarding the impact of the flooding , along with several ‘embargo bulletins’ to inform customers of limits on its operations in Iowa, Nebraska, and Missouri. 

The UP also reacted quickly to the disaster with the company, on March 21, announcing the reopening of two of its most important subdivisions that were damaged by the flood—the Blair (which connects Fremont, Nebraska to Missouri Valley, Iowa), and the Omaha (which links Missouri Valley, Iowa, with Fremont, Nebraska, via Omaha).

Agriculture: A Long-Standing Relationship

The symbiotic relationship between America’s farmers and its railroads extends well back into the 19th Century as wheat and corn and dozens of other products grown and processed in the rural Midwest made their way to the country’s urban centers.

In 2017, says the AAR, U.S. Class I railroads moved 1.6 million carloads of farm products—six percent of total carloads—carrying 150.3 million tons, or nine percent of total tons, and earning gross revenue of $6.0 billion, or nine percent of total revenue for the year.

U.S. rail carriers also play an overwhelmingly critical role in moving agricultural products both produced and consumed in the U.S. across the borders with Canada and Mexico and around the world. 

Grain continues to top the list of agricultural products moved by rail in the U.S., the world’s largest producer of the crops that fall into that singular classification—namely corn (which alone accounts for 65 perent of U.S. grain production, according to the U.S. Department of Agriculture), soybeans, oats, wheat, rice, rye, sorghum and barley—with average production between from 2008 to 2017 of those crops topping 569 million tons.

In 2017, U.S. Class I railroads inventoried more than 283,000 rail cars dedicated to grain shipments and moved 1.46 million carloads of grain with Illinois, Minnesota, Nebraska, and North Dakota ranking as the top states for rail originations of grain products during that period. At the same time, Washington, Texas, Illinois and California served as the top states for rail terminations and ultimate overseas shipments.

  A vast majority of the country’s perishable and non-perishable food products such as meat, poultry, beverages, dairy products, fruit, vegetables, sugar, and edible oils also move cross-country by rail with 1.6 carloads of foodstuffs handled in 2017. In addition, various grades of flour fill tens of thousands of rail cars every year with each full carload capable of carrying enough flour to produce a quarter of a million loaves of bread. 

Intermodal: ‘Canned’ Business is Booming

A full 93 percent of global trade moves by sea in intermodal containers, or ‘units,’ with goods moving to and from points all over the world through U.S. ports in volumes that stagger the imagination and account for roughly 23 percent of total U.S. freight rail revenue.

In the first quarter of 2018, for example, more than 2.4 million units—also known as ‘cans’—moved through North American ports alone, according to the Intermodal Association of North America (IANA). That was a gain of almost 4.5 percent over the same period the previous year. 

Quarterly international intermodal volume increased by 5.5 percent, while domestic moves—containers moving by rail between points in the U.S.—grew by 3.4 percent.

By the end of 2018, U.S. intermodal freight volumes posted a fourth quarter growth rate of 4.2 percent year-over-year with U.S. freight railroads moving a record 14,472,849 intermodal units generating roughly, one quarter of total U.S. freight rail revenue. 

“The intermodal segment has improved significantly in 2019,” says Zack’s Research. “In the last two weeks of February, intermodal volumes grew a significant 816,986 units. Strong intermodal volumes have been bolstering railroads’ top line and the uptrend is likely to continue going forward. Improving prospects of intermodal segment has been benefiting railroads since the beginning of the year.”

Growth of intermodal volumes in recent years is anticipated to drive railroads’ top line, it says, adding that, “Volumes at this key revenue generating unit rose 5.6 percent in 2018, thanks to an increasing number of freight conversions from highway to rail due to limited truck supply.”

Notably, “intermodal now reportedly dominates overall carloads. Apart from a low truck count, growing eCommerce demand is another catalyst behind growth of intermodal.”

In April, the BNSF unveiled a new 'direct rail' intermodal service connecting  Los Angeles with the industrial and consumer markets in and around northwest Ohio. The service links to Toledo, Columbus, Detroit, Louisville and Pittsburgh and is available five days a week for both eastbound and westbound freight transit.

Moving Energy

Coal —Coal volumes have historically contributed the maximum to rail carloads, the companies have shifted their dependence to intermodal on account of dwindling coal volumes. Consequently, the sluggish coal scenario is likely to be less of a hindrance for railroads.

According to the AAR, technological advances in natural gas extraction and greater reliance on renewables like wind and solar over the past several years “have led to a sharp decline in coal’s share of U.S. electricity generation and a precipitous drop in the amount of coal moved by railroads.”

Despite that, coal remains an important commodity for railroads. The Omaha-based Union Pacific, the Burlington Northern Santa Fe, the CSX and Norfolk Southern derive significant, though declining revenue from moving coal from collieries in Wyoming, West Virginia, Kentucky, Pennsylvania, Illinois, Montana, Texas, and Indiana to domestic power generation stations and steel makers across the country and facilities at ports such as Norfolk, Detroit, New Orleans, and Mobile for export to Europe, China and India. 

In 2017, U.S. Class I railroads moved 4.5 million carloads of coal. Although coal volumes have historically contributed the maximum to rail carloads, the companies have shifted their dependence to intermodal on account of dwindling coal volumes. Consequently, the sluggish coal scenario is likely to be less of a hindrance for railroads.

Ethanol — Ethanol is an alternative fuel commonly made from corn. It’s typically shipped out of the Midwest by train or truck to coastal refineries like those in Texas. The product is then blended with refinery-made fuel so it can meet the federal government’s Renewable Fuel Standard mandates. Currently, almost all U.S. gasoline is blended with 10 percent ethanol.  

Because of its alcohol content, ethanol cannot move in oil pipelines, making railroads the chief mode of transport for this commodity. Today, railroads account for 60 to 70 percent of ethanol movement. 

Each of the Class 1 railroads transport ethanol, with some serving several dozen plants. An estimated 15 to 20 percent of ethanol rail movements originate on short line and regional railroads—not surprising, given the rural nature of many short lines and much of America’s ethanol production, says the AAR.

Ethanol production is concentrated in the U.S. Midwest where most of the corn used in ethanol production is grown, but many of the major markets for ethanol are on the East Coast, California and Texas.

Because of the March flooding in the region, disruptions in rail service are continuing to threaten a supply crunch. Ideally, an estimated 650,000 barrels of ethanol move along the nation’s rail lines every day, but, according to industry sources, damage to rail lines and facilities in the product’s primary production region have resulted in a 15 percent disruption in that volume. 

Petroleum — Environmental and safety concerns have melded with a lack of pipelines to the U.S. and an oversupply of Canadian crude oil have led energy producers in Western Canada to look for alternatives such as railroads to ship crude south of the border.

As a result, Canada’s largest railway operator said total carloads, the amount of freight loaded into cars, rose about five percent in the final quarter of 2018.

In late September, Canadian oil producer Cenovus Energy decided to ship crude through CN Rail’s network from the final quarter of 2018 as part of a three-year deal.

Canada’s biggest railroad, the Canadian National, is reportedly generating interest in moving crude oil in a solid, hockey puck-like form, a natural in the hockey-loving country, according to petroleum industry analyst Kallanish Energy. 

The railroad, it says, is seeking commercial partners to build a pilot project that would process 10,000 barrels per day of heavy crude into the railroad’s patented Canapux product, according to Reuters. The product would encase solid crude oil in a plastic coating and would be 50 percent cheaper than transporting crude by rail in liquid form.

The CN says the solid crude, never before commercially shipped in this form anywhere in the world, could be transported more cheaply, efficiently and with less environmental risk that liquid crude oil in rail tank cars.

The product would provide a transportation option in western Canada, where oil shipments are curtailed by pipeline shortages. Rail shipments are an option, but they are costly and create a safety risk.

The pucks float and would be easier to recover from a spill into water, it said. The oil pucks would move in open gondola cars that weight less than tank cars and would not require a diluent or an ultra-light oil to enable the heavy crude to flow by either rail or pipeline.

A proposed conversion plant near Edmonton, Alberta or at an oil producer’s site would cost about $38 million to build and could be in operation by 2020.  

Wheels on Rails: The Auto Industry

As demand for new automobiles has grown over the years, railroads were compelled to move automobiles and trucks in a more efficient manner. The answer was a railcar specifically designed for the movement of motor vehicles, an innovation that has greatly increased the number of autos carried per railcar from two to ten or more, according to the AAR.

In 2017, U.S. Class I railroads moved 1.8 million carloads of motor vehicles and auto parts (which, alone, constitute some six percent of total carloads), carrying 36.0 million tons (two percent of total tons) and generating gross revenues of $5.5 billion, or a full eight percent of total carrier revenue.

“Today, railroads are involved in many stages of auto manufacturing. They move the raw iron ore and coke needed to make steel, deliver semi-finished products to manufacturing facilities where they are used to produce auto parts and move the final vehicles,” the Association says.

Using a combination of boxcars and intermodal containers, railroads transport hundreds of thousands of carloads of auto parts each year. Many larger parts—such as frames, engines, transmissions and axles—are too large or heavy to move in large quantities by truck, and as a result, are largely hauled by freight rail from auto parts suppliers to automobile assembly plants.

With auto manufacturing spread across North America, freight rail moves the imports and exports of Canadian and Mexican automotive products to and from auto factories in dozens of U.S. states including Tennessee, North Carolina, Texas, Illinois, Alabama, Kentucky, Indiana, Georgia, Missouri and Ohio. 

Class 1 Infrastructure Improvements: Some Examples 

Union Pacific – The UP continues to aggressively cut costs and retire older machinery. The company removed over 1,200 locomotives and approximately 30,000 freight cars last year alone, to increase operational fluidity and provide a gateway of future growth capacity.

Rolled out Oct. 1, 2018, the new plan incorporates precision scheduled railroading (PSR)―an operating strategy in place or under adoption by all Class I railroads except rival BNSF—to help the UP meet its stated corporate objective “of operating a safe, reliable and efficient railroad that can spur business growth.”

Unified Plan 2020 calls for shifting the operational focus from moving trains to moving cars; minimizing car classification events and dwell time; employing more general purpose trains; and balancing train movements to improve asset utilization.

Ultimately, UP aims to move the same amount of volume using fewer assets because cars can move through terminals and the network much faster, in part by employing techniques benchmarked from other PSR-employing railroads.

BNSF – The BNSF has broken ground at the new Logistics Center Hudson, located about 25 miles north of Denver International Airport and 30 miles northeast of downtown Denver. 

According to the company, the new Center “offers unrestricted access to a high population growth area where the industrial market continues to strengthen. Low industrial vacancy rates in the Denver area make Hudson the optimal location for anyone seeking a rail-served site.”

Logistics Center Hudson is a 430-acre facility featuring 15 sites for customers who wish to ship via individual railcars and a unit train site for customers who ship entire trainloads. The available sites are customizable to meet customers’ needs. In addition to gaining access to the BNSF network, businesses that locate at Hudson will also have easy access to Interstate 76.

BNSF Logistics Centers focus on offering direct rail service in multi-customer, multi-commodity business parks. BNSF invests directly in the development of the facility to create sites in under-served, strategic, end-user markets. These facilities can service carload, unit train customers, or both. 

The new Colorado logistics facility will bring to five the number of like facilities the carriers operates around the country. The others are located at Sweetwater, Texas; Oklahoma City, Oklahoma; Fontana, California; and Wilmington, Illinois.  

CSX – The Florida-based rail carrier has announced plans to contribute at least $40 million to build a new automated intermodal rail facility adjacent to Highway 301 in Edgecombe County, North Carolina. The state’s Transportation Department has said it will kick-in up to at least $118 million to complete the facility. 

According to media reports, CSX had analyzed its rail system from Florida to Maine and had found a major distribution hole in North Carolina. When completed, the facility is going to be a place for freight trains to arrive, with the freight to be off-loaded onto other trains or trucks for distribution.

The plan to build the rail facility are a scaled-down version of the original plan that was first proposed in 2016, which had called for a terminal covering approximately 450 acres, with five gantry cranes. The revised plan calls for an expandable 330 acre facility served by a trio of cranes. 

CSX has also unveiled “new growth initiatives” package at its strategically-sited, 500-acre Northwest Ohio Intermodal Terminal, including a new haulage agreement with the BNSF Railway Company (BNSF) that enhances western access into the Ohio Valley; a partnership with NorthPoint Development to construct an adjacent logistics park; and expanded eastern access to the facility via new service to and from the Port of New York and New Jersey.

The facility operates 24 hours a day and boasts a lift capacity of 700,000 for local operations, with ground storage available for more than 2,000 units. It is located on CSX’s mainline between Chicago and the Northeast, and is situated three miles from Interstate 75 for convenient truck access to local and regional markets.

KCS – Headquartered in Kansas City, Missouri, the Kansas City Southern offers rail service in the Central and Southern U.S., Mexico and Panama.  

A few months ago, the company cut the ribbon at a new Secondary Examination Station at its rail yard in Laredo, Texas. 

The new station, adjacent to KCS’s rail operations, is part of the federal government’s “Secure Corridor” cross-border rail operations strategy, which is intended to strengthen security, reduce blocked crossing time, and create better fluidity by removing current operating obstacles to the non-stop movement of trains across the border between the U.S. and Mexico. 

Laredo is opposite the Mexican city of Nuevo Laredo, and the rail crossing at that point is the busiest on the U.S.-Mexico border.

According to KCS, the facility processes an average 23 trains in both directions per 24-hour period, and carrying a wide variety of products such as automobiles and parts, steel, grain and petroleum products.  

Last year, KCS announced the resumption of weekly intermodal service between the Dallas area and the Port of New Orleans. The previously offered intermodal service in this lane had been discontinued following Hurricane Katrina in 2005.

KCS’ Wylie Intermodal Terminal at the Port of New Orleans has an automated gate system with high definition imagers, optical character recognition and biometric driver identification. It also has 1,500 parking spaces, 400 container stack spots, enhanced traffic signals, specific turn lanes, two 5,000-foot intermodal tracks, and an annual lift capacity of over 342,000 units.

Norfolk Southern – Norfolk Southern reportedly generated more than 60,000 carloads of new rail traffic in 2018 through collaborative efforts that helped 90 industries locate or expand business operations along the company’s rail lines.

The 72 new and 18 expanded industries across 17 states represented an investment of $1.5 billion by Norfolk Southern customers. This commercial development is expected to create nearly 3,000 new customer jobs and contribute to the economic vitality in communities across the railroad's service area.

Norfolk Southern works with state and local economic development leaders on projects involving site location and development of infrastructure to connect customers to its rail system. The railroad provides free and confidential facility location services, including industrial park planning, site layout, track design, and supply-chain analysis.

Among the largest development projects that generated new annual rail carloads on Norfolk Southern in 2018 were a new tissue mill in Circleville, Ohio; an advanced-technology saw mill in Talladega, Alabama; a new consumer-goods manufacturing facility near Martinsburg, West Virginia; a manufacturing facility in Blythewood, South Carolina, that produces film products used in packaging; and new coal mines in Indiana and Pennsylvania.

150 Years On

A century and a half has passed since that blustery April 20, 1869, when the Golden Spike was driven at Promontory Point, Utah, marking the completion of the Transcontinental Railroad that linked the Nebraska/Iowa state line with, ultimately, Sacramento and the Long Wharf in Oakland on the shore of far-off San Francisco Bay. 

It’s not unreasonable to imagine that the anonymous thousands of immigrant Chinese and Irish who picked, shoveled, and dynamited to completion the tortuous 1,912-mile ‘Pacific Project’ over the plains and through towering mountain ranges never dreamed that, one day, their back-breaking, and often dangerous, toil would form the main artery of what would become the world’s most extensive—and productive—railroad network.

What they accomplished was unparalleled in history. “There was,” wrote historian Stephen Ambrose, “nothing like it in the world.” 

And, all these 150 years on, there still isn’t.  

Bio: Michael D. White is a published author with four non-fiction books and well more than 1,700 by-lined articles on international transportation and trade to his credit. 

During his 35 year career as a journalist, White has served in positions from contributor and reporter to managing editor for a number of publications including Global Trade Magazine, the Los Angeles Daily Commercial News, Pacific Shipper, the Los Angeles Business Journal, International Business Magazine, the Long Beach Press-Telegram, Los Angeles Daily News, Pacific Traffic Magazine, and World Trade Magazine. 

He has also served as editor of the CalTrade Report and Pacific Coast Trade websites, North America Public and Media Relations Manager for Mitsui O.S.K. Lines, and as a consultant to Pace University’s World Trade Institute and the Austrian Trade Commission. 

A veteran of the United States Coast Guard, White has traveled in both Japan and China, and earned a degree in journalism from California State University and a Certificate in International Business from the Japanese Ministry of Trade & Industry’s International Institute for Studies & Training in Tokyo. 

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