Intermodal rail volumes are expected to remain strong through out 2005. Recent surges in intermodal shipping are driving the successes and failures of the nation's Class I railroads. Intermodal traffic is made up of retail consumer goods, and by contrast to the traditional carloads of commodities and raw materials, can be more time sensitive and seasonal in nature. Companies that positioned themselves to handle economic growth have seen record breaking growth in the past year. With Asian imports and a rebounding economy providing demand, railroads have the opportunity for another record breaking year. At the same time, however, a national focus on safety issues and calls for regulation by some shippers and government officials present significant challenges to the railroad's operations.
A recent USNews.com article takes an in depth look at these issues, focusing on the different strategies and positions of BNSF and UP. The two class I railroads are juxtaposed from the start as USNews.com notes that BNSF has had the best quarter in its history in 2004 and a stock price increase of over 80% in the past year. By contrast Union Pacific saw a 76% decrease in profits in the last quarter of 2004. The article looks at increasing intermodal traffic and the make or break role it has had on the railroad economy. UP was forced to reduce its share of the intermodal traffic boom because of congestion and operational inefficiency. Last year UP canceled a contract with UPS for high-speed transportation. A UP vice president, John Kaiser was quoted as stating UP "...found itself short of people and resources." By contrast, BNSF got an early start on improving infrastructure to handle intermodal traffic. In 2002 BNSF was criticized by wall street analysts for capital spending on infrastructure. BNSF's long term strategic planning has enabled the company to take advantage of current shipping demand. At the same time as strong demand is creating unprecedented potential for revenue, the railroads face additional challenges.
Union Pacific maintains that they are improving network efficiency and velocity and that they have increased their investments in critical resources. Chief executive officer Dick Davidson has stated that they expect volume growths of 1 to 2% as traffic returns to UP.
As the Class I railroads compete for increasing intermodal business, traditional shippers are feeling the resulting crunch in capacity. Intermodal shipping is taking precedence over raw material and industrial shipments. Chemical and commodities shippers have seen dramatic increases in transit times. Coal producers in Appalachia and chemical manufacturers in the Southwest note that decreased rail capacity has the potential to cut into their profits. Regulations also threaten to reshape the industry as shippers in parts of the country served by single railroads have begun to demand improved services and competitive rates. Legislation is expected to be introduced this month that would give customers greater leeway in challenging rail rates under antitrust laws.