Fluidity, velocity, capacity, consistency: these are the biggest challenges the railroads face as they enter 2005 with traffic volume and revenues continuing to grow at a brisk pace

Railway Age, Dec, 2004 by William C. Vantuono

Norfolk Southern's David Goode may have spoken for North America's freight railroads when, in response to questions from Railway Age about the prospects for handling what looks to be a continuing upward trend in traffic growth and revenues, he said, "It won't be easy, but we're prepared to do it."

Levels of preparedness, of course, vary from railroad to railroad. As a tumultuous 2004 comes to close and business shows no signs of letting up, it's possible that the traditional fall peak season could extend well into first-quarter 2005. Will railroads be able handle it? Many are still in the thick of hiring and training operating personnel. Capital expenditures, whether targeted at equipment or infrastructure, are focused mostly on squeezing more capacity out of an already strained system. Capital expansion programs are focused even tighter on facilities and corridors with the greatest need.

Will new records be set in tonnage and revenues next year? Will high costs continue to eat away at profits? More important, could the industry, as many observers have pointed out, be entering into the "real rail renaissance" a quarter-century after deregulation? Railway Age asked the industry's chief executives to provide some perspective.

Norfolk Southern Chairman and Chief Executive Officer David Goode: Norfolk Southern approaches 2005 with optimism that the favorable business conditions we enjoyed in 2004 are sustainable. The past year's business levels tested our investments in capacity and technology, and we look forward eagerly to bigger tests. Record traffic levels over the past year helped us identify, new operating efficiencies and network capacity to handle business growth. We are comfortable that we have capacity to handle further increases in volume, and frankly, the economy and our customers need that ability. It is a core advantage of a company like ours to be able to accept traffic volumes when the economy brings them to us. While challenged at times, we have been able to take on business for our present customers and add new ones. As adjustments need to be made, we try to stay ahead of the curve.

We do see continuing growth opportunities in all major sectors. Intermodal is playing a big role in that, not only traditional port business but also increasing all-water traffic from Asia to East Coast port facilities. The coal business shows continued strength as gas prices remain high and worldwide steel demand continues. Overall, for all our markets, we see long term sustainable trends. Obviously, high fuel costs favor the inherent efficiency advantage of rail. When you factor in highway congestion and driver and equipment shortages, the opportunities for highway conversions are even greater. We're seeing a growing trend toward partnerships with trucking companies to develop business.

Burlington Northern and Santa Fe Chairman, President, and CEO Matt Rose: Capacity win remain a major issue, especially in view of continued increases in trade with the Pacific Rim, particularly China. Traffic through Pacific Southwest ports is projected to triple by 2025. The key to handling that volume will be maintaining velocity of the intermodal supply chain, coupled with appropriate investments to expand capacity.

Our industry is seeing volume growth that, in BNSF's case, is compressing two to three years' normal volume growth into one year, 2004. And BNSF has continued to improve productivity and car velocity. The coordination between our operating and marketing teams through better service design and capacity utilization continues to be a key factor in maintaining fluidity and getting the most value from our franchise. We don't bring capacity on sooner than we need it, so we always have a natural tightness.

Our capital expenditures, which will be about the same in 2005 as they were this year, will continue to be targeted at areas that will support increased volume, such as double and triple track. On our Transcon main line between Chicago and Los Angeles, for example, we'll have less than 100 miles of single track by the end of 2005.

Supply chains from all industries are feeling a "tightness" in their ability to immediately leverage up for additional volume. This will result in increasing the value for our service, improving our returns.

Union Pacific Chairman and CEO Dick Davidson: Velocity, service, and safety improvements are Union Pacific's goals for the New Year, as the railroad seeks to most efficiently use its franchise to serve customers. The railroad continues to handle record volume--a precursor of business levels expected in 2005 that will continue to challenge the nation's transportation network.

To manage increasing volume, UP will expand its successful "Lean" principles. The focus on service will continue with aggressive actions to hire and train new employees so they can safely and effectively execute the transportation plan. These include a strong recruiting and training program to ensure adequate staffing to meet business surges.