Oil prices bolster railways’ health
March 18, 2005
While railroads are spending more on fuel, so are trucking companies, who then hire railroads for long-distance shipments.

Although skyrocketing oil prices have dealt airlines and trucking companies a forceful blow, railroads are reaping some benefits
from the soaring cost of fuel.

The price of oil rose March 16th to an all-time high of $56.46 per barrel, breaking the previous record set in October by 69 cents
and surging 48 percent higher than one year ago.

The price is putting a strain on the entire transportation industry, forcing companies to impose a fuel surcharge, negotiate
contract prices with suppliers or use some other method of dealing with costs.

Many rail companies choose to negotiate the price of fuel, a commodity that makes up about 10 percent of their total costs,
according to the Washington-based Association of American Railroads.  The group is a member organization that includes major
freight railroads in Canada, Mexico and the United States, as well as Amtrak.

But while rail companies are confronting escalating oil expenses, association spokesman Tom White said they've discovered its
going price "increases the attractiveness of rail service."

"It affects the trucking industry far more than it does us because we're about three times as fuel-efficient.  So it sort of cuts two
ways," he said.  "Trucking companies are among our best customers."

Atlanta-based UPS is the rail industry's largest customer, White added.  "For the long-distance haul, they and some other
trucking companies find it makes economic sense to ship it by train and they do the local pick-ups and local deliveries at either
end."  
UPS is the single largest intermodal rail customer in the country, said company spokesman Norman Black.  "We'll spend about
$750 million on rail transport this year," he said.  

Intermodal business accounts for more than 20 percent of Norfolk Southern Corp.'s overall revenue, said Rudy Husband,
spokesman for the Norfolk, Va.-based rail company.  "That is a very important part of our business," he said.

Still, fuel is not solely responsible for rail's increased business coming from trucking companies.  "There's a couple of other
things going on in the trucking industry right now," Husband said. "While fuel cost plays a part of that, the continuing driver
turnover as well as ... changing (the) hours-of-service laws has served to create a more competitive environment for us."  New
hours-of-service regulations have tightened the number of hours truckers can spend driving.

Fuel is the trucking industry's second-highest expense behind labor, according to the American Trucking Association, in
Alexandria, Virginia.  "We're definitely getting hit hard by the diesel prices," said Tavio Headley, the association's staff
economist.  "It's very important that these costs are monitored for the average motor carrier, because last year ... we spent $62
billion on diesel fuel — $10 billion more than in 2003. ... Unfortunately, prices are expected to remain high."

With the help of oil's record-setting price, railroads are poised for a good year.

"Business is booming," White said. "We set a record last year. Volume is up again this year."

Source:  Daily Record/Sunday News
 
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