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Railroads prepare for record shipments


In an average month, Iowa Interstate Railroad Ltd. moves up to 1,200 carloads of goods. During the harvest season, the regional railroad’s monthly shipping volume swells to about 1,600 carloads.

“The farmers always want to move everything today, and you only have a pipeline that’s able to accommodate the current flows,” said Dennis Miller, president of the Iowa City-based railroad, whose Omaha-to-Chicago line passes through Des Moines.

With a record harvest again expected this year on top of historically high frieght volume for the U.S. rail system, the railroads say they’re cautiously optimistic they can handle the unprecedented demand.

“We’ve been able to keep up with the harvest for the past few years, and even with the anticipated record crop, we don’t anticipate any problems,” Miller said. It may be a different story at the larger terminals such as Chicago, where the grain will compete with record shipments of other raw commodities.

“The Union Pacific has some problems,” Miller said, “but they seem to have a plan in place to solve it. I don’t think you’re going to see problems from the regionals in Iowa.”

Union Pacific Corp. officials say they’re on track to reach their goal of hiring 5,000 additional trainmen by the end of the year, and the company says it has acquired 500 more locomotives since the beginning of the year.

“We believe these efforts will eventually allow us to catch up with the strong demand, improve network fluidity and operate more efficently so that we can translate this demand into bottom-line results,” Dick Davidson, UP’s chairman and CEO, said earlier this year when the company released its second-quarter earnings.

In July, the Omaha-based railroad reported that its quarterly operating revenue topped the $3 billion mark for the first time in its history. Despite that, UP’s second-quarter income of $158 million, or 60 cents per share, was down significantly from its second quarter of 2003, whn it earned $275 million, or $1.05 per share.

Iowa Interstate has also been upgrading its equipment, Miller said.

“We’ve brought on 22 rebuilt locomotives to replace about 16 older units,” he said. “As far as people, we probably have added only five or six; we had some additional capacity, being a shortline. Carwise, we anticipate keeping the same fleet of covered hoppers. Our ability is to turn the cars faster rather than go out and get more.

“With 500 cars, if we turn them four times a month, that’s the equivalent of 2,000 cars. You can eliminate the need for more equipment by improving your turn times. We are able to originate and terminate loads on our line, which gives us more control over our equipment.”

Iowa Interstate, which Miller said has been profitable for the past three years, has seen double-digit growth in its intermodal business as soaring diesel fuel prices make it cheaper for trucking companies to ship empty trailers on flatbed rail cars than have them driven back.

Like the trucking companies, however, the railroads are also affected by fuel costs. Diesel fuel for Iowa Interstate’s locomotives represents the company’s biggest cost overrun, which has forced it to impose fuel surcharges on each shipment. The 6 percent surcharge on most loads is the highest the railroad has ever charged, Miller said, though other railroads’ surcharges have reached as high as 10 percent.

The newer locomotives Iowa Interstate purchased will be more fuel-efficient because they are designed to automatically shut down when not in use, whereas the older models have to run almost constantly in the winter months to keep them from freezing, he said.

A rail dilemma

At a “peak season forum” held Sept. 9 in Kansas City, representatives from the major freight railroads and key rail shippers discussed efforts the railroads have been taking to maintain service performance in the face of record shipping volumes.

Increased hiring and the acquisition of new locomotives have been the railroads’ primary strategy for meeting the surge in demand, railroad representatives told shippers. Several railroad representatives also said they plan on running longer and heavier trains and lengthening sidings to add capacity to their systems.

A dilemma faced by many railroads, including Union Pacific, is that the companies aren’t earning enough to make substantial investments in additional track and technology to further increase their capacity.

Approximately 40 percent of all U.S. freight is carried by rail, and in Iowa, rail freight traffic doubled between 1985 and 2000, to nearly 40 million tons per year. According to industry estimates, the volume of goods handled by rail is expected to double again within the next 20 years.

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