A new era for railroads as companies expand

MERIDIAN, MISS. — America is back to working on the railroads.

For decades, stretches of track west of this town were so rough that trains couldn't run faster than 25 miles an hour. Lanie Keith, a locomotive engineer for Kansas City Southern, recalls waiting for hours when trains stalled on a steep curve on a stretch of single track between Meridian and Shreveport, La.

But over the past two years, at a cost of $300 million, track crews have transformed the 320-mile route. Installing 960,000 crossties and 80 miles of new rail, they've turned a railroad backwater into a key link in a resurging national transport network. Keith now skims parts of the improved track, called the Meridian Speedway, at nearly 60 miles an hour. "You went from moving like a turtle to a jack rabbit," he says.

The upgrade is part of a railroad renaissance under way across much of the U.S. For the first time in nearly a century, railroads are making large investments in their networks - adding sets of tracks, straightening curves that force engines to slow and expanding tunnels for bigger trains. Their campaign is altering the corridors of American commerce, more so than any other development since interstate highways spread to the interior.

For decades, railroads spent little on expansion, even tore up surplus track and shrank routes. But since 2000 they've spent $10 billion to expand tracks, build freight yards and buy locomotives, and they have $12 billion more in upgrades planned.

The buildout comes as the industry transitions away from its chief role in recent decades of hauling coal, timber and other raw materials in manufacturing regions. Now, increasingly, railroads are moving finished consumer goods, often made in Asia, from ports to major cities. Their new higher-volume routes, called corridors, often serve the South, where the rail system is less developed and the population is rising.

Railroad operators are pressing for advantage over their main competitor, long-haul trucking, which has struggled with rising fuel prices, driver shortages and highway congestion. Railroads say a load can be moved by rail using about a third as much fuel as it takes to haul it by truck. And rail transport is becoming more efficient still, they say, as operators speed their lines and logistics companies build huge warehouse areas along routes.

Demand for rail service increased sharply when the U.S. economy and Asian imports surged starting in 2003. Tight capacity on major routes enabled railroads to raise prices. The growth in freight volume has slowed along with economic growth, but shippers say they're still planning to increase their use of rail transport because of the cost.

"The railroad industry is finally making some money," says Charles "Wick" Moorman IV, chief executive officer of Norfolk Southern Corp., based in Norfolk, Va. "And we're pumping that money into our infrastructure."

Trucking accounted for 82 percent of the U.S.'s truck-and-rail intercity-freight spending in 2004, up from 78 percent in 1990, according to Eno Transportation Foundation, a research organization in Washington, D.C. But trucking companies, notably industry giant J.B. Hunt Transport Services Inc. of Lowell, Ark., are using railroads for the long-haul part of some trips because it's cheaper. Some rail promoters believe that as a result of their investments, they could cut into the business of the two million long-haul freight trucks in the U.S., which account for 350 million shipments a year.

For the first time in years, the industry is attracting interest among big-name investors. Last spring, Berkshire Hathaway Inc., disclosed an 11 percent stake in Burlington Northern Santa Fe Corp., the second-largest U.S. railroad by revenue. Berkshire has since raised the stake to more than 18 percent. In a move recalling rail boardroom battles of the past, Children's Investment Fund Management LLP, a London hedge fund, and other shareholders have put up a slate of directors for a coming annual meeting of the nation's No. 3 railroad, CSX Corp. (Union Pacific Corp. is the largest U.S. railroad in revenue terms; Norfolk Southern and Kansas City Southern are fourth and fifth, respectively.)

The expansion is stirring conflict with some old customers, the shippers who move raw materials such as chemicals, grain and logs, who feel they're being charged unnecessarily high rates to pay for capital improvements. Trade groups representing such shippers are seeking federal legislation to rein in railroad rate increases.

"I think the railroads are investing in corridors to serve a different customer, and heavy U.S. industry will be left in the dust," says Kenneth Walker, a transportation manager of Graphic Packaging International Corp., a cardboard manufacturer in Marietta, Ga.

It's been a century since railroads embarked on a similar spate of capital investment. Between 1900 and World War I, they launched a huge rebuilding program across the U.S. midsection to handle freight and passenger trains. Traffic was booming as the economy roared back from a financial panic in the 1890s. Railroads added second, third and fourth sets of tracks along main routes, built tunnels and bridges and installed stronger locomotives.

After World War II, though, cars began wiping out passenger-train service. New interstate highways unleashed trucks as a freight competitor. By the 1970s, U.S. railroads were deep into a decline, other than adding new track to the coal fields of Wyoming.

Burlington Northern was the first to pursue the strategy of building a high-capacity corridor to link ports with population centers needing consumer goods, rather than linking industrial centers. In the 1990s, it set out to complete a second set of tracks on its Chicago-Los Angeles Transcon line. "It came right out of the 'Field of Dreams': Build it and they will come," says Rob Krebs, a retired Burlington CEO.

Wall Street analysts objected to the big spending, and Krebs throttled down the expansion in 1999 and 2000. But his successor, Matt Rose, resumed work on the project in 2003, and it is now nearing completion.

Problems with old infrastructure were becoming clear elsewhere. Union Pacific was plagued with freight jams and service breakdowns during a surge of Asian imports a few years ago. Union Pacific hired thousands of new train crew members, and it has since launched a massive track-installation program across the Southwest.

It is upgrading its Sunset Route, from Los Angeles to El Paso, Texas, with a second set of tracks. It's planning to build new freight yards and a fueling station along the way. When the $2 billion project is finished in 2010, Union Pacific will be able to roughly double the number of freight cars crossing the Sunset each day to more than 9,000 from about 5,000 currently.

Railroads are generating development in the same way they spawned towns and industrial sites over a century ago. Warehouse complexes are popping up next to new rail yards designed to load and unload trains carrying containerized goods. Major distribution operations have opened or are planned in places like Elwood, Ill., Kansas City, Mo., and Columbus, Ohio.

The social consequences are evident in developments like AllianceTexas. In the late 1980s, Hillwood Development Co., founded by Ross Perot Jr., son of the former presidential candidate, built a cargo airport outside Fort Worth, thinking that would be the best way to attract companies to 17,000 acres of land north of the city. As an afterthought, the company says, it made room for a rail yard.

A decade later, it's the rail yard that has attracted huge warehouses, for companies such as J.C. Penney Co. and Bridgestone Corp. These and others get container loads of jeans, electronics, tires and such from Southern California ports. "I never would have thought having a rail hub in the middle of our development would have attracted so much interest," says Thomas Harris, a Hillwood senior vice president.

The development, which employs 27,000, has spawned a nearby mini-city of shopping centers, a golf course, a racetrack and 6,200 houses. More than 300 of the homes are high-priced models in gated communities.

Railroads have found friends among environmentalists, who see moving freight by train rather than truck as a way to reduce fuel burning and emissions. Method Products Inc., a San Francisco maker of nontoxic home and personal-care products, says it plans to use rail for 50 percent of its shipments this year, up from 33 percent in 2007. "We view rail as a solution to lower our greenhouse-gas emissions," says Jason Bowman, the firm's global logistics manager.

States have also started to climb aboard. In a 2002 report, the American Association of State Highway and Transportation Officials said transportation capacity could be increased more cheaply in some intercity corridors by adding railways rather than expanding highways.

Norfolk Southern is seeking public funding to accelerate rail-corridor projects, arguing that they provide a public benefit by limiting fuel use, traffic congestion and air pollution. The idea is gaining backers. Virginia created a rail-enhancement fund in 2005 from car-rental fees and is spending $40 million to improve a Norfolk Southern freight line in the state. The railroad industry is urging Congress to pass a railroad investment tax credit to fund rail improvements.

Many old lines need work. Norfolk Southern's most direct route to the Midwest from the docks of Norfolk, Va., has tunnels high enough for coal trains. But they are too low for double-stack trains, which haul shipping containers one above the other. Norfolk Southern has begun a three-year, $260 million project to raise the height of 28 tunnels on the route, which it has renamed the Heartland Corridor.

Norfolk Southern's most ambitious project is the Crescent Corridor, a network of tracks between the New York City area and New Orleans. The company touts the corridor as a cheaper and more environmentally friendly alternative to widening highways such as Interstate 81, which runs through Virginia's scenic Shenandoah Valley.

Trucks make four million to 4.5 million trips annually along I-81 in Virginia, according to the Virginia Department of Transportation. Norfolk Southern envisions a route with enough speed and capacity to displace about a million truck trips a year. It is seeking funding for most of the $2 billion project from the U.S. government and states along the corridor.

Tim Lynch, an executive of the American Trucking Associations in Arlington, Va., says it's "folly" to think rail corridors can take the place of additional highways. "You need to do both, because you have growth in freight traffic that will keep both modes busy," he says.

Work continues on the Meridian Speedway between Meridian and Shreveport. Kansas City Southern bought the line in 1994 as a shortcut for freight moving between Los Angeles and Atlanta, bypassing crowded gateways in Memphis, Tenn., and New Orleans. The railroad began to improve the line, at one point easing a hilly curve near the river town of Vicksburg, Miss., that for years hampered Mr. Keith and other engineers when trains stalled there.

Two years ago, Norfolk Southern agreed to contribute more than $300 million for additional overhauls in exchange for a 30 percent stake in the Speedway. The money has helped replace tracks and install a signal system on a line that had none. It allowed construction of sidings so trains can pass each other in more places.

Union Pacific uses the Speedway for a leg of a longer run that begins near the ports of Los Angeles and Long Beach, Calif. Improvements on the line have enabled Union Pacific to launch a new train packed with Asian goods that can cross the Southern U.S. in 72 hours, down from the 120-hour service it offered in past years. Such numbers translate into big savings for railroads, which figure that each mile per hour of speed they can add systemwide translates into fewer cars, locomotives and crew members.

Keith says his trips between Meridian and Vicksburg now take six or seven hours, compared with 11 or 12 before the upgrades. He says he saved 30 minutes on a recent run by pulling onto a newly lengthened siding in Meehan, Miss., to pass another train.

Keith says the work will clear the Speedway to handle more and faster trains. "I love it," he says. "It guarantees me work stability."