Freight Movement Drives Rail Resurgence

Freight rail is booming throughout the U.S. While shipping oil from North Dakota's Bakken shale basin has been a huge factor in the resurgence, Betsy Morris digs deeper and analyzes the surprising competition between road and rail.

"North America's major freight railroads are in the midst of a building boom unlike anything since the industry's Gilded Age heyday in the 19th century", writes Morris - who also appears on video, interviewed by The Wall Street Journal editor for her article which she summarizes nicely. Investment in rail infrastructure will exceed $14 billion this year.

Trains have always been able to move freight cheaper than its chief competition, trucks. Where it lagged was speed and reliability. But rail's new customers demand reliability.

In the past decade, though, under pressure from customers like (United Parcel Service), trains have become more dependable. UPS "trained us in what it means to perform to their very high standards," says Matthew K. Rose, chief executive officer of (Warren Buffett’s Burlington Northern Santa Fe LLC, the largest U.S. railroad.) "I'm sure there were many times they were very frustrated."

In fact, there's a name for trains "dedicated to high-priority customers like UPS": 'Hot Trains.'

However, no article about rail's resurgence would be complete without a description of how rail came to transport most of the oil from the Bakken oil fields in North Dakota, which Morris does - starting with 2009 when discussions between drilling companies and BNSF Railway.

EOG Resources Inc.'s chief executive officer, Mark Papa, said he had a new technology that was going to produce oil, but "he didn't have a way to get it out of North Dakota," Mr. Rose recalls. There wouldn't be enough pipeline capacity."

That new technology, of course, was fracking, and BNSF and other railroads now transport about 75% of the oil from the Bakken oil output, according to Progressive Railroading.

This year, "BNSF expects to increase daily crude oil shipments this year to 700,000 barrels from 500,000 at the end of last year, says Mr. Rose."

Ronald D. White of the Los Angeles Times writes that some of those mile-long trains carrying oil may soon be coming to California and cause gas prices to fall.

However, how does safety compare with the predominant form of oil transportation, by pipeline?

Reuters reports on an oil spill on March 27 caused by a derailment of several cars of a 94-car Canadian Pacific Railway train carrying oil in Minnesota.

Environmental concerns have delayed the production of pipelines like TransCanada Corp's Keystone XL, but some experts have argued moving crude by rail poses a larger risk of accidents and spills.

Full Story: Boom Times on the Tracks: Rail Capacity, Spending Soar

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Irvin Dawid's picture
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Audio on MarketWatch (also WSJ)

"The railroad industry is going through a rebirth. Wall Street Journal's Dan Loney looks at why more companies are moving product by the rails again." 2:22 minutes

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