April 26, 2006

Global trade keeps container boom humming on US rails

By Nick Carey

ELWOOD, Illinois (Reuters) - The thousands of truck
trailers filled with consumer goods like television sets and
textiles that await distribution on a huge lot outside this
Chicago suburb have one thing in common.

"Everything here is from Asia," said John Clement, senior
manager at Logistics Park Chicago, an international hub
operated by No. 2 U.S. railroad Burlington Northern Santa Fe

LPC is a hive of activity. Trucks arrive at the gate night
and day, and crane drivers work to lift the big metal
containers on or off trains within a minute as more arrive

The goods in the containers originated in factories in
China and other Asian countries and traveled by ship to the
U.S. West Coast. From there, they were loaded onto trains bound
for Elwood. Truckers then ship them to retailers in the

LPC is a microcosm of U.S. trade, where Asian imports
outpace exports. But it also raises the question of how to move
goods when they get here, whether by rail or road.

Intermodal combines both by using standard containers
transferable between different modes of transport.

Driving past a 1.5-mile (2.4-kilometer) intermodal train in
bright spring sunshine, Clement estimates up 80 percent of
containers leaving LPC for Asia go empty. The hub has space for
6,000 of these 20- or 40-foot boxes that companies like China
Shipping Container Lines Co. send to Asia when they run short.

LPC is growing fast. It handled 450,000 containers in 2005
and expects 800,000 this year - and Clement points out a fourth
rail line under construction that will open in May and boost
capacity to 1.4 million containers a year from 1 million as
Burlington Northern expects demand will continue rising.

"We are running as fast as we can to stay ahead of the
curve," Clement said.

U.S. railroads hope to cash in on rising imports by moving
more containers through their intermodal services, which are
cheaper and more fuel-efficient than long-haul truck routes.

But some customers complain that the railroads do not move
intermodal shipments fast enough, and analysts say these
services must improve for the operators to continue to grow.

"Capacity and efficiency are the main challenges the
railroads need to overcome," said Ken Hoexter of Merrill Lynch.

Containers are what intermodal is all about. Easy to move
between ship, train or truck, they now dominate global
merchandise trade and are even moving into some areas of bulk
commodities like grain or oil.


Container use is up sharply as U.S. manufacturing moves to
China and other developing nations. Since 2003, U.S. imports
have posted double-digit annual growth. More imports have meant
more containers.

According to the Association of American Railroads,
intermodal volume rose 6.4 percent to 11.7 million units in
2005 from 11 million in the previous year.

"This has been the fastest growing rail business for 20
years, and we anticipate further growth," said association
spokesman Tom White.

For manufacturer American Railcar Industries Inc., this
represents significant opportunities for years to come, Chief
Executive James Unger said.

The company plans to start making intermodal railcars in
2008, following rival FreightCar America Inc.'s planned move
into that business next year. Greenbrier Cos. now dominates the
intermodal car market.

Flat intermodal cars are easier to make than those carrying
coal or liquids. Containers are often double-stacked, so the
railroads can haul more freight per train and increase their
profit margins.

New intermodal rail facilities like LPC are attractive for
logistics companies looking to distribute imported goods. Four
of them operate next door, but they are already dwarfed by the
3.4 million square foot "import hub" U.S. retail giant Wal-Mart
Stores Inc. is building a few minutes' walk from the LPC
facility. Set to open in August, it will send goods to the
retailer's distribution centers.

Facilities like LPC reduce costs by handling containers
faster and more efficiently, boosting profit margins.

"After coal, intermodal is the highest-margin rail
business," said Merrill Lynch's Hoexter.

U.S. trucking industry woes are causing shippers to turn to
intermodal. Trucks are less fuel-efficient for long hauls, and
drivers are in increasingly short supply.

But railroad officials also worry that their companies
could suffer if shortages worsen as expected.

"It's a double-edged sword for us," said Jeffrey Heller, an
assistant vice president at railroad Norfolk Southern Corp..
"While the shortage has added to our business, if it gets too
bad, it could cause problems for everyone."

Handling that extra capacity also poses problems.

As rail traffic has risen, so has customers' irritation
about delays.

United Parcel Service Inc., the world's largest package
delivery company and a big intermodal customer, has complained

"The railroads have greatly improved service recently, but
it is still not where we need it to be," Chief Financial
Officer Scott Davis said.

Jack Koraleski, executive vice president at No. 1 U.S.
railroad Union Pacific Corp., acknowledged that delays have led
to inconsistent service.

"It's not always about speed, but always meeting the
delivery times you promise," he said. "That's the sort of
efficiency we need to focus on."