By the Numbers

Railroads that are Steaming Forward

What had started in US history as the means to link the east with the west, the Railroad Industry has become a critical aspect of the United States’ economy, and is one of its global competitive advantages.  That trend continues as more investment is pouring into the railroad infrastructure.  A recent Wall Street Journal report pointed out that railroads have spent $10 billion in upgrading and extending tracks since 2002, and will continue to invest another $12 billion.


From 1990 to 2000, railroads began to pick up steam again with an 3.6% annual growth rate.  US Railroads transport 40% of all freight ton-miles (ton mile = one ton of freight shipped one mile).   According to the Government Accountability Office (GAO), the volume of goods transported by railroads and trucks is expected to increase by 88% by 2035 from 2002 levels.

Per an earlier post, Coal is the largest commodity transported by rail in the U.S. accounting for approximately 40% of rail tonnage, and 20% of rail revenue.  Farm and food products transported by railroad account for another 13% of rail freight and revenue.  The demand for energy, metals and other commodities is driving increased forecasts of railroad use and may provide a potential investment opportunity.  Warren Buffet has already spotted this trend and Berkshire Hathaway's holdings include a more than 18% stake in Burlington Northern .  Billionaire investor Carl Icahn holdings include a 53.7% stake in American Railcar , a 9.5% stake Greenbrier and a smaller .7% stake in CSX Corp as of December 2007.

Some Railroad Benefits:

  • Railroads are three times more fuel-efficient than trucks, and have significantly decreased the costs of moving freight.
  • Many railroads are working on ways to protect the environment by improving fuel efficiency and incorporating new locomotive technologies.
  • Railroads reduce traffic congestion and have decreased their accident levels by about 65% from 1980 to 2006, according to statistics by the American Railroad Association

In 2008, Railroads are leading the S&P 500 Industrials with a year-to-date performance of 7%.  Here are some leading Railroad companies by market cap ($M):

  • Union Pacific Corp - The Union Pacific Railroad is the largest railroad in North America, covering twenty-three States across 2/3 of the United States.   The amount of route miles covered is 32,300, and it is one of the leading transportation companies in the United States.  Although Union Pacific shares are up 3% for the year-to-date, the company’s shares have returned 32% in the past year. 
  • Burlington Northern Santa Fe - Covers 32,000 route miles, and hauls more than 10% of the coal used in the generation of electricity in the United States.  Burlington Northern Santa Fe is also one of America’s leaders in the transportation of grains, and other consumer products.  Burlington Northern shares are up 9% year-to-date (YTD). 
  • Canadian National Railway Company - The Company operates in 16 states in the U.S. and operates the largest railroad network in Canada with about 20,260 miles of track in both countries.  Canadian National is the only railroad, which crosses the continent serving ports on the Atlantic, Pacific, and Gulf Coast. Canadian National Railway’s shares are up 17% YTD.
  • CSX Corp. - The Company operates more than 200 short line railroads, and manages the largest railroad in the eastern United States covering 23 states, and two Canadian provinces.  The company covers about 21,000 route miles.  CSX’s shares are up 19% in 2008.
  • Norfolk Southern Corp. - Norfolk Southern serves 22 eastern States in the U.S., and some areas of Canada with about 21,300 route miles.  Norfolk Southern shares are up 10% YTD.   
  • Canadian Pacific Railway - Canadian Pacific was the first coast-to-coast transcontinental railway in North America.  The company covers about 13,300 route miles in Canada, and the Midwest and northwest regions of the United States.  Canadian Pacific shares are up 16% in 2008. 
  • Kansas City Southern - Kansas City Southern has operations in the United States and Mexico with approximately 4,400 route miles.  Kansas City Southern is up 13% YTD.
  • Genesee & Wyoming - The Company has operations in the United States, Canada, Bolivia, and Australia with about 9,000 route miles.  Genesee & Wyoming is up an impressive 35% in 2008.
  • Providence and Worcester Railroad - Providence and Worcester Railroad has operations in the Northeast region of the U.S. covering about 545 route miles. Providence and Worcester Railroad is up 16% YTD.

Source: WSJ

Some related areas of opportunity:

  • American Railcar Industries - American Railcar manufactures and services freight car products in North America.  American Railcar Industries' shares are up 33% in 2008.
  • FreightCar America Inc. - FreightCar America specializes in manufacturing coal-carrying cars. FreightCar America's shares are up 20% YTD.
  • Greenbrier Companies - Greenbrier Companies manufactures and supplies the railroad industry with transportation equipment.  The Company has operations in North America and Europe.  Greenbrier shares are up 29% in 2008.

Most Rail Freight  By million tones miles per year (The Economist):
United States  1,508,234
China 1,136,207
Russia 1,034,148

Sources:  American Railroad Association, The Economist, The Wall Street Journal, and the Government Accountability Office