Fall In Shipping Commodities Threatens Commercial Railroad Industry

Sep 2, 2015
Originally published on September 2, 2015 6:57 pm
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Transcript

RACHEL MARTIN, HOST:

Warren Buffet stunned investors six years ago when he paid 26-and-a-half billion dollars for the Burlington Northern Santa Fe Railroad. And since that purchase, the company's earnings have doubled. You could say commercial railroads have been enjoying a Renaissance, but the fall of coal is threatening that success. Frank Morris of member station KCUR brings us the story from Kansas City.

FRANK MORRIS, BYLINE: Down here, at a place called Santa Fe Junction in Kansas City, train after train negotiates what looks like a maze of bridges over bridges over tracks on the ground. About 200 trains a day come through here. If that sounds like a lot, Zach Pumphery, an engineer who works down here, says you should've seen the railroads 10 years ago.

ZACH PUMPHERY: Yeah. I mean, 2005-6-7 - in that area, railroads couldn't hire people fast enough. They couldn't lease locomotives fast enough. They couldn't upgrade the infrastructure quick enough. They couldn't build railcars to haul the stuff quick enough.

MORRIS: Pumphrey's out here with two other guys - Brian Kline and Doug Howl. They call themselves rail fans. They come out here on the weekends and watch these trains closely, and they see each one as kind of a window on the economy.

DOUG HOWL: It's definitely not as busy as it was last year. Especially, though, in the past six to 10 months, everything's dropped - coal, oil.

BRIAN KLINE: I haven't seen a coal train once since I've been here. Normally, I'd see, like, three or four of them. You wonder why, all of a sudden, the drop in coal.

MORRIS: The big reason is the power plants like this one in Kansas City are switching from coal to natural gas, which is cheap now and burns cleaner. Wyoming produces more coal than the next four states combined, and Robert Godby, an economist at the state university there, says that between 2008 and last year, U.S. coal production dropped by the equivalent of 14,000 train loads.

ROBERT GODBY: So that's really the reason why you've seen less trains, and that impact has really continued to pick up in 2015.

MORRIS: The trend has hit Union Pacific especially hard.

AARON HUNT: Our total volume since second quarter were down 6 percent, and that was led by a sharp decline in coal.

MORRIS: UP spokesman Aaron Hunt says coal alone plunged 31 percent.

HUNT: And we're responding to it aggressively with, you know, resource adjustments.

MORRIS: Such as furloughing about 1,200 union workers and cutting several hundred white-collar jobs. In addition, Union Pacific has mothballed 900 locomotives. Other railroads are scrambling too. Many were originally built primarily to haul coal. Their steam engines ran on it. And Bill Vantuono, the editor of Railway Age, says railroads have coal delivery down.

BILL VANTUONO: It's like a huge conveyor belt - loads out, empties back.

MORRIS: The system has been lucrative. Most of what power plants pay for Wyoming coal goes to the railroads. Analyst Tony Hatch says railroads saw the drop in coal coming, and they thought they had a new bulk commodity lined up to take coal's place - domestic crude oil from the fracking boom.

TONY HATCH: But now, of course, with oil prices down, energy has been sort of a double attack on railroad volumes.

MORRIS: Oil is not shipping as planned, and neither are the trainloads of sand and other materials used in fracking. Ethanol, another rail-hauled commodity, is also off sharply.

HATCH: So it appears now that what we've been calling the rail renaissance for some time is under threat.

MORRIS: But Tony Hatch says the reality is the railroads are still making money and poised to keep expanding the volume of cars and other consumer goods going out by rail.

Back at the rail junction, Doug Howl would rather be working on this train that watching it roll by. He's trained as a conductor but hasn't found a job.

HOWL: I'll get on one of these. I'm still optimistic.

MORRIS: Howl says trains will be crisscrossing this junction for years to come. The question is how many and what they'll be hauling. For NPR News, I'm Frank Morris in Kansas City. Transcript provided by NPR, Copyright NPR.