The Resurgence of Rail
By Mark Kleszczewski
Although 2012 may have been mixed for the U.S. economy and transportation industries, increased efficiency, reliability and affordability are leading railroads to continue gaining market share over trucking, air and other modes of transportation.
Railroads are positioning themselves to meet the country’s future freight transportation demands and are reinvesting more than ever before — all without tapping into government funds, said Edward R. Hamberger, president and CEO, American Associations of Railroads (AAR), in a recent public statement.
The rail industry’s investments came to $25.5 billion in 2012 and are expected to exceed $24 billion in 2013 nationwide for projects such as: intermodal terminals; new tracks, bridges and tunnels; modernized safety equipment; and new locomotives and rail cars.
In addition to cost considerations, shippers are turning to rail to compensate for several challenges hitting the trucking sector: concerns about greenhouse emissions, congested highways, high fuel prices and new federal work regulations, which are expected to exacerbate driver shortages.
The current widening of the Panama Canal, which will allow “supersized” container ships to bypass the West Coast and deliver goods from Asia to ports on the East Coast and Gulf of Mexico, is an additional factor expected to bolster the railroads’ position in the years ahead.
Rail Growth Continues
According to the AAR, the nation’s railroads now account for 40 percent of intercity freight volume — more than any other mode of transportation. Underlying this activity is a significant increase in rail intermodal service (moving shipping containers and truck trailers on rail cars) to transport a wide variety of industrial, agricultural and consumer products.
Indeed, the rail industry has seen a rise in intermodal volume from 3.1 million containers and trailers in 1980 to 12.3 million units last year. From 2001 through 2010 alone, intermodal loadings grew by approximately 30 percent with current intermodal traffic exceeding over 20 percent of total U.S. rail revenue — second only to coal among all traffic segments. A large portion of that traffic consists of imports and exports, giving railroads a substantial role in international trade.
Investments Set to Pay Off
In Missouri, the Greater Kansas City metropolitan area is combining a long-time focus on transportation and logistics with new rail expansions to accelerate its rise as a national distribution and warehouse center.
“Kansas City has five, Class I railroads and as the largest rail center in the country by tonnage, is a natural place to expand,” says Chris Gutierrez, president, KC SmartPort. “Large amounts of consumer goods and building materials are moving through here by rail and we’re also seeing an increase in agricultural commodities being exported back to Asia and other markets in containers after they’re unloaded here.”
Increased congestion and costs in other cities mean Kansas City is landing more national companies seeking to consolidate their logistics and distribution operations, Gutierrez says.
“What’s exciting for us is that as a conservative Midwest market, we normally don’t build spec industrial buildings like Chicago, Memphis and Dallas do,” he says. “Yet we’re seeing national development teams and finance organizations refocusing on Kansas City, with a little over 2 million square feet of rail-influenced industrial development announced or under construction.
“I think the new focus on putting railroad intermodals around logistics parks with warehouse distribution and manufacturing facilities is increasing,” Gutierrez continues. “We’ve got three such parks being built or expanded in our market at the same time.”
One noteworthy local project is Logistics Park Kansas City (LPKC), a 558-acre development capable of handling seven million square feet of buildings, nearly three million of which will be direct rail-served. Scheduled to fully open in Q4 2013, the property will be served by BNSF Railway’s Kansas City Intermodal Facility (KCIMF), co-located along BNSF’s Transcontinental Corridor.
In nearby Topeka, Kan., rail infrastructure has bolstered the city’s strength as a logistics and distribution hub, already proven to be invaluable to companies such as Target, Home Depot, Del Monte and Goodyear.
“What we’ve seen from our existing industries and several of the new industries which we’ve attracted is that rail is a cost-effective mode of transportation to get products to market out of Shawnee County,” says Dawn Wright, vice president of economic development, GO Topeka Economic Partnership. “We’ve seen a lot of interest in our existing and planned sites that are rail-served.”
Agricultural producers, along with food manufacturers and suppliers are particularly well-suited to benefit from the area’s rail advantages, Wright explains. She points to large area employers such as Frito-Lay and Mars Chocolate North America, which have rail-served facilities and plans for future expansion.
Topeka has five intermodal yards and is served by two Class I rail companies. New resources aimed at manufacturing and logistics companies include the 1,018-acre Kanza Fire Commerce Park — featuring 6,000 feet of BNSF Railway exposure, quick highway access to US-75, I-335 and I-70, and heavy air freight capacity at Forbes Field Airport.
Another area of booming rail activity is in Texas along the so-called Gulf Coast Gateway, which connects Mexico’s Lázaro Cárdenas seaport with the ports at Houston and Freeport. The growing logistics cluster features well-priced land, a major interstate and foreign trade zone, plus rail routes served by Kansas City Southern, Union Pacific and the Burlington Northern Santa Fe.
“Three years ago, rail wasn’t coming through, but today it’s revitalizing the area and having a huge impact, especially for those involved in natural gas, trucking or assembly of manufactured goods,” says David L. Schroeder, executive director, Wharton (Texas) Economic Development Corp. “We’ve got a large agricultural community, so we’re also shipping freight like corn, rice and other products southward and even to Asia.”
“We have three Class I railroads that all come together and operate here in one location, which makes us kind of unique,” adds Matt Fielder, economic development director, city of Rosenberg (Texas). “It’s a real benefit if companies want rail access, since they can get railroads to compete against each other.”
The region’s involvement in light manufacturing, pharmaceutical R&D and distribution facilities is being further enhanced by rail expansions. “We have a number of rail-served businesses here now, but rail is going to be even more critical to our future development,” Fielder notes. “For example, we’re seeing a lot more in automotive where Nissan, Volkswagen and Kia are bringing their cars up through Mexico and unloading here for distribution to Houston and beyond.”
Part of the region’s prominence in the sector is being driven by Kansas City Southern’s investment in infrastructure designed to accommodate various modes of shipping and distribution.
“With the reopening of regular train service on the Victoria to Rosenberg line three years ago, KCS restored rail service to communities and brought needed rail capacity to south Texas, which also alleviates congestion on Texas highways,” writes C. Doniele Carlson, assistant vice president of corporate communications & community affairs, Kansas City Southern (KCS), in an email correspondence.
First opened in 2009, the rail company’s newest U.S. intermodal shipper facility is located on 192 acres near Rosenberg, about 45 miles southwest of downtown Houston and bordering US-59, one of the largest freeways in the Houston area.
The site features two 5,000-foot modifiable, intermodal tracks with room for more than 160 cars of intermodal equipment and thousands of paved parking spaces. The gated and monitored facility has two hostlers and two lift machines with a lift capacity of 12,700 per month.
Another 689 acres of property being developed by a joint venture of KCS and CenterPoint Properties lies adjacent to the intermodal shipper facility. An industrial lead track will be constructed in a built-to-order manner, based on individual customers’ needs.
“Being on the main highway out of the Port of Freeport is a big plus,” Fielder says. “Depending on what the mix of distribution to manufacturing is going to be, once the business park is developed, all of this investment will certainly have a positive impact on employment,” Fielder says.
Building for the Future
Shifts in global demand, shipping patterns and future fuel prices will no doubt play a major role in determining how freight and time-sensitive goods are moved, but communities and companies across North America are poised to benefit from the major investments happening in rail today and the surging growth of intermodal in particular.
Though the expansion of the Panama Canal will also impact each North American railroad differently, the AAR’s Hamberger expressed confidence in the railroads’ ability to handle traffic, regardless of origin. “Whether the freight is coming into or leaving from Long Beach, Savannah, Miami, Houston, Seattle, Norfolk or any other major port, our nation’s freight railroads are in a good position now and are working diligently to be in an even better position in the future.”
“We’re in a global economy and many things are changing and uncertain, but at this point I don’t see rail going away, but rather growing,” Wright says. “It offers an additional method of transportation, which we’re starting to see making more and more sense for the right products, especially consumer goods.”
“Kansas City Southern has laid the foundation for all of us in the region to satisfy manufacturers, so their expansion has certainly laid the path for future growth,” Schroeder says. “We are very optimistic that’s going to happen.”
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