Railroads Showing Response to Demand

Issue 9 and Volume 110.

By Steve Blankinship, Associate Editor

America’s railroads have been taking it on the chin recently as some coal suppliers and consuming utilities charge them with profiteering and failing to meet delivery needs. But a U.S. Energy Information Agency (EIA) report released in July says coal stockpiles at electric utilities have reached their highest levels since mid-2003, with May inventories 6.4 percent above the previous month and 11.1 percent higher than the same period last year.

Owners are adding track on the jointly owned mainline serving Wyoming’s southern Powder River Basin coal fields. Photo by Mike Bates, courtesy of Union Pacific
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The EIA reported that coal stockpiles produced mainly in the western U.S. were up 9.2 percent from the previous month and 10.6 percent over May 2005. Stocks of coal produced in the East were up 11.3 percent over May 2005.

“All across the country, railroads are responding to the challenge of meeting the increased demand for coal and the needs of the nation’s electric utilities,” said Edward R. Hamberger, president and CEO of the Association of American Railroads (AAR). A recent report by the Government Accountability Office states that electric utility delivery rates have declined 35 percent during the past 20 years, more than for any other group.

Hamberger also says that U.S. freight railroads are investing more than ever before to expand capacity to meet the future needs of a wide range of shippers, including coal. He says that freight railroads reinvest about 45 cents of every dollar of operating revenue into improving and maintaining infrastructure and equipment. Capital spending as a percentage of revenue is five times higher than the average U.S. manufacturer.

AAR says that in 2006, freight railroads will invest a record $8.3 billion in capital, including laying new track as well as double, triple and quadruple tracking rail lines in the coal-rich Powder River Basin (PRB). Union Pacific and BNSF Railway Company have announced plans to begin a capacity expansion on the jointly owned rail line serving the southern PRB coal fields. Both railroads have agreed on preliminary work to build more than 40 miles of third and fourth main line tracks, at a cost of about $100 million over the next two years.

This project is in addition to the construction of 14 miles of a third main line track completed in spring 2005 and another 19 miles of the third main line that has just gone into service. Total cost of this nearly 75-mile expansion will be about $200 million, split between the Union Pacific and BNSF.

One reason the railroads can place such a high percentage of operating revenue into the rail itself is the trend for electric utilities to buy their own coal cars. Tom White, spokesman of AAR, says there are 85,000 cars on order and suppliers of freight cars and new locomotives are running at capacity. Freight car manufacturers and the locomotive builders have backlogs stretching well into next year, he says.