Rail on the right track

TORONTO — When the world’s richest man is all of a sudden sweet on your industry, it’s a safe bet that something’s going right.

North American railways have been in the spotlight for the last year or so, especially since Warren Buffett invested heavily in Burlington Northern Santa Fe and declared his intention to buy into others too. The 62-billion-dollar man admitted to U.S. business media that the rail sector’s weak performance over the last couple decades turned him off in the past.

But, he says, things are different now. And he’s not the only one. That thinks so.

Rail is clearly enjoying a renaissance. The four largest American railways, as well as CN Rail and CP Rail in this country, are rolling full steam ahead — unlike many trucking providers who’ve pulled the covers over their heads until the current economic storm passes.

With tight capacity and surging long-haul demand from international container importers and exporters — plus increasing highway and border congestion working against truckers — railways are experiencing pricing power that they haven’t seen in decades.

A recent shipper survey conducted by Bear Stearns indicated that 6.7 percent of surveyed shippers’ volume switched from truck to rail in the fourth quarter of ’07. That’s down slightly from the 8.1 percent in the same period of 2006, but still on an upward trend in recent years.

The report also notes that 14 percent of shippers believe they can move up to 75 percent of their freight to the tracks. “(Fuel prices) could continue to drive the spread between total transportation costs wider,” the report continued.

Ron Tepper, president of LTL and intermodal carrier Consolidated Fastfrate (CFF), is one of a few truckers who’ve profited heavily from rail growth — though, in turn, he points out that the trains are also making money in part because of service providers like him.

An evolution in overseas shipping bodes well for rail’s future.

In February, Fastfrate and Canadian Pacific announced a new $500­million agreement that extends their longstanding partnership for another decade.

The exclusive deal dates back to 1966, when CFF became the only carrier in the country to have the strategic advantage of building all its cross-dock facilities on or adjacent to CP intermodal terminals. CP depends on the trucking company for seamless LTL service, freight consolidation, deconsolidation, warehousing and transshipping.

While there’s still some issues with turnaround times at rail yards and winter weather service, Tepper says railways have gotten faster, for the most part.

“Rail and supply chain were never really two words that went hand in hand,” he says in an interview. “Railways are slow and methodical. But they’ve become speedier. In a country that’s 7,000 miles long and everything is 60 miles from the border, it’s an easy way of transporting goods across the country.

“They’re not building more tracks either. Once you have a capacity issue where you’re full, it’s not hard to drive [profit] into the direction you want. So, they’re not going to grow their businesses by adding more tracks, but by adding more speed to existing infrastructure.”

Tepper isn’t worried about the future of trucking. Regardless of the market changes affecting various transport modes, trucks will always be essential in certain long-haul and regional sectors. But there’s no denying the boost that Asian and Indian trade markets will continue to give the rail sector in the long-term.

“Free trade has always been about Canada selling to the U.S. and very little the other way around. Now we have product that’s wanted around the world, and they’re willing to pay for it,” he says.

“Is NAFTA going to be as valuable to Canada as it once was? My own view is probably not. There’s a growing recognition that, yes, America is our largest trading partner, but does it have to be our only trading partner now that we have some leverage with the products we’re trading?”