US Rail Network Facing Congestion Calamity

My ears perked up a few weeks ago when I was reading that costs for trucking companies have risen to the point that it is CHEAPER for them to put their trucks ON RAILROAD cars for cross country treks (instead of actually driving the trucks). That's sort of an amazing scenario when you stop and think about it.

Of course we love all sort of shortages here (as investors) because shortages mean profit opportunity. (we don't like shortages so much as consumers though because shortages mean higher prices) But shortages and crisis do create all sort of reactions - such as the increase in the American 4 day work week. Demand destruction 101.

• When Ohio's Kent State University offered custodial staff the option of working four days a week instead of five to cut commuting costs, most jumped at the chance, part of a U.S. trend aimed at combating soaring gasoline prices. "We offered it to 94 employees and 78 have taken us up on it," said university spokesman Scott Rainone.
• But the surge in gasoline prices is pushing more private employers as well as local governments to offer a four-day week as a perk that eliminates two commutes a week.
• In America's struggling auto making heartland, the shorter workweek offers employers a way of rewarding employees when the budget does not allow a salary increase, said Oakland County, Michigan, executive L. Brooks Patterson.
• Some 44 percent of respondents said they have changed the way they commute -- doing things such as sharing a ride or driving a more fuel-efficient car -- or are working from home or looking for a closer job in order to reduce gasoline costs, according to staffing services company Robert Half International.
• Some schools, including community colleges in rural areas where commutes are long and public transportation is scarce, already have plans to drop a day of classes, usually Fridays.

Of course, sir Buffet was way ahead of the pack in his investments in the rails but it is right up his alley, limited competition, higher barriers to entry.... but this very interesting story tells of a potential crisis down the road - but perhaps by then we'll have our flying cars/trucks ready to combat the problem ;) News like this continues to build a case, that if we don't find some serious breakthroughs on the energy angle, we could be seeing a retro move back to an era of more localized production as transport costs begin to dominate decision making (thanks to some readers who have emailed me some info on this angle of late). Remember this fall we were reading stories about how it was costing more to SHIP iron ore from Brazil to China, than the iron ore itself cost. For those who are new to this story, the railroads have been BOOMING carrying all the products that dominate our investment thesis - agriculture product, fertilizers, and coal specifically. [Apr 15: CSX Benefiting from Grains, Ethanol, and Export Coal] And most of it is being shipped to 1 particularly hungry customer in Asia.

• The blotches illustrated areas where, by 2035, traffic jams could be so severe trains would grind to a halt for days with nowhere to go. "For those of you who've ever seen a good rail meltdown, this is what it looks like," Rose, CEO of Burlington Northern Santa Fe Corp., said as the crowded hall shifted uncomfortably in their chairs. "It's literally chaos in the supply chain."
• The nation's 140,000-mile network of rails devoted to carrying everything from cars to grain by freight is already groaning under the strain of congestion, with trains forced to stand aside for hours because of one-track rail lines.
• And it's probably going to get worse over the next two decades.... The damage to the U.S. economy could climb into the billions of dollars. Higher shipping costs would raise prices for everything from lumber to grain. One analyst said the rail crunch could add thousands of dollars to the price of a car.
• Congestion around the country has remained chronic, even as the ailing economy has led to a 3 percent dip in freight train traffic in the first few months of this year compared with last year. And a new U.S. Chamber of Commerce report warns demand for freight trains is expected to double over the next 25 years.
• "Even if the estimates are half wrong, we can't put even 25 percent more freight in the system right now without serious implications," said Randy Mullett, an analyst for the nonprofit Transportation Research Board.
• "Even if the estimates are half wrong, we can't put even 25 percent more freight in the system right now without serious implications," said Randy Mullett, an analyst for the nonprofit Transportation Research Board.
• Other modes of transport can't take up the slack: Trucking faces its own congestion problems, a shortage of drivers and high fuel prices. Ships and barges can't reach large parts of the country. Airplanes couldn't begin to carry the millions of tons of coal, waste, chemicals, grain and cars hauled by trains. And hauling freight by rail remains far more fuel-efficient than trucking.
• "The amount of money we're investing nationally is pathetic," Rep. Peter DeFazio, D-Ore., said during a recent congressional hearing on congested freight routes. "We're heading toward fourth-world infrastructure." (boy, on this I agree - but when you are a broke, debt laden country spending on entitlement programs you cannot afford, sending warriors across the globe on missions you cannot afford, and sending rebate checks out you cannot afford - you can't really spend money on minor projects like... water infrastructure, roads, bridges, and non essentials like that - not until they begin breaking down in large scale - and then at THAT point we'll start the Congressional investigations on why we allowed things to degrade to this point. Note to Congressmen while searching for the answer - walk to mirror, look at mirror, rinse, repeat.)
• The Chamber says expanding capacity on the more than 150-year-old U.S. rail system would cost $148 billion over 30 years. Private rail companies would have to pay most of it, with federal and state tax dollars covering much of the rest. ($148 Billion -that sounds like an enormous amount - totally unachievable; who has that sort of money? What's that? We just spent more that $160 billion a few months ago to try to buy votes... err, create a "stimulus plan" so Americans can "shop til they drop" to "support the economy"? Ok, so let's invest in ourselves via infrastructure / create jobs OR send money out to people to buy products at Walmart - which in turn sends that same money to China for those goods - hmm... I know which one sounds logical to invest in. Let's do the other! Yee haw)

Just add this to the list of other things we won't bother spending money on until its crisis situation... we're too busy building that Monarch Butterfly museum or bridge to nowhere. Priorities people. I'll start setting aside some time for the "Congressional Overview Hearings on Predatory Railroad Pricing"; shall we do 2015 or 2016? I'll be open to either year. See you then.

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