Energy costs, weak dollar make rail increasingly attractive for container transit
- September 1, 2008
by Elizabeth Cooper
While soaring gas prices, congested highways and the weakening dollar are challenging many businesses in the transportation sector, at least one is experiencing an economic boom. Rail traffic is surging as shippers consider railroads to move everything from coal to cereal to national and international markets.
With extensive improvements being made to Norfolk Southern Corp.’s heavily used rail line running from Hampton Roads to the Midwest and exorbitant diesel prices driving truckers off the road, rail could become the go-to vehicle for Virginia’s economic growth.
In fact, that’s already happening at the Port of Virginia. “As the growth of this port continues, the main driver of that growth is going to be the rail,” says Joe Dorto, president and CEO of Virginia International Terminals, the terminal operator of the Port of Virginia.
About 35 percent of the cargo coming into and going out of the port is transported by train. In fact, the Port of Virginia moves a higher percentage of containers by rail than any other East Coast port, including New York and Savannah, Ga. And the progress of the Heartland Corridor, a $309 million project that will move double-stacked freight containers along Norfolk Southern’s railroad between Norfolk and Columbus, Ohio, faster and more efficiently, could make rail even more attractive to shippers.
Shortcut to the Midwest
The bulk of the Heartland Corridor involves raising clearances of 28 tunnels, including four in Virginia. These tunnels must be raised, tracks lowered or arches notched to create the 20-foot, 9-inch clearance necessary to accommodate trains carrying double-stacked containers. Work began last fall on the tunnels and should be completed by mid-2010.
The corridor is expected to remove 150,000 trucks from Virginia’s highways annually while saving more than 20 million gallons of fuel and eliminating more than 55,000 tons of carbon emissions, according to the Virginia Department of Rail and Public Transportation. Improvements to the corridor will take 250 miles off the route between Norfolk and Chicago. Currently, trains carrying double-stacked containers must travel to Chicago via Harrisburg, Pa., or Knoxville, Tenn. Shaving those miles will save a day and a half in transit time, allowing customers to get their goods to market faster.
“If we can get the Heartland Corridor in operation, and bigger ships start coming around to the East Coast, and they can’t get to New York because of draft restrictions, then I think we’ve got a big opportunity to maximize our rail business,” says Dorto. “And the fact that we can handle those big ships and get them in and out of here quickly could mean that we really could become the rail hub on the East Coast.”
In addition to the tunnel clearances, the Heartland Corridor includes the addition of truck-to-train intermodal facilities in Roanoke, Prichard, W.Va., and Columbus, Ohio, and the $60 million relocation of the Commonwealth Railway line to the Western Freeway median.
The Commonwealth Railway Mainline Safety Relocation will serve the new APM Terminals Virginia and the future site of the Port of Virginia’s fourth marine terminal, Craney Island, which is scheduled to open in 2017. The project will improve safety along the rail line, which currently includes 14 places where pedestrians or motorists cross the railroad. The project, expected to be completed by late 2009, will allow for faster transportation of cargo by rail from the Portsmouth terminals. Rail traffic from both facilities each year is expected to be more than 1 million TEUs, or 20-foot equivalency units. (One TEU is half of the typical cargo container used today.)
Port rail traffic increases
Workers at Virginia’s ports are also loading more cargo onto trains. As the fastest growing area of the Port of Virginia, rail is a critical component of port activities.
The Virginia Port Authority recorded record rail shipments in the first half of the fiscal year. From July 2007 to February 2008, the amount of cargo the VPA moved to and from the Midwest via rail was up 20 percent to 345,128 TEUs.
It’s the largest jump in rail numbers the port has seen in about 20 years, notes Joe Harris, media relations manager for the Virginia Port Authority. As the value of the dollar overseas remains weak, other nations are finding American goods to be more affordable. That’s especially true for items such as grain and coal. In Chicago, grain is placed directly into rail containers called cereal boxes, transported to Virginia’s ports and put on overseas freighters. “That’s a large part of that 20 percent growth,” Harris says. “We expect that rail business will remain strong for a while, but whether or not it is permanent is hard to say.” However, he adds that 20 percent gains are an anomaly. “It’s not going to happen year to year. If we get 5, 6, 7 or 8 percent gains, that’s still very healthy growth.”
In preparation for the improved Heartland Corridor, the port’s Norfolk International Terminals recently completed a $17 million initial expansion of its central rail yard. “We are getting rid of older technology and bringing in new technology that will make us more mobile and quicker,” Harris says. “Our rail capability is good now, but it will get a lot better.”
The next phase of the expansion project, which will be completed over four years, will enlarge the terminal’s rail yard and increase the container trans-loading facility capacity, allowing NIT to expand its reach to the Midwest.
Railroads see boost
Rising fuel costs and the weak dollar have led to a spike in demand for Norfolk Southern’s services, making it more competitive with long distance truckers. “Shippers are turning more and more to rail because rail is inherently more fuel efficient for transport than highways,” says Robin Chapman, public relations manager for Norfolk Southern. “Even before the recent boom, we’ve used the term ‘railroad renaissance’ for the past couple of decades.”
Much of the cargo traveling aboard Norfolk Southern trains is bound for other countries, with coal leading the pack. Norfolk Southern expects its coal exports to rise by more than 50 percent this year. That increase comes in the wake of disruptions in coal supplies in other parts of the world and the weakening dollar. “As demand for traffic increases, our capacity tightens and gives us more pricing power,” Chapman says.
Norfolk Southern is not alone. CSX, a Florida-based railroad company with rail lines throughout Virginia, is seeing record revenues and income. The company’s second quarter profit increased 19 percent this year to $385 million.
The Hampton Roads ports and rail in Virginia will also receive a boost from the public sector. The state Rail Enhancement Fund sets forth an ambitious agenda to improve Virginia’s connections to the global marketplace and reduce highway congestion and carbon emissions.
State funds rail improvements
Scheduled to be finalized this fall after a public comment period, the five-year rail plan totals $4.7 billion in cargo and passenger rail investments, including $1.8 billion in freight rail. Established in 2005, the Rail Enhancement Fund is the state’s first dedicated funding source for passenger and freight rail improvements. Projects receive 70 percent of funding through state resources and 30 percent from private partners, usually railroads. “With congested highways, we need another way to transport goods,” says state DRPT chief of staff Jennifer Pickett. “In order to have a good transportation system, we need to have a variety of modes.”
Other initiatives include the $48 million National Gateway Initiative, a partnership with CSX, which will improve shipping between the ports of Virginia, Baltimore and Wilmington, N.C., potentially removing 130,000 trucks from the Interstate 95 corridor. The DRPT and Norfolk Southern are working together to improve the railroad’s Crescent Corridor, which extends from New Orleans to New Jersey, potentially removing 1.6 million trucks from the I-81 corridor by 2035.
Intermodal facility not liked by all
As a key investment for east-west rail shipments, the Heartland Corridor has received a lot of attention in the state rail plan, but it also has attracted some opposition. A fight over where to build the Roanoke intermodal facility, which would move trailer-size containers between rail cars and trucks, looked as if it could have been derailed by local opposition.
But despite resistance from the Montgomery County Board of Supervisors and many residents, the commonwealth announced in August that Norfolk Southern could proceed in building the site at Elliston. The company will meet with state officials to develop a detailed budget and construction schedule, says Norfolk Southern spokesman Robin Chapman.
The facility is expected to create 3,000 jobs, prompt hundreds of millions of dollars of economic activity and generate up to $81 million in annual tax revenue in the region. But opponents say the facility would lead to increased traffic and potential environmental damage. “It’s a safety issue,” says Gary Creed, a member of the Montgomery County Board of Supervisors. “There are four schools up and down that corridor. We don’t need more trucks on it. We’ve got other places it could go that would be more appropriate.”
The state examined 10 potential sites for the project and deemed Elliston the only feasible location. It has said it will spend $15 million to create the Ironto Connector linking the facility directly to the interstate. But that hasn’t eased concerns over the project. Railroads are not subject to local zoning regulations under federal law, but the supervisors have indicated legal action may be forthcoming.
The new facility is just another factor that could continue to boost rail’s popularity as a transportation method for shippers. Demand will continue to grow for rail services to move international containers to and from ports, says Wayne Talley, an economics professor at Old Dominion University. “International trade is growing faster than the world’s economy. That puts major pressure on U.S. railroads to move containers to and from ports.”
However, Talley adds that despite highway and port congestion, truckers are still a vital cog in the transportation wheel. “Rail can only go to certain destinations, but truckers can go anywhere there’s a road. As far as long-haul movements, rail’s share will be increasing, but we still need those truckers.”