Railroads’ earnings — and their freight — show where the economy’s heading

Sarah Gardner Jan 24, 2014
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Railroads’ earnings — and their freight — show where the economy’s heading

Sarah Gardner Jan 24, 2014
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When you think of the 21st century American economy, your mind no doubt flips to things digital and mobile. But corporate earnings out this week were a good reminder that an industry that sounds more 19th century is key to the modern economy as well — railroads.   

For years now, railroads have been smartly and quietly upgrading infrastructure and increasing market share. The days when trains carried grain and coal aren’t over, but they carry a lot more now, too. “They carry just about everything that’s in your house to the materials that built your house,” says Anthony Hatch, head of ABH Consulting in New York. 

For that reason, railroad freight can provide a window on the overall economy. Take Union Pacific’s latest quarterly report. It reported its coal carloads dropped 10 percent, a dip that reflects a broader trend in the economy — the slow but steady shift to natural gas.   

But the railroad companies are carrying more cars, lumber and piping, which hints at recent growth in auto sales, home construction and fracking. Lee Klaskow, a Bloomberg Industries transportation and logistics analyst, says railroads are playing a key role in the shale boom, “whether they’re hauling crude out or hauling chemicals and sand and water and piping into the places where they’re doing hydraulic fracturing.”

Anthony Hatch says all that hydraulic fracturing will make for more products made from the natural gas they’re drilling in the fracking fields — plastic wrap and anti-freeze, just to name a couple. Those products will ultimately fill rail cars, too.

 

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