The rising volatility of oil prices, coupled with the economic downturn, is providing something of a boost to railroad stocks.
The rising volatility of oil prices, coupled with the economic downturn, is providing something of a boost to railroad stocks.
Normally, transportation stocks move in tandem with the economy. In the current market environment, however, railroads are breaking away from the pack.
In part, that is because such companies as DHL International Ltd. and FedEx Corp. are cutting back on their use of airplanes in favor of alternative modes of transportation, experts said.
"The express-delivery market has witnessed a clear shift from air to road over the last few years as fuel surcharges and economic uncertainty became more problematic," according to a statement from Sraavani Rao, an automotive and transportation logistics analyst at Datamonitor in London.
Buoyed in part by solid railroad fundamentals, the Dow Jones Transportation Average fell 35.1% last year, compared with a 39.7% drop for the Dow Jones Industrial Average and a 43.8% drop for the Standard & Poor's 500 stock index.
Shares of Burlington Northern Santa Fe Corp. (BNI) fell 20.4% in 2008. In October, Warren E. Buffett snapped up 825,000 shares of the Fort Worth, Texas-based railroad operator.
Meanwhile, shares of Norfolk (Va.) Southern Corp. (NSC) fell 23.9%.
A RENAISSANCE?
"An alternative mode of transport that offers a great potential is rail as most companies come to realize the potential of rail express delivery," Ms. Rao said in the statement. "This is expected to increase the share of rail in the modal mix of transport in the years to come and also provide opportunities for express companies to both compete effectively and satisfy shippers' requirements."
Without a doubt, the United States could be poised for a "rail renaissance," said Alexander Feick, a managing director at Paragon Capital Management, a Denver-based firm with about $600 million under management.
But the shift toward rail transportation may subside once the economy gets back on its feet, said Rob Pickels, a senior analyst at Manning & Napier Advisors Inc. in Rochester, N.Y.
That said, the Obama administration's focus on improving the environment bodes well for railroads over the long term.
"If you want to go green, then you want to move more by rail, because it has less impact on the environment than trucks," Mr. Pickels said.
Compared with Europe, the U.S. railroad network is outdated. That could be about to change, however, now that Congress and President Obama are turning their attention toward improving the country's infrastructure.
BETTER INFRASTRUCTURE
In a report published Jan. 15, the National Surface Transportation Policy and Revenue Study Commission, a bipartisan commission charged with examining the state of surface transportation, called for reforms to start a "new beginning" for the nation's transportation programs.
"That focus [on U.S. rail systems investment] can help decongest choke points, put more freight and passengers on fuel-efficient trains and lower our nation's greenhouse gas emissions," according to a statement from Frank Busalacchi, a member of the commission and the secretary of Wisconsin's Department of Transportation.
