Big companies including Union Pacific Corp and CSX Corp are stepping up their investment in intermodal shipping -- handling the 53-foot (16 metre) boxes that are moved expeditiously from ship to truck to train around the world, carrying goods from appliances to toys.
Taking advantage of rising fuel prices -- U.S. diesel costs have surged some 32 percent over the last year -- railroad executives are looking to snag more business from their trucking rivals.
That marks an expansion from railroads' traditional strong suit, hauling bulk commodities such as coal and grain.
Their moves have caught Wall Street's attention, with investors seeing a chance to cash in not only on the railroads themselves but on the makers of shipping containers.
"We're believers in the intermodal story," said Benjamin Hartford, senior research associate at Robert W. Baird. "It's cheaper than truck and more fuel efficient, and it behooves retailers and other shippers to use domestic intermodal."
While most trains and trucks run on the same fuel-- diesel -- trains are far more efficient, using a quarter the amount of fuel a truck does to haul a comparable amount of cargo.
The top reason cited is that steel wheels on steel tracks create less resistance than rubber tires on concrete roads. Also, freight locomotives run on diesel-electric power, relative to hybrid autos.
"Rising costs on the truckload side because of increasing capacity scarcity, higher fuel prices, highway congestion, the increased (trucking) regulatory environment all help promote conversion from truck to rail," Hartford said.
He expects about 10 pct growth in total domestic intermodal cargo shipments this year.
Intermodal revenue at the five top U.S. railroads -- BNSF Railway Co, owned by Warren Buffett's Berkshire Hathaway Inc; Union Pacific, CSX, Norfolk Southern Corp and Kansas City Southern -- rose to $11.3 billion in 2010 from $6.9 billion in 2000, the Association of American Railroads said.
Union Pacific believes that intermodal shipping offers its greatest growth potential, said Chief Financial Officer Rob Knight.
"Over the mid-term and long-term, in our book of business, intermodal will, without question, be the highest volume growth and ... the highest margin improvement," he said Thursday at a Wolfe Trahan conference that was Webcast.
The largest publicly held U.S. railroad spent over $28 billion on infrastructure last decade and plans a record $3.3 billion this year, including significant investment in its intermodal network such as adding track lines and buying containers.
"We see a possible 11 million truckloads of opportunity, meaning 11 million truckloads we could potentially convert from highway to Union Pacific," spokesman Thomas Lange said.
The railroad recently bought 5,000 shipping containers, boosting its fleet 9 percent,
A pickup in demand for containers would be good news for the world's top container makers -- China International Marine Containers (Group) Co Ltd and Singamas Container Holdings, analysts said.
Test, Opportunity for Truckers
While railroad executives speak of moving shipments off the nation's highways and onto their rails, they are not cutting truckers out of the picture entirely.
Intermodal transport works best for freight that's moving at least 500 miles (800 km) and is not particularly time-sensitive, such as televisions and refrigerators, rather than trendy fashions or fresh produce.
While a railroad could make a good case for hauling Chinese-made sofas from California to a distribution center in New Jersey, it would not be able to make the next stage of the shipment -- to individual stores.
That is where truckers come back in.
"Rail intermodal is a win-win. Trucking companies are putting a big chunk of freight on the railroads," said Bob Costello, chief economist at Am
