Fuel prices have retreated a little, but they’re still high, and railroads are looking more appealing as a means of transportation and exchange traded funds (ETFs) could be the beneficiaries.
Shippers are more likely to deal with longer transport times and more inconsistent service of rail lines as costs for truck transportation have increased drastically with these fuel prices.
As the staff of SupplyChainDigest explains, the end result of this is expected steady growth in rail volume for years to come. Despite a slowdown as of late, economists feel that there will be strong growth in imports continuing over time.
Railway transportation will also provide environmental advantages as many companies look to reduce their carbon footprints. Politicians may even take action to favor rail movement because even though rail movement is impacted by fuel costs, it is much less than trucking. Today, locomotives get nearly 80% more mileage from a gallon of diesel than they did 30 years ago. They are capable of hauling a ton of freight nearly 400 miles on a gallon of fuel, which is three times farther than the capabilities of a truck.
The advantages of rail carriers also seems to be noticed by investors. Despite the rest of the U.S. stock market being down in 2008, Burlington Northern is up 26% this year and Union Pacific is up 32%. Similarly, European and Asian countries are investing billions into passenger and freight rail infrastructure.
One ETF that could potentially capitalize on a new golden era of railroads is the iShares Dow Jones Transportation Average (IYT).
IYT is up 14.4% year-to-date and four of its top 10holdings are major rail freight carriers in North America. Burlington Northern accounts for 11.2% of the fund, CSX is 5.2%, Norfolk Southern is 5.3%, and Union Pacific is 9.3% of this ETF.