Rising fuel costs will make rail transportation cost efficient, spurring demand from businesses
Los Angeles, CA (PRWEB) January 12, 2013
The Rail Transportation industry is vital to the US economy, moving people and goods to different places around the country. In recent years, the industry has been revitalized, mostly due to rail's cost-effectiveness and fuel efficiency compared with other forms of transportation. “Despite signs of a troubled economy, revenue rose in 2007 and 2008,” says IBISWorld industry analyst Lauren Setar. “Rising fuel prices made rail transportation a better alternative for shipping.” Operators increased fuel surcharges, boosting industry revenue. As the recession hit in 2009 and fuel prices fell, however, revenue dropped 20.2% due to slowing demand for transporting goods and raw materials. A rebound in fuel prices and growing consumer spending is expected to result in a 1.1% revenue increase over 2012. Despite this recovery, the dramatic decline in 2009 limited the industry's five-year growth. IBISWorld estimates that revenue grew at an average annual rate of 0.7% to $78.2 billion over the five years to 2012. Meanwhile, profit contracted because freight volumes and rates fell in response to uncertainty.
Many types of freight are transported by rail, including raw materials, consumer goods and people. Coal used for generating electricity is the most common freight that trains carry, accounting for 45.0% of all carloads. Each of the four largest Class 1 railroads carries a significant amount of coal freight. The only Class 1 railroad that offers nationwide passenger services is Amtrak, which is owned and subsidized by the federal government. Class 1 railroads account for nearly 86.5% of industry revenue; this dominance has caused long-term consolidation as larger players acquire smaller ones to gain access to new routes. In the five years to 2012, the number of Rail Transportation industry firms is expected to decline an average 1.3% annually to 502. “The high capital costs of establishing new railroads and the need for extensive operations to be close to a large number of consumer markets has limited the entry of new players into the market,” adds Setar. “Furthermore, relatively low profit margins and increased competition from other transportation mediums resulted in numerous mergers among Class 1 railroads in the 1980s and 1990s.” The industry has experienced a large number of mergers and acquisitions over the five years to 2012. One of the industry’s major players, Burlington Northern Santa Fe Corporation, became a subsidiary of Berkshire Hathaway in February 2010.
As the economy recovers, manufacturing production will pick up and consumers will begin to spend more, driving demand for industry transportation services. Furthermore, rising fuel costs will cause rail transportation to be comparatively cost-efficient for businesses that require bulk freight. At the same time, profit is expected to increase due to capital improvements made over the past five years. Consequently, in the five years to 2017, IBISWorld projects that industry revenue will increase. For more information, visit IBISWorld’s Rail Transportation in the US industry report page.
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IBISWorld industry Report Key Topics
The Rail Transportation industry comprises companies that operate railroads across the United States. This includes large railroads (Class 1 railroads) and regional and local line-haul railroads that carry freight and passengers. This industry does not include scenic and sightseeing rail transportation, street railroads, commuter rail or rapid transit.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.