US rail deregulation may yet spur coal output, especially in the West

It takes time to move a giant. That's what the sprawling US rail industry and its customers are finding out, more than seven months after the railroad deregulation bill was signed into law. And that is one reason the railroads' biggest customer -- the coal industry -- has yet to see much benefit from the new law.

When those benefits do start showing up, a gradual shift in US coal production from the East to the West is expected to accelerate. While 70 percent of the coal mined in the United States comes from deposits east of the Mississippi River, that region makes up only 45 percent of the nation's coal reserves. In 1979, the West produced 221 million tons of coal, compared with 555 million tons from the East, according to the National Coal Association.

By 1990, the East is expected to produce 925 million tons, an increase of 66 percent. But in the West, production is expected to reach 615 million tons, a 178 percent jump. The West's share will be up to 40 percent.

With this future for Western coal, one would expect Western railroads to be moving quickly to win their shares of the growing business. The fact that they are not, rail executives note, points up things about the law itself.

"We call it re-regulation," says H. E. Cash, vice-president for fuel transportation at the Denver & Rio Grande Western Railroad. "We're just living under a new set of regulations."

The new regulations do give railroads the right to offer "contract rates" to some of their customers, like coal-burning utilities. While these contracts would give the railroads a definite customer base and assured revenues, customers can now require railroads to maintain minimum levels of service and meet specified delivery schedules.

So far, few such contracts have been signed.

"It [deregulation] has given us an opportunity to negotiate a few long-term contracts with shippers and major coal buyers," a spokesman for Burlington Northern Railroad said.

While most transport deregulation laws were designed to lower freight costs, the railroad bill was expected to lead to increased revenues. This way, it was felt, the railroads would have the money they needed to upgrade -- and update -- track and equipment.

One thing deregulation did not do was help Western railroads capitalize on this spring's strike by soft-coal miners, an action mainly concentrated in the East. Very little Western coal was shipped to Eastern utilities or other coal users.

"We haven't benefited from it," said Robert Garrett, a spokesman for the Santa Fe Railroad. "Most coal customers, anticipating a long strike, built up enough stockpiles to last two to four months."

But for the long term, experts note, the railroads were put in an excellent position to capitalize on the expected boom in coal, as an increasing percentage of US electricity is generated with coal.

For the railroads that haul significant amounts of coal, "this is where their future lies," says Jack Kawa, a coal analyst with Wheat First Securities in Richmond, Va. "The outlook there is very bright. My favorites are the coal-hauling railroads; those are the ones that I favor for coal investment."

Among the railroads Mr. Kawa likes are lines such as CSX Corporation (the result of a merger last year between the Chessie System and Seaboard Coast Lines), Norfolk & Western, Burlington Northern, and Santa Fe.

To help them make all this money, the roads are expected to make increasing use of unit trains to move the coal. When they do start signing more long-term contracts, fulfilling them will mean more frequent use of unit trains, which contain up to 100 cars of the same product, running in a shuttle from origin to destination and back.

It is estimated that some 53 percent of the more than 500 million tons of coal handled by US railroads moved by unit train in 1980, up from 29 percent of the 395 million tons carried in 1970.

While the railroads are preparing to gain a bigger piece of their already-dominant share of the coal business, they are also preparing to fight off potential competitors. One such competitor is the coal slurry industry, which hopes to increase its minuscule share.

QR Code to US rail deregulation may yet spur coal output, especially in the West
Read this article in
QR Code to Subscription page
Start your subscription today