Despite such bargain prices, a couple of a roadblocks lie in the way of a sustained recovery for the group. Instead of creating economies of scale, mergers between Union Pacific and Southern Pacific, and between Burlington Northern and Santa Fe, have caused congestion and shoddy service for shippers. As a result, merger-generated savings have been slow to materialize. That has meant doing a lot of things they wouldn't normally do, such as diverting freight en route or moving deliveries on trucks. Signs of a change may be in sight, though.
Industrial production remains strong enough to boost shipping tonnage.
And CSX and Norfolk Southern report that they've worked out the kinks associated with their takeover of Conrail. The average speed on CSX's network is back up to 19 mph, from a low of 16 mph a few months ago. I don't expect an earnings turnaround in the first quarter. UPS, the shipper frequently associated with the delivery of small packages sold via the Net, is one of the railroad industry's largest customers. That's good news for a company like CSX, whose network east of Chicago serves UPS extensively.