ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Sunday, January 5, 1997 TAG: 9701070015
SECTION: BUSINESS PAGE: 1 EDITION: METRO
TYPE: ECONOMIC FORECAST
SOURCE: GREG EDWARDS STAFF WRITER
Generally speaking, the performance of transportation industries - railroads, trucks and airlines - follows that of the economy as a whole. Economists expect the U.S. economy to grow moderately this year, and companies that haul freight are expecting their own growth to mirror it.
Norfolk Southern Corp., which has been setting earnings records with each quarterly report for the past four years, expects moderate growth this year, NS spokesman Frank Brown said.
However, if Norfolk-based NS loses its battle with CSX Corp. of Richmond for Conrail, it may face tougher challenges in the years ahead.
In general, a merger between NS and Conrail would be good for rail competition in the East, but a CSX-Conrail combination would dominate the market and not be good for shippers, said Brown. "If we don't get Conrail, it will be a tougher row to hoe for us, that's for certain," he said.
For instance, the outcome of the company's fight for Conrail could have a significant impact on NS' competitive situation in the coal business. Conrail has been a historical partner with NS in delivering coal to steel plants and utilities in the Northeast, where Conrail is the dominant rail carrier and where Conrail and NS have competed with CSX.
If CSX succeeds in merging with Conrail, however, the new CSX-Conrail combination will control coal deliveries to 75 percent of the utilities east of the Mississippi, said Bill Fox, NS vice president for coal transportation. An NS-Conrail combination, on the other hand, would split the business with CSX 50-50, he said.
But for 1997, coal transportation, which accounts for about 30 percent of NS revenue, should increase 3 percent to 4 percent, Fox said. NS coal exports should increase modestly this year, and shipments to utilities, though a relatively small part of the railroad's business, are expected to rise 15 percent.
Beyond 1997, the NS coal department sees new opportunities for exports to Europe and Israel, Fox said.
Other aspects of NS' business look bright this year as well.
NS benefits from having a large portion of its track in the rapidly growing Southeast, Brown said. In 1996, NS had 64 new industries locate on its rail lines. Eight of the 12 newest automobile assembly plants built in the United States have been built adjacent to NS track as well.
Last fall, NS said it had signed a deal with Ford Motor Co. to operate new nationwide distribution centers for Ford vehicles. That deal will help NS auto business this year, Brown said.
A new steel plant, a new propane distribution facility and new chemical plants on NS lines will contribute to revenues from the movement of metals and chemicals, he said. And the agricultural freight business should benefit by a better harvest in 1996, Brown said.
NS employs roughly 3,100 people in the Roanoke area, which is also the home to a number or trucking headquarters and terminals.
Ken Simonson, chief economist with the American Trucking Association, sees the growth in truck freight this year mirroring a 2.2 percent increase in the gross domestic product.
An increase in diesel fuel prices, which account for about 20 percent of a trucking company's costs, should make it harder for truckers to produce profits, Simonson said. Diesel, which averaged $1.11 per gallon in 1995 was up to $1.23 in 1996, and Simonson expects it to average $1.24 per gallon this year.
To make up for the more expensive fuel, most companies would have to raise rates by about 2 percent but competition keeps truckers from doing that, Simonson said.
The good news is that other costs, such as health care and heavy truck prices, are declining. A 15 percent drop in equipment sales accounts for the price decline there, Simonson said.
A "wild card" in the rate equation, he said, is whether the border between the United States and Mexico will be opened to cross-border trucking in 1997. The opening, which is more than a year behind schedule, could reduce the availability of trucks and put upward pressure on rates.
Differing from the moderate-growth trucking outlook is Fleetmaster Express of Roanoke, which is expecting gains in the 20 percent range this year, according to Secretary-Treasurer Carl Bumgarner.
Normally, his company's business slows around Christmas, but last year it remained strong, Bumgarner said. "If the way we were running through the holidays is any indication, then we'll have a very good year."
The increase in diesel prices will not cut much into his company's profits because of clauses in shipper contracts that allow truckers to recover fuel price increases from customers, Bumgarner said. Fleetmaster, which hauls paper, glass, beverages, rubber and plastic, has doubled its size in the past three to four years.
As for the airlines, Mark Courtney, a spokesman for Roanoke Regional Airport, apologized in advance for the pun and described 1996 as one of "ups and downs" in the airline industry. It's a cyclical industry to begin with, depending a great deal on the number of airline seats available at any one time, he said.
While the reputation of low-cost airlines suffered from the ValuJet crash in Florida in May, the major carriers were able to control their seating capacity and keep fares relatively stable, Courtney said.
This year should see greater dominance by the major carriers, he said. The low-cost carriers tend to get a lot of attention, but they are a small part of the business, he said.
Industry observers will be watching for any major mergers this year, Courtney said. In December, there were reports that Delta and Continental airlines were talking merger but later broke off the talks.
A major merger could trigger others, but air fares are expected to remain affordable nevertheless, Courtney said.
Roanoke Regional's freight loadings should continue to grow, but how much depends on decisions by freight companies such as UPS, he said. The UPS decision to truck second-day freight out of Roanoke cut total volumes at the airport last year, he said. Total cargo loadings and unloadings were down about 6 percent through November.
The airport will complete a new cargo ramp in 1998 that is expected to enhance the growth potential for freight, he said.
Total passenger traffic - about 26,000 boarding passengers a month - at the Roanoke airport was down about 2 percent through November last year.
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