Oil Transport Competes With Freight for Rail Space

As the demand for oil continues to increase around the world, oil transport companies are increasingly competing with freight companies for space on the railroads. Oil demand is only continuing to rise as is the demand for reliable freight transportation. As a result both industries are left fighting for the same space.In North America, railway companies are experiencing a boost thanks to the competition which has mainly been caused by the lack of oil pipelines. Oil producers in Canada and the United States have limited options as existingpipelines are currently at full capacity. In addition, the producers are having trouble getting authorization from regulatory bodies to install additional pipelines such as the current Keystone XL project which is currently on hold. As a result, oil producers are increasingly looking to the railways and are raising prices for freight carriers in the process. Burlington Northern Santa Fe Railway is one of the largest railway systems in the United States and maintains more than 32,000 miles of railroad. From 2011 to 2012 alone,BNF demonstrated a 22 percent increase in revenuethanks to the revenue from transporting shale and tanks containing crude oil. Other railway companies such as Union Pacific and CSX saw similar trends. Over this same period, Union Pacific noted thatthe amount of grain being transported over the company’s own railroads decreased roughly 20 percent over the same period. Together BNF, Union Pacific and CSX railway systems traverse much of the United States and therefore the statistics reported by these companies indicate that freight prices will continue to rise as the competition only increases. Unless plans for initiation ofnew oil pipelines are announced in the near future, it is very likely that the price increases will only continue. This means that freight companies may also have to pass on the costs to their customers in the form of rate increases. However there is room for increasing efficiency in the case of freight carriers which could help curb the risk of significant rate hikes in the interim. Oil pipeline projects have been put on hold for various reasons including cost, safetyand also due to potential environment hazards. Numerous arguments have been made for and against the pipeline projects however to date, officials in the United States have not made any strides toward approving any newproject.