innovate arkansas

With diesel fuel prices heading for $4 a gallon, many companies are seeking out more cost-efficient methods to transport goods. The railroad industry in Arkansas is capitalizing on that search.

American Railcar Industries Inc. has been building railcars in northeast Arkansas since the mid-1990s, and the business is looking to expand once again, owing partly to the steadily increasing demand to move freight by rail.

American Railcar produces two types of railcars in Greene County, with production facilities in Marmaduke focusing on tanker cars and the Paragould location focusing on hopper cars. Since opening its first facility in Paragould in 1995, the company each year has added an average of about 125 jobs.

As demand for railcars continues to rise, the company is looking to open a new facility later this year, with the newest facility a joint venture with Amsted Industries Inc. and two other partners.

The expansion of freight transportation by rail is also proving a boon to the intermodal partnership that J.B. Hunt Transport Services of Lowell formed with Santa Fe Railway, now BNSF, in 1989.

An intermodal facility near Marion, operated by Union Pacific, is the second-largest in the company's system and saw the units it handled increase last year.

It seems counterintuitive that the railroad industry, historically associated with the smokestacks that spew pollutants into the air, might offer a method for reducing carbon and other greenhouse gas emissions.

Trains, however, transport freight more fuel efficiently and emit fewer gases than trucks. And if 25 percent of freight currently transported in the United States by truck traveled by train instead, the savings by 2025 would lead to:

• Nearly 800,000 fewer tons of air pollution
• 16 billion gallons of fuel savings

The efficiency with which railroads can transport freight results from the minimal amount of friction between steel wheels and steel rails and the number of cars that can be pulled by one locomotive. One gallon of fuel moves one ton of freight an average of 423 miles.

Arkansas Railcars

The first small plant American Railcar opened at Paragould built parts for sister plants. Now the company's two major plants in Greene County employ about 1,130, Dean Inman, senior human resources manager, said.

"I suppose the best answer I can give is that the market is strong enough to support new railcar builders," Inman said. "It's exciting and a circumstance where there is always work to be done."

The work for American Railcar is to keep pace with the demand for rail transport. Reports issued by the American Association of Railroads show both the number of carloads and tons of freight passing through Arkansas increased from 1998 through 2005, when numbers were last available.

Carloads passing through Arkansas rose from about 2.5 million in 1998 to about 2.9 million in 2005. The number of tons passing through Arkansas increased from about 137 million in 1998 to about 167 million in 2005, according to American Association of Railroads reports.

Reports also show that the number of tons of cargo originating in Arkansas has spiked. About 19 million tons of rail cargo originated in the state in 1998, while 24 million tons originated in Arkansas in 2005, according to AAR reports.

The demand for rail transport is expected to increase tonnage by 88 percent by 2035, according to U.S. Department of Transportation estimates. If the increase is reflected in Arkansas, about 314 million more tons of freight will pass through the state by 2035 than in 2005.

Business Is Booming

Business has gone well for American Railcar, which is based in St. Charles, Mo., northwest of St. Louis. The company listed a backlog of nearly 12,000 railcar orders worth almost $970 million for the year ending in December, according to SEC filings. American Railcar also listed revenue of almost $700 million for 2007, with gross profits at about $89 million, up 26 percent over the previous year.

The price of railcars produced at the Arkansas locations ranges from $50,000 to $100,000, depending on the specifications of the company placing the order, Inman said. A pressurized hopper or tanker car or a railcar requiring a more complex paint job will cost a little extra, he said.

American Railcar continues to think about further expansion. American Railcar and Amsted Industries formed Axis LLC, which will invest $75 million in a plant in Paragould to produce axels for freight cars. The plant is expected to open during the second half of this year. The plant shares a campus with American Railcars' plants in Paragould and will sell parts primarily to American Railcar, with excess parts sold to other freight car manufacturers. The computer-controlled plant will employ 40.

Jeff Hollister, American Railcar's division controller, said many factors account for the company's success, such as rail companies replacing aging fleets, but the rail industry has seen a boom during recent years.

"It's just cheaper to move it by rail these days with the fuel costs," Hollister said. "With a truck, you have one trailer behind a truck. With railcars, you can stack them up behind a locomotive. You have one locomotive that is pulling a lot of cars compared with one truck pulling one trailer."

Hitch to This

In fact, the average train traveling on tracks west of the Mississippi River carries between 64 and 165 cars, depending on the cargo, according to an AAR report.

The ability to tow multiple cars behind one engine led J.B. Hunt to begin experimenting with intermodal traffic in the late 1980s. J.B. Hunt Intermodal had only 20 loads in late 1989 but 738,000 in 2007, according to SEC filings. Revenue for 2007 was $1.65 billion, up from $1.43 billion the previous year. The intermodal division accounted for 47 percent of J.B. Hunt's total revenue, $3.5 billion, for 2007. Operating income for the division rose 31.4 percent over 2006.

The company now touts intermodal traffic as more efficient and better for the environment than the truck model on which the J.B. Hunt company was built.

"Increasingly, our customers are seeking energy-efficient transportation solutions to reduce both cost and greenhouse-gas emissions. Our intermodal service addresses both demands," J.B. Hunt said in an SEC filing.

In 2006, BNSF Railway Co., which handles much of J.B Hunt's intermodal traffic west of the Mississippi River, handled about 1 million carloads in Arkansas. BNSF has also invested $30 million in Arkansas for capacity expansion and maintenance during the past three years, with an additional $10 million spent on maintenance in 2007.

BNSF operates track that runs through the northeast corner of Arkansas. It is also the leading intermodal carrier, shipping for J.B. Hunt, ABF Freight Systems Inc. and Continental Express Inc.

The Marion International Railport, operated by Union Pacific Corp. of Omaha, Neb., enjoyed an increase of 8 percent in the number of cars transported through the facility in 2007.

"Lifts" - or trailers - at the intermodal yard grew from about 406,000 in 2006 to about 414,000 in 2007, Mark Barnes, a company spokesman, said.

"Marion is important because it is our second-largest intermodal facility," Barnes said. "It ranks second behind ICTF [Intermodal Container Transfer Facility] in Los Angeles."

The Los Angeles facility, which is four miles north of the Port of Los Angeles, is the nation's busiest, according to the American Association of Port Authorities.