On a Faster Track

If you want proof that America's railroads are back on track, take a look inside the Network Operations Center (NOC) of the Burlington Northern and Santa Fe Railway Co. (BNSF). Dispatchers at the railway's headquarters in Fort Worth, Texas, sit hunched over computers 24/7, directing trains for the nation's second largest railroad and tracking shipments of everything from coal to Wal-Mart clothing. Nine megascreens monitor the flow of goods on 200,000 railcars across 33,000 miles of track Chinese merchandise rolling east from California, Midwest grain heading west and then to Asia, FedEx packages crisscrossing the nation. Last year this "old economy" business racked up record revenues of $9.4 billion.

With a boost from technology, big American railroads like BNSF are rebounding from the uncertainty that followed a wave of mergers in the 1990s. The railroads are laying tracks, buying locomotives and hustling to win business from the trucking industry. Traffic is up at each of the big four railroads Union Pacific and BNSF in the West and Norfolk Southern and CSX in the East. "People from all over the world, from Europe to China, come to look at our system," boasts Matthew Rose, BNSF's chairman, president and CEO. They marvel, he says, at technological innovations like BNSF's intermodal transport system, which moves containers from faraway ports to inland rail yards, where cranes can quickly off-load them for trucks to deliver to retail warehouses. BNSF, which handles one-fourth of the nation's rail freight, posted double-digit increases in its intermodal business in 2003, with revenues up nearly 11% and total cars up 12.6%, to 4 million.

The other big catalyst for BNSF's growth: China. The railway's L.A.-to-Chicago transcontinental route is humming with mile-long BNSF trains, their railcars stacked two containers high with Chinese-made toys and togs, purses and plasma TVs. The town of Colton, Calif., east of Los Angeles, is now the busiest spot in the West for rail traffic, thanks to a tsunami of transpacific trade--$1.3 billion for BNSF alone this year arriving at ports from San Diego to Seattle. "At the end of the day," says Rose, "all roads lead to China." Particularly railroads: BNSF's China-related business has doubled in the past six years. And Wall Street is taking note. Rising revenue on rail lines and new rest requirements for truckers have analysts gingerly talking about a "rail renaissance." BNSF's stock is trading near its high of $33.

To handle the surge in business, BNSF is spending $1.9 billion on capital improvements this year, and it plans to invest an additional $1.4 billion in 2005. Those sums will add to the railway's sizable investments since the old Burlington Northern and Santa Fe rails came together in 1995. Since that merger, the company has put down 600 new miles of rail, at $2 million a mile. With delays persisting along the busy transcon route, crews are out in the barren expanses of the Texas-Oklahoma Panhandle finishing up a two-year project to double track 100 miles of rail. BNSF is also rushing to add 344 GE locomotives at a price of $1.3 million each before federal investment incentives expire and more stringent pollution-control standards become law.

Despite a staid reputation, the top railroads have dramatically upgraded their technology. BNSF has been quietly investing nearly $275 million annually in new IT to stay competitive. Chief information officer Jeff Campbell says BNSF's network center astonishes visitors with its ballroom size and sophisticated monitors. "While freight cars and locomotives haven't changed in two decades," he says, "most people have not seen an ops center like ours, not even at NASA in Houston." Automated readers, located every 30 miles along the 33,000-mile system, scan the bar codes of passing cars and locomotives basically the rail version of a toll tag and wirelessly transmit that information. Customers can log on to the company's website to track shipments in near real time or get the data sent to their BlackBerries.

Those innovations place BNSF in a position to benefit from Wal-Mart's never-ending crusade to create a tighter supply chain. For instance, Wal-Mart is requiring major suppliers to put RFID radio-frequency identification on all cases and pallets by 2005. BNSF already uses a first-generation RFID system to track railcars with shipments for Wal-Mart and plans to take the system to the next level, even if that means tagging every piece of lumber it hauls. "Whatever interests Wal-Mart fascinates the hell out of me," says Campbell. But BNSF is taking the technology beyond the Wal-Mart initiative to use RFID to identify deterioration in rail equipment eliminating mechanical accidents before they happen.

BNSF's most controversial technology is the remote-control locomotive, which replaces the second engineer on trains with an onboard computer tied to the main operations center to provide safety backup on long, monotonous hauls. The company will test its new Electronic Train Management system in April. Campbell argues that the remote option will lead to safety improvements, but unions fear trains will become completely automated. "Human mistakes are a big issue," he says. "If an engineer exceeds his authority or fails to acknowledge a signal, the computer knows and can stop it." To cut accidents and boost efficiency in large switching yards, BNSF already uses remote-control belt packs on workers who move railcars around while they are on foot.

Automation has been so successful that BNSF finds itself in a bit of a jam, with a shortage of workers. After years of cutbacks, BNSF plans to hire 1,600 employees this year and 1,000 more in each of the next five years. "I don't know if this is railroad's new Golden Age," says BNSF's boss, "but we haven't suffered the carnage of other businesses like steel and the airlines." Not that Rose doesn't dream big. Eventually, he says, the country's railroads won't be divided between East and West, and there will be a true transcontinental network. Then the big boards at the NOC will really get busy.