Infrastructure Fuels J. B. Hunt Intermodal

by Andrew Jensen  on Monday, Apr. 7, 2008 12:00 am  

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In the game of Monopoly, the more railroads you own, the more money you make.

Though it’s a boring strategy in the classic Parker Brothers game, it’s been a sound plan on Wall Street so far in 2008.

While real estate markets from Baltic Avenue to Boardwalk have been tanking in the current credit climate, railroads have been outperforming their peers in the S&P industrials index.

Nearly 139 years after the Golden Spike was driven in the transcontinental railroad linking the east and west coasts, the rail industry continues to enjoy a sustained renaissance with origins that lie in the landmark intermodal joint-services deal reached in 1989 between Burlington Northern Santa Fe and Lowell’s J.B. Hunt Transport Services Inc.

Leading rail companies have invested $10 billion in infrastructure improvements and expansions since 2002 and have announced plans for at least $12 billion more over the next few years. The U.S. Department of Transportation expects freight volume to increase by 88 percent to 37.2 billion tons by 2035 on more than 52,000 miles of the nation’s main rail corridors.

“You have to pat the railroads on the back,” said J.B. Hunt intermodal president and chief marketing officer Paul Bergant. “They have done a great job improving their part of the operation. We also have to pat ourselves on the back. Coming from a pickup and delivery background, the advent of J.B. Hunt has really improved that precious piece of the intermodal puzzle.

“We’ve provided consistent and competitive service on both ends, which along with the railroads’ improvements has made a much better product.”

Year-to-date, J.B. Hunt’s chief rail partners, BNSF and Norfolk Southern (which handle 95 percent of the company’s intermodal volume), are up by a respective 9 percent and 10 percent with the broader rail index up around 8 percent.

J.B. Hunt’s share price has advanced 25 percent over the same period, closing just off its 52-week high at $33.10 on April 1.

Union Pacific, whose roots reach back to that historic date of May 10, 1869, has returned more than 32 percent since January 2007 and Warren Buffet’s Berkshire Hathaway owns an 18 percent stake in BNSF worth nearly $6 billion.

Following the agreement between BNSF and J.B. Hunt, rail freight volume has increased by an annual rate of 3.6 percent from 1990-2002, according to the Government Accountability Office, gobbling up the excess capacity built following industry deregulation in 1980 and spawning a free-market model now imitated around the world.



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