U.S. rails benefit from fuel, trucks awaiting recovery

By Nick Carey - Analysis

CHICAGO (Reuters) - For decades, trucks have been the undisputed choice of most companies for hauling freight long distances in the U.S. economy, carrying more than 80 percent of all goods.

But with oil prices at record levels and trucking costs so high, shippers are beginning to look to the railroads as a far cheaper, if less reliable, alternative.

"What we're seeing is the start of a modal shift," said Jason Seidl, an analyst at investment bank Dahlman Rose. "In the past, shippers have been reluctant to move freight to trains from the highway because they are slower and less reliable."

"But the price differential is now so wide that they are reexamining trains as an option," he added.

"We're looking at the trucking sector being a 2009 recovery story at this point," said Lee Klaskow, an analyst at Longbow Research. "We're being more conservative on these stocks until it looks like the U.S. economy is on firmer ground."

Once that happens, truckers that survive the downturn will be able to charge more as demand recovers, even if oil prices remain high.

While the price of oil has tailed off since last Friday's all-time peak of $147.27, it is still about double what it was a year ago.

That hurts truckers, especially when combined with weak demand thanks to sluggish retail sales, a home construction slump and the worst U.S. auto sales in a decade.