Us rail back on track
Now, however, it seems that a turnaround in the rail industry's fortunes could be taking place. Business Insider reported recently that a real-term record $23 billion was spent on America's railroad networks last year and high profile investors are stepping up to get involved.
Warren Buffett's investment firm, Berkshire Hathaway, bought Burlington Northern Santa Fe in 2009. Mr Buffett described the purchase of the Texas-based railroad company as an "all-in wager on the economic future of the United States." It seems his wager was a sensible one, with the operating revenues of America's seven largest freight railways rising from $47.8 billion in 2009 to $67 billion in 2011. Returns on equity averaged 11.1% and net income reached $11 billion.
Further north, Bill Gates is reportedly the single largest shareholder in Canadian National Railway Company (through his investment firm Cascade Investment, LLC), owning around 10% of the company, while the Bill and Melinda Gates Foundation Trust owns a further 2%.
Business Insider goes on to report that the demand for rail freight is expected to double by 2035. This movement of freight is the key to the industry's current expansion. The Association of America Railroads has highlighted the importance of freight trains - in particular those carrying oil - as the source of renewed growth for railroad stocks.
The Bakken Formation area of North Dakota is an excellent example. The oil boom there has revived the rail industry, with figures from the state Pipeline Authority showing that around 75% of Bakken oil left the state by rail (rather than pipelines) during April 2013, up from 71% during the previous month. Energy information providers Genscape have reported that Bakken rail loading (measured in barrels per day) rose to a high point of 800,000 in May 2013 - more than double the figure at the start of the year.
One company that has witnessed the railroad boom first-hand is North Dakota Developments LLC. CEO Robert Gavin observes: "The impact of the oil boom in North Dakota on the railroads has been huge and with 33,000 new wells planned over the coming decades it looks set to continue for a long time. The impact on air travel has also been massive, as has the demand on resources such as housing."
Housing in North Dakota is a particularly interesting issue, with migrant oil workers flocking to the state in order to land high-paid jobs with the oil companies, yet being forced to sleep in their cars or in sprawling 'man camps' due to lack of available accommodation. According to the recently published North Dakota Communities Acutely Impacted by Oil and Gas Development: Housing Demand Analysis, approximately 8,900 additional housing units will be needed across the footprint for the projected 2030 population.
North Dakota Developments is tackling the issue head-on. The developer's construction of fully serviced executive hotel suites for single oil workers is well underway in the town of Williston. Managed by a well-established hospitality company with experience of oil sector workers and links to oil corporates, the suites provide high-end, spacious and fully furnished accommodation, which includes each worker having his own bedroom, private bathroom, living space, kitchenette and desk/workspace area.
Popular with investors looking for strong-yielding properties, and with projected 90% occupancy rates, the executive hotel suites are one of North Dakota Developments' two leading infrastructure projects in the state.
Mr Gavin comments: "The Bakken Formation phenomenon is truly remarkable. Whether it's for railroads, airport infrastructure or housing, demand simply keeps growing. It's no wonder that investors are viewing North Dakota as the top international area to add to their portfolios."