Amid rising fuel prices, more companies are turning to railroads as a cheaper way to transport goods. In fact, U.S. intermodal traffic, which includes loading trailers and containers on flatbed railroad cars, is on pace to break records in 2005. The month of August alone accounted for four of the seven busiest weeks since the Association of American Railroads began compiling this data in 1954. The tracks are expected to remain congested through the fall, given that Hurricane Katrina disrupted water and road transportation in the Gulf region. In all, the total volume of rail freight is expected to top 11 million containers this year, up from eight million a decade ago, and studies predict that volume will soar by 70% between now and 2025.

The surge in freight is so pronounced that it threatens to create a capacity crunch. "With demand now exceeding supply, the rail system is very strained overall," says Roger Nober, chairman of the Surface Transportation Board, the federal agency that oversees the nation's railroads.

And the problem could be hard to fix. Unlike highways and waterways, the majority of the nation's 140,000 miles of freight rail has been privately owned since Congress deregulated the industry in 1980. That means that the private sector will have to raise capital to pay for improving and expanding rail lines. Major operators like CSX and Union Pacific are enjoying high stock prices these days, which suggests that the necessary funds are out there. But expanding capacity takes time, and rail companies generally concentrate their capital on highly profitable lines serving big industry, which may not satisfy the needs of small domestic producers and importers.

Some business groups hope that Congress will allocate money to areas that the railroad companies neglect, but that may be wishful thinking. The city of Chicago, the busiest hub in the U.S. with more than 1,200 trains passing through it every day, recently put forward a plan to invest $1.5 billion in public and private funds for railroad upgrades. Six major rail companies pledged $212 million, but Congress budgeted only $100 million for the project--far short of the $400 million that local and state officials had requested. A disappointed Nober says that the government needs to recognize the strategic importance of the nation's rail system. "The way Congress decided to fund things," he says, "is a lot different than a private company would."