Standing on a bridge at the Union Pacific (NYSE: UNP - News) railway's Bailey Yard in North Platte, Nebraska, it is hard to recall that, until five years ago, North America's rail industry was thought to be in long-term decline.

On a typical Friday at the yard - the world's largest, at eight miles long by two miles wide - six trains are moving through the facility, which checks more than 15,000 passing railcars and about 600 locomotives every day. The trains range from traditional boxcars carrying general cargo, to trains carrying shipping containers stacked two-high and mile-and-a-half-long coal trains.

The surge of traffic through Bailey Yard has continued despite the US economic slowdown. Demand to ship containers - to move consumer goods - has fallen at Union Pacific and every other leading railway after years of rapid growth. But demand to move commodities - coal, grain, oil and other bulk goods - shows no sign of ending its recent boom.

Anthony Hatch, a New York-based railway analyst, says some rail traffic is not so much counter-cyclical as acyclical - unaffected by the ups and downs of economic growth.

Growing freight movement, however, presents challenges as well as opportunities for the seven US and Canadian Class I railways, which dominate the two countries' rail sectors. All are under pressure to find cost-efficient ways of expanding their capacity. Last autumn, The Children's Investment Fund (TCI), a London-based hedge fund, launched a campaign to force CSX (NYSE: CSX - News) , a Class I railway based in Jacksonville, Florida in which it is a leading shareholder, to scale back what it sees as wasteful plans to spend $5bn over the next three years to expand capacity.

Mr Hatch says the railways' priorities changed dramatically in 2003, when they suddenly found demand for rail transport was outpacing their ability to handle traffic. Significant investments to increase capacity started to make economic sense for the first time in decades. Managers had been used to cutting employment and equipment regularly, trimming capacity in line with constantly shrinking demand.

"Several things happened," Mr Hatch says. "Railroads got pricing power; they got significantly better returns. As the returns grew, so did the strain on their assets as all of a sudden they went from being wide open to being congested."

However, some railways still do not earn sufficient returns even to cover their cost of raising capital. They consequently favour low-cost means of boosting capacity - improving signalling systems, improving asset utilisation or better timetable planning - over constructing extra track. "The last thing people want to do is double-track," Mr Hatch says of the US's many long sections of single-line track. "The reason is obviously it's a 50-year asset. Once you put it in, it's hard to get it out."

There is an illustration of one approach to the challenge by Union Pacific - the largest North American railway by revenue and network size - every time a coal train rumbles into Bailey Yard.

Thanks to trackside monitoring equipment several miles away, mechanics know which cars to check most closely for wheel and axle problems. When they find them, they jack the car up, lift out the problematic wheels and put in a new set. Before this new system of fixing problems was introduced in October 2006, the train was time-consumingly split and the car taken out of service for repairs - which could take as much as 12 days.

The new method lets Union Pacific use the track around Bailey Yard more efficiently, according to Cameron Scott, the yard's manager. When cars went out of service for repairs, coal trains were frequently missing two or more cars from their 130-car target length.

"On average in 2003, we missed 800 cars a month," Mr Scott says. "That's a lot of trains and a lot of tonnage."

Trains now average more than the scheduled 130 cars each. "Our customers are moving more than they have ever moved," Mr Scott says.

There are also pitfalls in under-investing. When an unexpected surge of container traffic from Asia hit the US's west coast ports in 2004, UP's main rival in the western US states, Burlington Northern Santa Fe (NYSE: BNI - News) , was better prepared. It had spent heavily on double-tracking its Los Angeles-Chicago trans-continental route, over the protests of shareholders.

Meanwhile UP's system slowed down significantly, leaving containers waiting for days on the west coast for spare space on an east-bound train.

Jim Young, UP's president, blames the 2004 problem partly on the run-down Southern Pacific (SP) railway, which UP bought in 1996. The Santa Fe Railroad, which merged with Burlington Northern to form BNSF in 1995, was in better repair and expert at container traffic. UP was "behind the capacity curve", Mr Young concedes.

"The SP line is our Sunset Corridor," Mr Young says of the key route from Los Angeles to El Paso, Texas. "I wish I had had that corridor double-tracked." UP is now gradually laying a second track along the Sunset Corridor.

At North Platte, meanwhile, Mr Scott, like many US railway staff, faces a new reality.

After wringing enough capacity out of the infrastructure to handle 150 trains a day - a traffic level he never expected to see - he knows he will have to find more space.

"It's not only about how we handle the 150 trains a day we handle through here - which is the heaviest in the world," Mr Scott says.

"But how do we get ready for 200 a day, which is coming?"