Speakers Tackle Falling Traffic, Railroad Relevance

It has not been a good year for railroad freight traffic and, for that matter, trucking companies.

At last week’s North East Association of Rail Shippers conference, several speakers spoke of disappointing freight volumes while some even raised the question of whether railroad are relevant anymore.

Cowen & Company transportation analyst Jason Seidl said that more trucking companies filed for bankruptcy in the first half of 2019 than in all of 2018.

Seidl said more trucking companies are likely to shut down operations this year and pointed to a rising number of delinquent fuel payments as a red flag signaling that additional bankruptcies are coming down the road.

He said truckers are canceling orders for new rigs and fighting to gain loads by lowering their rates.

Railroad analyst Anthony B. Hatch described 2019 railroad freight volumes are terrible.

He blamed a slowing economy and competition from trucks in saying that railroads are unlikely to meet the volume targets that they set for 2019.

Hatch said that during the first quarter of this year railroads blamed falling traffic to bad weather, particularly in the Midwest and West, but there is more going on than that.

He listed five factors that are causing slumping traffic in descending order of importance.

The economy is slowing down, there is overcapacity in the trucking industry, the U.S.-China trade war is taking a toll on the agricultural and manufacturing sectors, railroads are intentionally shedding some traffic amid the transition to the precision scheduled railroading operating models, and adverse weather conditions hindered Midwest crop production.

Declines in intermodal traffic during a growing economy may be unusual, but Hatch said intermodal this year is still the second-highest intermodal volume year on record.

As for the relevance of railroads, several speakers at the NEARS conference said railroads are too slow, too unreliable and too complicated for many shippers to work with.

What shippers want is transportation that’s fast, reliable, and easy.

Increasingly, shippers are finding that with trucks instead of trains.
Mike Smith, president of the Finger Lakes short line railroad in New York State, noted that three new facilities have opened in Ohio that should be a natural for rail service.

But railroads are not serving the warehouses for Heinz and Campbell’s Soup and a Pratt Industries paper mill.

“We [railroads] were not even considered. We weren’t in the equation. Nobody thought about rail as an option, even though these are the perfect commodities for us to be handling,” Smith said.

Smith said if you are not being considered than you are not relevant and thus have no future.

John O’Bryan, senior vice president of business development and integration at railcar manufacturer The Greenbrier Companies said the fact railroads were not considered to move canned goods and paper is disturbing because boxcars are a much more cost-effective way to move heavy products.

Genesee & Wyoming President, North American operations, Michael Miller said that when his company’s sales people make cold calls on on potential customers within a 50-mile radius of a G&W line it finds that most of them “don’t have a clue what a railroad is.”

They don’t know the difference between a boxcar and a domestic container.
Miller said a challenge railroads face is getting potential shippers to even try rail.

Arthur Adams Jr., vice president of sales and customer engagement at CSX, acknowledged that it can be difficult for shippers to work with railroads.

He said if a shipper needs a truck, a simple phone call will result in a trucker showing up and delivering on time.

But if a shipper needs rail service you have to apply for credit; find out who to speak with at the railroad; decide whether to own, lease, or use railroad-owned cars; learn how to properly block and load a railcar; and understand demurrage policies.

“Other modes are eating our lunch,” Adams said.

Adams said the key to winning back freight business is customer engagement and customer experience.

He said CSX is seeking to make it easy to do business with by providing better data for customers, simplifying customer touch points, developing a sales force that can educate customers, and aiming to become more of a supply chain partner.

Adams noted that shippers spend $1 trillion on transportation in North America every year and if railroads “could peel off just 1 percent, think about the impact.”

But for all of the talk of seeking new business Penn State logistics professor Peter Swan argued that Class 1 railroads don’t want all of the traffic they have. They just want the most profitable business.

He said that the practice of railroads of minimizing such assets as crews, locomotives, and freight cars in an effort to cut costs has limited the ability of railroads to maintain current traffic levels, much less grow that business.

Yet Hatch countered that practicing precision scheduled railroading is not necessarily keeping Canadian National and Canadian Pacific from growing their business.

He said both Canadian carriers are outpacing their U.S. counterparts in traffic growth, which he attributed to their having matured in their approach to PSR.

In the United States, PSR is still a relatively new operating model.

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