Rail Shippers Favor Trucks Over Railroads

A survey of rail shippers finds they believe trucks better meet their shipping needs than do railroads.

The survey conducted by consulting firm Oliver Wyman of shippers in seven industries found that all respondents overwhelmingly preferred trucks, seeing them as superior in providing on-time performance, shipment visibility, and the availability of equipment and capacity.

Adriene Bailey, a partner at Oliver Wyman, said during the RailTrends 2020 conference that railroads continue to lose market share to trucks and could lose $177 billion in revenue by 2030 if current trends continue.

Although Class 1 railroad executives have touted their shift to the precision scheduled railroading model as having provided better service, one automotive shipper pointedly said, “We didn’t get faster or more reliable.”

Bailey said PSR may have made railroads more profitable, which benefited shareholders, but the true test of the operating model will be whether being more efficient can result in a material and sustainable growth trajectory for railroads

Between 2012 and 2018, railroads slightly grew their share of heavy, bulky, and low-value commodities that favor movement by rail while trucks maintained their share of high-value commodities such as perishables that favor movement by highway.

That left in the middle traffic that could move either by rail or highway that Bailey said represents the best opportunity for railroads to increase their traffic volume.

More than half of freight ton-miles in North America falls into this middle catgory.

Bailey said that although this represents the best opportunity for railroads to make gains, this freight has not been trending toward railroads.

If railroads want to capture this freight they must fit better into supply chains, improve the transit experience, and become customer-centric.

That would mean understanding each shippers whole supply chain.

Shippers now have the ability to calculate the entire cost of each shipment and to weigh such factors as on-time performance and the carrying cost of inventory in transit.

Such factors could chip away at the advantage that rail has in terms of cost over trucks.

Bailey called on railroads to provide on-time and reliable delivery while providing real-time shipment tracking information.

She said shippers want railroads to offer a better customer experience, from simpler online tools to more responsive customer service, and to be accountable for service failures while providing service metrics that are relevant to shippers.

The survey reached rail shippers in seven industries, including automotive, food, chemicals, metals, retail, oil and gas, and logistics firms.

Bailey said respondents would like to use rail more often but railroads are falling short of trucks when it comes to service, ease of doing business and customer focus.

There has been a turning away from rail by some shippers who are building new facilities without rail spurs or considering whether these new locations can easily be served by intermodal. “They are essentially dealing rail out of the deck in many cases,” Bailey said.

She added that it is not a story of doom and gloom for railroads.

“There is absolutely a huge opportunity for the railroads to continue to take advantage of the efficiency and capacity dividend that they have generated over the past three years through all of the work that they’ve done and turn this into a growth story,” Bailey said.

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