Posts Tagged ‘trucking companies’

Rail Traffic Picture is More Complex Than it Often is Made Out to be by Pundits

October 10, 2021

A common refrain in discussions of U.S. rail freight traffic in recent years has been how railroads are losing market share to trucking companies.

“It is clear that rail carriers have lost market share to trucks over the last five years and the ongoing service issues threaten to increase that shift,” said Todd Tranausky, vice president of rail and intermodal at freight forecasting firm FTR Transportation Intelligence.

Consulting firm Oliver Wyman found that rail is losing share in the fastest-growing freight segments, which includes such traffic as autos, which can move by truck or rail.

The consulting firm concluded that if current trends hold, the truck versus rail gap will widen and railroads will lose $177 billion in revenue by 2030.

Class 1 railroads that adopted the precision scheduled railroading operating model have come under fire from some quarters for reducing their work forces and, some critics have said, seeking greater profits by ceding market share of some shipments to trucks.

Among the critics has been U.S. Surface Transportation Board Chairman Martin J. Oberman.

Oberman cited STB waybill data that shows that between 2006 and 2019, “adjusted carloads” fell 1.3 percent.

Yet some in the railroad industry say that’s not a complete view. They point to traffic data from the Association of American Railroads showing that rail ton-miles grew 10 percent between 2006 and 2019.

The AAR data also shows that since 2006 terminating carloads and intermodal units rose nearly 8 percent through 2018 and 4 percent through 2019.

Looking at terminations and not just originations captures traffic generated on short lines as well as the significant shift of U.S. West Coast international container volume to ports in British Columbia.

Whether you use the figures Oberman is using or the AAR data, the figures exclude coal traffic. Railroad supporters also argue that some rail traffic was lost due to trade wars instigated during the Trump administration.

Yet Oberman said during an interview with Trains magazine that no matter what data you examine, the larger point is that railroad freight traffic has shown no meaningful growth.

As Oberman sees it, the influence of Wall Street is at work pressuring railroads to focus on their operating ratio, which measures the percent of revenue that is devoted to paying operating expenses.

“The railroads’ emphasis has not been on growth,” Oberman said in a speech to a shipper group. “Rather the emphasis has been on cutting in pursuit of the almighty O.R. down to below 60 percent.”

During the interview with Trains, Oberman acknowledged that many factors and not just pressure from Wall Street investors, has led to railroads losing market share to trucks.

Some of those factors involve economic changes unrelated to railroads, such as a dramatic drop in the shipment of crude oil by rail and declining shipments of frac sand used to extract oil.

Some industry observers also note that railroads have hurt themselves by failing to deliver shipments on time and by failing to be as easy to do business with as trucking companies are.

Jason Miller, associate professor of logistics at Michigan State University’s Eli Broad College of Business, told Trains that slower rail traffic growth has more to do with changes in the economy than anything railroads have done.

He said studying data from the Bureau of Economic Analysis shows that railroads and trucking companies alike have had ebbs and flows to traffic growth.

Between 1997 through 2003 truck traffic was rising while rail traffic was flat.

Yet in the mid 2000s rail traffic had a boost that corresponds with an increase of industrial production.

Rail and truck alike also lost business during the Great Recession that began in 2008. Rail traffic began growing again until falling in 2015 due to a loss of traffic from coal mining and hydraulic fracking.

“As such, the slower growth seems more a function of the changing nature of economic activity,” Miller said.

He said similar patterns can be seen in data of intermodal traffic versus trucks that haul consumer goods.

Intermodal grew faster immediately after the Great Recession, and then grew in tandem with trucking until 2015 when trucks began to dominate.

Miller said the gains by trucking companies were rooted in low truck rates between 2016 and 2017.

Then in 2019 railroads began allowing some intermodal loads to move to the highway while at the same time West Coast ports lost market share to East Coast ports, where international containers are far more likely to travel by road than rail.

The Trains analysis of traffic data also shows that rail traffic excluding coal, intermodal and automotive, reveals a gap between eastern railroads and western railroads.

Between 2006 and 2019, carload volume was down 16 percent in the East and up 5 percent in the West.

Most U.S. manufacturing is located in the East, but that region of the country has had truck competition inflict a bigger hit because of the shorter hauls involved, which favor trucking companies.

The analysis also suggested that policy decisions made by individual railroads play a role, citing how BNSF has long sought traffic growth while Union Pacific has long favored profit margins.

Consequently, between 2006 and 2019 BNSF carload traffic grew by 12 percent while at UP carload volume was down 1 percent.

The Oliver Wyman study concluded that to retain traffic  railroads need to be more reliable, provide shipment visibility, and become easy to work with while becoming supply chain partners.

Nick Little, director of railway education at Michigan State’s Center for Railway Research & Education, agrees.

“The sooner the Class Is change their culture to think and behave like a key part of their customers’ supply chains, the better chance they will have of helping the nation, and the world, by enabling the switch to rail that Marty Oberman really wants to see as his legacy in his STB role.”

CSX Buys Trucking Company

May 14, 2021

CSX plans to buy Quality Carriers, a provider of bulk liquid chemicals truck transportation. Terms of the transaction were not disclosed.

In a news release, CSX touted the acquisition as establishing the first integrated multimodal chemical transportation solution, CSX.

The release said Quality Carriers has a bulk tank trucking fleet with about 2,500 drivers serving a network of more than 100 company-owned and affiliate terminals and facilities in North America.

The transaction will expand the reach of both CSX and Quality Carriers, CSX officials said.

Truck Executives Calls for Railroads to Change Price Philosophies if They Want to Grow Intermodal Traffic

December 4, 2019

A trucking company executive told an investment conference this week that railroads need to change their prices if they hope to win more of if its business.

Speaking to the Stephens Nashville Investment Conference, the executive vice president of intermodal operations for J.B.Hunt Transport Services, Darren Field, said his company faces conflicts in selling transportation services.

Field said that J.B. Hunt has increasing moved away from being a trucking company to being a third-party logistics company.

“If we’re working with a customer, and intermodal is a good solution for the route or the origin-destination that the customer is asking about, but our truckload brokerage model says that that’s the best economic value for that customer, then we’re going to leave with that [truckload] service first and maybe intermodal is a secondary option to that customer,” Field said.

He said that if railroads want to see growth in their intermodal traffic they need to change their philosophy toward pricing.

“We’ve never held back in terms of communicating with the railroads that their underlying costs certainly influence our ability to help grow volumes on the railroad,” Field said.

Field said competition from trucks will continue to pressure the ability of railroads to raise their prices, particularly in the East.

“And we understand that we’ve got to work together to drive out costs so that we can both be more competitive against the truck,” he said.

Moody’s Downgrades Outlook for Railroads to Negative

November 7, 2019

The railroad industry has taken another blow, this time from Moody’s Investors Service which has changed its outlook for North American railroads as “negative.”

Moody’s had last April described the industry as “stable” but even that had been a downgrade from an outlook of “positive” rendered earlier.

In its latest report on railroads, Moody’s said the industry is being hindered by lower freight volume, weaker pricing gains causing revenue drops, and declining coal traffic.

Moody’s expects intermodal traffic to drop along with overall rail freight volume declining by 1.75 percent to 3 percent over the next year to 18 months. Overall railroad revenue is expected to remain flat.

The decline in railroad coal traffic is projected to accelerate unless there are changes in federal policy, technological innovations, or increased natural gas prices.

The demand for coal is seen as falling by 7 percent per year over the next decade.

But there is more than declining coal traffic that is hurting railroads.

The trucking industry has expanded capacity and that is putting pressure on the ability of railroads to price their product to lure or keep freight, particularly intermodal shipments, on the rails.

“Heightened competition from truck carriers for intermodal and certain other freight continues to weigh on the North American railroad sector,“ said Moody’s Rene Lipsch, a vice president and senior credit officer. “The excess of trucking capacity has been a primary driver of softening pricing gains in the industry.”

Speakers Tackle Falling Traffic, Railroad Relevance

October 8, 2019

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.