Posts Tagged ‘trucking industry’

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.”

Rail Shippers Favor Trucks Over Railroads

November 27, 2020

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.

Plan Sees Rails Losing Market Share to Trucks

September 8, 2020

Railroads are expected to lose market share to trucks over the next quarter century a new federal plan predicts.

The National Freight Strategic Plan released last week by the U.S. Department of Transportation projects that rail freight volume will increase 25 percent by 2045, but trucks will see their freight load increase by 32 percent.

The 118-page report said railroads in 2017 handled 1.4 percent of the nation’s freight in terms of total value while moving 9.3 percent of the tonnage and 26.9 percent of the ton-miles.

As for types of freight that railroads are expected to handle, the report projects that they will haul less coal and crude oil in the coming years, but shipments of ethanol may increase.

Agricultural and natural resource freight shipments and intermodal also are expected to increase.

Over the next 25 years the trucking industry is expected to encounter worsening highway traffic congestion and driver shortages.

The plan offers few railroad-specific recommendations although it does commend the CREATE program in Chicago, a $4.6 billion public-private partnership that is working to improve the region’s railroad infrastructure.

It also urges policymakers to update and eliminate unnecessary regulations; improve collaboration among transportation modes and federal, state, and local governments; and invest in systems that can provide transportation planners with better freight data.

Transportation systems may change in coming years due to the development of autonomous trucks, aerial drones, and such technology such as 3D printing.

The plan said the development of positive train control is expected to largely be finished by the end of 2020 but does not mention how it might lead to autonomous trains or one-person crews.

Nor does the plan make any recommendations for resolving rail congestion in such terminals as Chicago, Kansas City, Memphis, Atlanta, Houston and Cincinnati.

Railroad economist Jim Blaze told Railway Age that the plan raises several questions, but he described it overall as vague and lacking in data and a well-defined funding stream.

Blaze noted that the placed concedes that DOT lacks the data necessary to drive smart innovation.

“That’s not a good starting point for planners,” he said.

Blaze also said the plan claims that safety it the agency’s top strategic goal, but that is not addressed until page 86.

Some of the data shown in the play is outdated, Blaze noted, and there is no research and development plan put forth even though R&D was among the 19 theoretical ‘to do’ boxes shown in the plan.

Panelists See Slow Freight Rebound

August 27, 2020

Railroad industry analysts predicted this week that the COVID-19 pandemic will cause fundamental changes in the U.S. economy that will result in limited railroad freight traffic growth over the year.

The prediction was made during a webcast sponsored by the Midwest Association of Rail Shippers with panelists saying the pandemic has caused a great deal of economic uncertainty and the recovery that began in June remains fragile.

“We are not even close to getting back to equilibrium,” said Eric Starks, CEO of FTR Transportation Intelligence.

Straks expects the economic downturn will linger until there is an effective COVID-19 vaccine available.

Another member of the FTR firm, Todd Tranausky, said that in recent weeks intermodal traffic has gotten a boost from the need of retailers to restock their inventories.

Intermodal traffic also has benefited from tightening truck capacity, prompting shippers to turn to rail to move goods.

This has included parcel shippers seeking a relief valve for moving their packages.

For now, importers are routing more good via West Coast ports in order to get them to consumers faster.

However, he said that carload volume will be much slower to rise because industrial inventories are already at high levels.

FTR expects carload traffic to lag through at least the first quarter of 2021.

“It’s going to be a very slow, very uneven slog back to growth in the carload sectors,” Tranasuky said.

Not All Intermodal Lanes Are Equal

May 23, 2020

Railroad intermodal freight traffic has been lagging and industry observers point to many factors behind that.

Many of those start with the economic downturn triggered by the COVID-19 pandemic but other forces are at work and were depressing intermodal traffic before the pandemic began.

This included a shift in business to trucks and even railroad choosing to forgo some intermodal business because it was not profitable enough.

But the forces depressing intermodal rail shipment have not affected all intermodal traffic lanes in the same manner.

Competition from trucks, for example, is not the same in every market.

An analysis by e-newletter FreightWaves that was published by Railway Age show that in some lanes rail intermodal holds up well against truck completion.

One of those is Los Angeles to Chicago where rail has an advantage due to the density of the market and the transportation infrastructure unique to those cities.

The anchor cities in that market are two of the nation’s largest consumption centers.

They also have more outbound than inbound freight.

Intermodal rates in the Los Angeles to Chicago lane are considerably above the intermodal national average.

In the New York to Chicago lane, intermodal does not enjoy the same rate competitive advantage.

Trucking spot rates have fallen significantly, as they have throughout the country, which has eaten away at intermodal value.

Trucks can ship freight in two days, which provides shippers better service than intermodal for a slightly lower cost.

Intermodal volume from New York to Chicago has underperformed nationwide intermodal volume in the past month.

The analysis said it remains to be seen if the strength of the Los Angeles to Chicago lane for intermodal will be sustained.

It might have been rooted in a surge in imports at the end of April and early May.

Since then imports have fallen and the truck market in Southern California has weakened.

That could lead to an eroding of the relative value of intermodal shipping.

Loosening Truck Market Bad News for Intermodal

May 14, 2020

Like railroads, trucking companies have felt the sting of lost traffic volume during the COVID-19 pandemic.

In March there was a spike of trucking activity as retailers rushed to stock their shelves amid increased consumer demand that led to the hoarding of some products.

That was followed by an April lull when trucking business fell. That in turn has been followed by a slight uptick this month as some businesses have reopened after more than a month of social distancing restrictions.

Yet intermodal shipping has yet to benefit from those developments and the e-newsletter FreightWaves said that during the March surge intermodal didn’t gain any additional business as truckers did.

A continuing loose truck market in which there is surplus capacity chasing after the less available business does not bode well for intermodal volume growth.

In various conference calls to announce quarterly financial results, Class 1 railroad executives have been pointing to the loose trucking market as a key reason why there has not been intermodal volume growth.

FreightWaves reported that during March the demand for truck transportation rose 30 percent over what it was in March 2019.

Much of that demand was driven by grocery companies, big box retail stores and consumer products companies seeking to replenish stocks depleted by binge buying.

In April, shippers requested trucks to ship goods with 10 percent less frequency than they did in April 2019.

Demand for truck services has been rising modestly since businesses have begun reopening.

However, the FreightWaves analysis noted that many of the businesses that have been reopening are service-based and move little freight.

Shippers continue to request 6 percent fewer truckloads than they did a year ago.

FreightWaves said the current situation in the trucking industry is that in many cases spots rates are well below contract rates.

That’s important because in more prosperous times spot rates that are above contract rate will lead truckers to decline to move a particular good at a contract rate because they can earn more moving another good at a higher spot rate.

When truckers reject moving a load at a contract rate this is known as tender rejection.

FreightWaves said the tender rejection rate of late has been 2.85 percent, which indicates that moving freight at contract rates may be the best business that many truckers can find.

Although this might be as bad as it gets and business is poised to rise with more commerce arising from the end of COVID-19 shutdowns, that rebound may not be as robust as some want to believe.

The FreightWaves analysis concluded that the rejection rate this spring has been of historic proportions and there is little evidence at the moment pointing toward a substantial rebound.

That is particularly bad news for intermodal shipping because it remains to be seen if intermodal is still a growth area within the transportation field.

“ . . . it appears that the March surge in transportation demand was for freight that was too service-sensitive, for freight that too often needed to be refrigerated, in lanes that too often were not truck-compatible and in a market with truck capacity that was too loose to make much of a dent in intermodal volume,” the FreightWaves analysis said.

The analysis said the market has shown a willingness by some truckers to accept loads in lanes that would typically be best suited for intermodal with truckload rates falling below intermodal rates.

Foote, CSX Facing a Trust Deficit

January 21, 2020

During his remarks last week to investors to announce fourth quarter financial results, CSX CEO James Foote spoke at length about his belief that the carrier can win back market share from trucks.

As Foote sees it, doing that is pretty simple. CSX must get shippers to trust the railroad by offering reliable service.

That of course will be easier said than done, but Foote and his management team have a plan.

It begins with recognizing that rail service in recent years has been inconsistent.

That has led to a loss for CSX of nearly 25 percent of merchandise traffic over the past two decades.

However, the good news for CSX is that over the past three years merchandise traffic has held fairly steady.

Still, Foote recognizes that diverting business from trucks to rail won’t happen quickly.

Foote said CSX needs to provide truck-like reliability and show that over a period of time.

In late 2019 CSX implemented its ShipCSX portal in which it provides trip compliance information for every carload shipment and container.

The data shows the on-time performance for each car or container. Foote said when CSX began tracking that information two years ago the on-time performance was 35 percent.

Foote said that figure is now 85 percent for carload traffic.

“We need to show him through this transparent tool that he can trust us to get his product there when we said we’re going to get it there,” Foote said.

What shippers will gain, he said, is a 15 percent saving from shipping by rail versus by truck.

The reward for CSX, Foote noted, will be growth in merchandise and intermodal traffic that will be faster than the industry average.

The reward for that could be considerable. Foote said there are billions of dollars of opportunity out there for railroads to snatch back from trucking companies.

CSX already knows those shippers. Foote noted that shippers who are using boxcars to move freight via CSX trains are also shipping between half to 60 percent of their products by truck because it is more reliable.

Railroad Employment Hit Historic Low in 2019

January 8, 2020

The U.S. Bureau of Labor Statistics reported this week that for the first time since the 1940s employment in the railroad industry has fallen below 200,000.

When 2019 began railroads employed 215,400. But in subsequent months the payrolls were lopped off by more than 15,000 positions.

Preliminary data from November shows 195,800 being employed by the railroad industry, the lowest number since the Bureau began keeping records.

In 1947, railroads employed more than 1.5 million people. Employment in the industry subsequently began falling, but over the past 25 years employment has ranged between 210,000 and 250,000.

The level of employment has risen and fallen as various economic forces have played out. For example at the depth of the Great Recession of 2008, employment fell to 210,000.

But as the economy improved railroad employment began ticking upward.

Railroad employment has also been subject to seasonal variations as traffic picked up or fell.

The Bureau said the downturn in railroad employment has been particularly pronounced since 2015 due to traffic declines and the use of the precision scheduled railroading operating model.

Railroads practicing PSR typically seek to reduce their headcount as they close shops, yards and thin management ranks. They also operate fewer and longer trains that require fewer operating employees.

In January 2015 railroads employed 245,800. A year later employment was 221,700 and in January 2017 it was 217,000.

By contrast employment in the trucking industry is rising. It was 1.45 million in November 2016 and 1.51 million in November 2019.

The Bureau’s data is based on monthly payroll surveys.