Subscribe to our free, weekly email newsletter!


2011 State of Logistics: Rail

Steady growth on the rails
By Jeff Berman, Group News Editor
July 01, 2011

As the economic recovery has been riding waves of both optimism and anxiety, there’s been one stable constant in the freight transportation environment: the railroad sector.
But before we examine the rails at the mid-point of 2011, we’re best served by considering where the market was at this point in 2010—and that was in major recovery mode on the heels of a dismal 2009.

Since that time, it’s fair to say that things are better from a volume perspective. However, volumes are still not back to the pre-recession levels witnessed in 2007. Those levels, say industry experts, won’t be back for a while. But since the first half of 2010, the railroad industry appears to be back on track, with solid earnings and strong pricing clearly intact. As for volumes, rail carloads and intermodal containers and trailers are up roughly 4 percent and 10 percent, respectively, year-over-year for the first half of 2011.

“There is improved volume and improved confidence that as an economy we have moved past recovery into whatever the next phase will be—perhaps a slow growth phase,” said Tony Hatch, principal of New York-based ABH Consulting. “A year ago at this time there were questions about how sustainable things really were due to issues like the short-term economic stimulus and Cash for Clunkers.”

Independent of the pace in railroad volume growth, it’s clear that the uptick in confidence on the rails is also playing out in terms of capital expenditure investments being doled out by Class I railroads.


Visit the 2011 Quest for Quatlity Winners

NATIONAL LTL | REGIONAL LTL | TRUCKLOAD | RAIL
OCEAN CARRIERS | 3PL | AIR CARRIERS | FREIGHT FORWARDERS


home page

In March, the Association of American Railroads (AAR) stated that U.S.-based freight railroads are planning to spend $12 billion in capital expenditures in 2011, following a $10.7 billion investment in 2010. The 2011 tally would be a new record, with 2010 being the current record for railroad capital expenditures, according to the AAR.

“The railroad industry is not on the sidelines,” said AAR President and CEO Ed Hamberger. “This industry has been in the game. The $12 billion investment for 2011 follows three years where we averaged $10 billion per year; and up to this year they were the three highest years on record for capital expenditures, which occurred during the middle of the worst recession since the Great Depression.”

Hamberger also noted that these capital expenditure investments are funded by private capital and not taxpayer funding, adding that the railroad industry owns, maintains, improves, and pays taxes on their rights-of-way. Other costs comprised in capital expenditures include maintenance, with 20 cents of every revenue dollar going back into maintaining, expanding, and improving the U.S. rail network over the last 10 years.

Coupled with these expenses allocated towards rail investment is pricing power, which the railroads have had on a consistent basis going back to 2003. As has been the case for years, rail shippers have fought rate increases tooth and nail, citing how they are not getting enough “bang” for their railroad buck. This is especially true for captive shippers.
How the stand-off over rates between rail carriers and shippers plays out is far from settled, given the holding pattern that legislative efforts to re-regulate the industry—and re-authorize the STB—is in. However, rail shippers continue to make it clear that they are not satisfied with the status quo.

“Railroads have pricing power with captive shippers, and it is take it or leave it with rates,” said Mike Snovitch, executive director of the Alliance for Rail Competition. “They are stuck with what railroads charge and filing a rate challenge case with the STB is a long costly process. Rail shippers want and need a truly friendly bill to help better meet their needs.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

The Department of Commerce reported that January retail sales were up 0.2 percent compared to December and up 3.7 percent annually at $449.9 billion, and the NRF reported that January retail sales, which exclude automobiles, gas stations, and restaurants, rose 0.6 percent over December and 1.4 percent compared to January 2015.

On the freight shipments side, Cass reported that January shipments––at 1.025––trailed December by 1.3 percent and January 2016 by 0.2 percent. These declines were less than the 4.9 percent drop from November to December, though, and January shipments still topped the 1.0 mark for the 65th straight month in December.

The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported this week that its Freight Transportation Services Index (TSI) saw a 0.4 percent decline from November to December, its second straight decline on the heels of a 1.0 percent decrease from October to November.

Carloads saw a 11.7 percent annual decline at 241,680, and intermodal containers and trailers rose 10.5 percent to 262,830

An amendment to the International Maritime Organization’s Safety of Life at Sea convention will go into effect requiring all shippers (importers and exporters) to certify and submit the Verified Gross Mass – the combined weight of the cargo and the container – to the steamship line and terminal operator in advance of loading the container aboard a vessel.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2016 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA