Subscribe to our free, weekly email newsletter!


2014 State of Logistics: Rail rides high

By Jeff Berman, Group News Editor
July 01, 2014

While there are currently more good signs than bad regarding the economy, it’s safe to say that we may need to “curb our enthusiasm,” as comedian Larry David may observe, until we see more sustained signs of growth and improvement. That is, of course, unless you follow the railroad and intermodal sectors.

It comes as little surprise to learn that both sectors are doing very well amid what has become the new normal—fits and starts in terms of economic growth.

A look at year-to-date numbers on the rails brings this into perspective. Domestic carload volumes are up 3.1 percent through the end of May, while intermodal volumes, which have returned to pre-recession levels, are up 5.8 percent for the same period.

What’s more, the weekly carload average for the month of May, at 296,759, stands as the highest weekly average for any month, according to the Association of American Railroads (AAR). To top it off, the intermodal weekly average for May is the third-best ever recorded. These are better than good growth numbers for this time of year, and are even more impressive when you consider what carriers went through in the first quarter as they endured one of the worst winters in years.

“Rail demand is real and is there,” said Tony Hatch, rail analyst and principal of ABH Consulting. “And shippers anticipate enough rail capacity to handle it. There is plenty of evidence out there supporting volume growth, service improvement, and improving relationships between carriers and shippers.”

One prescient reason for this is the ability of the railroads to truly leverage its strengths in terms of ever-improving service quality. Due to these improvements, more shippers have jumped on board. In turn, the carriers have leveraged these excellent returns and have reinvested into their networks and infrastructure to expand, upgrade, and enhance the U.S. freight rail.

Earlier this year, the AAR said that the seven North American-based Class I railroads plan to invest roughly $26 billion in 2014, adding that since 1980 freight railroads have anted up about $550 billion into their rail networks—with roughly $115 billion alone being invested over the last five years.

“This year’s projected record investments continue a decades-long trend of private railroad dollars that sustain America’s freight rail network so taxpayer’s don’t have to,” said Edward Hamberger, AAR’s president and CEO. “This massive private financial commitment is a demonstration of the industry’s resolve to never stop improving.”

The ability to make these investments comes with a caveat for shippers in the form of increased rates at an average annual clip of about 5 percent per year. This has resulted in what has ostensibly become an age-old dilemma between carriers and shippers, with carriers making the case that hikes are needed in order to make significant capital investments—while rail shippers want more for their money.

In recent years, there’s been shipper momentum to re-regulate the industry in various forms, whether it be to addressing the lack of railroad antitrust, fuel surcharges applied by the rails, and reciprocal switching. But given the tenuous culture in Congress, they’ve not made meaningful forward progress. 

Despite the disconnect between rail shippers and carriers at times, industry experts are quick to point out that even with current growth levels, railroads are not revenue adequate, even if it seems that way to shippers.

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

Information abounds about the growing trend of electric lift trucks and the advantages and disadvantages of the electric solution. Amid all of the information from so many sources, what's the truth about electric lift trucks? This complimentary white paper breaks through the clutter to review why electric lift trucks are gaining in popularity and also to review their challenges, as well as their economic and environmental benefits.

Three weeks after initiating a coordinated series of slowdowns that have mired the major West Coast ports of Tacoma, Seattle, Oakland, Los Angeles and Long Beach, the ILWU has pushed away from the bargaining table.

DHL has released the third edition of its Global Connectedness Index (GCI), a detailed analysis of the state of globalization around the world.

The truck driver shortage is worsening, threatening the trucking industry’s ability to serve the nation’s supply chains. The shortage will almost certainly cause fleets’ costs to increase and shippers’ rate to continue to rise.

The Agriculture Transportation Coalition has asked the Administration to bring in a federal mediator to help resolve the negotiations, and if a strike or lockout occurs, the AgTC advocates the rarely-invoked Taft-Hartley Act.

Comments

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


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA