Unlike last year, when railroad freight volumes were chugging along at a record-breaking pace, the outlook so far in 2007 is decidedly different. Plagued by tenuous economic growth and prolonged slumps in certain sectors, including the housing and automotive markets, carload and intermodal loadings are down while shippers say they're far from satisfied with the service they are receiving on the rails.

According to the Association of American Railroads (AAR), Class I railroads hauled 17.4 million carloads in 2006, which edged out what had been a record 2005 by 1.2 percent. While intermodal loadings of trailers and containers in 2006 came in at 12.3 million, topping 2005's output by 5.0 percent. But fast forward to the data for the first five months of 2007 and it's a different story, with carload and intermodal loadings down more than 4 and 1 percent respectively.

Despite the lull in numbers, it's safe to say that less demand does not necessarily translate into increased shipper satisfaction. In fact, service complaints and general dissatisfaction are on the rise this year, with the Surface Transportation Board being taken to task by politicians and shipper groups for a “broken railroad system” that they're proclaiming is a detriment to moving freight and “harming the country's economic vitality.”

Add in the expected increase in capacity over the coming years and the ongoing issues surround fuel surcharges, and it's easy to forecast that operations on the rails will be far from perfect for carriers or shippers over the next couple years.

“Lower volume figures may help somewhat, but the shipper complaint is that the railroads just don't focus on service, because they have a monopoly over most rail customers,” says Bob Szabo, executive director and counsel for the shipper action group Consumers United for Railroad Equity (CURE). Rail customers, says Szabo, are in a take-it-or-leave-it position. “We don't believe the railroads are trying very hard, and they dictate their own terms,” he adds. “And just because you pay a premium price does not mean you are going to get good service.”

As has been the case in the past, a large reason for poor railroad service has been inadequate infrastructure. This is something railroad carriers recognize, as evidenced by their spending of more than $8 billion in 2006 for various service-related improvements, such as laying new track, buying new equipment, and making infrastructure improvements, according to AAR data. The AAR says that investment is expected to be $9.4 billion this year.

Some examples of this record-breaking spending include BNSF Railway Company's plan to double- or triple-track on about 30 miles of its Southern Transcontinental Route between Southern California and Chicago. BNSF is also adding 60 miles of third and fourth main track in the Powder River Basin.

CSX reports that it will invest $800 million for infrastructure improvements, with some funding going to intermodal initiatives, including an expansion of terminals in Buffalo, Tampa, and Bedford Park, Ill. Norfolk Southern expects to spend $610 million for rail, crosstie, ballast, and bridge programs, including $73 million in infrastructure for increased capacity.

Although these investments are designed to relieve congestion-related bottlenecks and reduce stress for shippers, the changes will not be instantly noticed, says William J. Rennicke, director of Oliver Wyman, a Boston-based management consultancy.

“The railroads are investing in areas where there are bottlenecks in the system,” says Rennicke. “Things are going to remain tight for a while and we're going to be in a period where it is managed growth, where the railroads will not overbuild but capacity will be added each year in anticipation of where the traffic is going to come from.”