It can be somewhat difficult to find good information about the current market dynamics for US railroads so we leveraged our rail shipper network to tie together first-hand experiences with what we could find in the news and reputable internet searches, as of the writing of this blog post, May 20, 2022.
If you’re using the railroads to ship your goods in the US and you’re feeling frustrated at the level of service, you’re in good company.
Approximately 28% of all US freight moves on the rail, with about 52% being comprised of agricultural, chemical and energy commodities, and the other 48% consisting of consumer goods and other miscellaneous products. https://railroads.dot.gov/rail-network-development/freight-rail-overview
According to our sources, the situation has been particularly acute for approximately the last 6 months, with the Eastern Class 1 railroads (NS, CSX) suffering in Q4 of 2021, and now the Western Class 1 railroads (UP, BN) struggling in Q1-2 of 2022. This impacts all rail-shipping types including bulk (agricultural, chemical, energy), boxcar, and intermodal (container on car).
Below we will review a chronology of key events, as well as the outlook for railroad shipping for the months and years to come.
Unfortunately, the outlook isn’t especially inspiring. Even if more private cars were available to lease, adding additional throughput into already bottlenecked systems isn’t going to help the cars move any faster. Improving hiring will help and it’s possible the high inflation and uncertainty about the economy will draw more job-seekers into the railroad profession.
As of the date of this blog post, the US truck market is seeing some softening likely due to rising interest rates and economic uncertainty, but since it takes 4 trucks to substitute one railcar, it’s generally not cost-effective to do so on a large scale, and there is not an abundance of trucks available for long-haul distances, generally carried by the railroad.
The fastest way we will see rail service improve is far from an idea solution: a significant drop in demand. It’s likely we will see some demand plateau and drop in the months to come but how much will depend on the severity of inflation-mitigation strategies and the consumer’s response.
Some larger rail-shipping companies have begun to work with the Surface Transportation Board to push for solutions to loosen the constraints, such as more competitive compensation, but similar to long-haul trucking, it’s getting harder and harder to attract new talent to the industry due to the requirements to be away from home for extended periods.
The general consensus with rail shippers we spoke to was that, unless there is a significant reduction in demand for industrial and consumer goods, they will likely feel the railroad pinch for another 12-24 months to come.
Unfortunately, there isn’t a great solution to this problem. Our recommendations are always to do your best to ensure multiple options, whether it be across modes (ensure you have trucks as an option for back-up), and be ready to substitute inventory to hold-over in case of delays.
In the world of unpredictable but almost-constant supply chain disruptions, understanding your risks and building mitigation strategies into the execution will continue to be a necessary capability to keep your service level on track.
Our supply chain and operations advisors are experienced in many manufacturing and distribution companies. We help find the best way to optimize your supply chain management and get the results you want.