Railroads can gain carload traffic if they do three things, industry consultant says

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NEW YORK CITY — The success of railroads in coming years will hinge on whether the industry can improve carload service enough to capture growth opportunities, transportation consultant Rodney Case told the RailTrends 2019 conference in November.

“Carload is probably the step-child of the industry,” Case says, pointing to the way railroads have grown their intermodal and bulk networks.

“Carload is still that complicated thing that we all struggle with,” Case says. “But it has relatively weak market share and it’s packed full of opportunities to either reduce costs or improve service. So it’s the new frontier.”

The industry’s shift to operating plans based on Precision Scheduled Railroading has reduced terminal dwell, enabled railroads to handle traffic with fewer freight cars, and has lowered costs, says Case, a partner at Oliver Wyman.

But operational improvements have not been matched by commercial changes that would make railroads better supply chain partners and take advantage of the increased capacity PSR has created, Case says.

With more than 100,000 freight cars in storage, thousands of locomotives parked, and many train and engine crews furloughed, the Class I railroads have plenty of capacity available to cheaply test innovative approaches that could help boost carload volumes, Case says.

“We hope this inspires the innovation and chance-taking it takes to grow the business,” Case says.

Railroads can gain more carload traffic by doing three things, Case contends.

First, they need to work with shippers to gain end-to-end inventory visibility. Second, they need to become tightly integrated with supply chains. And third, they must understand when receivers need shipments and how big those shipments need to be.

Case cited automotive traffic as an example. Railroads currently handle about a third of finished vehicle traffic, a figure that could fall to under a quarter of automotive moves from assembly plants to distribution centers by 2045, according to an Oliver Wyman analysis.

Loads from assembly plants vary widely, both by day and by lane, Case says. This contributes to increased dwell or interrupted service when a train is full and loads must wait for the next day, whether at the assembly plant, an intermediate terminal, or interchange.

The industry average dwell is 14 days for auto racks, which includes cars sitting at origin, destination, while empty, and in terminals, Case says. The best dwell for finished vehicle traffic is just two days, he says.

Why the difference?

The railroad with just two days of dwell receives 48-hour notice from the assembly plant about not only volume but where it’s headed. That gives the railroad enough time to plan service around traffic levels.

The railroad also pre-blocks the traffic at the assembly plant, so it is picked up by a road train and then block-swapped en route. This means service is faster and more reliable, Case says.

Manufacturers are keen to reduce transportation costs so that they can better compete in a global economy, Case says. Railroads can play into that trend if they can work more closely with shippers.

As coal declines and intermodal growth slows, carload has the biggest opportunity for growth if railroads can better coordinate with shippers and receivers, Case says.

A failure to make carload more reliable and more tightly integrated into supply chains puts railroads’ existing business model at risk, Case says.

Railroads have been losing market share to trucks for decades, and absent changes, carload traffic is expected to see meager growth over the next 25 years as truck traffic doubles, according to an Oliver Wyman analysis.

If railroads had merely maintained carload traffic market share over the past decade, Case points out, they would have $14 billion more in annual revenue today.

The importance of merchandise and bulk traffic can’t be overstated: Both support the broader rail system and the local feeder lines needed to gain new business, Case says.

Case spoke at the RailTrends 2019 conference sponsored by independent analyst Anthony B. Hatch and trade publication Progressive Railroading.
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