Could Railroad’s Troubles be an Opportunity for Shippers?

Are Railroad's Troubles a Shippers Opportunity

I found this great graphic from Norfolk Southern showing a breakdown of the average mix of goods transported yearly. As Norfolk Southern is my railroad alma mater I thought I’d share it with you. It shows quite plainly the diversity of products railroads haul which is something we tend to forget!

Norfolk Southern

According to the Association of American Railroads (AAR)  rail freight accounts for approximately 40% of intercity freight volume, which is more than any other mode of shipping. That translates into 54 tons of freight per American per year!

Carload and Intermodal Volumes Down in 2015

But it’s not all a bed of roses for the industry, which could actually be an opportunity for shippers. 2015 rail carload and intermodal volumes were mixed according to the AAR .  Carloads were down 6.1% compared to 2014. Total 2015 US intermodal containers and trailer volume was up 1.6% which represents a new high of 13,710,646 units. However the total of rail carload and intermodal units was down 2.5% or 698,391 compared to 2014. Driving the declines are the decreasing volumes of coal, crude oil, frac sand and metals. Coal volume will never come back and who knows when crude oil and frac sand will. So where do railroad companies go from here?

CSX Share Their Pain

CSX are the latest railroad company to share their pain with the rest of us.  They expect first quarter earnings to decline significantly and cite lower coal volumes as the reason. They also expect coal volume to decline more than 20% in 2016. Chief financial officer Frank Lonegro said

“As we look toward a future with significantly less coal, our strategy includes rationalizing and realigning the network to match decreased demand in some markets and adjust to increases in others.”

Houston We Have a Problem

That translates to – Houston we have a problem and we don’t know how to fix it! All freight railroads are having the same problems. Intermodal volume is projected to go up in 2016 however that is lower margin business. They are desperately looking to fill higher margin railcars.

Rail Freight Costs On Average Are 26% Lower Than Long Haul Trucking

For companies who have never shipped by rail now is the time to seriously consider it. On average it reduces freight costs by 26% compared to long-haul trucking over the same distance. The breakpoint for when shipping by rail makes economic sense is 300 to 500 miles.

In my experience shippers not directly served by rail tend to think that rail is not an option for them, which is completely wrong. Transloading facilities are located in major trade corridors throughout the US. New Mexico Transloading is one, located at the intersection of the I-40 and  I-25, the two longest arterials in the US, and the BNSF transcontinental railroad which moves the highest volume of rail freight in the country.

Transloading facilities transfer goods from rail to truck or truck to rail. A shipper would short haul goods to a transloading facility and transfer to rail. At the receiving transloading facility the goods are transferred from railcar to truck for a short distance delivery to final destination.

Even with transloading costs factored in shippers can save an average of 26% on their freight costs compared to using long-haul trucks. With railroads aggressively looking for alternatives to coal and oil to make up for lost revenues, shippers now have an even bigger opportunity to make greater savings on their freight costs.

If you don’t know where to start, or have questions concerning shipping by rail, call me at (505) 908 1911, I would be delighted to help.

Call Ted at (505) 908-1911 to find out how
we can serve your transloading needs.
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1 Comment

  • o train

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