The world increasingly expects transportation that’s fast, reliable, and easy. Railroads are slow, unreliable, and complicated.
As a result, they’ve lost market share to trucks and often aren’t even on shippers’ radar.
Mike Smith, a Class I railroad veteran who is president of the Finger Lakes Railway in upstate New York, summed up the situation while accepting the North East Association of Rail Shippers Person of the Year Award on Wednesday.
Smith lamented the lack of rail service to three new Ohio facilities, warehouses for Heinz and Campbell’s Soup and a Pratt Industries paper mill.
“We were not even considered. We weren’t in the equation. Nobody thought about rail as an option, even though these are the perfect commodities for us to be handling,” Smith says.
And that’s a major problem.
“If we’re not considered to be relevant … we really have no future,” Smith says. “That’s what I’m paid to worry about. I worry about it. I hope you worry about it. Because as railroads, what we need is the support of customers, many of you here in attendance today.”
John O’Bryan, senior vice president of business development and integration at railcar manufacturer The Greenbrier Cos., says it’s “disturbing” when railroads are not considered to move commodities like canned goods and paper. Boxcars are a much more cost-effective way to move heavy products, he says.
Michael Miller, president of Genesee & Wyoming’s North American operations, says the company’s shortlines regularly conduct sales blitzes that involve making cold calls on potential customers within a 50-mile radius of their tracks.
“The vast majority of those people don’t have a clue what a railroad is,” Miller says.
The biggest challenge, he says, is getting potential shippers to even try rail.
Shippers who rely entirely on trucks often don’t know the difference between a boxcar and a domestic container, according to a sales rep for a Class I railroad.
Arthur Adams Jr., vice president of sales and customer engagement at CSX Transportation, pointed to rail’s declining market share. In World War II, railroads hauled 85% of all freight. Now market share has dwindled to just 8%. And over the last decade, rail’s share has declined every year.
“Other modes are eating our lunch,” Adams says.
“The challenge is what are we going to do about it? I think the key is customer engagement and customer experience,” Adams says.
If you need a truck, you simply call the trucker, who will show up on time and deliver on time, Adams notes.
“If a customer wants to do business with a railroad today, I would argue it’s probably a painful exercise,” Adams says.
If you need rail service, you have to apply for credit; find out who to speak with at the railroad; decide whether to own, lease, or use railroad-owned cars; learn how to properly block and load a railcar; and understand demurrage policies.
CSX is focused on making the railroad easier to do business with, Adams says. It’s providing better data for customers, simplifying customer touchpoints, developing a sales force that can educate customers, and is aiming to become more of a supply chain partner.
Companies spend $1 trillion on transportation in North America every year.
“If we could peel off just 1%, think about the impact,” Adams says.
Peter Swan, an associate professor of logistics and operations management at Penn State Harrisburg, says the industry trend toward Precision Scheduled Railroading operating models won’t help.
Minimizing assets like crews, locomotives, and freight cars limits railroads’ ability to maintain current traffic levels, much less grow, Swan contends.
“It’s clear railroads don’t want all the traffic they have,” Swan says. “Just the most profitable business.”
But independent analyst Anthony B. Hatch pointed out that the fastest-growing big systems are Canadian National and Canadian Pacific, both of which are further ahead on Precision Scheduled Railroading than their American counterparts.
