Trade Wars

Analysis: STB chairman reports railroad growth problem

A Union Pacific freight train climbs to the top of Sherman Hill in Wyoming in June 2018. Carload traffic is down. (Bill Stephens)

Surface Transportation Board Chairman Martin J. Oberman ruffled some feathers this month when he said the railways’ pursuit of ever-growing profits had led to a loss of market share for trucks over the years. Last 15 years and continues to slow growth today.

Oberman cited figures from the STB which show a decline in rail traffic between 2006 and 2019 despite broad economic growth. Its tally, based on data from the STB roadmap, excludes coal. Between 2006 and 2019, “adjusted full wagons” fell 1.3%. To calculate the adjusted loadings, the STB estimates the number of flat cars needed to process the declared container volumes, and then relates this to the load data.

What annoys some in the industry? Other data tells a different story.

Excluding coal, figures from the Association of American Railroads show tonne-miles increased by 10% between 2006 and 2019. Tonne-miles peaked in 2018, before the Trump administration’s trade wars reduced some. traffic, in particular grain exports and international intermodality.

Non-coal traffic is also up slightly if your yardstick is carloads and intermodal units that end in the US AAR data shows that since 2006 carloads and intermodal units have increased by nearly by 8% until 2018 and 4% until 2019. – is important because it captures the traffic generated on the branch lines as well as the large transfer of international container volume from the west coast of the United States to ports in British Columbia.

To further muddy the waters, AAR data for carloads and intermodal units from the United States paints a different picture: traffic in 2018 was up slightly from 2006 levels, while in 2019 it was was slightly lower than the 2006 volume.

One would think that determining the extent of the growth or contraction of rail traffic would be a definite matter. Instead, it’s a data trap.

man in suit talking
Surface Transportation Board Chairman Martin Oberman addresses the Midwest Association of Rail Shippers meeting. (Train: David Lassen)

It’s irrelevant, Oberman said in an interview with The trains. The problem, he says, is that the railways have shown no significant growth. In his speech at the North American Rail Shippers’ Conference on September 8, Oberman blamed this solely on the operating ratio cult. “The focus of the railways was not on growth,” Oberman said in his speech. “The focus has instead been on reducing the pursuit of the almighty OR to less than 60%.”

Oberman admits that this is just one of the many factors that have contributed to the volume difficulties of the rail versus the truck. These other factors include economic changes unrelated to railways, such as the drop in crude by rail and related fracking sand shipments, the decline in residential construction since the Great Recession and the changing manufacturing trends, from steel to automotive production. And then there are self-inflicted issues where railways fall short of trucks, including punctuality, visibility of shipments, and ease of doing business.

Yet the STB chief examines all of this and concludes that the railways need to do more to grow.

Changes in rail and truck shares

Jason Miller, associate professor of logistics at Michigan State University’s Eli Broad College of Business, says slowing rail traffic growth has more to do with changes in the economy than anything the railroads have. did.

This graph compares the economic output of rail and truck since 1997. (Jason Miller)

Miller points to the trend lines of railways and trucks in Bureau of Economic Analysis figures from 1997. “Looking at these data, rail production was stable from 1997 to 2003 despite the fact that truck transportation increased. Rail then experienced a nice jump in the mid-2000s, which corresponds to the highest industrial production in the manufacturing sector excluding IT, ”he explains. “The Great Recession hit both modes, but rail grew just as quickly as trucks before dropping in 2015, due to the joint slowdown in coal mining and hydraulic fracturing. As such, the slowdown in growth appears to be more a function of the changing nature of economic activity. “

Federal Reserve data compares tonne-mile trends in intermodality and the wholesale, retail and warehousing trucking segment. (Jason Miller)

When you divide the intermodal separately from the trucks that transport consumer goods, a similar trend emerges. Intermodal grew faster immediately after the Great Recession, then developed alongside trucking until 2015. Then trucks took over.

Miller attributes this to a few trends. Low trucking rates in 2016-17 and 2019 diverted intermodal loads to the highways. Meanwhile, west coast ports have lost market share to east coast ports, where international containers are much more likely to take the highway.

East vs. West

If you explore the trends in carload volume – with a carload defined as anything other than coal, intermodal, and automobiles – there is a huge gap between East and West. Between 2006 and 2019, the volume of carloads fell by 16% in the East and 5% in the West, according to a The trains review of data from annual reports from CSX Transportation, Norfolk Southern, BNSF Railway and Union Pacific.

This suggests a number of things. First, it shows that the economic changes have been deeper in the East, where American industry is concentrated. Second, it shows the impact of truck competition, which is more intense in the East due to shorter haul lengths.

And if Mr. Oberman wants to know how an operating ratio target shows up in traffic figures, he can find it in Fort Worth and Omaha. BNSF has long had a penchant for growth, and its wagonload business grew 12% from 2006 to 2019. UP has long favored profit margins over volume growth, and its wagonload traffic declined by 1% .

A cause for concern

Whatever the cause, the overall carload and intermodal trend lines are of concern to many industry watchers.

“It is clear that rail carriers have lost market share to trucks over the past five years and ongoing service issues threaten to increase this shift,” said Todd Tranausky, vice president of rail and intermodal at the freight forecasting company FTR Transportation Intelligence. “The question is, what are the carriers going to do about it? “

Olivier Wyman

A study by consulting firm Oliver Wyman found that rail is losing share in the fastest growing freight segments, which includes traffic such as automobiles that can travel by truck or train. If current trends continue, the gap between trucks and rail would widen and railways would lose $ 177 billion in revenue by 2030. Oliver Wyman concluded that to keep the volume, railways should become more reliable, provide visibility into shipments, and become manageable. work with while becoming supply chain partners.

Olivier Wyman
Man with a shaved head wearing glasses and an open collar blue shirt.
Trains columnist Bill Stephens

Nick Little, director of rail education at Michigan State’s Center for Railway Research & Education, agrees: help the nation and the world, by enabling the shift to rail which Marty Oberman really wants to see as his legacy in his role as STB.

You can reach Bill Stephens at [email protected] and follow him on LinkedIn and Twitter @bybillstephens