Leaving Behind Precambrian Attitudes

During this pandemic, many of us have been thinking about what comes next. What role will railroads, freight and passenger, play in the “new normal,” whatever that might be? There are no clear answers. Or are there? Take a look at what’s happening in India.

New Delhi-based Amazon India is now using 55 Indian Railways (IR) lanes to transport goods between cities “as the e-commerce giant works on ways to ensure faster deliveries to customers amid the nationwide lockdown,” according to a report in The Economic Times of India.

During India’s nationwide lockdown, which began on March 25 and was set to end on May 3, e-commerce companies have been allowed to sell only essential items like grocery, healthcare and pharmaceutical products. Amazon India, IR and industry associations have been urging the Indian government to expand the list of essentials to include work from home and study from home products.

Amazon India’s partnership with Indian Railways builds upon a relationship the e-commerce behemoth established last year for intercity transportation of e-commerce packages on 13 lanes (mostly city pairs). Amazon India had also deployed pickup kiosks for customers in places like Kolkata and Mumbai.

Amazon India is transporting packages by rail across the country and is leveraging “COVID-19 Parcel Special Trains” introduced by Indian Railways with the support of the nation’s Ministry of Railways (Railway Board) in those 55 lanes in the carrier’s 11 operating regions (Western, Central, Northern, Eastern, South Central, Southern, South Eastern, North East Frontier, North Western and South Western).

“This enhanced network will enable sellers in Amazon India’s network to ship their products across the country and keep their businesses running, thereby allowing people to access a more diverse selection of essential products,” Amazon India Director Abhinav Singh said. “With the support of the special trains, our company is confident of fulfilling customer orders with enhanced speed and capacity. We are grateful for this timely decision by the Indian Railways to offer freight movement solutions during these challenging times.”

Can something like this be established in North America, not just as a response to a pandemic and lockdown, but as a means for rail freight business growth? Granted, Amazon India’s partnership with IR is most likely passenger train-based, and—North America does not have (and probably never will, with our dinosaur-like thinking on passenger rail) the national passenger network to do what Amazon India has done.

But what about our world-class freight rail network, where the traffic mix is changing? Where once-profitable business lines like coal are gradually dying, finite energy sources like crude oil will one day be replaced with renewable sources, and where, if we are not creative—sticking to “we’ve always done it this way” Precambrian attitudes—will eventually render railroads irrelevant?

To answer this question, I turn to Railway Age’s 2019 Railroader of the Year, CN President and CEO JJ Ruest, who before he joined CN was a railroad customer. JJ is a visionary who sees railroads as just one element of the 21st century supply chain. He continues to be the polar opposite of the long-ago railroad executive who purportedly said, “We’d be able to run a good railroad if it weren’t for the damn customers.” Or the long-deceased, gruff NJ Transit conductor I once knew who was fond of saying, “Trains don’t wait for people. People wait for trains.”

This exchange from my interview with JJ for our January 2019 Railroader of the Year issue illustrates the point I’m trying to make:

VANTUONO: Where are the growth opportunities, outside of the bulk commodities the railroad has traditionally hauled, like grain, which is heavily regulated [in Canada]?

RUEST: There are really three buckets: Natural resources, which will always be the world of rail and barges—grain, potash, coal, iron ore. Manufactured products, where I came from in the chemical industry—rail-friendly because of large volume, and large rail-served facilities. Then there’s the real growth of the future, which has to do with consumers: 70%-plus of North American GDP is tied to consumers. The 70% will become 75% and 78% … Growth in the economy comes from consumers, who generate a lot of freight. That kind of freight is today mostly on the road. It requires better and different service than for natural resources, where we use mostly unit trains, or manufacturing, where we use mostly carloads, origin to destination. Most consumer goods are not rail-serviced at origin or destination, and in many cases they don’t involve a full carload.

VANTUONO: Are we talking intermodal or less-than-carload boxcar traffic? What about the “Amazon Economy,” where people are buying things online that require shipping—FedEx, UPS, local trucking companies? Where do you see railroads fitting in? How do you improve that?

RUEST: Railroads definitely fit in, and the product that makes the railroad the most relevant is the container, whether it’s the 40-foot ocean container or the 53-foot domestic container. So we basically need to be the supply chain partner of choice to do the long-haul part, but do it in a way that the first-mile and last-mile service, which is over the road, through a warehouse or through a FedEx, is able to successfully deliver against what is promised. Most of what Amazon delivers to your door is a single box. What’s in that box in many cases is not manufactured in North America. So it does come a long distance, in bulk, most likely in a container. The container gets cross-docked somewhere, broken up into small pieces that are aggregated with other pieces that go to another warehouse. For that, you need scheduled railroading, terminals focused on units, and a level of customer service that is more leading-edge than what we have … As consumers buy or build a house, and fill it with white goods and furniture, and eat well year-round, these products are container services. It’s time for the rail industry to create the supply chains or to be part of a supply chain that always uses “the beast,” the rail network. We are a player in that supply chain, but we must be relevant to those that ultimately only buy small quantities or have service expectations higher than your typical natural resource or manufactured-goods customer. (Emphasis mine.)

Former BNSF Executive Chairman Matt Rose is also a visionary. He was among the first railroad executives to talk about the Amazon Economy, and what the industry must do to stay relevant.

In an interview with me for our December 2018 issue prior to his retirement from BNSF, Matt said, “I think again, when I go back to 2000, I had a saying. I never said it publicly: ‘There’s really no such thing as a bad load of freight.’ We need to find the right operating expense to haul it, but we’ve also got to find the right price to haul it. We didn’t go around shooting down freight, because we saw this industry in the ’90s lose enormous amounts of market share to truck. I believe that, when we fast-forward 10 years in the future, we may not be saying that there is no such thing as a bad load of freight. But I do think we will be wanting to find ways to expand our offerings to bring more freight to the railroads. I just don’t think you can shrink yourself into a virtuous-cycle model that works … We’re going to have to find ways, as an industry, to continue to grow. If there’s one thing that I think will impede the progress of the railroads, it’s lack of growth … Long-term, we’ve got to find ways to grow … and it’s probably going to be modal conversion, i.e.; intermodal. That’s going to require really strong maintenance and expansion capital, and service offerings that are available to everybody.”

If there is one thing the COVID-19 pandemic is teaching us, it is that our world is changing, permanently, and hopefully for the better. The railroad industry has been doing a remarkable job responding to the pandemic. Now, it must adapt and grow, and implement creative ways to earn new business and retain it. It’s time for the dinosaurs to die off and be relegated to museums, where most fossils can be found. Let’s keep the best of what this industry established in the past, learn from it, and move on. Steel wheels rolling on steel rails will always be the foundation. It’s how we use them that matters most.