So far, 2018 has left freight railroaders in a funk. Many, if not all, of the Class I’s face real service challenges; potentially disruptive trade policies threaten near-term traffic volumes; and, ever-increasing vehicle automation is pictured on the horizon like a serpent, ready to gobble up the railroads once and for always.
The hand wringing needs to stop; things are not that bad. Most of what is really broken or threatening can be addressed with good industry management. What lies ahead is hard work, not imminent disaster.
Regarding trade, last year the AAR clearly demonstrated the importance of international traffic to North American freight railroading. A true trade war would measurably retard freight volumes and erode railroad revenues. However, as scary as the scenario is, a trade-Armageddon is unlikely.
The Trump Administration is predisposed to unleash big, nasty weapons in conflicts that would, normally, draw only small arms fire, but doing so seems to work for them. If this approach is as effective in the trade realm as it has been elsewhere, trade barriers may ultimately be lessened, not increased, and North American railroads may wind up with more, not less, trade-related traffic.
While trade is an immediate (and hopefully transient) concern, vehicle automation and its effects on freight markets are further off, but probably more lasting. However, far from a Satan, the looming automation-driven competition for freight is an arena where railroads can and should be winners.
Critically, railroads have a big head start. Railroads operate on fixed guideways that are, as much as possible, already separated from the rest of the world. Positive Train Control (PTC), while not there yet, holds the seeds that can grow into operations with a minimal onboard crew presence. And the modest cost advantages that are achievable through truck platooning are already amplified many-fold by the railroads’ use of Distributed Power. The most aggressive truck automation program currently proposed—Arizona’s—wouldn’t come close to achieving the economies produced by an intermodal train on the BNSF Chicago-Los Angeles Transcon.
The decade between today and the time when automation can possibly take meaningful numbers of drivers out of trucks is a wonderful window to work in. Complacency or delay would be inexplicable, and forging a successful strategy that embraces vehicle automation will not be easy, but it is doable.
Effectively meeting the competitive challenges inherent in vehicle automation requires three successes:
First, the rail industry must secure a regulatory environment that affords it the revenues needed for investment in forward-looking technologies.
Second, railroads must demonstrate that these technologies can be implemented in ways that enhance public safety, as well as economic productivity.
Third, freight railroads must work to ensure that management and railroad labor are partners in developing and implementing further rail industry automation.
Finally, the quality of Class I freight rail service is not even close to what it can be and must be. In 1986, through shipper surveys, researchers from the University of Maryland produced an early evaluation of the 1980 Staggers Act. They found that most (though not all) shippers were elated. This outcome was not the result of lower rates; rates hadn’t fallen yet. Instead, shipper favor was rooted in the reduced variability of transit times. The railroads were finally able to deliver what they were selling.
If our predecessors could do this using SD40s over jointed rail, surely it is possible now.
Senior rail managers know how to fix service problems, if the will is there. Between, 2000 and today, rail freight has grown by 4%, while real GDP has grown by 31%. The traffic is out there. Maybe getting it and keeping it by providing reliable service is worth it, even if it tilts operating ratios a little in the near term.
In the fight for sustained rail industry relevance and prosperity, we’re in the early rounds, but hopefully, we can remain mindful that when wrestling a gorilla, it doesn’t matter how tired we are, it only matters that the gorilla is exhausted. It seems there’s a lot of work to do.
Mark Burton is an Economics faculty member at the University of Tennessee assigned to UT’s Center for Transportation Research. His professional career has included both academic and consulting research in transportation economics. In addition to authoring a number of articles and monographs, Dr. Burton has provided testimony in proceedings before the Surface Transportation Board, a variety of state agencies, and the U.S. Senate. In August 2004, Dr. Burton was named as Director of Transportation Economics at the University of Tennessee’s Center for Transportation Research. In addition to his academic work, Dr. Burton has three years of practical experience, serving in Burlington Northern’s Law Department between 1982 and 1985.