How can you tell the railroads are full? Cycle times increase dramatically (get longer), more trains are parked on sidings and mainline track with long delays between movements, bad order ratios on rail equipment go up, terminal dwell times go up, demurrage increases and service in general starts to become more erratic. These events are all occurring across the country in spades.
There are a number of reasons the railroads are full. We define “full” as the amount of rail traffic that can be managed successfully on any given railroad to provide satisfactory service to shippers over a fixed period of time. There are a host of events and reasons for this rail traffic surge and regulatory agency involvement that we discuss below that bring some understanding to the situation. (Also read our April 2022 blog post “A Wallop for Rail Transportation: Current Events that Potentially Pack a Punch”)
Political Intervention…
On the political front, when the railroad issues mount as they have, we see more political involvement. The Surface Transportation Board (STB) considers helping oversee railroads performance and tell them where they need to do better (see STB Revised Emergency Service Rules). This type of environment is not for the faint of heart, railroad operations team. The railroads are hearing about service issues several times a day from all sorts of people and places and believe you me that they are just as concerned about it as we are as shippers, receivers and users of the rail network. I’m not saying the railroad from top to bottom shouldn’t be extremely concerned about rail service, what its currently doing and how it got this way. What should be of as much concern to the shipping community though is how it got this way in the first place and what permanent fixes are being put in place to negate another round of severely poor performance.
…How Did We Get Here?
A compilation of recent and historic events has created the perfect storm for the supply chain network to struggle at unprecedented levels. Rail is a large part of this supply chain. To categorize the turmoil, let’s start in the ocean since that’s how world bulk trade is generally conducted. Ships that are wandering from port to port trying to timely discharge and pick up product are finding delays to dock with millions of tons of products not being effectively transported. Port to truck delays are high due to port and road congestion, port to rail transfers are lagging their usual efficiency, and the rail network is not only reacting to these slowdowns it’s also reacting to unprecedented pent-up demand for service in the aftermath of Covid. Add that to restaffing and retooling challenges that have never been seen before and you’ve got a mess. When it comes to railroads, previous and continuous focus on the almighty operating ratio to satisfy Wall Street, stacking up a reduction of people and assets needed to run the railroad and add in a double dip from the pandemic and you’ve set the stage. Add to that a war in the Ukraine caused by one Russian dictator which is in turn causing an immediate shift in the supply and demand for all sorts of goods (grain, petroleum products, scrap steel, petroleum, etc.) and services throughout the world and… here we sit. (Also read our blog “The Demand for Transportation is Incredible”)
Reregulation – What’s Good For Some Isn’t Always Good For The Masses.
Recently the STB has taken Class 1 railroads to task on service complaints from a whole cross section of shippers. These service complaints are well founded and indeed service issues are occurring; however, the reregulation or even partial reregulation of an industry doesn’t make any sense. If an industry is regulated it then submits control to the most influential special interest group. That’s great if you’re the special interest group receiving the benefit of having the government telling the railroads what to do but what happens when your group is usurped by another more influential special interest group? When you’re in the driver’s seat, it makes sense. When someone bigger takes your seat, you’ve got a bigger challenge. See what I mean? The weight of poor service shouldn’t lie solely on the shoulders of the shipper either.
A Cooperative Approach May Bare the Most Fruit!
What is happening to the railroads service design and execution? The railroads have very intelligent service design personnel and powerful software to run a multitude of service design scenarios to get this right. That’s not the problem. The railroads are experiencing the same issue most businesses are today: lack of resources. There aren’t enough trained candidate trainmen, engineers and conductors available to keep the railroads running smoothly. Not only are there not enough trained personnel available, there isn’t any meaningful refresh rate of trainable candidates available either. The squeeze is on the railroads to perform from not only the political side representing the people, but also from Wall Street to keep costs down while providing adequate service. Hence the prior deep cutting of resources in search of the almighty operating ratio is now catching up.
So… What Can You Do To Protect Your Shipping Interests?
Our suggestion is that you work with the railroad that serves your facility. Try to match up with their service design so that the railroad isn’t waiting for you to load railcars, spot empties or require switching to finish your shipment. If you are using railroad supplied railcars, take a look at switching a portion or all of your shipments to private railcars. They don’t necessarily go any faster than railroad supplied railcars, albeit given fixed origins and destinations they should, but they give you a control of your equipment so you’re not waiting for system cars to share their turn with you. The list of private railcar benefits goes on and on so a few more benefits to help you focus. With private railcars you won’t be part of an allocation of railroad supplied railcars, dealing with the complexity of the allocation process. You won’t have product cross contamination; you won’t have questionable quality of equipment and you will be increasing your availability of railcars = you have better control to truly support your business. (Also see railcar equipment options on our website.)
When considering adding private railcars, know that you’ll need the originating railroads authority to add private railcars to the rail system. Confirmation of the right to use private railcar on a railroad is ultimately through the “OT-57” process managed by Railinc, the operating arm of the Association of American Railroads. Its best if you can get the right to use private railcars in a commercial agreement that pertains to the product or goods that are being shipped as well as having your OT-57 completed.
Drastic Times Call For Drastic Measures – Fine Tune Your Plan!
The railroads are currently full. It’s during these times that a well thought out transportation plan including the use of private railcars is very important to providing a steady product stream to your customers. The situation will change and service will return to some degree of normalcy. Until then, don’t let it lure you into complacency.
Let’s Create Value Together.
Tealinc is a railcar lessor, railcar management and consulting firm. Contact us for an evaluation of your rail transportation situation. We’re always engaged and care about generating positive results be it a railcar lease, management of your rail assets or providing exemplary consulting results. We’re looking forward to creating true value with you!