Date: July 7, 2021
A new report from the esteemed Northwestern University Transportation Center (NUTC) substantiates freight railroads’ nimble response to the COVID-19 pandemic and capacity to meet demand and navigate market disruptions.
The key takeaway in the NUTC report validates what many industry observers noted from March 2020 onwards: despite a marked downturn in traffic amid the initial economic shutdown, railroads adapted to meet changing demands, including a historic rise in e-commerce associated with intermodal movements. Through various data points, the researchers demonstrate that railroads are a critical part of the supply chain and railroads and are essential to U.S. economic recovery and growth.
The Rail Advantage
While the researchers acknowledge unprecedented disruptions and bottlenecks throughout the supply chain — from port congestion and truck driver shortages to lack of equipment such as chassis — the analyzed data indicate a surprisingly rapid rebound in rail traffic. This bounce back is especially true in the movement of intermodal trailers and containers, which AAR data show reached 2019 levels in late 2020 and is now setting new records in the first part of 2021.
The ability to rebound quickly was due in large part on the industry’s longstanding competitive advantages of scale and distance, but also in the resilient nature of rail’s modern operations.
“Throughout 2020, rail’s advantage was rooted in the capacity and cost efficiency that it brings to e-commerce,” NUTC researchers note. “Data show that freight railroads responded well to rapid demand shifts, particularly in intermodal traffic. The sharp intermodal increase was driven in part by the rise of e-commerce, a tight trucking market, and shifts in consumer spending.”
In today’s just-in-time environment, the ability of railroads to incorporate more technology has been key and will be even more essential in the future, the report notes. This is particularly true as findings indicate that customers who pivoted to rail during the pandemic will continue to rely on its service in the future.
E-commerce’s Remarkable Rise & Implications for the Future
The COVID-19 pandemic brought new customers into the e-commerce segment as the convenience of online shopping enjoyed by many before the pandemic became a necessity for many more during the pandemic — from grocery deliveries to clothing, home goods and office supplies – and as consumer spending shifted from experiences to products. “By July 2020, adjustments in the U.S. economy began to pull more products through the Asian supply chain; October showed an almost 30% increase in containers coming through the Port of Los Angeles compared with 2019,” researchers found.
A significant portion these goods travel by intermodal (or IM — the transportation of shipping containers and truck trailers via ships, trains and trucks) before reaching someone’s doorstep. Railroads play a key role in this complex transportation network, providing customers cost-effective, environmentally friendly service for almost anything that can be loaded into a truck or a container.
“Actual recovery in IM has exceeded both where it would have been had pre-pandemic trends continued, as well as the strong growth revealed in the initial phase of the recovery,” the report notes. “Post-pandemic, freight rail can lead the logistics industry and its customers forward in what is certain to be a volatile future. The bulk markets are a secure core rail business, and the promise of continued growth in IM traffic seems strong.”
Armed with technologies that increase safety and efficiency — from Positive Train Control (PTC) to customer dashboards and fuel management systems — freight railroads are ready to continue meeting increased customer demand.
Public Policy Implications
Like many industries, the ability for railroads to compete is strongly affected by policy, be it in terms of rate regulation at the U.S. Surface Transportation Board (STB) or operational matters handled by Congress and the U.S. Department of Transportation. The report shows clearly how railroads navigated a challenging time to provide safe and efficient service, and NUTC also provides a clear recommendation for policymakers:
“Public regulatory and investment policies need to support the balanced advancement of all elements of the freight transportation system, maintaining modal neutrality to let the natural economic advantages of each mode determine its competitive position in the freight economy.”
According to NUTC, policymakers can support freight rail by:
- Keeping long-term shifts in mind and remaining neutral in the competition among freight modes, focusing on safety, performance and fairness rather than specifying how service should be delivered.
- Defining requirements in terms of outcomes rather than inputs (e.g., safety based on failure probabilities rather than crew size mandates).
- Facilitating the development of inland terminal capacity to better support regional commerce and economic development.
- Encouraging innovation and producing long term social and economic benefits by strengthening the mandate for state freight plans codified in the Fixing America’s Surface Transportation (FAST) Act of 2015, which currently have their primary focus on highways.