Podcast Summary
Impact of pandemic on rail industry: The rail industry has been impacted by supply chain disruptions due to pandemic, leading to a surge in goods demand and production snapback, essential for US logistics, and understanding its role is crucial.
The rail industry has been significantly impacted by the pandemic-related disruptions in the global supply chain. The surge in e-commerce and consumer goods demand, combined with factory shutdowns in both the US and Asia, led to a dramatic influx of goods and a snapback in production and international demand. Ian Jeffries, the president and CEO of the Association of American Railroads, explains that this complex process of getting goods from Asia to the US heartland has been affected since last summer. The rail industry is an essential part of the US logistics equation, and understanding its role in the current supply chain disruptions is crucial. Stay tuned as we delve deeper into the topic with Ian Jeffries. (Note: Investing in the stock market involves risk, including possible loss of principal. Principal Asset Management is a real estate manager that offers local insights and global expertise across various asset classes. American Express Business Gold Card is a flexible business card that offers annual statement credits on select business merchants. Both are mentioned for informational purposes only.)
Record intermodal rail traffic causing capacity constraints: Record intermodal rail traffic is causing capacity constraints at ports and offloading sites, leading to a 24/7 operation for railroads and impacting the entire supply chain
Last summer saw a significant increase in international intermodal traffic, which has continued into this year and is expected to last into at least the first quarter of next year. Rail is the middle piece of the supply chain, and its efficiency is dependent on the entire supply chain. Current challenges include congestion at ports and offloading sites, with in gates exceeding outgates in certain locations, causing backups. For instance, one railroad had over 20 trains with approximately 4,000 containers waiting to be unloaded in Chicago. This causes reverberating effects as trains waiting to unload prevent other trains from doing so, leading to a 24/7 operation for railroads. The situation is similar to the ships waiting off the coast of the ports of LA and Long Beach. These capacity constraints impact the entire supply chain and create a domino effect, making it a 24/7 operation for railroads.
Rail Industry's Supply Chain Challenges: Space and Labor: Rail industry faces space and labor constraints, moving 75% of finished cars and a high percentage of consumer goods. Efforts to increase capacity include creating yard space and incentives for weekend pickups. Despite essential role, choke points remain due to limited hubs and efficient product movement.
The current supply chain issues are a result of a combination of physical space constraints and labor challenges in the rail industry. Railroads are taking steps to increase capacity by creating additional yard space and offering incentives for weekend pickups. However, rail sits at the heart of the wider supply chain, moving about 75% of finished automobiles and a high percentage of consumer goods and intermodal traffic. The rail industry manages various types of products, each requiring different levels of pace based on customer demand. While rail is essential for moving goods across the country, especially for industries like automotive and consumer goods, there will always be choke points due to the limited number of hubs and the need for efficient movement of various products.
Efficient Rail Networks in the US: Chicago, Kansas City, Memphis, New Orleans, and St. Louis as Major Gateways: The US freight rail system is the most efficient, safest, and advanced in the world due to its privately owned and financed networks and major gateway cities with terminal capacity to sort, shift, and rebuild trains.
The railroad industry in the US has designed its networks efficiently to handle varying speeds of traffic and cater to major gateways, such as Chicago, Kansas City, Memphis, New Orleans, and St. Louis. These gateways have the terminal capacity to sort, shift, and rebuild trains, allowing for efficient dispersal of goods to their final destinations. The US freight rail system is privately owned and financed, investing approximately $25 billion annually into their networks, making it the most efficient, safest, and advanced in the world. However, other infrastructure, like highways and ports, are largely publicly funded and require significant investment to increase efficiency and productivity. Rail infrastructure legislation should focus on robust public investment into the nation's infrastructure to ensure the highest functioning of the rail industry and the entire transportation network.
Rail companies focus on infrastructure legislation for environmental, safety, revenue, and technology enhancements: Railroads are utilizing legislation to improve their environmental and safety standards, generate revenue, deploy new technologies, and expand capacity within their existing rights of way.
Rail companies are focusing on using infrastructure legislation to enhance their environmental and safety performance, earn revenues for investment, and deploy new technologies to maximize efficiency. They are also expanding their capacity within their existing rights of way by adding additional rail lines and extending sidings. The rail industry is competitive, and if railroads fail to provide good service, businesses may look elsewhere to transport their goods, such as trucking. Rail has grown its intermodal offerings to about 50% of overall rail traffic, indicating that rail is effectively competing with other modes of transportation and providing a more appealing product to customers.
Rail industry adapts to extreme weather and environmental concerns: Rail industry faces new challenges from extreme weather and environmental concerns, but its environmental performance and commitment to reducing emissions make it an attractive choice for customers.
The rail industry is experiencing a vibrant and competitive market, even below the traditional 500-mile threshold for rail competitiveness. Extreme weather events, a growing concern due to climate change, are posing new challenges that require infrastructure resilience and alternative routing plans. Rail's environmental performance, which far exceeds other surface transportation, makes it an attractive choice for customers looking to reduce their emissions. Class 1 railroads are committed to reducing their emissions through various technologies, including battery electric, hydrogen, and renewable fuels. Overall, the rail industry is adapting to the challenges of extreme weather and environmental concerns while continuing to provide essential transportation services.
Rail Industry's Success Story Post Deregulation: Following deregulation in 1980, the rail industry became more efficient, charged market rates, and saw significant growth, moving large amounts of goods while maintaining infrastructure and charging less than before. Extreme weather events can even benefit rail by providing better service and winning business.
The rail industry has experienced significant growth and success in the past few decades following deregulation in 1980. Before deregulation, the industry was heavily regulated and inefficient, with approximately 25% of railroads facing bankruptcy. The Staggers Rail Act of 1980 allowed railroads to operate more efficiently and charge market rates, leading to price drops and revenue increases. This enabled the industry to spring forward, moving colossal amounts of goods in a very efficient manner while maintaining its infrastructure and charging dramatically less than before deregulation. Extreme weather events, such as drought, can even benefit rail by allowing them to provide better service and win business. Rail is generally the most resilient form of transportation during extreme weather events and can take advantage of temporary situations to provide better rates and win business. The rail industry's success story has made investors a ton of money, making it a smart investment option.
Competition in Rail Industry: Healthy and Real: The rail industry remains competitive despite consolidation, with regional and smaller carriers excelling in their roles and intermodal competition adding another layer. Geographic, product, and regulatory factors contribute to the market's stability, allowing companies to weather challenges like the pandemic without aid.
Despite the consolidation in the rail industry over the last few decades, competition remains healthy and real. The mergers and acquisitions have allowed for the primary rail lines to become more efficient, while regional and smaller carriers excel in their respective roles. Rail competition is alive and well, and intermodal competition adds another layer of competition. Geographic, product, and regulatory factors also contribute to the market's stability. The rail industry's healthy ecosystem allowed companies like Roehl to weather the pandemic without government aid. The congestion issues are expected to last into the new year, but improvements will come from every part of the supply chain operating at high levels of efficiency and optimization.
Challenges in Last Mile Delivery on West Coast: Despite expanded port hours, drayage truck availability and warehouse capacity issues hinder full supply chain efficiency. Rail industry faces hiring challenges but offers attractive careers. Autonomous trucks may pose a threat but rail's fixed guideway and closed network provide unique advantages.
While the expansion of port hours on the West Coast is a positive step for supply chain efficiency, challenges persist in the last mile delivery process due to localized issues with drayage truck availability and warehouse capacity. The economy and consumer demand remain strong, but until these smaller supply chain issues are addressed, max capacity and efficiency cannot be fully achieved. The rail industry, which offers good paying union jobs, is currently facing hiring challenges like many others, but the industry's attraction as a tangible, economy-moving career should help maintain a high quality workforce. Autonomous trucks may pose a medium-term competitive threat, but railroads, which operate on a fixed guideway and closed network, have unique advantages that should help them compete.
Rail Industry's Technological Advancements and Regulatory Flexibility: The rail industry is adopting technology like Positive Train Control and fuel management systems, but regulatory flexibility is needed to stay competitive and adapt to technological progress.
The rail industry is embracing automation and technological advancements, with the recent completion of Positive Train Control technology and the deployment of fuel management systems. However, the industry needs regulatory flexibility to keep up with technological progress and maintain competitiveness with other modes of transportation. The current supply chain disruptions are interconnected and compounding across various industries, making it unclear when things will ease. The rail industry, known for its public goods perspective, seems to be working well from a shareholder, employee, and customer standpoint despite consolidation. However, the complex interconnectedness of various industries and systems means that issues in one area can have far-reaching effects. Despite hopes for improvement after the lunar new year, the situation remains uncertain, and pessimism is growing.
Exploring Regulations and Energy Impact on US Rail Industry: The US rail industry is prospering, but insights from international rail systems and the influence of various energy sources can provide valuable lessons.
The US rail industry appears to be thriving from a business perspective, with benefits for customers, employees, and shareholders. However, there may be regulatory lessons to learn from comparing and contrasting the US rail system with that of other countries, such as the UK. It's worth exploring how various energy sources, like wind and natural gas, impact the rail industry as well. The Odd Lots podcast hosts also mentioned the potential for a European power episode and encouraged listeners to stay tuned for more content. Additionally, they announced a new podcast, Money Stuff, which will delve into Wall Street finance and other financial topics every Friday.
