The Role of Rail in the Supply Chain
Get an overview of the vital role that rail plays in supply chain success
In the beginning of the 20th century, railroads were the largest industry in America in terms of annual revenue. Although that is no longer true, railroads still move more cargo per ton-mile than any other transportation mode. Many companies have battled supply chain issues since the pandemic restricted the movement of goods around the globe. In the US, domestic shipping rates have increased by over 20% with respect to rail since 2020. As consumer demand has outperformed logistics capacity, the labor shortage of truck drivers has also aggravated delay. These trends have made rail even more important, as companies battle to distribute overstocked inventories to consumers.
Railway transport is considered the most efficient means of transport for goods, especially in the United States. It is the second most popular way to ship freight behind trucking and is a vital component of the supply chain. According to the American Association of Railroads (AAR), international trade makes up:
- 35% of U.S. rail revenue
- 27% of U.S. rail tonnage
- 42% of carloads and intermodal units.
During the first three months of 2022, rail was used to transport more chemicals than any other time in history. Railway lines were used to move the second-most grain since 2011 and the fourth-most intermodal units ever. Throughout challenges, railway freight has continued to have an impact on the supply chain and the economy. So much so that AAR has stated that rail is expected to ship close to 24.2 billion tons by 2045.
According to the U.S Department of Transportation, rail is used to transport a variety of commodities such as:
- Agriculture and energy products
- Construction materials
- Chemical equipment
- Paper and pulp
These products make up 52% of rail freight carloads. The remaining 48% are intermodal shipments that consist of consumer goods. Intermodal shipment has remained the fastest growing rail segment over the last 25 years.
Rail freight has a substantial effect on the global supply chain and the U.S. economy. By providing well-paying jobs and supporting connections between the U.S. and global markets, rail has enhanced global trade. Rails’ cost effective and fuel-efficient nature has allowed it to double the amount of freight that it can transport at the same price point in 1985.
Class I Railroads
The United States has the biggest and most complex railway track system in world. It is also nearly all privately owned and operated. This means that rail companies own, build, and maintain railway lines by themselves. With seven main Class I railroads and close to 140,000 miles of railway track, rail transportation is necessary to a functional global supply chain. Rail helps connect businesses and consumers to products by playing a role in the movement of cargo by truck, air, and sea. Without rail transport, the delays of products moving inland to hubs such as Dallas and Chicago would be astronomical. Many inland distribution hubs benefit from express rail transport, which has shown the ability to reduce delays of deliveries to consumers.
Class I railroads are the primary shipping networks for rail distribution and the main six own nearly 95,000 miles of railway. They also make up 94% of rail freight revenue, 70% of rail freight mileage, and 88% of rail employees. Because of this, their importance to the supply chain is immense. From 1980 to 2021, the seven main railroads spent nearly $760 billion on infrastructural improvements, which is nearly 39 cents of every dollar of revenue.
- Transporting goods by railway is most popular for distances between 250 to 500 miles and 1,000 to 1,500 miles.
- Around $1.15 trillion of goods was transported overall as freight between Canada, Mexico and the U.S. in 2017.
- The U.S. freight rail system owns and operates almost 140,000 miles of railway tracks.
The largest railroad in the U.S., Union Pacific was founded in 1862. It operates 52,000 miles of rail in 23 states and has 45,00 employees. Union Pacific mainly ships coal, food, and agricultural products
Burlington Northern Santa Fe Railway
Founded in 1849, BNSF operates in 30 states and 3 Canadian territories. It has 32,500 miles of train tracks and is the largest intermodal railway on the North American continent.
CSX was founded in 1827 and operates 21,000 miles of railway lines in 23 states, Washington D.C., and two Canadian territories. It services approximately two-thirds of the U.S. population and specialize in intermodal shipping.
Norfolk Southern Railway
Norfolk Southern was established in 1838. It owns and operates 20,000 miles of train tracks and is vital to the east coast of the US, as it transports goods from New York state to Florida. CSX specializes in automotive products, industrial parts, and coal.
Canadian Pacific Railway
CP was founded in 1881 and operates roughly 15,000 miles of railway lines. Canadian Pacific’s train tracks are valuable to the U.S. supply chain because they provide connection between east coast and west coast ports and distribution centers. CP mainly transports fossil fuels, automobile products, food, and shipping containers.
Kansas City Southern
KCS was established in 1887 and owns 6,000 miles of train tracks. The company’s predominate area of operation is between the U.S. and Mexico. It provides service to three subsidiaries: Panama Canal Railway, Kansas City Southern Railway Company, and Kansas City de Mexico.
The Staggers Act of 1980 made it possible for railroads to determine their own rates based on market condition instead of collective agreements on rate making. The act also let railroads altogether abandon underutilized railway lines. Due to the Staggers Act of 1980, railroads have also been able to reinvest capital back into their organizations. This has given them the ability to improve infrastructure to make train tracks safer, more reliable, and more cost-effective.
Recently however, the American Society of Civil Engineers rated the U.S. rail system a B grade for safety, but a D+ rating in infrastructure. The recent passing of the $1.2 trillion Bipartisan Infrastructure Law Fund is set to reinforce rail replacement and improvement by providing $66 billion in funding. Although passenger rail companies will be the primary benefactors of the funds, the bill:
- Provides $5.5 billion per year over 5 years for infrastructure programs to improve the supply chain. These grants will be utilized to fund multimodal freight initiatives to relieve bottlenecks, increase connectivity, and develop railway tracks that links to new markets.
- Funds programs that will help to develop lower emission locomotives to combat climate change and develop highspeed trains to transport goods.
Like most transportation modes, the rail industry is utilizing automation and artificial intelligence to the benefit of businesses and consumers. Railroads have invested in hydrogen and battery powered locomotives to reduce carbon emissions and are currently developing highspeed trains. They also are implementing solutions associated with predictive technology that can enhance the safety, reliability, and efficiency of railway lines and rail vehicles.
Many have initiatives in place that are designed to improve data analysis and data sharing. Some advances in automation will allow trains to be controlled remotely and drones may even be used to control operations. This can enhance the flow of information between different means of transportation and increase supply chain visibility. It also can help to develop interactive maps that can outline rail networks to illustrate active and inactive railway lines
Advantages of Rail
Rail handles over 2.2 billion tons of freight annually in the US, moving any and everything from consumer goods, to food, to chemicals. Many times, the benefits of rail are overlooked. Rail is extremely advantageous to shippers who want to transport non-time sensitive goods over 1,000 miles. Some advantages of rail freight transportation are:
Cost-effectiveness: Shippers can save between 10% and 40% when they switch from road transport to rail freight due to lower fuel costs and a higher shipping volume.
Environmentally friendly: Based on research by the AAR, rail can move one ton of cargo nearly 480 miles on one gallon of fuel. In addition, rail produces 75% less greenhouse gas emissions than trucking.
Large haul capability: One double-stacked train can hold the same as 280 trucks.
Reliability: Rail operates on traditional travel schedules and are not required to share tracks with the public. This allows rail to transport products regardless of traffic or weather concerns.
Since COVID-19, supply chains around the globe have been difficult to manage and navigate. Transloading is a tool that can improve product movement in supply chains, reduce costs, and improve customer experience. Transloading is defined as the transfer of cargo from one mode of transportation to another before it reaches its end destination. Numerous means of transport can be included in the transload process, such as rail, ocean, and air cargo.
The transloading process is significant in rail transport because it provides an efficient and more seamless way to transport goods between destinations. By combining cost-effective rail transport with flexible road transportation, businesses can minimize costs, delays, and disruptions to their supply chain models. Transloading is normally utilized when goods are being imported into or exported out of the U.S.. An example of this process is when containers arrive at the Port of Los Angeles. Some are transported to transloading facilities near the port where product pallets are broken down, the contents sorted, and then reconfigured for road transportation.
Utilizing transloading when shipping goods via rail is a tactic that can provide a wide range of benefits to companies. One of the more substantial advantages of transloading is the versatility it provides supply chains. Transloading provides businesses with more shipping options to get products to consumers safer and faster. The customers can also be in a wider variety of locations throughout the nation because transloading is not limited to a singular mode of transportation. Fuel and transportation costs are also more regulated when transloading is utilized. Using a rail service can reduce fuel costs whereas trucks provide faster delivery of products to warehouses or consumers.
Railroads are a necessary link to the nation’s supply chain. Moving goods by rail is often less expensive, more efficient, and safer for the environment than sending cargo by truck. It has been a staple of the North American economy since the 19th century and is a vital component of successful supply chains around the globe. Railway lines connect hubs and major ports to the rest of the world and is a surefire way to efficiently transport and distribute goods and products to consumers. It will continue to be utilized to manage supply chain disruption through a multi-faceted approach.
From the National Rail in the U.K. to railways across the United States, railway transport is an essential component of the transportation and logistics industry. While freight rides the rails daily, this mode of transportation does not tend to garner as much attention as other transportation modes.
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