At CITT’s recent Reposition 2012 conference I heard something during a C-Suite discussion on shipping by rail that caught my attention and should interest all motor carriers, whether they see railways as competitors or partners.
Until recently it was commonly accepted that the economics of rail surpassed the economics of trucking services at around the 750-mile mark. During the discussion, however, it was revealed that may have shifted down to 500 miles. And, in some cases, rail service may be considered viable by some shippers at as low as a 350-mile distance if used to avoid congested corridors such as Toronto to Montreal.
Is rail ready to made significant inroads into trucking dominated markets? Industry analysts point out that as truck capacity tightens placing upward pressure on trucking rates, intermodal’s savings of 10% to 20% will look increasingly better. The Class 1 railways have all made significant investments in their intermodal operations. In fact, the LTL and small parcel segments of the trucking industry themselves are becoming large supporters of placing their freight on rail. Some truckload carriers are doing the same as a way to reduce fuel costs and deal with the driver shortage.
Our own annual Transportation Buying Trends research is showing strong growth for intermodal among shippers.
Then again, industry experts have been forecasting significant growth in the penetration of intermodal services for two decades now. It has always fallen short of expectations due to poor service and less than stellar relations with shippers.
There are developments I’ve seen of late though that will likely go a long way towards improving the shipper experience with rail. The first involves a decision just reached on the legislative front which addresses shipper frustrations in dealing with railway penalties or ancillary charges they consider unfair. Back in 2008, a provision was added to the Canada Transportation Act, which, for the first time, allowed shippers to file complaints to the Canadian Transportation Agency when they found themselves at odds with their railway service providers over such charges. It was a big deal because for some shippers such charges amounted to millions annually. It was a big deal for the railways too and they have been fighting it in the courts since then. At the start of November, however, the Federal Court of Appeal decided shippers are now free to file complaints on penalty and ancillary charges even if a confidential contract is in place. So there should be peace on that front, with the Agency able to step in when necessary to handle disputes.
The second development that will help broker a peace is Ottawa’s stated plan to pass legislation to better manage the relationships between rail companies and their customers. Shippers have been pushing hard for mandated service level agreements to give them more negotiating power, particularly when they have only one choice for a rail carrier. If Ottawa sticks to its promise we could see the proposed legislation before the year is over. (In fact, I’ve just learned the is a major government announcement coming on this tomorrow) Once passed, that too should help reduce the bickering.
Truckers working with the railways stand to gain if legislation forces the railways to act with more consideration for their customers. At the same time, however, it may turn the railways into more viable competitors on certain shipments than ever before.
With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics. All posts by Lou Smyrlis