The new rail reality

by Lou Smyrlis

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 little 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 (and our sources say that it will), we could see the proposed legislation before the year is over. 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.

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  • I have said since the mid 90s that the future of trucking is under 500 miles. Of course not all frieght will not work well on rail. Most flatbed or reefer and tank would be difficult to do. As carriers become larger and fewer the the likelihood of more rail use increases. JB Hunt was so big in the 80s and 90s now you dont see so many on the road. They have not become smaller. Look at your next train as you wait for the wig wags at the RR crossing, notice all of JBs big yellow name tags go by plus all the other brands. JB saw the future before most of us.