Rail freight has a long, successful history in the freight transport industry, and it still proves to be an effective and popular choice for moving goods and commodities today. But is it the right choice for your business? To help you understand how rail freight transport works, this article summarily examines its industry beginnings, how it operates today, what goods and commodities it moves, its challenges, and the technological advancements innovating it.
A brief history of rail freight transport
From the birth of American railroads nearly 190 years ago, rail has been a crucial part the US economy. Railroads grew rapidly in the United States through World War I. However, the Great Depression and succeeding decades brought declines in rail traffic in favor of air and road transport.
By the 1970s, US railroads were on the brink of collapse. But the Staggers Rail Act of 1980 deregulated the rail industry, and private rail companies in the United States began an economic turnaround that continues to this day.
Before rail had a significant impact in the United States, Europe was an early innovator in rail transport. During the nineteenth century, extensive rail networks fueled industrialization on the continent. But in the second half of the twentieth century, Europe shifted the focus of its rail system toward passengers rather than freight.
As a result, currently, the total tonnage of US rail freight shipping is ten times that of Europe. This is changing, however, with the creation of a new “Silk Road” of thirty rail networks between China and Europe.
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Rail freight transport today
These days, in the United States, rail freight is an $80 billion industry, accounting for nearly 28 percent of all freight in the country. US freight railroads encompass a 140,000-mile interconnected system that transports raw materials, consumer goods, machinery, and much more.
A little over half (52 percent) of rail freight consists of bulk commodities such as agricultural and energy products, including grain, coal, and oil. The remaining 48 percent of rail freight consists of consumer goods ranging from automobiles to pharmaceuticals to electronics.
The transportation of most of these consumer goods is via intermodal traffic, which involves shipping containers that you can easily transfer between shipping vessels, rail, trucks, and planes.
In addition to standard shipping containers, there are two other common types of containers involved in intermodal rail freight transport: open-top containers and high-cube containers.
As their name implies, open-top containers don’t have a solid top, allowing for large and oversized freight. Open-top containers ship raw ore, pipes, industrial machinery, and other bulky products. High-cube containers are closed on top, but they are taller than standard containers.
This type of container works with double-stack rail transport, an intermodal system involving two-stack combinations of standardized twenty-foot or forty-foot shipping containers. Double-stack freight trains are four times as fuel efficient as trucks. As such, this mode of shipping can significantly reduce greenhouse gas emissions.
In addition to being relatively low-emission, rail freight transport can be very cost-effective. Rail offers cost savings of up to 60 percent compared to air freight and time savings of up to 40 percent compared to ocean freight.
Commodities transported by rail freight
In addition to automobiles, intermodal rail freight systems transport a wide array of other consumer goods—such as lumber, pharmaceuticals, and consumer electronics. As the intermodal container transport sector continues to grow, it also offers companies that manufacture or import consumer electronics and retail goods a safe, reliable way to get their products to market.
Rail also transports a variety of heavy machinery, including turbines, aircraft parts, and wind energy infrastructure. Once staples of rail shipping, coal and petroleum are declining due to changes in customer needs as well as the construction of new pipelines. As a result, the chemical industry now accounts for an increasing share of rail freight. Fewer truck drivers and rising diesel costs have also pushed more businesses to intermodal rail freight in recent years.
Commodities not suited for rail freight
Increasing concerns about safety are making businesses less likely to transport petroleum and hazardous materials by rail. Additionally, some perishables that have a brief shelf life or require just-in-time delivery—such as fresh fish—as well as commodities that are extremely fragile are better suited for a combination of air and truck freight.
It is also important to note that volume is a key driver in cost savings of rail transport in comparison to truck or air freight. Businesses generally ship automobiles and their parts, computers and their parts, and plastics in large volumes. This contributes to the popularity of transporting these commodities by rail. When businesses have to transport commodities in small quantities, air and road freight are generally better financial options.
Rail/road plan for 11,200-km trip cuts travel time by 50%
When a global provider of air treatment solutions needed to move its air compressors from China to an assembly line in Italy, they wanted to do it quickly and cost-effectively. Agility recommended a combination of rail and road freight for the 11,200-kilometer journey.
Challenges with rail freight transportation
Shipping freight via rail has many benefits, but it can also present significant challenges for businesses looking to transport their goods efficiently. Challenges can arise from cost competitiveness, trade disputes, international crises, cargo flow imbalances, and so on.
Cost competitiveness with trucking is a continual issue for rail freight transportation. Although the cost of road freight varies in relation to fluctuations in truck and driver availability, the trucking industry is generally a strong competitor of rail freight. Some businesses only choose to ship via rail when other modes prove too costly or time-consuming.
However, businesses should keep in mind that a sharp analysis of costs and benefits can make rail shipping pay off financially. Agility recently completed a comparative cost study on a supply chain of air compressors from China to Italy. According to the study, the most cost-effective transportation for the air compressors over a distance of 11,200 miles was a combination of rail and truck freight. This combination was 50 percent faster than ocean freight and significantly cheaper than air freight.
Additionally, the COVID-19 pandemic, unsurprisingly, has hit the rail freight transport industry while generally impeding economic activity and trade across the globe. According to the Association of American Railroads (AAR), US rail cargo carloads declined 14.7 percent in the first five months of 2020—a record drop. However, signs indicate rail freight traffic is rising again as demand for certain consumer and industrial goods begins to increase as shutdowns end.
Cargo flow imbalances
Rail freight also faces a persistent challenge in the form of cargo flow imbalances between China and Europe. Because demand for imports from China generally exceeds demand for imports from Europe, empty containers and underutilized trains are a perennial problem.
In 2018, 94 percent of containers en route to Europe from China were loaded. In comparison, only 71 percent of containers en route to China from Europe were loaded. In other words, more than a quarter of all containers heading to China were empty. Those rates have improved in the past two years, but this was mostly due to a temporary increase in timber imports from Siberia.
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Future of the global rail freight transportation industry
Several distinct trends are shaping transport of freight by rail worldwide. Paying close attention to these trends can help companies determine whether intermodal rail is a good fit for their businesses or not.
Current trends in the rail freight transportation industry
A recent white paper from Michigan State University predicts that total US freight tonnage will rise 40 percent by 2045 and that rail will play a critical role in that rise. The “Amazon effect” in retail—faster delivery times and small quantities of inventory—is radically reshaping the freight industry.
The study insists that it’s critical for the rail freight industry to listen to the concerns of both customers and other shipping modes—including trucking, shipping, and air. Doing so will allow the rail freight industry to better integrate transportation networks.
While highway congestion creates an opportunity for the rail freight industry, so too do recent struggles in air and ocean shipping. Sharp increases in air shipping rates in the wake of the COVID-19 pandemic and backlogs in ocean shipping are combining to make rail a competitive middle ground in freight transport.
The impacts of technology on the rail freight transportation industry
As in any other freight transportation industry, rail freight companies are continually working to increase efficiencies and reduce costs to customers. Since 1980, locomotive productivity has increased 93 percent and average freight carried per train has risen 63 percent, and this is due in large part to advances in technology.
Recent technological advances in rail freight include Internet of Things smart sensors and innovative laser-based inspection systems, both of which can detect the need for train equipment and rail infrastructure repair and maintenance. These advances are especially important because trains remain in service for much longer than trucks—maintenance is critical for continued rail safety and efficiency.
Regenerative braking technologies are also contributing to innovation in rail freight. By capturing the energy that freight trains generate while rolling downhill, these technologies can help increase fuel efficiency and thus reduce costs to the consumer.
Speaking of fuel efficiency, fuel management systems ensure that each gallon of fuel moves a train as far as possible. These systems are an integral part of locomotives and provide engineers with real-time recommendations on how to operate the train to maximize performance. This can increase fuel efficiency by up to 14 percent.
In order to decrease carbon dioxide emissions from diesel freight trains, US companies are also investigating electric battery-powered locomotives and other emission-reducing technologies. If you are interested in reducing emissions as you move your goods and commodities, rail freight transport, which produces fewer emissions than trucking, can be a critical part of your plan to achieve this goal.
Finally, other digital innovations impacting rail transport include digital control and signaling and artificial intelligence. The former is enhancing rail operation reliability while the latter is improving dispatch, routing, and maintenance scheduling.
Automation and the future of rail freight transportation
Another innovation that holds great promise for improving the competitiveness of rail freight transportation is automation. New developments in rail freight automation can increase safety and efficiency.
A variety of technologies such as positive train control work to reduce human error and automatically slow or stop trains in dangerous conditions. Networks of sensors with powerful compute capability can analyze and detect problems and react in real time to do so.
Driverless, automated trains are also currently in development. In 2018, mining corporation Rio Tinto spent more than $940 million to launch its AutoHaul service, which carries iron ore hundreds of miles without a human crew, in Australia. American companies are testing similar trains with the hope of both improving safety and reducing costs.
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Determining whether rail freight transport is right for your business
In sum, there are a number of factors that play into what transportation mode is best for your business. These factors include the volume and type of goods you’re shipping and your cost, timing, and climate impact considerations. If you carefully consider these factors, you might find that rail freight is the best choice. If you’re still unsure, Agility has the experience and know-how to guide you through your decision. Contact Agility today.