Many blame precision scheduled railroading (PSR) for accelerating volume decline. Instead, it could be the foundation for renewed rail-carload growth.
Implementation of PSR by CSX, Norfolk Southern and Union Pacific railroads in recent years has stirred interest among customers and shareholders alike, although for very different reasons. PSR has lowered operating costs and significantly increased profitability. In doing so, it has also enhanced the rail cost advantage compared to trucking.
The result after implementation is typically lower terminal dwell times, higher average train speeds and — in some cases — better reliability.
The operational changes embraced by the railroads as part of PSR can be difficult for rail shippers, as they often require shippers to change shipment frequency and timing, and can add cost for non-adherence to the railroad rules. Also, despite average cycle time improvements, many rail shippers do not feel service was noticeably better, according to Surface Transportation Board hearings in 2019.
This low level of customer satisfaction has likely accelerated the rail volume decline. CSX total carloads excluding coal were down 2.5% in 2019 compared to 2016 (pre-PSR), while the industry was down just 0.3%. Between 2017 and 2019, total U.S. carloads declined 3.3%, but Norfolk Southern and Union Pacific volumes declined 7.5% and 10.7%, respectively.
In order to stimulate volume growth, railroads should look for ways to develop new service products that leverage rail’s low operating costs and new efficiencies to attract new business.
Today’s rail-truck transloading is sold as a “function” rather than a tool to compete with truckload services at a lower price point. In order to take volume back from trucks, railroads need to provide a more robust set of services that leverage transloading. This will require selling the transload product to customers as a door-to-door truckload product that fits into transportation management systems and masks the managerial and operational complexity — as intermodal does today. It might also include the use of new efficient railcars and loading or unloading infrastructure to make the economics favorable.
For nearly two decades, railroads have successfully grown profits and share prices without growing rail carload volumes. The industry will regain volume by developing new service products that are easy for customers to buy and incorporate into their existing processes and systems.
