Rail Freight: Navigating Post-Pandemic Challenges
The current state of rail freight must be understood within the broader economic context. As Union Pacific Railroad noted, while data comparisons present distortions, demand for commodity transportation remains remarkably strong—even coal shipments experienced temporary resurgence. North American rail freight volumes grew by 8% during the first half of this year, reaching 15% growth in June alone.
However, this upward trajectory faces headwinds. Grain shipments, which performed exceptionally during the pandemic, now confront tougher year-over-year comparisons and potential harvest challenges. Overall freight volumes still lag behind 2019 levels, reflecting sluggish manufacturing recovery compounded by disruptive events like the Texas freeze and Gulf Coast hurricanes. The petroleum industry's rebound remains uncertain as coal's role in power generation diminishes, while semiconductor shortages continue hampering automotive production.
Intermodal Transportation: Strong Demand Meets Operational Hurdles
Since pandemic restrictions eased, intermodal networks have struggled to meet surging demand. The rapid rebound caught the industry unprepared, creating congestion that persists today. International Intermodal Association (IANA) data reveals a 12% decline in monthly revenue loads between March and July—not due to reduced demand, but operational constraints including container and chassis shortages.
Despite these challenges, railroads continue moving record container volumes. IANA reports 13% year-over-year intermodal growth through July, though domestic growth slowed to 8.3% due to driver shortages and congestion. Association of American Railroads data shows August intermodal volumes grew 4.1%, with year-to-date growth at 8.4%.
The Bottleneck: Extended Turnaround Times
While current intermodal volumes exceed pandemic peaks, they remain below 2019 levels. Extended turnaround times have effectively halved chassis fleet capacity—in some markets doubling street dwell times—creating severe port and rail facility congestion. These delays cascade through supply chains, causing container shortages and operational inefficiencies.
Warehouses and manufacturing facilities operate below capacity due to labor shortages and COVID-adjusted workflows. As turnaround times lengthen, system pressure intensifies, forcing stakeholders to implement mitigation strategies including ground transportation alternatives and surcharges.
Service Levels: A Growing Crisis
Rail performance has deteriorated significantly since 2020. Data submitted to the Surface Transportation Board (STB) reveals alarming trends: intermodal trains average 1.4 mph slower than last year, while stalled trains increased from 14 to 52 weekly between mid-July and mid-August. Loaded intermodal cars delayed over 48 hours doubled to 256 during the same period.
Shared chassis shortages compound these issues, leaving containers stranded at inland terminals without drayage capacity for final delivery. While railroads, terminals, and equipment providers have managed remarkable fluidity under extreme conditions, service quality has undeniably suffered.
Future Outlook: Balancing Challenges and Potential
Restoring high-quality intermodal service requires normalizing system velocity and clearing container backlogs from ships, terminals, and shipper inventories. Equipment manufacturers are expanding production, but this doesn't address speed issues—and may eventually create oversupply when normal operations resume.
With congestion reducing productivity, completing normal volumes demands more scarce equipment and labor than usual. Capacity expansion faces constraints from economy-wide shortages and hiring difficulties. Meaningful service improvement likely awaits demand moderation, projected for Q1 2022.
Pricing Dynamics in a Competitive Landscape
Railroads and ocean carriers are achieving record operating ratios and profits, suggesting current pricing structures support necessary investments. For domestic intermodal—which directly competes with trucking—pricing must balance attractiveness against anticipated truck capacity increases. Inflationary pressures make rate hikes inevitable across global supply chains.
Intermodal pricing largely follows trucking markets. When truck rates rise sufficiently, intermodal becomes noncompetitive. With strong truck pricing expected for 12-18 months, rail intermodal rates will follow suit.
Industry Consolidation and Technological Evolution
The proposed CN-KSU merger highlights ongoing consolidation debates. Historically, railroad mergers reduced interchange points, lowering costs and improving asset velocity. However, creating seamless customer experiences across multiple railroads doesn't necessarily require mergers—just closer operational cooperation and transparency.
Technology and automation promise long-term efficiency gains, particularly in coordinating multiple intermodal stakeholders. While railroads maintain labor, fuel, and emissions advantages over trucking, autonomous vehicle development poses future competitive threats. Precision Scheduled Railroading initiatives are evolving toward automated "digital backbones" that could enable innovative operating strategies.
The Five-Year Horizon: Transformation Ahead
Within five years, intermodal markets should feature smoother operations with advanced digital systems integrating positive train control for enhanced visibility. Automation may approach trucking-sector advancements in labor and fuel efficiency. Market fundamentals suggest continued focus on major population centers with large point-to-point trains, while auxiliary services diminish.
Pandemic-driven supply chain reevaluations may alter longstanding practices like just-in-time inventory management, potentially reducing international trade growth relative to domestic movements. Autonomous trucking pilots could pressure intermodal cost structures while simultaneously offering new technological synergies.
As traditional rail commodities like coal and petroleum products decline, intermodal will claim greater revenue share. Successful railroads will develop innovative, customer-centric solutions to compete effectively with trucking in this evolving landscape.