Rail/Intermodal
Several railroad executives have told rail shipper groups this week that improved service levels are “table stakes” as they seek to reverse decades of market share declines to truck and anemic volume growth results. Whether the railroads can execute on their plans for growth and a more customer-centric future will determine their ability to grow volumes, rates, and returns over the next few years.
Service is increasingly important not just to customers but to regulators as well. While the Surface Transportation Board has been focused on service acutely during the post-pandemic operational struggles, earlier this month it issued a notice of proposed rulemaking that ties future regulatory relief to a showing of inadequate service performance.
The board’s decision earlier this month in its EP 711 reciprocal switching petition did not go as far as many shippers desired by not making the ability to access another carrier widely available on a distance basis, as is done in Canada, Instead, the board proposed a rule that would apply if a shipper could demonstrate a sustained period of service failure by the incumbent railroad.
Carriers will need to focus on maintaining and improving their service levels if they wish to avoid enhanced regulatory scrutiny, but that could prove a challenge for some if volumes spike suddenly or there is a significant weather event.
Rail Employment & Volume
August operating employee counts across the U.S. Class I carriers increased by a handful compared with July as some carriers increased their headcount while others reduced over the same period.
Most carriers have slowed or ended the aggressive hiring programs that they employed for the last several years, which should lead to slower headcount growth. That trend could pose a challenge for carriers to maintain service levels in the event of an unplanned volume spike or significant weather event, but time will tell if those concerns are realized.
Intermodal traffic increased nicely for the second consecutive week out of the Labor Day holiday and reached its highest level of the year thus far. On the carload side of the volume picture, traffic was supported by gains in economically sensitive freight categories in the latest week.
Economically sensitive freight strength came the week after the carload sector was supported by grain and the first signs of the harvest season. Harvest is expected to support volumes normally on a seasonal basis over the next six to eight weeks.
