Lower Traffic Volumes – Railroad Recession or Golden Opportunity?

I’ve been seeing about one Web article a day about lower freight volumes on the railroads. BNSF has just laid off people in North Dakota. There appears to be no doubt the freight railroads are tightening their collective belt.

Despite this, CAPEX (capital expenditures) remain moderate to high. That’s because, since Staggers, the railroads have learned to do business in a relatively normal environment, and railroad leadership knows where and when to cut. Cuts to CAPEX these days are tantamount to severing a jugular.

However, crew cuts and mothballing capital assets are not, and the railroads are doing just that. Laid off crews can be recalled and stored assets can be returned to use when traffic comes back. What is being mothballed? You name it. Track, locomotives, shops and facilities can all be closed and/or shuttered until needed. Doing so is deferring maintenance, in a way, but also deferring wear and tear, until an economic upturn.

Yes, it’s a railroad recession, but it’s not really a recession in terms of bottom line—if the railroads play their cards right. It’s also a golden opportunity. But whose?

First, it’s a golden opportunity for the railroads. As traffic grew, coal got hot and heavy, and the unexpected shale and tar sands oil revolution, coupled with an administration averse to pipeline construction, leading to Crude By Rail, didn’t leave the railroads much time to get their act together. Double tracking and lengthening sidings along with laying on more trains and longer trains with distributed power didn’t quite get the railroads where they wanted to be—operating ratios in the 60s or better and on-time deliveries of 95 percent or better. The quadruple whammy hit when Congress mandated Positive Train Control (PTC), which the railroads knew could increase capacity but which they also knew would cost just about as much as simply continuing to build more traditional capacity. It was, quite literally, no way to run a railroad.

Now, with a lull in traffic, it’s time for the railroads to get their houses in order. Innovative scheduling, such as CSX’s push to run a numbered freight every 28-hours instead of daily, could pay off. Less traffic might mean more time to get extremely long freights (200 cars or more) into and out of yards without fouling other trains. The focus might be on delivery time instead of just on getting “it” there, whatever it is. Railroads might spot short-haul corridors where they have never been, but could be, competitive with trucks, if they are willing to innovate.

Short lines and spin-offs play a big part in this latter idea. Maybe the Class 1 railroads shouldn’t do anything more than move long trains from one yard to another and let the short lines make the pickups and deliveries. Like FedEx picking up and delivering with local trucks (short lines) but moving the long part of the trip by air (long trains), or sometimes even by, you guessed it, long trains!

Second, it’s a golden opportunity for the shippers. With traffic down for the railroads, shippers of goods other than bulk could put the pressure on railroads to giver better rates than truckers and demand the on-time performance that, so far, only truckers have been able to offer. The railroads might resist, saying they don’t need the money, that they can be profitable with what they have. But that’s what the STB is for, isn’t it? Although I don’t like government regulation, the railroads historically have shown that they need a government push now and then.

Third, and here’s the one I like the best. Less traffic, fewer and longer trains, better schedules and freight schedules approaching the complexity of passenger scheduling just might leave the railroads ready to fold in more and on-time passenger trains. So here’s a golden opportunity for Amtrak and any local transportation districts using freight rail rights to plan new trains, increase frequencies, and demand that the railroads do for passenger trains what they’re going to have to do for freight trains to stay in business.

Make it THE way to run a railroad.

© 2016 - C. A. Turek - mistertrains@gmail.com

(Charles A. Turek is a writer and novelist based in Albuquerque, NM. After four decades working in areas of the insurance industry related to transportation, he now writes on all aspects of American railroading. Charles is a political conservative but believes in public funding of passenger rail as a part of the federal government’s constitutionally conservative obligation to provide for defense and public infrastructure so that private enterprise may flourish.)