Supply Chains, Railroads & Where Things Go Wrong - Part 2

As supply chains continue to break down around the country and the world, I would like to consider the part of railroads in keeping things together and pulling things apart.

Perhaps that is a strained metaphor: The chain is representative of a train of cars that will uncouple or derail if pulled too hard, and will derail if not given proper guidance. In the early 20th century, the advent of mass production of heavy machinery, particularly of the automobile, made the railroads the biggest link in almost any imaginable supply chain. ironically, the road vehicles would eventually supplant the railroads as the biggest link. That does not mean, however, that the railroads are only minor players. Far from it.

When trucks on highways became, not the best way, but the preferred way to move freight from point A to point B, railroads changed their business plan. In the latter part of the 20th century, no longer constrained by antiquated federal rules that hindered creativity, railroads became the only link in the supply chain that could move enormous quantities of freight at one time between two points.

Whether bulk commodities (grain, for example) or large batches of freight moving at one time (perhaps a containership-load of Asian manufactured goods), only railroads could move it using a minimum number of independent vehicles! The last decade has seen the railroads make super trains in lengths that are double to triple those of trains running at the turn of the current century. The technical breakthroughs that allow this are a good subject for another time. Suffice it to say that the amount of freight moved by a single train of this length, with a single operator, crew of two, or single unmanned AI-control, is significantly greater than can be carried by a fleet of 200 or more trucks moving on highways. Only barges on waterways can supersede this, and they do not have the flexibility to approach the tonnage that can be moved by railroad locomotives under single control.

So, as I have implied, how have the railroads contributed to the breakdown of supply chains?

Blame the stock market.

That's an oversimplification, but essentially true. I've said nothing about the environmental advantage of shipping by rail, but you get the picture when you think of 200 fossil-fueled trucks vs. an average of six fossil-fueled locomotives on a super train. Comparative emissions go way, way down. The stock market likes to invest in environmentally friendly businesses, and rail is a place that used to be anathema to investors, seldom earning enough on capital to be a recommended investment. Given the double whammy of huge economies in moving large quantities and hugely favorable environmental profiles, investors flocked to railroad securities.

But where investors go, trouble follows, and this trouble was in the form of investment funds and their continual pressure for ever higher profits.

In Part 3, I'll explain how the railroads' response to this pressure has weakened the formerly strong link of railroad supply.