Rail Transportation: What Shippers Need to Focus On

Q: How have the recent rail mergers changed the rail landscape for shippers?

A: Shippers have been averse to rail mergers due to concerns of a reduction in competition, imposed routing limitations, and an increase in service disruptions. The two most recent mergers between the CSXT-Pan Am Railway and Canadian National-Kansas City Southern are still under review by the Surface Transportation Board (STB), so their impact has not registered yet; however, shippers should be investigating the impact of each proposed merger to their business and voicing their concerns to the STB.

Q: How would you describe the current level of rail service, and do you see any emerging trends?

A: For those rail carriers that implemented Precision Scheduled Railroading (PSR), the most pronounced result is more consistent and reliable transit times. PSR has allowed shippers to reduce their fleet size; previously, shippers would have to size their railcar fleet to accommodate erratic transit times.

During the implementation of PSR, service levels were jeopardized to the point that the STB required each Class I rail carrier to submit weekly metric reporting, including yard dwell, train delays, and cars held. Since PSR was rolled out, shippers could clearly see improvements in each of these reporting categories. However, the one thing that has not been captured in this data is the switching performance of each Class I carrier.

First and last mile service has been, and continues to be, a struggle for shippers. As the railroads reduced switching frequency and manage through reduced labor, shippers have had to deal with railcar bunching and inconsistent switching service. We expect to see many of the Class I carriers abandon local switching by outsourcing to lower-cost third-party operators.

Q: What advice would you give to help rail shippers control their rail spend?

A: Shippers must focus on their rail rates. This is the one area that shippers, through proper management, can yield cost savings and minimize typical rail rate increases. A shipper needs to understand which lanes are competitive versus non-competitive. Competitive lanes typically possess routing options, alternative interchanges, and reciprocal switching. Once competitive lanes are identified, a shipper can build a business case around the information and negotiate with carriers, often yielding positive results.

In many cases, shippers maintain their own railcar fleet, and proactive management of equipment can reduce overall turn times, thereby reducing the number of cars needed. Although often overlooked, railroad accessorial charges, which include charges such as demurrage and storage, are typically realized a month after the expense was incurred.

RSI’s customers rely on RSInet® to gain shipment visibility of their rail shipments and to mitigate excess demurrage and storage charges. Establishing good communications with your rail carrier can also provide measurable benefits in controlling costs and improving service.

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