America’s Supply Chain Advantage: Railroads

The Road to Lower Prices May Be On Rails

Arguably, America’s economic success has always been tied to our commodity transport efficiency. Our extensive waterways, rail systems and highway infrastructure offer consistency, predictability and a connectedness that isn’t found everywhere else in the world.  Because we have multiple, now well developed, modes of transport, we are afforded an advantage in logistical flexibility. That flexibility is what has contributed to a nation with a notoriously safe and secure food supply.

Can we leverage logistical flexibility to also build back affordability into our supply chains?  

Creating elasticity in supply chains has been the goal for quite some time. Post pandemic, that elasticity has been constructed to maintain a steady flow of goods and, in theory, act as a natural stabilizer for product costs by protecting inventory.  However, a volatile oil dynamic continues to keep the price of goods high for Americans even as we improve supply chain flexibility. If a greater percentage of goods were moved by rail, would that act as another layer of price stabilization or even lower costs for consumers?

The Barstow Rail Experiment

BNSF, a railroad company and top transporter of both agricultural and industrial goods, believes moving more freight by rail will keep goods affordable while simultaneously adding momentum to the U.S. economy. Both the Union Pacific and Norfolk Southern see the benefit of merging lines to increase rail efficiency and reduce reliance on truck transport.  And, even at the federal level there’s been talk of contributing to rail upgrades for the sake of shoring up supply chain resilience and reducing the cost of goods.  

BNSF is already testing the idea with a rail project in Barstow, California.  The project is challenging our perspectives on how we deploy our intermodal transportation system.  Its completion is projected to have a positive impact on the local economy while reducing costs for consumers nationwide.  BNSF already moves freight across 32,500 miles of railway.  The $4 million dollar project will move goods directly from container ships in the Port of Los Angeles and Long Beach to Barstow by rail rather than by truck, eliminating approximately 205 million truck miles annually.  

Moving goods by rail rather than by truck just in this small region of California seems to be beneficial enough that residents are welcoming the construction and businesses are willing to invest in the build.  Adding new rail lines will reduce truck traffic on already congested highways.  The project is expected to decrease greenhouse gas emission.  And, expansion should give way to other new infrastructure projects and updates, all of which will bring well paying jobs to the Barstow area.  

Most significantly, the project could work to decrease shipping costs by 34%.  Rail costs per ton are typically 2 to 4 cents per mile whereas truck costs per ton come in at 8 to 20 cents per mile.  Because containers will move directly from ships docked in port to warehouses in Barstow, weight, volume and cold versus dry storage logistics should stay relatively simple.  The line would eliminate the costly steps of loading and hauling individual containers by truck, keeping transportation in the 2 to 4 cents per mile range.

If successful, increasing rail capacity in the Southern California region could be a model for other port towns.  Railroads were once the heart and soul of commodity transport.  Today railways claim only 28% of freight, most of which is long haul movement of goods.  Trucks handle 65% and claim most of the shorthaul transport of goods.  Companies relying on just in time inventory management systems have long favored trucking since it prevents them from having to pay to store products longer than necessary.  That savings doesn’t always mean consumers pay less.  Those deliveries are subject to ever changing fuel prices and any routing issues that increase mileage.  Rail offers a more predictable transport expense.

Lately, we’ve seen a decrease in trucking volumes.  Normally this indicates an economic decline and is a result of a lower demand for goods. However, we’ve also seen a slight uptick in rail freight, which could be a sign that the freight industry is experiencing a major shift rather than a signal of economic stress.  If so, the Barstow rail system is part of a reshaping that aims to make cheaper transport increasingly feasible, adding another layer of efficiency and resiliency; this time financially.

Who Will Pay For a New Railroad?

The biggest question may be, can a multi-million dollar project save consumers money?  The answer is, yes.  Railway systems privately fund their networks.  Thanks to the Staggers Act of 1980, the railroad is free to grow with minimal restrictions in place making it potentially lucrative for manufacturing and agricultural entities to support the build. The railroad, as a business, relies on investments from companies that have a stake in how their goods are shipped or received.  The railroads themselves own, operate and maintain the track, bridges, tunnels and yards, investing some $25 billion annually into the upkeep.  While Barstow may see tax money used on highway projects, residents won’t be absorbing $4 million in railroad construction.

According to the Association of American Railroads, the rail industry is a backbone of the U.S. economy beyond just moving products across the country.  They estimate that every dollar invested in rail transportation generates $2.50 in economic activity and a single railroad job supports four other manufacturing, agricultural or technological jobs that depend on railways to move their products.  In theory, Barstow will only see an increase in high wage jobs and infrastructure thanks to the railroad.

Barstow is set to build 3,000 new homes to accommodate railroad and shipping personnel and the community infrastructure required to accommodate a growing population. The railroad will bring high paying jobs to the area which the community hopes will ripple into other infrastructure upgrades for residents.  When complete, the new California rail will give trucking companies a run for their money.

The United States is home to over 20 port towns that collectively handle some 60 million containers every year.  If each port were able to achieve similar shifts from highway to rail freight that would be 4 billion fewer road miles for goods, not to mention the significant reduction in traffic congestion and pollution.

Is This the End of Trucking?

For the railroad, trucking companies are the competition.  Projects like Barstow will help railroad companies reclaim freight volumes that were lost to the faster mode.  Mergers that reduce transfer fees and add efficiency in the heartland could make rail increasingly appealing to American industries looking to keep shipping expenses low.  But for consumers, the best situation is when multiple modes are working in tandem to keep the cost of products affordable.  

We will never not need trucks to haul goods.  In fact, we will always need them to transport goods on the very last leg of their journey.  And, we will always have perishable products that need to be transported quickly.  There will always be seasonal influxes in demand for certain products.  And, we can expect that geopolitical conflicts and natural disasters will throw our supply chains a few curveballs. Railroads may take back transit miles, but we need trucks, trains and even planes to keep goods flowing.  But for industries that can build time into transportation plans, the railroad will offer increasingly reliable and affordable options.