NEW YORK — Railroads have a stark choice.
They can maintain their focus on the operating ratio, continue to bleed traffic to the highway, and lose $177 billion in revenue by 2030. Along the way railroads would shrink in line with declining volume, meaning track would be torn up, real estate sold off, railcars scrapped, and jobs lost.
Or they can become customer-friendly, fit into new supply chains, and provide reliable service that will enable them to gain share from truck — and land $61 billion in new revenue by 2030. Gaining just a half-point of market share per year would gradually fill up existing capacity over the next decade.
That’s the conclusion of Adriene Bailey, a partner at consulting firm Oliver Wyman who spoke at the RailTrends 2021 conference last week.
“We need to change things if we are going to create a pivot to growth in this industry. What we were doing before won’t get us to where we need to go in order to be a truly vibrant, customer-centric growth industry,” she says. “How will we get there? And is it even possible? Oliver Wyman firmly believes the answer to that question is yes, but it is not going to happen unless we make some fairly major changes in the way we do things and the way we approach things.”
The good news, Bailey says, is that over the past decade, railroads have made dramatic advances in technology to improve safety, reliability, and efficiency, with positive train control serving as the backbone of a digital information system. If railroads can take full advantage of predictive systems such as automated track and train inspection, they should be able to provide better service at lower cost, she says.
The bad news is that revenue ton-miles have decreased 11% and total train-miles have fallen 23% between 2006 and 2019. “This is not the sign of a vibrant, growing industry,” Bailey says.
The Class I railroads also are making far more money hauling less volume: Revenue per train-mile increased 76% between 2006 and 2019. But that trend is unlikely to continue, Bailey says. Continued price increases above the rate of inflation will require better service, she says, and labor productivity gains tied to operation of longer trains will end when train lengths hit physical and practical limits.
Reliable service is key
Railroad need to adopt growth strategies that will allow them to hang on to current volume and gain new business, Bailey says. “You cannot get that freight — it will not come back to the railroad — unless you deliver a service product that is adequate to meet the needs of the customer,” she says.
Railroads need to do three things to grow. First, they need to adapt to new supply chains by…
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