NACFE recently released a new report on the potential for railroads and trucking firms to reduce operating costs and improve emissions by improving utilization of intermodal rail and truck services.
Trucks have won the lion’s share of freight hauling in North America over the last 50 years. There are a number of reasons for that, one of which is viewing rail and truck as competitors rather than partners in a system. That competitive environment has seen railroad trackage steadily decreasing, which impacts where the freight can be moved by rail. At the same time, highway systems have seen dramatic increases in paved lanes. It’s estimated that the six major Class I freight railways have less than 140,000 miles of trackage today while U.S. highways alone exceed 4.1 million miles. Trucks can go nearly everywhere, but trains do not. It seems obvious that trains need trucks. Not so obvious is that trucks need trains — but they do.
Supply and demand for freight movement means there are peaks and valleys. Sometimes there are simply not enough trucks and drivers to move all of North America’s freight. Spot truck freight rates tend to go through the roof at these times. Yet, alternatives exist, moving freight by rail. Rail tends to be a safety valve in peak freight times.
In other economic periods, there simply is too much truck capacity and not enough freight to move. In those bust times, we see a large number of owner-operators failing. Truck freight spot rates fall, and rail alternatives become less competitive.
The peaks and valleys tend to mimic the supply of electricity in the U.S. The infamous “duck curve” of that compares power generation to demand at different times of the day. That curve shows there can be too much generation for the amount of demand during daylight hours, but then dusk comes and demand can exceed supply.
Supply and demand duck curves highlight market volatility. It’s like your need for oxygen. Say you go for a bike ride in the morning, you need more oxygen as you exercise. Then later you may be sitting in your office or on a couch and you don’t need as much. Freight movement, like your need for oxygen, is a constantly moving target.
Mitigating the peaks and valleys of supply and demand tends to reduce overall system costs. The smaller the gap between the peak and the valley, the less infrastructure is needed to deal with the worst cases. This is true for power generation and true for the freight system.
