Article Summary
What trucking fleets can learn from railroads
- Prepare for a shifting secondary market: As trucks adopt complex, proprietary software and electric powertrains, they may become too expensive or risky to refurbish for a second owner—similar to locomotives, which are rarely resold and are typically kept by a single owner for their entire lifespan.
- Establish lifetime liability and software tracking: Software-defined trucks will require meticulous, long-term tracking of software updates, component recalls, and modifications. Fleets must learn to manage ongoing liability risks regarding who is responsible for software conflicts or missed patches after a vehicle changes hands.
- Account for permanent tech maintenance costs: Fleets must plan for permanent, ongoing licensing fees, proprietary troubleshooting tool costs, and hardware maintenance. Once initial OEM warranties expire, these continuous software costs can severely impact the vehicle’s long-term operating economics.
Researching the differences and similarities between buying trucks and buying locomotives, I found a few things truck buyers should take note of, especially as trucks are evolving into software-defined vehicles.
Locomotives differ in scale from trucks, though both currently have diesel engines at their hearts. That difference in scale is not just size, but capital cost. A new locomotive might have an initial cost of $2.5 million to $3 million. Various sources indicate a new Class 8 truck might be on the scale of $150,000 to $200,000, although I’ve seen a few heavily customized sleeper units that exceeded $300,000.
That rail unit might be rated at more than 4,000 horsepower. The Class 8 truck is probably around 450 horsepower. The rail unit may weigh north of 400,000 pounds. The truck is somewhere between 15,000 to around 20,000 pounds, depending on specifications.
The first owner of a Class 8 truck may own that truck for anywhere from two to five years and then resell it to another fleet as a used truck. The price is set by market conditions and depreciated for mileage, age and how well it was maintained. That truck may have 15 to 25 years of life in ever-less-demanding roles. A locomotive buyer likely will be the only owner, expecting a useful life of 30 to more than 50 years, over time putting it in less-demanding roles, after which it is scrapped for salvage value.
Both locomotives and Class 8 trucks are capital investments, tools to move freight for the purpose of profit. Yet trucks have a very active used market while locomotives rarely are sold. Yes, there is a small market for used locomotives going to smaller railroads, or sometimes exported to other countries, but the vast majority of used locomotives eventually are scrapped.
There are quite a few explanations offered for this. Here are a few key reasons where fleet truck buyers should take note from their rail counterparts:
- Liability. The litigious nature of freight operations can cross into liability for inadequate or inappropriate maintenance of a vehicle. A second owner who has an accident because a first owner failed to properly maintain a vehicle to industry standards exposes the first owner to financial risk from various plaintiffs. A software-defined vehicle with many different controllers from many different manufacturers will require excellent system integration. Who is responsible for missed software updates or updates that downstream cause conflicts in vehicle operation? After the vehicle changes hands, who is responsible for recalled sensors, faulty ECMs, etc.? Will the seller have a certified status of all software variations installed on the vehicle after it left the factory? Think how extensive the required paperwork is that follows every commercial aircraft over its entire life.
- Software licensing and maintenance. Software most often has ongoing maintenance costs in addition to the original purchase cost — not only the software on the vehicle, but often the service tools for troubleshooting issues can be proprietary. The second owner likely will not get free access to both. Hardware such as computers can also carry annual maintenance costs. The first buyer probably gets several years of OEM warranty coverage, but subsequent buyers may fall outside those first-buyer warranty periods, or the warranties are not transferable at all. Think about a 10-year-old locomotive or software-defined semi-truck — warranties probably have expired by then, but the owner still has to keep the vehicle running.
- Limited market for used vehicles. Given that locomotives have a 30- to 50-year product life, who is going to buy one at age 30? What will it cost to make it suitable for resale? Who will want to buy a used 5- or 10-year-old software-defined, autonomous, battery-electric truck? Who will take the risk that service parts and software are no longer supported? What will the seller have to do to update the truck so it can be sold? How much can the seller afford to spend and still make sense of selling the used truck? How much contingency funding will the used-truck buyer have to reserve to keep the truck running into the future? Put it in perspective of a used truck with bald tires: Someone has to make it street legal. Who eats that cost?
There are many other reasons for the complexity of selling used trains. But these three seem particularly relevant to Class 8 truck fleet buyers as well. As the complexity of Class 8 trucks continues to grow with greater advanced driver assistance systems and autonomy, more telematics tracking, more compliance tracking, over-the-air updating, mission-critical sensor suites, more complex powertrains, and more, the truck is on the way to being financially as problematic as owning locomotives.
In 10 years, will the first owner of a semi-truck be its only owner? Will a 10-year-old truck be so obsolete that it’s worth more as a place to store spare replacement parts and raw metal scrap? Will the used-truck market be able to deal with computer-based technologies that are no longer supported? Or deal with license costs and ongoing annual software and hardware maintenance costs just to be able to start the truck?
I started looking at trains and trucks some years ago while researching NACFE’s 2023 report, "Intermodal & Drayage: An Opportunity to Reduce Freight Emissions." The success of both rail and truck are intimately connected, yet the industries seem bent on being competitors rather than helping each other.
An example is found from Union Pacific. UP clearly states in its annual SEC Form 10-K filings that, “We face competition with respect to transit times, quality, and reliability of service from motor carriers.” They admit that, “Motor carriers in particular can have an advantage over railroads with respect to transit times and timeliness of service.”
They identify as significant risk factors that “could also affect the competitiveness of our transportation services for some or all of our commodities, which could have a material adverse effect on our results of operations, financial condition, and liquidity: (i) improvements or expenditures materially increasing the quality or reducing the costs of these alternative modes of transportation, such as autonomous or more fuel efficient trucks, (ii) legislation that eliminates or significantly increases the size or weight limitations applied to motor carriers.”
Clearly, trucking is perceived as a threat to railroads. Trucking companies seem to appreciate the intermodal partnership with railroads but understand there are risks. A Knight-Swift SEC Form 10-K states, “In certain markets, rail service is limited to a few railroads or even a single railroad. Intermodal providers have experienced poor service from providers of rail-based services in the past. Our ability to provide intermodal services in certain traffic lanes would be reduced or eliminated if the railroads' services became unstable.”
Yet take a look at any of the U.S. container ports, like the San Pedro Bay ports (the Port of Long Beach and the Port of Los Angeles), Tacoma, Mobile, or New York/New Jersey. Those ports see fleets of trucks endlessly moving containers to and from ships to rail yards. If you look at the inland railyard ports, such as Chicago, St. Louis, and Dallas, you will see fleets of trucks moving containers from these central hub rail yards to millions of regional destinations that are only serviced by roads.
Railroads and trucking fleets can learn from each other. They are already intimately linked through intermodal operations. Sharing lessons learned by railroads and trucking fleets has the potential to help both.
