The rail industry is moving forward with confidence in 2014, integrating services for better customer experiences, implementing new technologies, and pursuing opportunities in new markets.
Many factors will impact the business direction of Class I Railroads in 2014 including: an ongoing commitment to environmental stewardship; the condition of transportation infrastructure; high oil prices; dynamic trade; levels of government spending; trucking productivity; and efficiency and utilization. As a result, railroads expect growth in two key areas: intermodal transportation and the transport of crude oil.
Intermodal transportation by rail has seen a steady incline over the past few years, but as the efficiencies of this shipping method continue to far outweigh those of trucking, it will become a major opportunity for growth in 2014. Intermodal transportation by rail is more cost effective and environmental friendly, and it’s faster. Greenhouse gas emissions are reduced, cargos are more secure, and fuel costs are reduced. As the industry invests in domestic terminals to handle the increased shipping loads, challenges will include capacity. Railroads are investing billions of capital to assure that they can maintain service, permitting and constructing terminals.
Cross border intermodal is also growing due to automotive manufacturing expansion in central Mexico. Nine plants are already in operation, with four others planned to open soon.
Crude by Rail
While the shipment of crude oil by rail was virtually unheard of just a few years ago, the shale gas revolution, the nation’s pipeline infrastructure and market price differentials has made rail a go to solution to move crude, particularly from the Bakken and Marcellus regions. Refining companies are investing in tanker cars, pipeline companies are investing in terminals, and railroads are pushing capital spend in this direction. Railroading is more flexible, with faster delivery and more certain regulations- and it has access to more diverse markets from coast to coast. Class I railroads provide 94% coverage within a 50 mile radius of key oil terminals, whereas pipelines coverage is less than 50%. However, the capital investment and time required to build the required fuel terminals is more intensive and challenging than pipeline construction. To take advantage of this opportunity in 2014, the rail industry will need to carefully consider safety, tanker car regulations, and exposure to changing price differentials that undermine the trading business.
The key to growth in the two areas outlined above is a focus on continuous improvement. New technologies are emerging at a fast pace and railroads will be challenged to keep up with constant innovations. Liquefied natural gas (LNG) powered locomotives, for example, are being tested across the industry. Although the advantages include significant reductions in fuel expenses and air emissions, and increased travel ranges, the required infrastructure calls for a large upfront investment in time and money. Railroad will have to weigh the costs and benefits as they pursue these types of innovations which are necessary to continued growth, enhanced customer care and ongoing environmental commitments.
Where do you see growth for Class I railroads in 2014? What new technologies are you working with and what efficiencies are you gaining? Please share your questions and best practices in the comment section below.