A question which may interest some. With all the emphasis upon intermodal movement of freight recently to the disadvantage of carload shipments what does the future hold with ever increasing fuel costs? Given that we have made a policy of urban sprawl and the removal or non-construction of railroad sidings for direct service to manufacturing, warehousing and other customer facilities will new construction of such facilities be required once fuel costs begin to affect short haul trucking/drayage (300+/- miles)? What will be the effect on intermodal facilities?
Already some customers are seeking to put more truck freight in box cars or other carload types due to fuel and carloads inherent cost efficiency (1 carload = 3 to 5 truckloads). At what point does this being to pinch intermodal?
In case you have not noticed in the last few weeks oil prices have been declining quite rapidily which means gas/oil prices are also on the decline. In fact our prices here have dropped $0.25 for regular gas in the last few weeks.
True, porices have declined recently. However given the likelihood of further world issues with Iran, Venezuela, Iraq and even our own fields (thanks BP) not to mention issues with our refining capacity and the prices of fuel in it resdt of the world indications for the longer term are that fuel prices will stay higher even assuming no new price shocks such as Hurricane Katrina.
Also, the gas prices you cite are wholesale prices. At least here we have only experienced about $0.08 of that drop.
Our local paper reported this week that an 84 Lumber Center will be opening soon. In the article, the spokesman said the location was picked over others because it was next to the rail line. The company brings in products by rail to keep costs lower.
In general terms and without the calculations to demonstrate it, here is my analysis of the impact of continuously rising fuel costs, which I believe is highly probable.
Fuel is a higher percentage of truck costs than of intermodal, and a higher percentage of intermodal cost than carload. A given increase in fuel cost will increase the cost spread between truck and intermodal and between intermodal and carload. The railroads have the opportunity to increase market share by passing only the fuel cost increase through. This will tend to shift truck freight to intermodal and intermodal to carload. I would expect a greater shift to intermodal than from intermodal to carload resulting in relatively strong intermodal growth.
The situation also presents the carriers an opportunity to increase profit by raising rates in tandem with increasing truck rates. This would maintain the relative spread between truck, intermodal, and carload. Given that the rail system is in many locations capacity constrained, and the major investments required to remove those constraints, I would raise my rates in tandem with increaseing truck rates. The industry needs profits if it is to support a greater volume.
The overall fuel surcharge (i.e. pass through of fuel costs) to the customer from the carrier for an intermodal load is smaller than for an over the road load (approx 60-80% as much.) To the extent that this difference might swing the economics from one mode to another, that will be your driver.
Some of the unfortunate other considerations are truck availability and service reliability. Truck availability continues to be somewhat constrainted (that’s been re-hashed to death here on other posts) and intermodal service reliability overall is down considerably from 2 yrs ago.
Ironically, given the amount of volume that BNSF has taken onto their network, they’ve become much like Union Pacific was 2 yrs ago (dangerously close to gridlock) and their service has steadily slid south to the point where in many corridors, they are at the same lows UP hit during their service crisis. Funny thing is, they’re not getting nearly the press on the matter as UP did (albeit the coal shippers are taking them to task in public venues.) I think Matt Rose is the fair-haired boy right now.
First of all, any drop in fuel prices are only short term market fluctuations. The price of gas will be $10/L by 2020 for one reason only…we have run out of the ‘easy to get’ crude. As the price of fuel increases over the next two decades we will see virtually all long-haul and medium-haul service via trucks disappear. Trains will get the business and trucks will strickly be local service only. However, if solar technology makes great advances, and the boxes of trucks become hugh solar panels and trucks are powered for ‘free’ then it possible trains will fade away into the history books unless RRs do a massive infrasturcture conversion.
No, railroads will electrify busy routes. That way you can use whatever energy source is cheapest - coal/hydro(gravity)/wave/wind/solar/nuclear - and mountainous routes get the double benefit of more horsepower without the weight penalty to improve route capacity (10,000hp on six axles is no problem in an electric loco) plus regenerative braking so that descending trains can provide energy for ascending ones.
I could swear the electrification of RRs was discussed last year and the majority opinion was that it would never happen because the costs were ‘skywardly out of reach’. It will be interesting to see how high fuel price gets before RRs actually replace diesel locos with all-electric locos.