It’s been 150 years since the “golden spike” joined the Central Pacific Railroad and Union Pacific Railroad and drastically increased the speed of transcontinental travel.
Now, freight railroads that serve manufacturers across the country are nearing a crossroads as modernization, public safety and the supply chain converge in this unique public-private partnership.
Out of more than 600 U.S. freight railway companies, seven “Class I” railways focus on moving bulk goods across long distances. The rest are short lines and regional railroads that are largely responsible for connecting “the first and last mile,” said Nick Little, director of railway education at the Center for Railway Research and Education at Michigan State University.
“That has meant that the industry has gotten very good at working with its local customers,” Little told MiBiz.
Regional railway companies work closely within the supply chain to provide transportation of goods in conjunction with Class I railways, which all happens out of sight from the end customer, Little said.
“You, as the shipper, will only see the one transaction with the local railroad,” he said. “Everything else is done through a system of interchange. There are interchange rates and rules that are in place that are administered through the Association of American Railroads. That makes it much more simple and possible for the whole of the national railway network to function together.”
This system ships 54 tons of goods throughout the nation per person per year, according to Little.
“Almost anything you can think of, at some stage, moves in its supply chain life by train,” he said.
Freight railroads are unique in that they are all privately owned and maintained, as opposed to airways, roads and waterways, which all have some sort of public ownership of infrastructure.
“What that means is that they are vertically integrated,” he said. “So not only do (private companies) operate the trains, but they also own the land on which the trains run and the right of way on which the trains run. They own the track, the bridges, the tunnels, everything like that, and they have to pay the costs of maintaining that equipment in good order to be able to run the trains reliably.”
From 1981 to 2016, railroad companies spent $665 billion, about 40 percent of their revenue, on maintaining infrastructure, locomotives and railcars, according to Little. At the same time, railways have long been publicly governed.
“We’re heavily regulated,” said Mike Hnatiuk, director of business development at Saginaw-based Lake State Railway Co. “There’s a lot of federal regulations and then every state is a little different as well.”
Driven by safety
For the last 200 years, governments have been monitoring and controlling trains mainly in response to public safety concerns. As well, safety historically has been the main driver of innovation in the industry, according to Little.
In 2015, the Michigan Department of Transportation (MDOT) began partnering with railroads to rehabilitate rough rail and road crossings throughout the state. MDOT uses dedicated state and federal dollars to improve safety through warning-device and crossing-surface improvements at the approximately 4,800 public railroad crossings throughout the state, as well as works to eliminate some crossings altogether.
“That has led to a lot safer crossing throughout the state of Michigan,” Hnatiuk said. “One of the biggest challenges in our industry is people don’t interact with railroads unless it’s at a crossing. So they tend to not understand how railroads impact their life or the benefits that railroads can bring.”
The state also has granted funds to railroads that connect local businesses to main lines so that more businesses have the option to ship freight by rail.
“It’s all part of an effort to educate legislators on the challenges that railroads have and one of them is we’re out there maintaining our own infrastructure,” Hnatiuk said.
Federal safety rules are regulated by the Federal Railroad Administration (FRA), a part of the Department of Transportation.
Last month, the FRA determined there is no safety rationale for a federal rule requiring two people in the cab of every locomotive. That finding preempts any state laws regarding crew size, opening the door to autonomous trains. The ruling drew mixed reactions. Labor groups called the decision “self-serving” and “mystifying in its logic.”
Association of American Railroads (AAR) president and CEO Ian Jefferies released a statement in support of the rule.
“Train crew size has been a matter of collective bargaining between railroads and their employees for decades,” he said. “Over that time, the safety of train operations has steadily improved even as crew sizes have been reduced.”
Any changes to agreements regarding crew size are already subject to the existing statutory collective bargaining process under the Railway Labor Act, according to the AAR.
“This is going to be quite the national story as states who have recently passed these measures will now likely be in court on the topic,” Jon Cool, president of the Michigan Railroad Association, told MiBiz.
Freight volume in the U.S. is expected to increase 40 percent by 2040, according to Little. As well, increased road congestion will push manufacturers to seek out sustainable transportation alternatives. Technology like autonomous trains could be used to unleash the capacity of railways, he said.
Railways also are using advances in technology to predict the effect of weather and route traffic and to schedule track maintenance to decrease time and cost.
“You don’t see the technology that’s in a railway because you don’t get as close to it as you do in many other things, but there is an awful lot of technology now in the railway itself,” Little said. “The railway now knows where every railcar is at any moment in time. It knows what the locomotive is doing and it has an instantaneous read on the fuel consumption and the driver habits to the degree of information that the driver could actually switch a locomotive over to the equivalent of an automatic pilot if such thing existed.”
Norfolk Southern Railway Co. has just introduced a smartphone application customers can use to track the exact location of the railcar carrying their goods, Little said, which is an example of how railways are becoming more “customer-focused.”
“They’ve always thought of themselves as running trains, but now they’re realizing that there is more to it than that,” he said. “They’ve got to think much more like their customers, and they’ve got to behave a lot more like their customers so that they can be an integral part of the supply chain.”
Rail intermodal traffic tripled between 1980 and 2002, according to the Association of American Railroads, and continues to expand. This increase is mostly consumer goods-related rather than raw materials, according to Little.
“Because the inventory and the cost of holding extra stock — particularly safety stock — for those items is phenomenally high, that has made the railways realize that there are a lot more time-critical and time-reliable demands from their customers that they’ve got to achieve,” he said. “They’re finding the ways to do that now.”
Businesses have been receptive to the state’s customer-focused rail system, said Hnatuik, who works to attract companies to Michigan.
“Michigan is very fortunate to have the rail network that we do just because there are these smaller companies who are very, very, customer-focused,” Hnatiuk said. “The railroads right now in Michigan are really doing some big things that are having a big impact on their local communities.”