Thursday, December 1, 2011

US Railroads, making a comeback?

Despite the dire situation noted in Harvard Business Review article "The Threat of Global Gridlock", there actually has been improvement in railroad infrastructure according to an article by Supply Chain Digest. The past few decades has seen the decline of rail as a preferred transportation mode in the supply chain. Trucking still dominates but there are reasons to see some light at the end of the tunnel (pun intended). Since the year 2000, there has been $10 b dollars invested in US Railroads. As of 2009, there was a planned $12 billion more coming. This information pre-dates the stimulus bill so that figure could be even higher. The reasons why companies are moving more toward freight?

1. Oil prices. Just recently crude oil prices have passed that psychological 100 dollar threshold. This makes rail more enticing. Oil prices do effect the pricing of rail transport but to a much lesser extent than truck.
2. Environmental. Many companies are proactively taking steps to reduce their carbon footprints. The amount of CO2 per unit of weight is much less when using rail.
3. Political. Policy makers in Washington might be moving towards encouraging/regulating mostly due to the environmental reasons above. This would favor rail.
4. Road congestion. There is an increasing amount of congestion on US railways which adversely effects interstate commerce.
5. Growing number of imported goods. Most imported products are of a higher relative value than the traditional rail cargo in the United States proper (coal, grain, lumber, etc).

There are some reservations in the move towards more rail. Some companies focus on issue 5. Are these rail companies too focused on the higher value imports at the expense of United States heavy industry?

I will echo some of the questions in the reading of the article. Are the environmental concerns enough to nudge us into more rail usage? Can you think of anymore barriers to moving into rail? Is there enough investment right now to change the current landscape?

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