Throughout 2014, Supply Chain Matters featured commentaries related to the North America railroad industry, specifically capacity, safety and specialty car backhaul operational challenges that impacted multiple industry supply chains. General business and supply chain media noted incidents of severe congestion, marginal service and other operational issues effecting rail traffic last year.

To no surprise, The Association of American Railroads (AAR), an industry policy, research and technology organization, reported increased freight rate traffic for 2014. As is always the case in this new world of rapidly changing business dynamics, 2015 may present a different set of industry challenges and circumstances.

According to the AAR, total combined freight traffic for U.S. railroads in 2014 increased 4.5 percent to over 28.6 million carloads, containers and trailers, the highest annual total since 2007. To no surprise, shipments of petroleum and petroleum products increased 12.7 percent. Other reported shipment highlights included intermodal shipments up 5.2 percent to nearly 13.5 million containers and trailers while grain shipments were reported up by 13.5 percent.

AAR predicts that 2015 will be another challenging year which is echoed by a report in today’s edition of The Wall Street Journal which reports that Wall Street expects most railroads to continue to demonstrate double-digit earnings increases this year.

The current plunging price levels for crude oil however can potentially change the cost dynamics for “crude by rail” shipments as well as overall industry directives to upgrade crude carrying tank cars to new safety standards. New technology mandates outlined in the Rail Safety Improvement of 2008 calls for the full implementation of Positive Train Control (PTC) by 2015. While progress is described as substantial, the industry is already on-record as declaring this objective “an unprecedented technical and operational challenge. “

For their part, individual railroads indicate that they have made the necessary investments in new equipment, personnel and infrastructure to address prior service issues. Last week, U.S. Secretary of Agriculture Tom Vilsack spoke at farmers conference and indicated that U.S. transportation systems were not prepared as they should have for the spike in crude by rail shipments and their impacts to other rail network service levels.

Consequent reductions in diesel fuel prices now make trucking freight a more economical alternative for bulk shippers if trucking capacity is available, which is another separate challenge.  Lower oil prices are further expected to change the dynamics of demand for the coal industry.

In the coming months, Supply Chain Matters will continue to feature commentaries related to railroad industry dynamics.  We are in the process of planning interviews with academic and industry spokespersons to provide perspectives from both transportation operator and shipper.

Stay tuned for our first interview in the coming weeks.

Bob Ferrari