How Freight Rail is Getting the US Economy Back On Track
Written BY: Brett Booen
Before we get you into How Freight Rail is Getting the US Economy Back On Track, you might want to check this article out as it appears in our April Issue of Supply Chain Digital. Trust us, it's way cooler to read this article when you can flip through our user-friendly e-reader.
There are 565 freight railroads in the United States. Those 565 railroads make up a nearly 140,000-mile long rail network that is used to transport imported goods that come via sea freight and air freight from far away destinations. Along with being a national heritage, the railroad is the most efficient and cost-effective way of moving goods into inner-America. Just don’t tell that to UPS and FedEx, who will try to convince you otherwise.
The freight rail industry supports over 180,000 US jobs, and by all accounts that number will rise in the coming years as the government and private investors pour millions of dollars into infrastructure improvements and make freight rail capital investments. It’s no surprise that Pennsylvania, an important corridor situated between Chicago and New York City has the most railroads with a whopping 58 tracks. Meanwhile, Hawaii has the least number of tracks with a whopping zero. If we’re going strictly by freight rail miles, then the state where everything is bigger is No. 1 as Texas sports a network of 10,743 freight rail miles. Texas hosts three signature railway companies namely Union Pacific, Kansas City Southern and Burlington Northern/Santa Fe.
I don’t mean to insult your intelligence, but freight rail is an important economic driver because freight rate volumes often tell us exactly where the state of our economy is. Take 2008, for example, when the freight rail industry nearing all-time highs. Everyone was having a great time sending their stuff across America, but then it all came crashing down in 2009.
I digress. A single train can carry the load of 280 or more trucks. In other words, a freight train essentially takes more than 1,100 cars off of American highways. The last thing anyone wants is more congestion on American highways. The Association of American Railroads (AAR) reports that congestion on highways costs $87 billion in wasted travel time and fuel each year. So not only is freight rail efficient and cost-effective, but it helps mitigate congestion from our nation’s roads, which was one of the more salient points Obama talked about in his State of the Union Address earlier this year.
AAR President and CEO Edward R. Hamberger said, “The President has issued a clear call to American businesses, urging them to get off the sidelines and get back in the game by investing capital and hiring.”
While President Obama and other leaders have called upon private companies to increase capital spending and rev up hiring, the nation’s freight railroads have been spending record sums of private capital on the rail network and bringing people back to work. Railroad hiring at the end of 2010 was up 5.2 percent over the year before, according to the report, and railroads are positioned to hire more workers in the coming years.
Hamberger says, “Freight railroads have been in the game for the past 30 years, investing more than $480 billion to build and maintain America’s freight rail network with private capital, and supporting jobs all across the country. Freight railroads have a great track record and are ready to continue investing in the national rail network so U.S. taxpayers don’t have to. But, we must have a regulatory framework that supports, and does not hinder, private investment.”
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The AAR recently announced the nation’s freight railroads in 2011 are planning to spend a record $12 billion on capital expenditures, after setting a record with $10.7 billion in capital spending in 2010. According to the Great Expectations 2011, Railroads and Continued U.S. Economic Recovery report, these investments are potentially threatened by regulatory and legislative policies being considered in Washington, D.C.
“Even during the worst recession in a generation, freight railroads have been plowing record amounts of private capital back into the rail network each and every year, achieving one of the highest capital investment rates of any U.S. industry,” said Hamberger. “A regulatory framework that provides certainty will foster continued economic recovery and job creation.”
“Ultimately, the regulatory environment in Washington, D.C., must be aligned to support freight rail’s continued investments in the national rail network,” Hamberger said.
It’s time for the United States to revisit what regulations stand in the way of reaching freight goals, while preserving those that help ensure continued success and growth.
Driver shortages: Why the industry needs to be worried
While driver shortages are a global problem, with a recent survey from the International Road Transport Union suggesting that driver shortages are expected to increase by 25% year-on-year across its 23 member countries, the issue has very much made itself felt for UK businesses in recent weeks.
A perfect storm of factors, which many within the industry have been wary of, and warning about, for months, have led to a situation wherein businesses are suddenly facing significant difficulties around transporting goods to shelves on time, as well as inflated operating costs for doing so.
What’s more, the public may also see price rises as a result due to demand outmatching supply for certain product lines, which in turn brings with it the risk of customer dissatisfaction and a hit to brand and stakeholder reputation. Given that this price inflation has been speculated to hit in October, when the extended grace period on Brexit customs checks comes to an end, the worst may be yet to come.
"Steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole"
That said, we have already been hearing reports of service interruption due to lack of driver availability, meaning that volumes aren’t being transported, or delivered, to required schedules and lead times. A real-world example of this occurred on the weekend of 4-6 June with convenience retailer Nisa, with deliveries to Nisa outlets across the UK affected by driver shortages to its logistics provider DHL.
But where has this skills shortage stemmed from?
Supply is the primary issue. Specifically, the number of available EU drivers has decreased by up to 15,000 drivers due to Brexit alone, and this has been further exacerbated by drivers returning to their home country during the COVID-19 pandemic, as well as changes to foreign exchange rates making UK a less desirable place to live and work. This, alongside the recent need to manage IR35 tax changes, has also led to significant inflation in driver and transport costs.
COVID-19 complications have also meant that there have been no HGV driver tests over the past year, meaning the expected 6,000-7,000 new drivers over the past year have not appeared. With the return of the hospitality sector we understand that this is a significant challenge with, for instance, order delivery lead times being extended.
It is little surprise, therefore, that the Road Haulage Association (RHA) earlier this month became the latest in a long line of industry spokespeople to write to the government about the driver shortage for trucks. The letter echoed the view held by much of the industry, that the cause of this issue is both multi-faceted and, at least in some aspects, long-standing.
So, many in the industry are in agreement as to the driving factors behind this crisis. But what can be done?
Simply enough, outside of businesses completely reorganising their supply chain network, external support is needed. In the short-term, the government should consider providing the industry with financial aid, and this can also be supported more widely with legislative change.
Specifically, immigration policy could be updated to place drivers on the shortage occupations list, which would go some way towards easing the burden created by foreign drivers returning to their home countries. Looking elsewhere, government should also look for ways to increase the availability of HGV driver tests after the blockage created by the coronavirus lockdowns.
Looking more long-term, steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole. As it stands, multiple sources suggest that the average age of truck drivers in the UK is 48, with only one in every hundred drivers under the age of 25. We must therefore do more to increase the talent pipeline coming into the industry if we are to offset more significant skills shortages further down the line.
On the back of a turbulent year for the supply chain industry, it has become increasingly clear that the long-foretold shortage of drivers is now having a tangible and, in places, crippling effect on supply chains.
Drivers, and the wider supply chain industry, have rightly been recognised for the seismic role they played in keeping the nation moving and fed over the past year under unprecedented strain. If this level of service is to continue, we must now see Government answer calls to provide the support the sector needs, and work hand-in-hand with the industry to find a solution. If we do not see concrete action to this effect soon, we are likely to be in for a turbulent few months.
Rob Wright is executive director at SCALA, a leading provider of management services for the supply chain and logistics sector