As we look into 2018 and beyond for the North American rail freight industry, we continue to have rather limited visibility beyond the short term. Commodity mix changes aren’t complete; market share opportunities remain, but technological challenges are emerging. Largest in my mind are service issues unresolved, at CSX but also beyond, and competing philosophies on how to create the true 21st century freight railway create challenges in expectations, capital allocation, and collaboration.
The ultimate goal is a virtuous cycle linking the major stakeholders and creating a superior return on the necessarily large investment required to safely and effectively be in the rail business. Rails find themselves in a confusing period, the “post-coal” era (political grandstanding notwithstanding).
But they are not without hope, far from it. They boast an excellent recent track record (the “railroad renaissance”), excellent all-time best margins (those much discussed low operating ratios), and the financial wherewithal to fund change, such as IT and capacity/service improvement in intermodal and in merchandise business.
The questions are both will they, of course, but also how will they? On the former, service improvement is essential, for political, market, and financial reasons. It is the well-spring of the new model railroad,; early returns are mixed at best. On the latter, it comes down to philosophy: on the one hand, an operations-driven attitude (precision scheduled railroading — PSR) with implications of a cost-driven focus (and potentially reduced investment for growth), or, on the other, a collaborative, network-driven philosophy.
The best-in-class actually melds the best of both thought processes — after all, reliable operations benefit both shipper and investor. One only has to look north to Canada to see the potential future for the North American freight railroad.