Roulston Transportation Partner on How Higher Oil Prices Have Affected the Rail and Trucking Industries

Roulston Research Transportation Partner McKee Stewart Jr. gave his take on how higher fuel prices have affected the railroad and trucking industries. He expalined, "With the recent run up in fuel prices the great “Road vs. Rail” debate is being rekindled. Over the course of the last year, national average highway diesel fuel prices have increased by roughly 35%. For a truckload or full container shipment, add on fuel surcharges can increase the costs of transportation by 40 – 50%, depending on the carrier, the mode, and the economic clout of the shipper to negotiate rates. Combined with the recession, shippers are looking to cut transportation costs wherever practicable.

From a shipper’s perspective, there are obvious issues that drive the choice of transportation mode, including service / transit time requirements, the quantity and nature of the goods to be shipped, cost drivers such as distance to and from the railhead, the overall distance that the shipment needs to move. As overall distance increases, rail becomes much more competitive against trucking based on the inherent efficiency associated with its advantage of low fuel consumption per ton mile.

The real question isn’t train vs. truck, it’s about how and when intermodal moves make sense. Rail carriers have been improving service, and have cost advantages over trucks. Combined with the trucking industry capacity issues revolving around driver retention and hours of service, intermodal will continue to gain share, especially in the 1,500 mile length of haul category.

These trends clearly benefit the railroads, particularly the Class I group of carriers like Burlington Northern Santa Fe (a Berkshire Hathaway company), Union Pacific, CSX, and Norfolk Southern. However, on the trucker’s side, rail can be a very helpful partner. Long haul carriers like JB Hunt, Schneider, Werner, ABF, Con-Way, FedEx and UPS generate enough loads to get favorable rates, have over the road options to hold their rail vendor costs down, and have extensive relationships with small and medium shippers that historically haven’t had much negotiating clout with the railroads.

Over the long term, as intermodal transport continues to gain share, the ‘hidden’ beneficiaries may well turn out to be regional carriers such as Con-Way. The more obvious beneficiary to the increasingly complicated supply chain may well turn out to be third party logistics companies like CH Robinson."



McKee Stewart is founder and Principal of Stewart Management Systems LLC which is a consulting practice focused on Financial Planning and Analysis, Yield Management, and Business Intelligence. He previously worked for over 20 years with Roadway Express in a variety of Senior Level Positions.