One of the key factors contributing to longer order-to-delivery (OTD) times in the 2004-MY has been the nationwide rail car shortage. The shortage affected not only the auto industry, but also all other industries that rely on rail transportation, such as the agricultural, mining, chemical, and timber industries. One reason for the shortage was that the railroads were caught off-guard by the unexpected demand for their services as the national economy began to improve. In fact, freight volume this year is expected to exceed last year’s, which was a record. The increased volume of freight congested the entire rail network, which caused significant backups of fleet vehicles awaiting rail shipment at many automotive assembly plants.

Another reason for the rail congestion has been the lack of investment by railroads, which has created rail choke points comparable to freeway choke points that exacerbate rush hour congestion. When train traffic backs up, it causes a ripple effect of delays. For instance, Richmond, Vir., is one of these rail choke points. In 2003, Richmond was one of the top five contributors to freight delays for the CSX North-South corridor, according to the Jacksonville, Fla.-based railroad. With freight demand increasing, congestion at these choke points has been exacerbated. On average, 38 freight trains passed through Richmond each day in the first half of 2003. Now it is 40 trains per day.

The railway congestion problem is not limited to the Eastern U.S. Across the nation, rail yards and tracks have become congested as the economy has improved. According to the Federal Railroad Administration, the federal agency that regulates railroads, the nation’s rail system is straining to handle current volumes, and this is even before the height of the current peak season.

As with most industries, the rail industry has seasonal peaks, which usually begin about mid-July and extend into the autumn. The peak season is triggered by the fall grain harvest, shipment of retail merchandise for Christmas, and transporting new cars and trucks to dealers for the start of the new model year. In addition, the increasing ratio of trucks sold by automakers has compounded the rail car shortage because fewer trucks, due to their larger size, can be loaded on a rail car than passenger cars.

The most severe problems are in the West and Midwest with Union Pacific Corp., the nation’s largest railroad. Union Pacific has responded to the increased demand by adding 392 new locomotives and leasing nearly 350 more. Despite this, Union Pacific continues to struggle with chokepoints in Houston and South Texas. 

An additional contributing factor to rail congestion has been the reduction in the workforce at railroads, leading to staffing constraints. Union Pacific, for instance, reduced its work force by 11 percent from 1999 to 2004, with most of the cuts in operating staff. The railroad industry says it takes its personnel five years to become fully qualified in most jobs. Even if the railroads started hiring today, it will take years before they have a fully qualified increase in their workforce. New federal work rules also contribute to freight delays. For example, freight trains sometimes must stop mid-track to relieve crews who have reached the federal maximum they are permitted to work – a 12-hour shift. The train sits until new crews take over.

Forecast for 2005-Model Fleet OTD
Despite the current rail car shortage, industry-wide OTD averages this year were much better than the abysmal delivery times that occurred because of the rail car shortages in the 2000-model year or the gridlock that hit the Texas rail lines earlier following the merger of the Union Pacific and Southern Pacific railroads. However, until railroads increase infrastructure investments, chokepoints will continue to exist and continue to delay transit time for fleet vehicle deliveries.

Let me know what you think.

mike.antich@bobit.com