American railways and truckers are at a crossroads
In some ways, freight rail and trucking seem to be direct competitors. Companies that need to get a container of goods from one city to another can choose between them. Rail is more cost-effective, fuel-efficient and can move greater volumes on a single trip. Trucking is usually faster and, unless the container is going from rail yard to rail yard, more direct. In America, both sectors boomed during the pandemic, as service-deprived shoppers stocked up on stuff. Now both are bracing for an economic slowdown, which may also affect them in similar ways.
Start with rail. Cost-cutting and price rises brought huge profits to American freight-rail firms in 2021 and 2022, despite lower volumes than before the pandemic. Railways embraced “precision scheduling”, which reduces how long full train carriages sit in yards waiting for a long train to be built. The industry is also consolidating, which leads to greater pricing power. On April 14th Canadian Pacific will complete its purchase of Kansas City Southern, the first big freight-rail merger that the Surface Transportation Board (STB), the federal rail regulator, has approved since the 1990s. That will leave America with just six large “Class I” rail companies.
Counterintuitively, the merger may end up enhancing competition. That is because not all rail companies compete against each other directly. Rather, the country is split into duopolies: CSX and Norfolk Southern rule the east; Union Pacific and BNSF dominate the west. Those lines meet in the Midwest, where they compete with Canadian National and, now, the enlarged Canadian Pacific, which will provide the first train lines running from Canadian ports through the heart of America into Mexico.
2023-04-05 09:42:55
Article from www.economist.com
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