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Rail data for the first mile and last mile would benefit shippers

Having federal regulators collect rail data related to first-mile and last-mile activity could help rail shippers greatly because it would measure the railroads’ ability to deliver shipments on time, Herman Haksteen, president of the Private Railcar Food and Beverage Association (PRFBA), said during a fireside chat Wednesday for FreightWaves’ Global Supply Chain Week.

The data that the Surface Transportation Board collects now on performance statistics for rail car velocity and terminal dwell time don’t matter as much for shippers, Haksteen told Mike Baudendistel, fireside chat host and FreightWaves’ head of intermodal solutions.

PRFBA’s shippers “come from a trucking world. We come from a delivery world. If we order it for Tuesday at 5, we want it Tuesday at 5. We don’t care if it’s spent 55 days in a terminal,” Haksteen said. 

PRFBA, like other rail shippers, is pressing STB to adapt the collection of first-mile and last-mile data as it pertains to rail movements because they say having those measurements could help improve rail performance. 

Those measurements could also serve as a condition to other regulations, Haksteen said. For instance, if the railroads push back on a federal order enabling reciprocal switching, the board could say that a railroad could use metrics within the first-mile and last-mile data as a threshold for when reciprocal switching would or wouldn’t be allowed. 

Reciprocal switching is when a shipper has access to one freight railroad but wants access to a nearby competing freight railroad in order to cultivate a competitive pricing environment.

Watch for a tight market for boxcars

Prior to Haksteen’s work as president of PRFBA, he served as CEO of a company that handled rail car supply and leasing for the food and beverage industry. As head of that group, he would encourage customers to diversify their supply chains, which meant utilizing intermodal and boxcars for rail.

Looking at the boxcar leasing market now, Haksteen expects tightness in that market to continue. That’s because he estimates that about 50% of boxcars are nearing the end of their 50-year life cycle and will need to be retired soon, per federal regulations. 

Production orders now for boxcars will replace only about 30% of that retiring fleet, meaning that the market will become tight for boxcars for shippers that use them, like paper and dried cereal. Production is lower because there is not enough investment for boxcars, plus the raw materials to make boxcars, such as steel, are expensive. 

As a result, shippers should come up with alternative plans, including utilizing more intermodal, which could be more expensive but will enable shipments to continue, according to Haksteen.

To be a member of PRFBA, a company must own rail assets. The railroads had started to tell shippers in the 1950s to buy their own tank cars, while in the 1970s, shippers were encouraged to buy their own refrigerated rail cars, and in the 1990s, they were encouraged to buy their own insulated cars.

The act of companies buying their own rail cars helped them to diversify their shipping options, Haksteen said, because it freed shippers from relying on the railroads to supply them with the railroads’ own limited set of rail cars.

If a company is considering using rail, the company should take into account what kind of goods it will deliver using rail. Rail is good for those that are moving heavy products over long distances; it is also a good option for those utilizing forward inventory in the supply chain.

Rail is less suited for companies seeking just-in-time delivery or for those that have products with a short production time, Haksteen said.

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Click here for more FreightWaves articles by Joanna Marsh.