FINANCIAL EDGE, RAILWAY AGE NOVEMBER 2024 ISSUE: It’s the final weeks of the election cycle. A tentativeness seems to overhang business activity among companies shipping by rail. However, when asked what they expect to do differently based upon the outcome of the election, most people don’t seem to have an answer. Interest rates will continue to cycle downward. Loadings are not being held back for political reasons (maybe some coal, but that’s a column for another month). What matters is that by Nov. 6 the country should have chosen a new President-Elect. Of course, how long it takes to confirm that result is anyone’s guess.
At the Southeast Association of Rail Shippers (SEARS) meeting in Raleigh/Durham, N.C., in late October, Michael Miller, the powerhouse CEO of Genesee & Wyoming, made a strong plea for rail industry customer/railroad collaboration by describing how companies like Uber have the capacity to eat into modal share of North American rail. Miller showed a breakdown of Uber’s revenue sources. Since the pandemic, Uber’s primary growth has been for delivery services like Uber Eats or Uber Delivery rather than passengers. More important, over the past few years, Uber Freight is starting to increase its revenue share.
What is interesting about Uber is that as a platform, it does not buy equipment. Uber’s pass-through revenue model is motivated differently than traditional rail metrics. To some degree, being bold enough to draw conclusions on Miller’s behalf, that is the point. Uber could be disruptive to North American rail precisely because it feeds into an on-demand service cycle that is 180 degrees different than the business model of moving freight by rail.
Miller’s concern (drawing a second conclusion) is that the next five years could see Uber Freight expanding and cutting into modal share from rail, and the plea for collaboration is to stem the tide. In 2023, Uber’s revenue was roughly $37 billion. Freight is a fractional amount of that total revenue picture. Consider the concern in these terms.
In 2023, according to the Bureau of Labor Statistics, the total value of North American freight moved by rail among Mexico, the U.S. and Canada equaled roughly $209 billion. The value of freight moved by truck measured using the same metric is almost a 4x multiple of rail’s share—$996 billion. Combined, that is roughly 73% of total freight moves.
Rail’s share has been consistently shrinking slightly (down 0.47% from 2022 to 2023). What is interesting is the increase (especially post-COVID) in trucking’s share of that freight, as measured by the Bureau of Transportation Statistics (illustration above). So while rail is not seeing declines, perhaps more important, rail’s share is not increasing with trucking.
Rail touts its advantages over trucking, and they are legion—efficiency, environmentally friendly, safety, fewer trucks on the road. These all are true statements. However, apologies in advance, the industry wants this to be enough, and bluntly, it is not. Image matters. Perception matters. Financial Edge has often pushed forward the idea that North American rail does not do enough to promote industry positivity and does not respond effectively to negative press.
Witness the news from early October in Chicago, as an intermodal container was robbed in broad daylight in the Metro Chicago area. Note the casualness of Chicago Police and Metra Police as they approach the scene. Do an internet search of “Chicago Rail Thefts” and see how all the stories discuss crime fallout and the rise of rail theft. What’s missing? Commentary and response from the railroad community of any sort. Where are we when the questions are being asked?
Let’s return to the freight levels. As truck levels increase, who would be surprised if rail’s share starts to fall? Don’t bank solely on nearshoring increasing rail loadings. From April 2020 to December 2023, the value of Mexican freight moved to the U.S. by truck doubled. Rail levels? Mostly stagnant. It’s easy to imagine Uber using its freight business on traffic between Mexico and the U.S. and taking market share away from railroads. It’s almost the same question being asked for almost the same reason: Where are we when the business is being made available?
Congress set a deadline of Dec. 11 for districts to certify voter results. While on one level it creates the air of certainty of process, on the other, a toothless end date offers little procedural succor. Pleas for collaboration and growth leave North American rail with the need to choose to stem a tide or to navel-gaze as companies like Uber find ways to shift more freight to truck and away from rail. North American rail needs to make its choice.
