The United States lags behind the rest of the world when it comes to
passenger trains, but when it comes to the freight railroad, the U.S. is dominating. The freight rail network in the U.S. operates over 140,000 miles of privately owned track in every state except
for Hawaii. It moves one-third of all U.S. exports and roughly 40 percent of long distance freight volume. The North American freight rail network is considered the most efficient,
the largest and the most profitable freight rail network in the world. It competes directly with the trucking industry to move goods around the
country, shipping everything from coal to cars to chemicals. And with the rise of e-commerce companies like Amazon, trains are
increasingly moving consumer goods as well. If you see it on a shelf, we likely had a hand in moving it. There are seven major freight railroads that connect North America. Union Pacific and BNSF dominate the West. CSX and Norfolk Southern are the primary East Coast operators, while
Kansas City Southern, along with Canadian Pacific and Canadian National run routes north and south. Amtrak, which is the United States passenger service, owns only three
percent of the country's rail. In 2019, the top five railroads in the U.S. had a total operating revenue of over $71 billion. BNSF, a subsidiary of Warren Buffett's Berkshire Hathaway, is not publicly
traded, but the remaining four U.S. companies have seen their stock on a steady climb over the last several
years. The railroads are incredibly profitable and actually are achieving profits
that they've never seen in their entire history. That, unfortunately, is not true for passenger railroad. Amtrak continues to lose money. It's the only major for profit railroad in the United States that hauls
passengers, and yet it has never made a profit. The future of freight demand in this country is strong. Estimates of 30 to 40 percent increases in freight demand between now and
the next few decades are prevalent. But the freight rail industry success has not come without its challenges. The industry has dealt with bankruptcies, the lack of demand for coal and
the more recent supply chain bottlenecks and rise in thefts. The seven top railroads, which owned the majority of the tracks in North
America, have also been criticized for monopolistic power over the rail industry. They tend to be very oligopoly and have an enormous amount of power and
pricing, and there isn't a lot of competition. CNBC explores how freight railroads became so profitable and how the
industry plans to evolve to stay on top. The U.S. railroad dates back to the year 1830 before airplanes or
automobiles were even invented. Passenger rail and freight were in high demand to move people and things
around the expanding country. It's been an economic backbone of the United States in many ways, plays a
core and central theme in American history and particularly the state of the economy. The railroad has seen many high and low points. By 1917, 1,900 railroads operated on 254,000 miles of track. The forties and fifties brought the rise of cars, air travel and trucking. Up until that point, there was basically no competition for passenger or
freight rail. Besides, other railroad companies and the industry was subject to federal
regulation that set rates and profit levels. After World War Two, the federal government built this incredible
interstate highway network and really lit trucking on fire, but didn't relax the regulatory standards on the rail industry, even though the
competition increased dramatically. It wasn't until 1980 when the Staggers Act was enacted that these
regulations were loosened. It allowed railroads to choose routes, prices and services and brought
profits back to the railroads. Since then, many redundant routes and railroad mergers have consolidated
the industry. There is a series of about five or six different mergers that allow the
Union Pacific to be the 32,000 miles of mainline track that we see here today. Without M&A, chances are that rail as a percent of overall freight
would be a much less important part of our domestic freight network. Kansas City Southern just recently agreed to merge with Canadian Pacific,
and if the Surface Transportation Board approves, it will create the only railroad linking Canada, the U.S. and Mexico. Today, the U.S. has some of the most profitable freight railroad businesses in the world,
achieving billions in profits. Passenger rail, however, has not seen a similar comeback. While freight railroads have invested at least $25 billion dollars a year
year over year into their networks over the past several decades, passenger rail has not had the same level of benefit when it comes to Amtrak. The federal government has traditionally been the primary funder of
Amtrak, and the amount of funding pales in comparison to funding levels that have occurred in other countries. Experts say geography and privatization of the rail freight industry is why
some consider it to be the most efficient in the world. The rest of the world does things quite a bit differently. In most of the rest of the world, the rail network is nationalized. It isn't owned by a particular company. United States geography is the primary reason that freight, railroad and
the freight network in the United States is far superior to what you see in other countries. A lot of what railroads depend upon are bulk
commodities, agriculture, commodities and mining that we get out of the ground, and a lot of those materials come from the center part of the
country. And because these are going to non populated areas. Rail is really well positioned and is a far superior mode of traffic than
you see with trucks. These companies compete with each other, but also must work together and
coordinate shipments since there's not one central owner of the railroad. In order for us to provide service for a customer, say from the West Coast
all the way to the East Coast, we have to hand off those products. Those boxes, those car loads to a different carrier on the east side of
the network. Freight railroads are what I like to call the middle miles. And so when you're looking at international traffic, for example, on the
West Coast, you have ships bringing in goods and those are translated either directly into train or into truck. Train takes the long miles, the middle miles of those trips and then hands
those off to truck, often at the end of the trip. So we all work together is one overall network. Through the reduction of companies and consolidation, railroad market power
has increased. It are occasionally brought up in front of the regulators for not
servicing, but also not charging fair market rates. They're constantly under the lens and constantly accused of exercising
more monopolistic practices in their pricing. Not so much on the intermodal traffic, which has to sort of stay
naturally competitive with truck traffic, but more so on the bulk goods that there isn't really an equivalent truck competition. The Biden administration issued an executive order last July that calls for
regulation on the freight industry, targeting a practice known as reciprocal switching. Reciprocal switching is intended to foster more competitive environments
for shippers because the freight companies own certain stretches of track. The regulation would force them to open up the tracks to other freight
companies, giving shippers more options of who to work with and therefore creating a more competitive market. The practice is already common in Canada, and some freight railroads have
switching agreements, which came as a result of previous mergers. When Amtrak was created, part of the deal was its passenger trains would
still have access to tracks owned by the freight companies. Amtrak pays host railroads $142 million a year to use their tracks. It comes at a time when we're trying to move as much freight as we can
throughout the supply chain, and to do anything that would knowingly undermine the fluidity of the freight network is frankly wrongheaded and
at odds with the overarching goal of maximizing freight movement. The system works. The Surface Transportation Board is in place to adjudicate rate disputes
and determine whether or not a particular rate might be reasonable or not. The Surface Transportation Board, the agency who oversees economic
regulation in the industry, is holding a public hearing to discuss the matter in March. The railroad companies rely on the trucking industry, but
also compete with them for customers. Truck is the biggest form of competition for railroads in North America. Trucks have an advantage on the smaller shipments that are associated more
commonly with consumer products rails. We have a big advantage on what I would call bulk commodities that are
heavy and move in larger quantities. Historically, a big portion of rail volumes came from moving coal
throughout the country. In 2019, coal shipments were down 45 percent from their peak in 2006. Today, the rise of e-commerce and companies like Amazon have made
intermodal containers its biggest shipment. Intermodal containers can move seamlessly from a ship to a train to a
truck without having to be unpacked. We've become a more intermodal intensive industry, and so things that we
hadn't done in the past as much as move smaller packages. We're doing a lot more of that. It gives you more breadth and more reach in terms of the customers that
you can serve. The freight rail is the most environmentally friendly way to move goods
over land. We emit about twenty five percent of carbon emissions that are trucking
partners do. One intermodal freight train carries upwards of two hundred containers,
and so that's two hundred trucks worth of goods on one train. And for the railroads themselves, it's far more profitable. They can charge a much higher rate on a per mile basis by hauling
intermodal traffic than just hauling general commodities. Los Angeles and Chicago are the two top areas in the U.S. for intermodal trains. Theft of these boxes have been on the rise recently in L.A., Union Pacific
containers carrying packages for companies like UPS, FedEx and Amazon were found open and a trail of empty boxes lined the tracks. A handful of years ago, theft out of an intermodal box was a nuisance. Happened every once in a while wasn't organized. Today, over the course of about the last year and a half, that theft has
become very well organized. We have a concentrated issue in the L.A. basin. Los Angeles ports are a crucial part of the global supply chain. The Port of L.A. and the Port of Long Beach together taken 40 percent of
all goods sent to the U.S. by water. Millions of containers and billions of dollars worth of goods
move through the port every year. Supply chain issues during the pandemic have led to a backup at the ports,
with lots of containers waiting to move into the country When the supply chain is facing challenges. Freight railroads are facing challenges, and we've been working hard to do
our part to help alleviate supply chain challenges facing this country, and that's through operating twenty four seven. It's through working with our maritime and our trucking partners to keep
goods moving, to stand up additional capacity and really try to keep the economy going. As the industry looks to the future automation and the rise of self-driving
truck companies like Embark and Plus could take more of the freight industry's market share, If you think about on a per mile basis, there are estimates that an
autonomous truck would actually reduce the cost of running a truck by as much as 70 percent. If that plays out, that's going to put significant pressure on the
railroads because they simply cannot maintain high pricing and really participate in that intermodal traffic. We see an awful lot of emphasis on autonomous trucks, and I'm pretty sure
within our lifetime we'll see driverless trucks on the road. But we also then need to be able to automate the railroads to keep up with
that. Union Pacific has invested in TuSimple, a self-driving truck startup as a
way to keep up with developments. It also said at the company's investor day in 2021 that ultimately our
answer to autonomous trucks is autonomous trains. There are companies like parallel systems currently working on prototypes
of self-driving trains. Of course, we're looking to be as competitive as we can and in the future. There's a lot of pieces that go into that, but certainly the technology
and kind of the backbone of that technology we think we think exists and we're pursuing those opportunities. Despite being the dominant mover of freight in the U.S., the trucking
industry is facing a labor shortage, an issue that only grew worse during the pandemic. Labor, as a percent of overall railroads, is far less than what you see
with the trucking industry. So autonomous is going to benefit the trucking industry far greater than
it would benefit the railroad industry, and so it's a major threat to the railroads. I would fully expect that the railroads will fight through
their lobbying efforts to keep autonomous trucks really boxed in and tightly regulated, and will be a big constituent that pushes
back on full autonomous. Trucking makes up 27 percent of jobs in the transportation industry
compared to rail transportation, which makes up three percent. The rail industry declined by 40,000 jobs from November 2018 to December
2020. Railroads also have their own set of issues as it relates to labor. The unions that are fighting them on things like precision railroading,
which makes the railroads far more efficient and makes the railroads far more dependable, but also mean that there's less labor and humans involved
in the transportation network's. Precision scheduled railroading is an operational innovation that helped turn the
industry around. It adds, and mixes freight cars onto longer trains for fewer trips and
reduces the number of stops and crew. Unions have not particularly liked it, but shareholders of the railroads
have loved it, and that's really driven the capital appreciation, the proper appreciation and the efficiency of the railroads for the past
couple of decades. There's pressure to protect jobs. The regulators have to be very, very careful that we don't end up back in
the 1970s in 10 or 20 more years when the trucking industry has evolved, being highly innovative and automated, and rails are
back holding the two man crews because the federal government has said you will have a two man crew rule. Despite these criticisms and the number of employees in both trucking and
freight rail declining, the need to transport goods around the world will not stop. The projected growth for freight volume in the U.S. is expected to grow 50 percent by 2050. And it's important that people realize that we're out there working out on
the network outside twenty four seven. We've done that throughout the pandemic. We've done that throughout the supply chain challenges we've seen, and
we'll continue to do that into the future.
Spoiler Alert: Freight trains are better than passenger trains because freight companies own the rails and priority is given to the freight.
Bothered to watch the video. Summary to save other people time:
The US freight rail is super efficient and possibly the best in the world.
The network is entirely privately owned, which is unique compared to most countries.
They very briefly mentioned the construction of the highway network as pivotal for passenger rail.
Railroads struggled with financial viability during the post-war era. Deregulation allowed them to drop non-profitable routes, including all passenger service. Railroads retooled to freight, became profitable again.
The number of companies is limited and they each have their own regions. Accusations of monopolistic practices are common.
Freight rail competes with truck. Rail tends to be much more efficient on long routes and trucks are the only option for last mile, but in the middle there is fierce competition.
Autonomous vehicles will skew the economics toward trucks. Similar technologies could save railroads on labor costs, but they need to fight unions and regulators to make that happen.
Freight volume is growing.
They annoyingly don't draw any real conclusions. Too controversial for mainstream media, I guess. If draw two conclusions from what they said:
They spent a lot of time about monopolistic practices, yet they also said the rail network is extremely efficient. Clearly this isn't really a problem. Unproductive fear mongering, IMO.
They glossed right over the bit where the federal government provided everyone with free access to a new highway network. How can anyone expect private passenger rail to be profitable in those conditions? This is clearly what we need to change to fix the situation, but no one wants to admit it because the political factions who usually support the free market tend to like their cars too much and want to turn a blind eye.