Dive Brief:​​

• Railroads saw more activity in 2020 than they would have had the pandemic never happened, thanks to a surge in e-commerce, according to a report published by the Northwestern University Transportation Center.
• "That just speaks to the fact that the markets have jumped and the railroads have jumped," said Joseph Schofer, a professor at Northwestern University, and one of the writers of the report.
• A surge in intermodal shipments — and railroads' ability to respond to growth in demand — are among the top reasons railroads saw more activity in 2020, according to the report. By the end of the year, intermodal units accounted for 56% of the cars moved on trains. Before the pandemic, the figure was closer to 52%. 

Dive Insight:

Retailers have sought to diversify their carrier mix, in the face of an e-commerce surge and myriad supply chain constraints. They're looking for more transport providers and often turning to intermodal services to move their products.

"What you're looking at is a trend that's been going on for a long time," Schofer said. "But the pandemic gave it a boost, if you will, because of changes in consumer purchasing patterns."

Cumulative intermodal units for the first 27 weeks of 2021 are up nearly 17% YoY, according to the Association of American Railroads.

But rail's growth story looked a lot different at the start of the pandemic. ​Railroads, like the rest of the economy, suffered from declines in spending, production and labor availability.

From February to March 2020, industrial production in the U.S. fell by 18%, while rail freight volumes dropped by the same percentage from February to April, according to the report. And as employers nationwide laid-off workers, railroads did the same. Between March and June 2020, 9,265 train and engine workers were furloughed or laid off.

But the railroads rebounded rather quickly. The Northwestern University report estimates railroads had achieved a "near-full recovery in five months" from March 2020. Rail freight continued to grow thereafter past pre-pandemic levels, outpacing industrial production, which was still 3% below pandemic levels by December 2020.

"The deviation of total rail freight from [industrial production] was supported mainly by the growth in intermodal traffic," according to the report.

The importance of intermodal traffic to railroads' traffic share has been rising for years, but investments in capacity and relationships in the market paid off in 2020.

"Intermodal grew because demand for certain kinds of products grew," Schofer said. Long-haul trucking, which is normally a viable alternative for shipping e-commerce packages, was constrained by labor shortages. And the benefit of intermodal is that a container can go on a truck just as easily as it can go on a train.

It's not that rail did not see drops in labor, Schofer clarified, but when it comes to staffing, rail has a competitive advantage over trucking. Rail doesn't take much more labor to make trains longer, but every box that moves via long-haul truck needs one or two people to drive it.

In other words, rail's ability to capture rising demand for intermodal shipments was in part due to constraints in the long-haul trucking, continuing a long-standing competition in the surface transportation market.

"The trucking industry seems to be more plagued by challenges year-after-year-after-year-after-year than even the railroad industry does," CSX CEO Jim Foote said at the Stephens Annual Investment Conference, which took place in November 2020.

Speaking at the same conference, Union Pacific CFO Jennifer Hamann said the railroad was targeting truckload shippers as a way to grow business.

"We're just going into that bid season right now, and the fact that truck capacity has stayed tight and looks to be tight going into the first part of [2021] can be a favorable dynamic for us," Hamann said.

The Northwestern University report suggests the strategy was at least in part successful for intermodal traffic. It notes the rapid rise in traffic was due, primarily, to large retailers using rail to diversify their logistics risk and ensure product availability at a time of high disruption.

"We have programs with some of our domestic intermodal customers, where they commit to giving us so much volume over the course of the year, and we commit to giving them box availability," Hamann said of Union Pacific's relationship with large shippers at the Baird 2020 Global Industrial Conference.

Small and medium-sized shippers may have also contributed to the growth in intermodal traffic, but the report found these shippers were typically unaware their products were moving by rail, as third-party logistics providers booked the cargo space.

"This suggests that from the standpoint of the beneficial cargo owner, IM delivers service levels comparable to, and competitive with, door-to-door long-haul trucking – making it essentially indistinguishable from an end user's perspective, except for the reduced cost stemming from the efficiency of the rail move," the report reads.