“This world is a place of business. What an infinite bustle! I am awaked almost every night by the panting of the locomotive. It interrupts my dreams. There is no sabbath.” – Henry David Thoreau.
Some 16 million freight cars will transect the country this year, delivering critical and desired goods to consumers and manufacturers. The railway system is a vital link in the supply chain, and if it isn’t functioning correctly, the systems which are dependent upon it would collapse.
In this blog, we will examine where trains fit into the supply chain puzzle, the four major supply chain issues hampering the efficient functioning of the rail systems, the solutions that have to happen and the conditions under which they need to occur, and the startling vulnerabilities to this system that we aren’t properly acknowledging and addressing but could lead to a total collapse. I will tell you what to watch for to know if this critical artery of goods is about to fail. So, let’s talk about it.
WHERE DO TRAINS FIT?
In a perfect world, manufacturers produce products, fill containers, and ship those products to top-consuming countries via ocean freight lines. The containers are offloaded at ports. In less than seven days, the container is loaded onto a truck or rail line and is on its way to warehouses, distribution centers, and retailers across the globe. The container is often taken to a facility and unpacked because it comprises a multitude of shipping orders, and the container isn’t all one order. Wherever it gets unpacked, it needs to get to that location and its final location via a truck, van, or train.
Not all port terminals are connected directly to the rail system. Some are. Some are connected by their own internal rail system that connects to intermodal rail terminals. Some have an on-dock or a near-dock rail facility. The near-dock ones require drayage, or trucking, to transport containers to rail terminals or distribution centers. Distribution centers are their own unique thing. Trans-loading facilities primarily transfer the contents of maritime containers packed with multiple orders to multiple destinations into domestic containers or smaller truckloads. It is common to have three smaller 40-foot marine containers, unpacked, palletized, repacked, and transferred into two 53 foot domestic containers for shipment to larger warehouses, distribution centers, and larger retail customers. To fully understand how systemic this supply-chain congestion is, there is also a shortage of pallets. There was a lumber shortage in the U.S. due to COVID-19 shutting down the lumber mills for weeks. The surge in new house and renovation construction is consuming most of the wood available from the mills, resulting in a shortage of all pallets.
Railways, as an integral intermodal piece of the supply-chain house of cards, are bulging with the orders of consumer demand as economies struggle to regain footing from the COVID years. CSX, one of the largest Class 1 freight companies operating over 21,000 miles of track, reports Intermodal travel is up 22% over pre-Covid years, so some of the rails are being utilized more than in previous years, as some companies rise to try and meet the demand. That’s not the case across the system, though. According to the Association of American Railroads, in September 2021, U.S. intermodal traffic was down 7.3% year-over-year. Part of this sizable reduction at a time when operations need to be ramped up is due to a labor shortage of rail workers and conductors. There was already a steep decline beginning in late 2018. Pandemic layoffs and furloughs exacerbated this decline, and the industry had lost 40,000 jobs by December of 2020. Some of these job losses are permanent. Railway companies are having a hard time enticing jaded workers so quickly released and furloughed at the first sign of dipping profits back to long hours, possible relocation, and low wages.
Even before the pandemic, railway companies were downsizing to streamline operations by running fewer trains with more cars, changes that already had resulted in fewer workers. In the interest of tighter margins and higher profits, older locomotives were decommissioned and scrapped before the demand surge being experienced now. With fewer workers and fewer trains, the result is later deliveries and service cutbacks. So, imagine your only grocery store in town working with fewer checkers, receiving dock workers, stockers, and fewer shopping carts while the customers are trying to stock up and the trucks are parked, unpacked at the receiving dock. That’s where the railway industry is at this moment– a critical link in the supply chain understaffed and under-equipped, with deliveries stacking up. Demand is very high, but the products aren’t making it to their final destination.
The entire railway system depends on consistent speed. With box supply reduced, the port and trucking speeds slowed, the warehouses and distribution systems hampered by labor shortages, simply increasing train speed isn’t a solution. Getting trains onloaded and offloaded is the central issue. In addition to the labor and equipment issues, four primary problems in the supply chain all directly impact rail freight operations.
4 MAIN SUPPLY CHAIN PROBLEMS
Four main problems persist for the whole supply chain and specifically for the rail industry: chassis shortage, a shortage of drayage capacity, intermodal terminal congestion, and slow container returns.
A chassis shortage, a reduction in drayage, congestion, and slow container and chassis return all combine to make it difficult for railway companies to increase operational momentum even if they wanted to.
SOLUTIONS
It’s a considerable challenge that the railroads can’t solve alone. Some companies like Walmart have launched pilot programs to produce their own freight cars. The sub-privatization of the industry disrupts all rail freight operations. It’s a solution for some that creates an even more significant problem for many. If the trucking industry and warehouses continue to have a shortage of workers, nothing will change. If consumer demand remains high and unmet, delivery times increase, and panic buying could occur, making things even worse. If the trade equation remains lopsided with more goods coming in than are going out, things will resemble more late-stage capitalism than they will ever restore to normative economics.
WHAT YOU NEED TO KNOW AND WATCH FOR
Assuming you are not a captain of industry or barron-executive of the railways, there are things you need to know and watch for. Understanding that almost all goods, parts, equipment, even Christmas gifts you don’t truly need are going to come to you by railway at some point along their transit, you need to know how things can get worse and what you can reasonably expect to become unavailable in the short-term. So much depends on the rail system: wheat, coal, televisions, fertilizers, smartphones, oil, chemicals, raw materials, vehicles, medicines, and just about anything you can think of that is vital to your life. If this critical artery of transport doesn’t flow more efficiently and at a greater capacity, expect fewer choices on everything from groceries to hardware to vehicles and more. As mentioned earlier, shortages can ignite panic-buying, and that can cause flare-ups throughout the system. Beyond the consumer, though, critical infrastructure systems will be poorly and shoddily maintained if parts and equipment are slowed or halted. This could result in failures that require shipments of new parts manufactured overseas before they can be restored to operation. Power, gas, or water system failures will go from a few hours of interrupted service to maybe days or even weeks.
Watch for inclement weather, storms in the south and midwest regions, or blizzards in the north to further complicate the railway system. Tornadoes, wildfires, blizzards, and floods can shut down lines for hours or days, keeping your shipments from reaching their final destination. Know that any natural disaster will automatically halt the railroad flow of goods. Perhaps the most significant threat, though, that nobody is really acknowledging right now is that the railways run on antiquated computer systems. It’s not always one guy manually working a railroad switch to allow a train to switch tracks, though sometimes it still is. It’s a fragile computerized system that hasn’t kept up with technology upgrades. As such, it is highly vulnerable to cyberattacks.
In July of this year, in perhaps an early warning to the rest of the world, Iran’s national railway system suffered a cyber-attack. Train service, both passenger and cargo, across the nation was canceled or delayed. It is thought that Israeli hackers conducted the cyber-attack. Iranian hackers are accused of having attempted to hack and interfere with Israel’s water treatment systems, and that this railway attack was in retaliation for that. A cyber war rages on, be it from hackers in Russia, China, Israel, or even here in the United States. The railway systems are a ripe and vulnerable target. A minor problem created by a ransomware cyberattack would reverberate across the much larger system and bring all traffic to a standstill.
Rail systems both in America and in Europe have already been subject to several significant attacks. Attacks on railway systems occurred in 2016 in San Francisco and 2017 in Germany. The rail network is so vulnerable and in some places archaic that a teenager in Lodz, Poland, altered a television remote control and took over the industrial control systems managing light-rail track points in the city. Four trains were derailed, and 12 people were injured as a result. The rail systems here aren’t that much more advanced, and they are susceptible to attacks and failures at several points, junctures, terminals, and control rooms all along the route. Watch for any significant attack on our railway systems at this tenuous time. It’s a sign that things are about to get dramatically out of control.
CONCLUSION
Trains are part of the problem, and they are also the solution. It’s a system that’s lumbering along at not a tremendous speed but moving nonetheless. A lack of truck drivers, truck chassis, and warehouse workers are the most significant failings in the industry right now, but some believe that if wages were raised and systems built out, reconfigured, and invested in, the whole system would not only correct itself, it would boost the economy and prevent future bottlenecks. Fortunately for you, if you have been striving for a more prepper-like, more self-sufficient lifestyle, you can remain somewhat insulated from the worst of it all, and the supply chain may correct itself, barring further complications. Reduce your needs, don’t be a part of the panic buying by your efforts now to prepare what you need. Find local sources to replace things you currently rely on from overseas. Prepare for the genuine possibility of extended outages, delayed deliveries, and system failures. There is an awful lot that needs to go right for the system to correct itself at this point, but there’s even more right now that can go wrong with it still.
Do you see the supply chain restoring itself, or are we only at the beginning of this crisis that will get much worse before it gets any better? Do you agree that the railway system is one of the most vulnerable links in the supply chain?
As always, stay safe out there.
thanks great article