Maine Pointe and Michigan State University examine future of freight rail

24 September 2019 6 min. read
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Global supply chain and operations consultancy Maine Pointe, in collaboration with Michigan State University, examined the future of rail optimization in a new industry white paper. The report outlines how to create value for all stakeholders (shippers, carriers, investors) in a shifting supply chain and transportation landscape.

The past decade has seen a strong pattern of economic growth, a decline in traditional rail freight traffic, and an increase in road/rail intermodal traffic. Recent years have also seen Class 1 railroads reduce the number of rail cars, furlough crews, lay off support staff, and lengthen trains to lower expenses. Previous network reductions have further contributed to insufficient slack left in the system should there be an uptick in demand – which may soon be the case.

The US Department of Transportation estimates freight tonnage across all transport modes will grow nearly 40% by 2045. Increased congestion on highways means that other modes such as rail will have to step in to take over some capacity from trucking. As such, rail freight demand is projected to increase 88% by 2035.

Increases in trucking rates due to driver shortages and regulatory changes (e.g. capping driver hours) also present another opportunity for rail. However, the advent of semiautonomous truck platooning could eat into profitable longer-distance revenue streams.

“Freight tonnage will grow by 40% by 2045, and rail will have to play a significant role in creating this extra capacity,” said Nick Little, director of railway education at the Center for Railway Research and Education at The Eli Broad College of Business, Michigan State University. “Yet over the past several years, the relationship between shipper and carrier has become increasingly dysfunctional.”

Maine Pointe and Michigan State University examine future of freight rail


The report found that communication between shippers and rail carriers has become more dysfunctional over the past half-decade. “Railroads have demonstrated their capability to deliver at the right cost, yet there is considerable reticence towards forging relationships based on open communication, visibility of data, and underpinned by long term trust and value creation,” notes the report.

Many shippers reported communication breakdown due to closed yards or staff reductions. Shippers would ideally like the sort of shipping visibility that consumers get when ordering online from Amazon.

Shippers frequently commented that rail services were slow, unpredictable, and inflexible. For most, the slowness was less of an issue than unreliability, which is more likely to incur additional cost than simply planning for a shipment you know will be further out.

Shippers also believed that a few large customers get preferential treatment by the rail companies while the majority are left without real support. They also felt intimidated by the corporate and legal heft of the big railway companies at the negotiating table.

They also thought railroads make excessive profits at the head of a virtual monopoly. However, since the passing of the Staggers Act in 1980, which deregulated railway tariffs, average rail rates have fallen 46% in constant dollar terms.


Currently in North America, one-third of all freight ton-miles is moved by rail, with bulky goods like coal carried in unit trains of a single commodity serving as an historical “cash cow.” The new consumer-driven economy has urged on steady growth in intermodal container traffic, while rail haulage rates have been gradual increasing due to a (short term) truck driver shortage.

The report expects new technology to help improve operations in freight rail. Computer-based systems tied to satellite positioning, for example, can help reduce collisions, while the internet of things can use sensors to better maintain infrastructure and mechanical conditions.

Though automated trucking is a serious challenge for rail, driverless passenger trains have operated since the late 1960s. Freight trains should be easier to automate, in the end, than cars or trucks on congested roadways, according to the report.

“Adopting new technology should give railways the same advantages it gives to other modes of transportation – efficiency improvements, cost and price reductions, and greater customer satisfaction,” states the Maine Pointe study.

The study recommends rail carriers take the digital initiative to enhance their relationship with shippers – becoming more flexible and responsive than shippers currently note.


Railroads are overall very focused on performing to the rigorous financial standards set by Wall Street, according to the report. The main key performance indicator for railways’ short-term financial health has been operating ratio (OR), with operating expenses calculated as percentage of revenue. For example, a railroad with $1,000 in revenue and expenses of $500 would have an operating ratio of 50%, and an operating profit of $500.

No freight railroad in North America, however, currently publishes a metric that records customer satisfaction over time – an issue if railways seek to enter more collaborative and healthy relationships with shippers. The report recommends a mix of quantitative data – such as on-time delivery (OTD) metrics – as well as qualitative measure that record perception data.

“Findings from our research point to a need for greater collaboration and a win-win partnership that benefits all stakeholders and drives cost savings and growth,” said Michael Notarangeli, EVP and engagement partner at Maine Pointe. “All shippers and carriers must also evaluate their buy-make-move-fulfill supply chain to eliminate bottlenecks, enhance throughput and optimize shipments, with the goal of improving cost, cash, growth and share price performance.”

Case Study

In an illustrative case, Maine Pointe worked with a multibillion-dollar nylon manufacturer to optimize its rail, road, and ocean carrier use. The consultancy built a new approach with a distribution network built on strong collaborative relationships – facilitating a “win-win” partnership between the CEO of the shipper and the CEO of the carrier.

According to Maine Pointe, the engagement resulted in 80% growth in volumes and a 22% margin enhancement, while product transit times improved from 7-12 days to less than 24 hours. The nylon company grew from $1.8 billion to $4 billion in revenues within two years, while reducing working capital by $30 million annually.