Supply chain radar: CSX annual performance – when 'on track' ain't enough
Here is a quick take on the latest trading update released on Thursday by CSX ...
Rail operators across North America are continuing to capitalise on the dearth of truck drivers, as shippers’ headaches grow and US exporters become less competitive.
Yesterday, The Loadstar reported that while several of the region’s biggest rail operators had struggled to grow intermodal volumes, they had made gains at the expense of road hauliers.
Chief executive of CSX James Foote told investors that “every day” the carrier was winning new business from the trucking sector.
“In the past, they may have given 60% of volumes to rail and 40% to road, because they didn’t trust the reliability of the railroad to get their products across to market,” he said.
“This is where we’re seeing growth come from – from existing customers to a large degree, but we are gaining a larger share each and every day and, hopefully, that will continue.”
Similarly, Union Pacific’s executive vice president of marketing and sales, Kenny Rocker, told investors there was “still room for us to capture business moving by truck”.
While the problems plaguing road hauliers may have been music to railroad balance sheets, for shippers the driver shortage has impacted costs. And this has only been made more problematic by what iContainers calls the “hard enforcement” of the electronic logging device (ELD) mandate.
Vice president of operations Klaus Lysdal said: “The trucking shortage continues to pose problems for shippers’ supply chains, and is causing unpredictable delays and added costs.
“They are a huge business deterrence and can ultimately affect exporters’ competitiveness in international markets.”
For many, the tail-end of 2018 marked the nadir for the haulage crisis – which has been mirrored in Europe, with fewer school leavers keen to take on the roles of retiring drivers.
Figures from Bloomberg, however, appear to indicate the driver shortage is worsening, with consecutive quarter-on-quarter declines in driver numbers since the end of 2015. Some have put the driver shortfall in North America at 300,000, leading some firms to try and incentivise new recruits.
Walmart opted for a major pay rise (to $91,000), attracting 900 new drivers, but Mr Lysdal said hauliers remain booked up for “days in advance” mostly affecting last-minute shipments.
“Expect significantly higher costs for last-minute trucking arrangements or modifications,” he said.
“This is either because shipments end up going into storage or demurrage for failing to secure a trucker, or a higher rate is needed to get a trucker to accept the last-minute move.”
Despite Bloomberg’s assertion that the crisis is deepening, Mr Lysdal believes it has improved since last year, due in large part to industry players acclimatising to the situation.
“From what we’ve seen, truckers have got better at managing their work within the new regulations… and most shippers have also come to terms with the situation,” he said. “They have learned to adjust their day-to-day planning and find ways to make it work.”
But rail operators believe they can continue to peel off volumes from the much-maligned sector, albeit with the acknowledgement that they too must up their game.
Mr Foote said at CSX the focus had been on transforming the intermodal segment into a “much more effective” competitor to road.
“We already know customers are paying 15%-20% more to ship by truck in those market segments,” he continued. “So, the spot market pricing of trucks really is irrelevant, it’s all about how much we can improve our service, which will allow us to grow our business in the future in merchandise.
“The spot market somewhat loosening in trucking does not diminish the significance and the value that the railroad plays in the transportation marketplace in intermodal.
“It is directly related to the fact that we have a product now that the customers are willing to rely upon and give us more of their transportation spend.”