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Class I rail executives opine on near- and long-term market drivers

‘Any lasting generational shift as a result of the implementation of technology, such as automation of trains, is going to come from the customer’

Executives with Kansas City Southern, Union Pacific and CSX offered their thoughts recently on where they think technology is headed long term, as well as where they think market demand will be short term. Here are some highlights of what they said during conference appearances last week.

Customer is the key

Responding to customer needs will be one of the major drivers shaping how the freight rail industry develops technology, Kansas City Southern executives said at the Navis Connect 2021 conference.

“If I think … [about] where does the digital age fit within the rail business, where does the investment in OT — operations technology, information technology — go into play, I think it’s all centric to how the customer sees the railway perform on its behalf,” said John Orr, KCS (NYSE: KSU) executive vice president for operations. 

“That’s a great responsibility … and any lasting generational shift as a result of the implementation of technology, such as automation of trains, is going to come from the customer. It’s going to be driven back from that customer’s view of reliability, safety, accuracy, sustainability, and those are going to be table stakes to how we’re going to move forward generationally as a rail industry,” Orr continued.

KCS President and CEO Pat Ottensmeyer agreed, adding that investing in safety technology helps to facilitate the use of customer-interfacing technology.

“If you put all that together: the technology to better connect with our customers so that first-mile/last-mile piece is more tightly coordinated and integrated [and the] technology leveraging off of [positive train control] … [those investments] create a smarter, more efficient railroad for managing capacity, managing speeds, managing spacing differences, meets and passes, all of that,” Ottensmeyer said.

“Using advanced technologies to improve the reliability of our equipment” is important “because you could spend billions of dollars theoretically building an autonomous rail network, but if you still break wheels … and have track defects, you’re not going to get the benefit of that. … I think the real payoff is in the capacity that will be created off our network,” Ottensmeyer continued.

A market deferred

The chip shortages and the disruption in the international supply chain are the factors hampering volumes, not lackluster market demand, according to executives with UP and CSX speaking at the Baird Global Industrial Conference last week.

“The underlying economy is feeling pretty darn good right now,” said Lance Fritz, president and CEO of UP (NYSE: UNP). 

The chip shortage, which is hampering automotive volumes, as well as the supply chain disruptions are putting a damper on UP’s premium segment, according to Fritz. But the economy “feels good going into next year,” he said on Nov. 10.

To help ease congestion at the ports, UP has deployed a container refund program on the weekends in order to encourage movement that is more like 24 hours a day, seven days a week, Fritz said. But he acknowledged that the program, which is still in its early stages, hasn’t been utilized as much as it could be. 

However, dwell times on the dock are within the normal range, while dwell time is getting back to normal on the inland ramps, Fritz said. UP also has storage solutions in Chicago and Salt Lake City, said Kenny Rocker, UP executive vice president of marketing and sales. 

“I don’t think we’re past peak supply chain disruption,” Fritz said, although the market may have seen the worst of the chip shortage for finished vehicles. The international supply chain operates in fits and starts, with ocean carriers moving back and forth between using the railroads and using transloading options, he said, while more manpower is needed in the warehouse and trucking industries to help move volumes through the supply chain.

CSX (NASDAQ: CSX) President and CEO Jim Foote echoed similar sentiments at the Baird conference about underlying market strength.

“The challenge is clearly not demand and market strength. It’s all the other noise going on at the same time in terms of the transportation supply chain industry’s challenges, as well as our challenges associated with trying to hire people in the midst of all of this,” Foote said.

CSX has been working to ease congestion by consolidating trains in CSX’s merchandise segment in order to make sure the core network is fluid, Foote said. The railroad has also been operating “pop-up ports” at alternative places such as offsite storage yards in areas like Chicago, he said. 

The delta variant of the COVID-19 virus, congestion throughout the world and automotive parts shortages have caused everyone’s forecasts, including CSX, to take this year’s expectations for volumes and move them to next year, Foote said. 

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.