2023 Freight Rail: A Year in Review

Heading into 2023, freight rail had a chip on its shoulder—to prove that the industry was still competitive.

Perhaps melodramatic, but the previous 2022 campaign could be described as disastrous. Railroads toiled with deteriorating service levels, a rift between its labor force, and a loose grip on market share.

As the sun set on the year before, 2023 arrived as an unnerving crossroads, a “make or break” year for freight rail. However, in reality, as this year draws to an end, the industry hasn’t yielded a definitive answer to this. Its future trajectory remains obscured.

2023 was achingly ambiguous for freight rail. There were some positives, but also a glaring negative.

Positive: Railroads extend sick leave benefits for their workers

In December 2022, the U.S. government stepped in and forced a new labor agreement between the railroads and unionized rail workers. Absent from the workers’ contract were sick leave benefits, a sought-after demand of theirs.

Entering 2023, they were distraught with the result and forlorn that they missed the window of opportunity to receive this right. This further threatened a rift between the railroads and their labor force.

However, in February, the tides turned. Class I railroads CSX, Union Pacific, and Norfolk Southern all reached respective agreements on sick leave with their workers.

The initiative from these railroads to return to the table and work out an arrangement paved the way for cooling off a hot button issue among their workers. Their receptiveness to seek resolve also sent a message to otherwise critical regulatory bodies, like the transportation department.

As it’ll be revealed later, railroads often walk on thin ice with the government.

For a closer look:

Positive: Transcontinental, intermodal services bring a new opportunity, CPKC takes lead

In March, freight rail’s regulatory overlord, the Surface Transportation Board (STB), approved the merger of two Class I railroads. The decision permitted Canadian Pacific to absorb the now-defunct railway Kansas City Southern. On April 14, Canadian Pacific Kansas City was born.

Typically, a merger of two Class I networks suggests an unfair dominance over the market—a potential monopoly. However, prior to combining, CP and KCS were the two smallest railroads in the Class I phylum. Even the merged CPKC holds little weight over titans BNSF, Union Pacific, and Canadian National.

That said, the spirit of this merger wasn’t that of a generalist, but that of a specialist. The move drives an exclusive business opportunity for CPKC—a standalone transcontinental service.

The merger unlocks more than 7,000 miles of track in the U.S. and Mexico. Coupled with an established network in Canada, CPKC boasts the wherewithal to offer transcontinental rail services—on its own accord.

The railway has already set up shop at Mexico’s Port of Lázaro Cárdenas, offering an intriguing routing for U.S. and Canadian intermodal shippers. In recent months, the Panama Canal crisis has prompted increased volumes being diverted to the port, leading to more customers utilizing the railway’s service option.

But, the real cherry on top, has been the soaring growth in U.S.-Mexico trade. More and more U.S. companies are investing in Mexico for sourcing and production which will only create more demand for cross-border transportation. This puts rail in direct competition with trucking, an archrival it’s been desperate to challenge in recent years.

Though CPKC’s ingenuity hasn’t just captured the interests of cross-border shippers, but also its fellow railroad-competitors. Shortly following April’s merger, Union Pacific, Ferromex (Mexican Class I), and Canadian National launched a joint intermodal service covering the U.S., Canada, and Mexico.

Perhaps like Sputnik I, the Russian satellite which started the “Space Race”, CPKC’s service has launched freight rail into an arms race for transcontinental service.

For a closer look:

Negative: NS train derailment sparks increased government scrutiny

Late evening on Feb. 3, a Norfolk Southern train carrying carloads of hazardous chemicals derailed in East Palestine, OH—a small town on the Ohio-Pennsylvania border. 20 cars involved in the accident contained vinyl chloride, a dangerous chemical that can cause liver cancer through prolonged exposure.

Many hazmat cars caught fire and burned for over two days, while others spilled toxic loads into adjacent ditches which feed into tributaries of the Ohio River.

In order to prevent a powerful explosion, emergency crews had no choice but to conduct controlled burns of the remaining hazmat material. The burn released toxic fumes into the air impacting nearby residents in and around East Palestine.

To this day, drinking water, air quality, and the general safety of the residents remain at risk. The derailment has rightly concerned not only government officials, but American public as a whole.

NS has been accosted by regulatory authorities over the year, including at a July investigative hearing held by the National Transportation Safety Board. Preliminary findings shared by the board insinuate that NS supervisors didn’t address an engineer’s safety concerns before the train departed a yard and eventually derailed Feb. 3.

While train derailments happen every day, the disastrous legacy of the East Palestine accident shines newfound, negative, perception on the railroads and their perceived negligence towards the inherent safety concerns of these accidents.

A month after the derailment, Ohio Senator Sherrod Brown introduced the Railway Safety Act of 2023. The legislation calls on increased accountability from railroads to adhere to safety regulations when transporting hazmat loads. This includes calling on railroads to provide advanced notice to state emergency response teams, enlist two-person crews, and absorb increased fines if they commit any violations.

Despite being introduced in March, the bill has yet to be passed in the Senate.

While it’s difficult for any bill to become a law in today’s government, public optics as well as scrutiny from regulators will remain haunting railroads into 2024 and beyond.

If railroads fail to clean up their act, both literally and figuratively, they will be out of the good graces of government officials. That dynamic could punish railroads with federal judgement of other matters in the industry—like acquisitions, service embargoes, and regulations. Freight rail is on thin ice.

For a closer look:

Final Thoughts

Contact one of our team members if you have any questions regarding this topic or any others in domestic logistics.

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