Will the American Railroad Industry Survive Covid?
Challenges and Opportunities for American Railroad Industry
Since the first railway in America was built in 1830, the industry has become an indispensable part of the United States transportation system. The railroad industry contributes greatly to the nation’s economy. However, the Coronavirus pandemic has hit the railroad industry hard. Both the passenger rail industry and the freight rail Industry are experiencing financial crises in different dimensions.
Passenger Rails: Winter is Coming
Passenger rails have inflicted massive losses due to the spread of COVID-19. On the company’s grant request proposal, CEO William J. Flynn used the word “dramatic” to describe the company’s losses due to coronavirus. Take America's biggest passenger railroad corporation Amtrak as an example.
Despite the promised $2.4 billion support from the government, an additional $4.9 billion in funding is needed to help it recover from the pandemic.
Loss in ridership is the major cause that brought railway companies like Amtrak a negative net-income. According to the Department of Transportation, there was a cliff-like drop in March 2020 on numbers of passengers traveled by train. The drop was due to a mandatory stay-at-home order and self-quarantine regulations.
During the Coronavirus pandemic, people tended to choose non-shared modes for short trips and avoided unnecessary traveling. The current situation leaves the passenger rail industry a big problem to solve. There are possibilities that when the pandemic ends, travelers will have gotten used to the new traveling modes and abandon intercity train service forever.
On October 1, Amtrak began a phased reduction of its long distance train frequencies from one train per day to 3 trains per week (with the exception of the Auto Train, which remains daily). It plans to operate at these service levels through at least next spring.
The chain effects of loss in ridership made the passenger rail industry’s future even harder to tell. From Jan 2019 to Aug 2019, Amtrak made a total revenue of $3,046 million whereas the revenue declined to $2,133.4 millions in 2020.
From 2019 to 2020, Amtrak suffered from a 30% decline on year-to-date total revenue. Due to limited budgets, companies started to cut workforces, reduce train services and stop infrastructure plans.
Amtrak is in the process of laying off 1,950 unionized workers and 100 management positions due to the October service reduction. These responses have led these railroad companies into a vicious circle which makes the passenger rail industry more unlikely to survive in the economic winter.
Freight Rails: Survive but not thrive
While the passenger rail industry is suffering from the financial crisis, the freight rail industry in the U.S. is also going through a hard time. Due to the shutdown of factories and many business activities, freight rail companies are facing problems like the decline of rail volumes.
[1] Rail Volumes in United States
From the graph[1] provided by the U.S. Department of Transportation, the U.S. had 906,247 carloads in August 2020. However, in August 2019, the rail volume was 1,082,782 Carloads.
The rail volume had decreased by 16.3%. Most freight rail companies are losing money due to less rail volumes compared to last year. Take BNSF for example – in the first half-year in 2020, it had a revenue of $10,019 million, reduced by 14% compared to the revenue of the first half-year in 2019.
However, there are hopes for the freight rail industry despite the fact that they are still losing money.
With reopening policies being carried out, we can see signs of recovery happening in the freight rail industry. Although the rail volumes are still low, it continues increasing since May 2020. People may be curious, how long will it take for America’s freight rail industry to recover from this pandemic?
Based on a report by McKinsey&Company, it could take more than 4 years to bring back the same railroad volume. Although the global economy is in its downtime, we are confident that the freight rail industry will survive in this pandemic.
However, no one can promise the industry a thriving future. This leads us to think, when the abnormal becomes the new normal, what’s the future of America's railroad industry?
Crisis or Opportunities?
We could be inspired by the illustration of how the word “crisis” is described in Chinese characters. Chinese use the word “危机” (wei-ji) for “crisis”. “危“ means danger and “机” means opportunity or changing point. If we could learn lessons from this pandemic and make changes accordingly.
We could definitely catch opportunities hidden behind the crisis. For example, the global pandemic gave the railroad industry a chance to speed up technology transformation. A rising number of railroad companies started to develop their decision-making and operation system. Techniques such as AI-based sensing were introduced to the railroad industry to improve its resiliency.
On September 23, 2020, the Federal Railroad Administration approved Texas Central Railroad’s plans for constructing high-speed railroad in Texas, which brings the nation’s railroad industry a new hope.
More railroad construction plans might get approved by the government in order to increase employment and speed up economic growth.
The Trump Administration recently expressed support for a railroad connecting Alaska with British Columbia in Canada. Oil is the main impetus for this new corridor, but it may also be useful in transporting other commodities ranging from seafood to military equipment.
Good things are happening to the American railroad industry and we should never lose hope. Just like British poet Percy Shelley said:” If Winter comes, can Spring be far behind?”
Written by Jenelle(Xiaoxi) Kang & Edited by Joel Azumah, Michael Ding & Alexander Fleiss
Sources:
[1] U.S. Bureau of Transportation Statistics, Rail Freight Carloads [RAILFRTCARLOADSD11], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/RAILFRTCARLOADSD11, October 21, 2020.