Why more companies are choosing trains over trucks for shipping

Eight times a year, Federal Reserve banks talk with people on the ground floor of this economy: business owners, staffing firms, truckers. The result is the Beige Book, a compilation of anecdotes that provide a kind of snapshot of how things are going.

In the latest edition, a nugget from the Richmond Fed about freight transportation caught our eye. It said increases in fuel costs have caused the price of moving goods via trucks to rise, and now some companies are looking to ship via rail, instead.

If you can fit your freight into a 40-foot long shipping container, you can put it on a ship, you can set it on a truck, and you can send it on the rails, said Philip Evers, a professor of supply chain management at the University of Maryland.

This is called intermodal transportation. And while both trucks and trains require fuel, “the amount of freight that a train can pull on a gallon of diesel is just phenomenal relative to a truck,” Evers said.

Shippers and receivers of goods have noticed. According to the Association of American Railroads, a trade group, the volume of goods shipped over intermodal rail so far this year has reached a record high.

Shipping by rail is generally slower. But Suzanne Holland at the Richmond Fed said she’s heard from companies who are OK with that: “I don't need this within ‘x’ period of time … I am willing to wait a little bit longer and save a lot of money by shipping by rail.'“

Another force pushing companies away from trucks is a shortage of qualified drivers. Chris Barkan, a professor emeritus of railway engineering at the University of Illinois, said while each truck needs its own driver to move a container, a train can move 400 containers and typically only has two workers. “A locomotive engineer who operates the train and the conductor who is responsible for all the paperwork,” he explained.

These efficiencies mean more companies are willing to try intermodal rail. Philip Evers at UMD said once they get a taste of it, they’re more likely to use it again.