Truck vs. train: Which has the upper hand as spot rates soar? (2024)

The old saying, "What goes up, must come down," is widely applicable, from a baseball tossed in the air to aspects of the market.

Trucking prices are currently in the "up" stage, not yet ready to fall. In the meantime, shippers are looking for alternatives — and their eyes are on the rail yard.

Long a competitor with trucks, trains once moved the majority of long-haul freight in the United States. By 1978, rail's share of intercity freight dropped to 35%. Today, trucks dominate, hauling about 80% of freight, said Tim Denoyer, ACT Research vice president and senior analyst.

But when truckload capacity is tight and spot rates go high, as they are now, shippers give train and intermodal transportation another look.

A surge in imports from Asia, arriving at California ports, is partially fueling the current market dynamics, said Denoyer. U.S. imports are up 34% from May, driven by consumer demands that grew consistently after the initial stage of the COVID-19 pandemic in the spring and retailers' needs to replenish inventories, Denoyer said.

Trucks would normally handle most of the imported freight over long hauls, from ports to inland points in the United States. But trucking has been bedeviled with snags in meeting stronger demand. The factors range from the pandemic to a driver shortage.

The multiple issues, positive and negative, mean TL spot rates are up, translating into higher prices for shippers.

Trucking's upper hand: speed and visibility

Higher prices are helping intermodal companies and railroads get more freight business. But it's usually not the kind of freight that needs to get somewhere soon, said Dean Croke, DAT principal analyst.

"If you have a load that doesn't need to be anywhere in a hurry, you put it on a train," said Croke. And rail freight is cheaper because of that.

But only some types of freight translate easily between road and rail. Dry goods in containers are typically ideal for trucks, and they are also easy work for trains. They include consumer goods such as clothes, electronics, sporting goods and toys — almost anything that can go inside a container can be hauled in a dry van.

Liquid cargo and refrigerated goods can be transported via intermodal, too, said Jim Blaze, a railroad analyst and former Conrail employee.

"If you have a load that doesn't need to be anywhere in a hurry, you put it on a train."

Truck vs. train: Which has the upper hand as spot rates soar? (1)

Dean Croke

Principal Analyst at DAT

Intermodal makes sense if there is a longer lead time, Croke said. Shippers are already thinking of next spring, and they want to stock up "because the pandemic is still with us," Croke said. Pulling inventories forward is an ideal scenario for intermodal.

"You can let it sit in the rail system for a longer time," said Croke.

Highly regulated cargo, such as manufactured chemicals and hazardous materials, don't make good intermodal cargo, Blaze said, although there are some exceptions. Large, wide cargo is usually handled solely by flatbed trucks, although some railroad companies can make exceptions.

There are also factors to weigh in jumping to rail. Shipping via rail provides less visibility, at least for the shippers.

"The railway knows exactly where your freight is," said Nick Little, director of railway education at the Center for Railway Research and Education at Michigan State University, speaking to a room full of shippers at the APICS conference in Chicago in October 2018. "They don't tell you."

Visibility is indeed a problem, said Blaze. Automatic identification tags attached to rail freight have helped speed up data entry for railroads, but those depend on the products moving past fixed scanners that use radio-frequency beams to catch freight at various points, a process Blaze calls "interrogation." That process is often delayed because freight has to move past the scanners to be tagged.

With most trucks, GPS devices are always transmitting in near-real time.

"You have instant, continuous communication" with trucks, said Blaze. "With railroads, you have occasional communication."

A tale of 2 tight markets

Many shippers have opted for intermodal transport, and spot rates have risen along with the demand. Intermodal spot rates were $1.74 per mile at the beginning of October, compared to the monthly average of $1.31 in May, according to Croke.

Overall, U.S. railroads originated about 1.4 million intermodal containers in September, an increase of more than 7% YoY, according to the latest numbers from the Association of American Railroads. The AAR said September was the fourth-best intermodal month in history.

"The railways are moving as much as they can," said Croke. "And just like trucking, the volumes have been imbalanced."

"Railroads are not going to go out and seize 10% market share from trucking, because they just don't have enough equipment capacity."

Truck vs. train: Which has the upper hand as spot rates soar? (2)

Jim Blaze

Railroad analyst

Part of the imbalance stems from the fact that it is even harder for railroads to add freight cars. It takes between 12 to 18 months to order and get a freight car, said Blaze. Fleets can walk onto sales lots and buy almost-new or used trucks immediately.

"Railroads are not going to go out and seize 10% market share from trucking, because they just don't have enough equipment capacity," Blaze said.

The railroads have responded by not always quoting rates, Blaze said, because they are so overwhelmed by shrinking capacity.

"Both markets are tight now," said Denoyer, referring to trucking and rail. "What's going on is just a big restock."

It's quite a turnaround for railroads. Denoyer said rail volumes were down for seven quarters in a row, until the numbers went positive in the first week of October. Intermodal spot rates for the first week of October were up 61% from the same week in October 2019.

Part of the reason for the jump in spot is the $5,000 peak surcharge that Union Pacific placed on excess contract cargo on Aug. 30, Denoyer said. The surcharge was an attempt to manage demand.

But weeks later, consumer demand is still in the driver's seat. The volume of loaded TEUs coming into U.S. ports since Sept. 1 is up 6% YoY, Denoyer said. That volume usually ends up on a truck or train. The question for shippers is: Which is best, in a freight market where trucking capacity is cramped and where intermodal takes longer?

Blaze said selling TL services to shippers over their rail competitors is a relatively easy task. Intermodal and rail can take longer. Trucks are not inhibited by fixed rail routes. Trucks also have better visibility.

Croke said trucks have the upper hand — especially if lead times are tight.

"Shippers look for service and price," said Croke. "A single driver can get to [a destination] quicker than the fastest train."

Truck vs. train: Which has the upper hand as spot rates soar? (2024)


Truck vs. train: Which has the upper hand as spot rates soar? ›

Trucking's upper hand: speed and visibility

What is the biggest advantage of rail over trucking? ›

Rail shipping is much more cost-effective than truck shipping for several reasons. Rail is a much more fuel-efficient mode of transportation. Railcars can also carry much more volume than trucks.

Is rail more efficient than trucking? ›

Trains excel in covering long distances. In the US, for instance, freight trains can move one ton of goods approximately 470 miles on a single gallon of fuel, compared to trucking's approximately 134 miles per gallon of diesel. This makes rail three to four times more fuel-efficient than trucks.

Why are trucks more popular than trains? ›

The difference between moving cargo via rail or truck is that rail freight is typically three to four times more affordable and fuel efficient. On the other hand, trucking allows for better access to delivery locations and facilitates cargo transport based on individual scheduling.

Is it faster to ship by train or truck? ›

Shipping Times

However, trains can't ship goods from their source to their destination directly. Goods must first be transported to the railroad loading area and offloaded before being delivered to their destination. This means that railroad shipments may take longer than truck shipments in many cases.

Why do we use trucks instead of trains? ›

For numerous reasons, putting goods on trucks is simply cheaper. One potential reason is that a train car can hold about half as much weight as a semitruck, due to the weight of the car itself. While it is true that single trains can carry far more cars, this still limits what can be transported in this manner.

How much per ton mile is rail vs truck? ›

The cost to combine rail and truck using a bulk transfer terminal is approximately $95.54 per net ton. By comparison, rail direct is $70.27 per net ton, and over-the-road truck is $214.96 per net ton. Using multi-modal rail and truck transit compared to truck alone, you can cut transportation costs by more than half.

Why are trains not more popular? ›

While the US was a passenger train pioneer in the 19th century, after WWII, railways began to decline. The auto industry was booming, and Americans bought cars and houses in suburbs without rail connections. Highways (as well as aviation) became the focus of infrastructure spending, at the expense of rail.

Who uses trains the most? ›

India is the globe's overwhelming rail usage leader, with over 8 billion passenger trips per year making up more than a trillion kilometers traveled. Japan is a relatively distant second at roughly 6.6 billion passenger trips covering a far smaller 150 billion kilometers.

Are trucks cheaper than trains? ›

Rail shipping is considered one of the most cost-effective modes of transportation, especially for large volumes traveling long distances. Due to its ability to move major quantities of freight at one time, rail shipping has a lower cost-per-ton-mile (the cost of moving one ton of freight one mile) than truck shipping.

In what way is a train better than a truck? ›

A rail car can typically handle three to four times more freight than the average truck. In fact, one train can replace several hundred trucks. Remember, you don't have to be on the rail to ship via rail.

How heavy is a fully loaded freight train? ›

A typical freight car weighs 30 tons empty, and can carry another 100 tons loaded for 130 total tons per loaded car. So a typical over the road long haul freight train can weigh anywhere from 3,000 tons to 18,000 tons or more depending on the number of cars in the train.

How fast does a freight train go in mph? ›

Trains carrying freight are currently allowed to travel at speeds of up to 70 mph or 80 mph (112–128 km/h), but unloaded many trains generally only travel from 40-50 mph (64 - 80 km/h), according to Federal Railroad Administration researchers.

What are the main advantages of railways? ›

Railways can carry a large number of passengers and goods. They are an environment friendly means of transport. Railways has reduced the time of travel to a few hours between two places. Railways are a relatively cheap means of transport.

What are the benefits of rail freight? ›

Rail is sustainable – compared with trucks, it produces only about one-fifth of the emissions per kilometer traveled and ton transported. At the same time, due to its largeer cargo capacity, it is efficient, mostly punctual, and ideal for intermodal use in combination with road freight.

What is the biggest advantage to shipping domestically via rail? ›

Reliability: Rail is a 24/7 operation. Sustainability: Shipping by train is the most fuel efficient and environmentally responsible mode of ground freight transportation. Cost Savings: Rail is almost always a more affordable transportation solution than truck, especially for long-haul shipments.

Why would traveling by rail be better? ›

It's less hassle than flying.

There's long lines, security checkpoints, navigating sometimes confusing airports, and other stressors that can be involved. Traveling by train reduces a lot of that hassle.

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