Railroads urged to refocus on growth, reliability, and responsiveness to win back market share

In a wide-ranging presentation at the RailTrends conference in New York last week, Adriene Bailey, partner and head of the North American Rail Team at Oliver Wyman, offered up detailed insight and analysis on various topics impacting the North American freight railroad market. RailTrends was presented by Progressive Railroading magazine and independent rail industry analyst Tony Hatch.

UP-NS merger: A key theme of her presentation, and collectively at RailTrends, focused on the historic $85 billion proposed Class I railroad carrier merger between Union Pacific and Norfolk Southern. In describing the merger, Bailey called it a watershed moment for the railroad industry and a historic opportunity to complete what many have only dreamed about for the past two centuries.

“One thing we can agree on is that with or without the approval of this merger, the implications of this moment in time will be substantial for our industry and for North America for decades to come,” said Bailey.

A major driver of this merger has been how UP and NS have said that it would result in one single line of railroad handling around 40% of U.S. freight rail traffic and connect more than 50,000 route miles across 43 states from the East Coast to the West Coast and connect around 100 ports as well. Conversely, though, some shipper groups have indicated that they are skeptical about the benefits single-line service can provide.

To that end, Bailey explained that, based on recent Oliver Wyman data, entitled “North American Class I Freight Rail Performance,” which is based on feedback from more than 30 senior transportation decision makers at North American freight shipping companies and is conducted every five years, that when there is single line service in a lane that railroads have greater share.

“That tells me that shippers are choosing, at a higher rate, to put their freight on rail when there is single line service,” she said. “Anecdotally, in conversations back in 2020, we heard the same thing, which is if [a shipper] has a choice between an inner line move and a single line move, I've got a high degree of preference on the single line move, because it just makes it just makes it easier if something goes wrong.”

The case for growth: Addressing rail freight growth, Bailey was direct, saying that without growth, the railroads will be massively handicapped in terms of value creation, and therefore railroad boards, management, shareholders, analysts need to be hyper-vigilant about solid strategies that can grow the business going forward.

From the perspective of rail shippers, Bailey observed that, for too long, railroads have been ceding too much market share to trucking, especially over the last decade.

“Rail ton miles have been contracting while truck volumes continue to expand,” she said. “The U.S. industrial production industry has recovered to its pre-pandemic baseline, but rail volumes have not. We've seen sustained improvements in overall rail service in the last 12 months, but the railroads have not yet sufficiently addressed customer issues to realize sustained market shar gains. Meaningful improvement in long-term value creation for rail shareholders will only come from growth going forward, and growth only comes from satisfied shippers.”

The updated 2025 Oliver Wyman report, like its predecessor, highlighted how there was what Bailey called an overwhelming preference from rail carload shippers indicating that they would like to do more with rail, with half stating they would prefer to ship by rail versus truck, and another 30% having no preference.

As for intermodal shippers, the report found that preferences for rail and truck were more evenly divided, suggesting a neutral-to-somewhat favorable view of rail as a desirable input element in shipper supply chain portfolios with Bailey noting that is something railroads should be able to capitalize on.

“What's important to fully understand is what is causing shippers to continue to move more freight by truck,” said Bailey. “We asked shippers what influences their mode choices. Generally, they were fairly consistent that price is the number one factor. More than half the respondents ranked it as a top influence, and 85% of respondents said it was one of their top three. Generally, we know rail is a lower-cost mode than truck, so again, this should be working in rails’ favor. A quarter of respondents said shipment management and on-time reliability are the number one factor in mode choice. And 70% put this in their top three. Transit time and speed came in a relatively distant third, but still important in shipper choices. But this is consistent with what we have heard time and time again from shippers. Consistency is more important than speed for the lion's share of the traffic that's moving in the in the network.”    

Modal shifts: For surveyed shippers reporting they are actively shifting from rail to truck, Bailey said that more than half cited responsiveness from rail as a key reason, which tied with equipment availability. And for carload shippers she said that frustrations related to customer experience are on par with price for intermodal shippers and even higher for carload shippers, while also noting that ease of transacting and transit reliability were cited as reasons for shifting more freight to truck.

A key observation she pointed out related to that is that the number of intermodal shippers indicating price as a factor for shifting from rail to truck highlights an unusual current market situation where truck prices are lower than intermodal prices in certain lanes, according to Bailey, with a key reasons for being a surplus of owner-operators and drivers post-pandemic who can sustain that business on lower rates.

Turning service into share gains: While railroads are showing signs of good service improvement, Bailey said they've yet to fully stem the outflow of shippers migrating their supply chain volumes to trucking.

“So why, if shippers want to do more with rail, and rail is generally cheaper than trucking, are the railroads continuing to lose share to truck” she asked. “Four key themes emerge from our conversations with shippers that reflect the greatest areas of frustration, but these are also the greatest areas of opportunity for shifting volumes back to rail and growing market share. If these things can be resolved, specifically, shippers told us they want more of four things from railroads: Be more responsive. Shippers must move at lightning speed to keep up with today's supply chains and keep them fluid. They want carrier partners that have the same sense of urgency and commitment to respond and solve customer needs build closer relationships. Railroads and shippers need to find the right balance of building trusted commercial relationships deliver greater service reliability. Shippers want predictable transit times between two points, and they want this to be consistent over an extended period of time. And last, improved pricing. Shippers want more responsive pricing, not just in terms of turnaround on hope, but more flexibility in adjusting prices to market conditions.”