Lower Energy Prices Impact Rail Shipping

Train TracksIt is common knowledge that trucking is still the dominant mode of domestic freight shipping in the United States. Commercial trucking brings in nearly $200 billion in revenue annually. However, it seems some supply chains have been moving away from trucking in recent years. Many companies are unsatisfied with the crazy trucking contracts, capacity issues and driver shortage that results in higher freight shipping rates. Thus, some companies expanded their shipping options and looked beyond trucking for handling all of their domestic shipping needs.

Companies are expanding their transportation options by turning to intermodal or rail shipping. Railroad profits are up, and it is projected that rail companies will receive record earnings in 2015. While railroad shipping only receives about $10 billion in revenue annually, they are constantly pulling shipments from the trucking market. Part of the reason for this is because they offer lower shipping rates. The rates are lower because their fuel expenses are about four times lower than trucking. And in recent years, rail shipping helped with the transportation of crude oil and other energy resources.

Some shippers might wonder about the impact on railroads from the recent lower crude oil prices. Since oil costs are plummeting, trucking carriers can now offer lower shipping rates. While railroads are still slated to steal 1.2% of the market from trucking, it seems trucking might make a mini-comeback in 2015. A few companies will switch from rail to trucking. Meanwhile, railroad carriers will have to deal with projected losses from certain energy resources decreasing because of the lower prices. An example of this includes decreased coal demand. Shippers should work with a trusted freight forwarder to gain an advantage on the domestic shipping market while the lower energy prices change the transportation landscape.

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