The rail freight and supply-chain logistics sectors are at interesting points in their respective evolutions. 

Rail freight is competing with other methods of moving goods and trying to find the right mix of deregulation and government support to thrive during the 21st century. Logistics, meanwhile, is swimming in new data, and has come under greater focus amid product shortages.

Those issues were addressed during a pair of November 16 events sponsored by the Northwestern University Transportation Center (NUTC).

Roger Nober, executive vice president and chief legal officer of BNSF Railway, delivered the NUTC Fall 2022 Distinguished Lecture, “How Public Policy Affects Freight Capacity – Lessons Learned from the Public and Private Sectors,” at the Kellogg Global Hub. 

Earlier in the day at the Hub, the NUTC and the Center for the Commercialization of Innovative Transportation Technology (CCITT) hosted the industry technical workshop “Visibility Through the Supply Chain: Technologies and Best Practices.” That event featured a panel of experts who discussed the efforts to parse through the numbers to assure that products in transit are accurately tracked, and provide a basis for real-time prediction and optimization.

The workshop was cochaired by Hani Mahmassani and Bret Johnson. Mahmassani is the director of the NUTC, William A. Patterson Distinguished Chair in Transportation, and professor of civil and environmental engineering. Johnson is the senior associate director of the NUTC and director of the CCITT.

Below are four takeaways from the two events.

The public sector’s role

Nober, who was appointed chairman of the Surface Transportation Board in 2002 by President George W. Bush and served until 2006, said there are four ways the public sector could help increase rail freight capacity. 

The first one Nober mentioned was to fund infrastructure. That backing, Nober said, historically has an indirect impact on the supply chain because most [public infrastructure] money is geared toward passenger movement. People involved in freight infrastructure, he added, have long hoped for more public funding of principally freight projects.

There’s just one issue.

“It’s very difficult to do,” Nober said. “We really haven’t found a way to make the public funding process be able to respond to that.” 

Rail freight must also compete with other sectors. Freight that moves on highways is transported by trucks, and more public funding of highways creates more inequity between trucking and rail.

Other than occasional projects, Nober said public funding hasn’t moved the needle on freight rail capacity.

“Public funding is a tool, it’s one that’s pointed to, but we’ll see how much effect that really has,” Nober said.

Public funding isn’t everything

Other than funding infrastructure, Nober said the public sector can increase rail capacity by: 

• Creating a regulatory structure that allows transportation companies to earn returns, which would incentivize them to invest in more capacity
• Permitting more facilities to be built, especially terminals
• Allowing for efficiency by deregulating and incentivizing new technology

Nober said safety and economic regulations have impacted rail capacity. Economic deregulation of ocean shipping, rail freight, and trucking have all helped make those companies healthier. However, it’s had varying impacts on capacity, and Nober said deregulation has led to increased capacity for trucking and ocean shipping.

It hasn’t increased in freight rail. So, what then, can public policy do to add capacity in volumes?

“You have to ask yourself: would potential regulatory pressure on earnings add or reduce capacity as much as people may wonder if railroads are earning too much,” Nober said. “If your goal is to add capacity and have more rail, would regulatory changes that make it more difficult for rails to earn more revenue really help the matter? It might create a sense of fairness, and people might feel that was better. I would question whether it would really make a difference.”

Nober also supports streamlining the permitting process to build new facilities, and the incentivizing of new technology to improve employee safety, both of which could increase capacity.

But introducing new technology that could impact a workforce isn’t always easy.

“Anybody who has followed the goings on in labor have known that even bringing established technologies to bear can be very challenging,” Nober said. “It can be fought tooth and nail and that’s something I think the transportation industry will need to keep at, but it’s going to be a marathon and not a [sprint]. It’s going to take a long time to do it.”

Building on the legacy

As the railroad industry moves into the future, it’s challenged by its size. Nober estimated there are around 200 million passenger vehicles and 1 million trucks on the road. Meanwhile, there’s a few thousand locomotives, which limits the market for private companies to create new components and transparency methods for rail.

“I think we have to realize that you’re not going to have as many new entrants coming in and trying to develop products for the rail network as there might be for passenger vehicles or even motor carriers,” Nober said. “Maybe that’s an issue that some of the other modes, like the maritime industry, face as well, where you’re smaller and you don’t have the scale.”

That means the rail industry must rely on its existing systems and what it can build by itself. And that’s a reason rail has legacy systems that aren’t designed to be compatible with large-scale transparency across platforms.

However, the rail industry still has to grow in a world where the energy, agriculture, and industrial product segments are likely going to be static. Nober said rail can grow through consumer goods.

“The consumer demands transparency,” Nober said. “Will the industry be able to invest in a way that gives the ultimate consumer the visibility across the network that will incentivize the large movers of consumer goods to move more and more onto the rail? We’ll see if those incentives are there to get rails to invest in the transparency technology across movements as opposed to technology for inspecting rail or evaluating are wheels warm, to keep the resiliency of the system.

“I think that’s something that will be driven by, do the customers of the intermodal carriers demand it?”

Visibility of visibility

The past two years have been highly disruptive for the supply chain, underscoring the importance of data and information. Supply chain visibility — the ability of products in transit to be tracked from manufacturer to final delivery — is a crucial application of data.

“The heroes of this era and the emerging leaders have been those companies that are in fact providing capability to see across the supply chain across the transportation system, and those companies that are beginning to adopt these technologies in their every-day operations,” Mahmassani said.

Supply chain visibility was addressed during the technical workshop with four presentations from industry leaders, followed by a panel discussion. And though the discipline is crucial, it’s relatively young and has more room to grow.

“This space that we operate in – the real-time visibility space – it’s only about six or seven years old,” said Fabrizio Brasca, executive vice president of industry and market strategy for FourKites, a company that connects global end-to-end supply chains with powerful technology to digitize their supply chains for greater agility, efficiency, and sustainability, during his presentation. “The amount of acceleration, of advancement in technological capability, is rapidly increasing. This notion of an autonomous supply chain, I say it’s a nirvana, quite literally with the way technology is evolving and the fact we can do a lot of these things in our consumer worlds. It may not be that far.”

Bart De Muynck, executive vice president and chief industry officer of project44, a company that optimizes the movement of products globally, delivering better resiliency, sustainability, and value for its customers, said technology must be a part of moving the logistics industry forward.

“People ask, ‘why would we change?’ Well, why wouldn’t you? ‘Well, we’ve always done it like this for 30 years,’” De Muynck said during his talk. “We need a different mindset, and we obviously need to use technology. We need to use that to really transform our organizations.”

The panel discussion was moderated by Peeter Kivestu, principal at Oplytix LLC. It included Brasca, De Muynck, earlier presenters Omar Singh (president and founder of Surge Transportation) and Bob Chappuis (general manager of Uber Freight), plus Danesha Marasinghe (industry consultant – supply chain at Teradata), and Jonathan Shaver (founder and CEO, StrategIQ Commerce).