As The Growing Rail Freight Sector Faces Inefficiencies, Operations Digitalization Presents Opportunities to Mitigate Challenges

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By Adhish Luitel | 1Q 2024 | IN-7204

Recent growth in American rail freight operations has highlighted high potential as well as glaring inefficiencies. Major rail operators and solution providers in this sector will need to accelerate digitalization efforts for operational efficiency.

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Growth in Rail Freight and Investments in Pennsylvania


The United States of American (US) rail freight traffic increased by over 24% to 486,787 carloads, containers, and trailers in the week ending on December 23, 2023, compared with the same week in 2022, according to Association of American Railroads data. Total carloads for the week rose by over 23% to 230,946 units, while intermodal volume ascended by over 24% to 255,841 containers and trailers. According to the US Department of Transportation’s (DOT) Federal Railroad Administration, freight is a US$60 billion industry covering 140,000 miles of rail. Capacity upgrades account for 15% to 20% of capital investment, with the remaining investment on maintenance and repairs. The state of Pennsylvania recently announced an investment of $42.3 million in rail freight infrastructure which consists of maintenance as well as capacity enhancements. Some key upgrades include:

  • Berks and McKean Counties: US$7.6 million to construct the Berks Waste and Rail Transfer Station which includes rail infrastructure and loading equipment.
  • Franklin County: US$2.1 million to construct nearly 1,700 feet of track, a turnout, and unloading dock for a new 360,000 square foot rail-served warehouse.
  • Dauphin County: US$1.4 million to rehabilitate multiple tracks by replacing ties and rail to improve safety and efficiency on the Steelton & Highspire Railroad.

These investments and the enhanced rail freight network are expected to support the state’s job creation as well as strengthen local economic development.

Inefficient Market and Its Economic Impact


While the US rail freight industry has seen growth and improvements, there have been persistent concerns about its efficiency. Infrastructure-wise, this sector faces challenges such as aging tracks and bridges throughout the country which leads to delays and disruptions. Similarly, many American rail corridors experience congestion, particularly in urban and high population areas where multiple lines intersect. Managing workers has also been a problem and IN-6170 talks about this in detail. Last year, thousands of rail workers went on strike due to disputes over attendance policies and sick time. The Association of American Railroads even warned that a warned that a strike would inflict economic damage reaching US$2 billion a day for the world’s largest economy.

Congestion, aging infrastructure, and labor disputes are not the only issues plaguing this industry. The oligopolistic structure of the rail freight industry in the US has led to a lack of vigorous competition, resulting in inefficiencies. Thanks to only a handful of players operating in this space, there are reduced incentives for substantial investment in infrastructure as well as operational investments. Ensuring smooth coordination and interoperability between different companies can be a complex task and a lack of standardized procedures has been an issue. There has also been a tendency to neglect certain regions or industries which has potentially exacerbated regional disparities in the American transportation infrastructure. The cumulative effect of lack of investment and innovation as well as disruptions have led to an overall less dynamic and less efficient rail freight system, impacting the broader efficiency and resilience of supply chains in the US.

Wabtec's IoT Implementation and Future Outlook


Rail moves close to 40% of long-distance American freight, 40% of imports, and over 32% of exports, making the stakes for the American supply chain quite significant. In addition, rail is a central component of a complex global supply chain that depends on the coordinated movements of cargo ships, trains, and trucks. Congestion and disruptions will most definitely mean the worsening of the already congested seaports on both the East and West coasts. It would also add further pressure on the trucking industry, which is already compromised by driver staffing complexities. To mitigate the macro complexities that often plague rail freight operations, there is a need for major players in this space to boost their efficiency.

Rail maintenance is a key area that can be targeted for operational excellence. Historically, the rail freight industry has been a laggard in the adoption of Internet of Things (IoT) solutions, but this stance is slowly changing with solution providers moving aggressively. ABI Research’s The Rail Sector’s Journey toward IoT-Based Predictive Maintenance (IN-7162) discusses how IoT solutions can revolutionize rail maintenance and data can be harnessed from wireless retrofitted sensors for predictive maintenance.

 The industry has shown indications of heading toward the path of digitalization. Wabtec, a railway engineering company that manufactures products for locomotives and rail freight cars recently announced its entrance into the railcar telematic market via a partnership with Intermodal Telematics. The partnership aims to create a railcar telematics platform that will deliver real-time information to operators, allowing them to turn rail cargo into smart, connected assets. Last year, RailPulse, a company aiming to provide shippers with real-time, precise freight car locations within North America, expanded its pilot program to more than 1,000 cars early next year. There are positive movements from the end users as well. Union-Pacific joined the RailPulse coalition and its effort to develop, broaden, and accelerate the use of GPS and other telematics technologies in North America’s rail freight industry.

 The rail freight industry is steadily stepping into a new era where the use of real-time data about the status and condition of the cargo as well as assets will be transformative to supply chain efficiency. Having said this, it is still at the early stages and a lot of initiatives can still be taken from both solution providers as well as rail operators and stakeholders for operational excellence.