This Is What the Pandemic Did to the U.S. Rail System

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, I mean, you know, it's actually been a little while, I guess, since we've done one of our pure logistics episodes.

Earlier in the summer, we were doing a lot. We've done a lot all year. I just feel like, you know, we've probably gone at least three or four without coming back to what is, without a doubt, the story of 2021

Tracy Alloway (0:38)

When you say more than a little bit, or it's been a while, I mean, we did do the semiconductor episode like the other week, which I kind of file under the shortages and bottlenecks umbrella. But I guess it's true.

It is true. We haven't done a transport episode in a while. And there are some big ones that we haven't addressed just yet. And I'm thinking specifically of pallets and barges. But of course, the biggest transport mode that we have yet to talk about and the issues taking place there, it has to be rail. And it's come up quite a bit when we were talking to Gene Sirocco, the head of the Port of Los Angeles, for instance. Whenever we've been talking about gridlock in transport generally, we do tend to touch on rail and some of the issues there, but we haven't talked about it in depth yet.

Joe Weisenthal (1:31)

Right, so we kind of have taken this end to end approach. We've talked about factory issues that originate in Asia. We talked about the ships. Oh, you know, there's the bottlenecks at the ports. I think latest I saw there's like 72 ships just waiting to be undocked right now at the Port of Los Angeles.

Then the trucks talked a little bit about barges, although we need to talk a lot about more, but we have not talked about rail. So if we're going to be completist in our discussion of US logistics, we have to talk about the rail part of the equation.

Tracy Alloway (2:08)

Yes, indeed. I'm looking forward to this one.

Joe Weisenthal (2:12)

I am too. I'm very excited and we have the perfect guest for it. We're going to be speaking with Ian Jefferies, President and CEO of the Association of American Railroads.

Ian, thank you so much for coming on Odd Lots. So look, anyone who's picked up the newspaper or read the news knows about all the disruptions, particularly around ship, particularly around ports, particularly around trucking, particularly about the lack of containers specifically. Why don't you just start by giving us the very big picture overview, and then we'll drill deeper, but the very big picture overview in how pandemic-related disruptions have affected the flow of rail.

Ian Jefferies (2:55)

Well, first of all, thank you, Joe and Tracy, so much for having me on this morning.

And you've hit on, based on what you listed, you've hit on a lot of key issues and key sectors of the supply chain, so I'm thrilled to be able to add to that conversation. I think when you look at what we're seeing in the supply chain right now, which, as you know, is an incredibly sophisticated, integrated, complex process, getting goods from Asia into the US, into the heartland of the US, into the US and throughout, what we really are looking at now is something that really began about this time last year, even a little earlier in the summer, mid-summer 2020, where once the economies of China and the US started to, for lack of a better term, turn back on, you saw a pretty dramatic influx of goods. And I think it's a combination of a variety of things. If your houses are anything like mine, you got to know the Amazon delivery person really well. We saw such a massive surge of e-commerce as a portion of our economy.

And not only that, given the rush to acquire goods, consumer goods from the stores, the physical stores across the countries as well, combined with the shutdowns we saw in factories throughout the US, throughout Asia, you saw a really strong snapback in production and demand on the international side. And so really about last summer, I'd call it last July, last August, we saw a pretty dramatic uptick in international intermodal traffic. And that has really sustained itself and continued through this year to present day. And I think we're expecting to see it into at least Q1, if not Q2 of next year, based on comments that our CEOs have made in the public space.

And so what we're seeing is there are certain parts of the supply chain where there are some choke points and where there's one choke point, the supply chain is only as strong as its weakest link or as its most inefficient point. And that tends to gum up the whole situation. And so rail is navigating that. I can tell you in the first six months of 2021, we moved more intermodal products, which is that container traffic, which consumer goods, either e-commerce or brick and mortar store. We moved more traffic in the first six months of 2021 than we ever had in our history during that same time period. So we are moving a colossal amount of traffic and we're really the middle piece of the supply chain, the middle miles. We are navigating, I would call, some challenges on both the port side and then the offloading side with our partners. But taking steps, as others are, to continue to work through this, to get back and get right-sized and get equilibrium and get this thing running as efficiently as possible.