The Fast Approaching Oncoming Supply Chain Derailment Disaster: (Freight Train Blues)

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Supply chains are the mechanisms by which products, and the raw materials from which products are made, move from their source to the consumer. In recent decades, supply chains have become much more sophisticated and complicated. In part, this is because they are often longer: raw materials, components and finished products now often move between continents before reaching the consumer. One of the keystone supply chain modalities is rail transportation. Rail transportation is essential to the national supply chain (Importance of USA rail freight transportation to supply chain in national and global economy). Railroads are a significant part of the national and international supply chain in the US connecting businesses to the national and global economy. In addition to efficient supply chain deliveries, transporting freight via railroads is argued to help ease highway congestion, save energy, and reduce pollution emissions. Railroads constitute the backbone of the nation’s business supply chains.

In terms of ton-miles, railroads annually move more than one-quarter of all freight in the US and connect businesses with each other across the country. This includes bringing raw materials to manufacturers, supplying critical infrastructure (e.g. electrical power grid and national water supplies), components and products to consumers. Railroads move more oil out of North Dakota than the amount of oil carried by the Trans-Alaska pipeline.  U. S. railroads offer high-quality service at competitive costs. Within the U.S., railroads carry about 40% of all freight, followed by trucks (34%), oil pipelines (14%), barges (12%) and air transport (less than 1%). (Statistics from Association of American Railroads)

North American railroads operate more than 1.4 million freight cars and about 32,000 locomotives carrying around 40 million carloads (averaging 63 tons each) of freight. Transported commodities include coal, chemicals, farm products, lumber and nonmetallic minerals. Other major shipments include automobiles and waste matter. U.S. railroads account for approximately 40 percent of intercity freight volume — more than any other mode of supply chain transportation. Railroads deliver an average of 5 million tons of goods daily and almost every industrial, wholesale, retail, and resource-based sector of the economy depends on rail transportation for at least a part of their mission critical supply chain. Rail shipments also plays a vital role in businesses’ ability to compete in global markets, transporting about one-third of U.S. exports to shipping ports and other onward distribution. (Statistics from Association of American Railroads)

Positive Train Control (PTC)  

There have been more than 250 major rail accidents including many that were disasters in the U.S. since 1997. The resulting loss of life and injuries, as well as significant economic impacts from these incidents, has led to efforts to improve rail safety including a number of new regulations and mandates. One of those efforts is the 2008 mandate from congress on the railroads for implementing Positive Train Control (PTC). According to the US Department of Transportation – Federal Rail Authority (FRA) Positive Train Control (PTC) systems are integrated command, control, communication and information systems for controlling train movements with safety, security, precision and efficiency.  The Rail Safety Improvement Act of 2008 (RSIA) mandated that PTC be implemented across a significant portion of the nation’s rail industry by December 31, 2015.  

According to the Federal Rail Authority (FRA), PTC refers to communication-based/processor-based train control technology designed to prevent train-to-train collisions, over speed derailments, incursions into established work zone limits and the movement of a train through a main line switch in the improper position. PTC systems vary widely in complexity and sophistication based on the level of automation and functionality being implemented, the system architecture used including wayside systems (e.g., non-signaled, block signal, cab signal, etc.) and the degree of train control. To facilitate the development and deployment of PTC systems, the Office of Research and Development (with close collaboration with FRA’s Office of Safety, freight and passenger railroads and academia) has funded, and continues to fund, many research projects.  These projects span research areas in Train Control, Communication, Grade Crossing Protection, Trespass Prevention and Simulation and Modeling. They are focused on developing standard interoperable technologies to be adopted by the railroads in their effort to deploy PTC systems.

In 2008, Congress passed the (unfunded) PTC mandate which required privately owned railroads to finance, develop, install and test this unproven technology across 60,000 miles of the nation’s rail network by December 31, 2015. Despite huge efforts to meet this deadline, most railroads will not be able to comply with this mandate.

Freight Train Blues

The Association of American Railroads has warned that without an extension, some railroads may begin removing trains from service in November to achieve a shut down by December 31, 2015. The problem is that the nation’s rail carriers have not as of yet sufficiently implemented the PTC technology and systems. Given the liability considerations of operating without achieving compliance with the mandates, most of them may likely limit operations or shut down completely as of the fast approaching implementation deadline. Faced with the potential of violating federal law, freight railroads have told Congress that they may be forced to suspend some service and operations.

According to the Association of American Railroads “the freight rail industry’s progress in installing PTC has been substantial. Railroads have retained more than 2,400 signal system personnel and have already spent close to $6 billion on implementing PTC technology. The reality is that railroads need more time to safely finish the installation of PTC and for real-world testing and validation. By extending the deadline, Congress will ensure that railroads have time to correctly and safely finish testing, approving and installing the highly complex system. Only Congress can prevent disruption to America’s rail network and the national economy. “

According to a recent article published in the Wall Street Journal, (Railroads Say Disruptions Loom if Safety-System Deadline Isn’t Extended) railroads are amplifying warnings that the U.S. transportation network would grind to a halt at the start of the new year if Congress makes them stick to a year-end deadline to install the new safety system. The article notes that “major freight railroads, Amtrak and other industry groups say disruption of the economy would ensue—and public health and security would be put at risk—if they don’t get a reprieve. Railroads last week began notifying customers that they would stop shipping certain hazardous materials as early as Dec. 1, with passenger transport halting by Jan. 1 on certain routes—including most of Amtrak’s nationwide network—if no extension is granted.”

The National Grain and Feed Association wants Congress to approve a highway bill that includes a compliance deadline extension of the PTC regulation. NGFA President, Randy Gordon, says without that extension, the rail roads have said there will be disruption and delay of service. Read more

Industry associations and freight rail customers including major retailers, farmers and energy providers have warned Congress about the severe consequences that would result from a rail shut down. U.S. Representative, Mike Quigley, D-Ill., Chicago, has warned that unless Congress extends the rapidly approaching implementation deadline, there may be severe disruptions in national rail shipments.

Representative Quigley argues that “while the deadline for PTC implementation is Dec. 31, preventing a major disruption of rail service requires Congress to act much sooner. Shutting down the nation’s rail network involves more than simply flipping a switch; it involves complex logistics that will take weeks to complete. As a result, Americans could begin to see the effects of the disruption very soon with railroads, shippers and agricultural suppliers stopping operations and closing facilities in early December or sooner. Congress cannot afford to wait until the last minute to act and should explore all legislative options to get the job done as soon as possible. But along with providing more time, Congress should also administer funding to help already cash-strapped commuter railroads, such as Metra, get the job done. PTC technology is vitally important but also incredibly expensive. Commuter railroads have spent nearly $1 billion on PTC implementation and need $3 billion more to complete it. Despite that, Congress has appropriated very little money for the railroads, and half of the country’s commuter railroads are deferring other safety and capital improvements to afford PTC. Given the widespread impact to our economy, I believe this matter requires immediate attention. Congress must act now to extend the upcoming PTC deadline while holding passenger and freight railroads accountable and providing them with a clear plan for implementing this vital safety technology.”

Based on information from the Association of American Railroads there are “a series of publicly available letters submitted to Congress, railroads and freight rail customers have made clear that there are many possible consequences America could face if railroads are forced to shut down. Together with the findings of a major report from the American Chemistry Council, it has become clear that if America’s railroads shut down, so does America.” The association warns of core negative consequences of even a short national rail transportation shutdown; which include major supply chain disruptions and stranded commuters in major metropolitan areas.

Rail service disruptions lasting only one month could result in a 2.6% reduction to U.S. real GDP growth during the 1st quarter of 2016, which would pull $30 billion out of the economy. The widespread economic impact of a rail service disruption could cause household incomes to fall by more than $17 billion, depressing consumer confidence and spending. The disruption to American businesses and industries caused by a freight rail shut down would be devastating.

The Wall Street Journal recently editorialized (October 27, 2015) that unless Congress acts immediately to extend the PTC mandate deadline, a national rail shutdown is highly likely to occur. That editorial, citing research from the American Chemistry Council, argues that a one-month interruption would cost the economy $30 billion and 700,000 jobs. They go on to identify other consequences include 28,000 homes that won’t be built, 175,000 fewer cars sold and a need for 600,000 additional trucks needed to transport about 2 billion tons of fright no longer being carried by rail. Of course, even if these new trucks could be built and put on the road, which is probably an overly optimistic occurrence, the impacts of this massive transportation switchover would impact highway infrastructure, fuel distribution/availability and environmental impacts.

Based on analysis released by the Association of American Railroads, freight railroads move (sometimes) hazardous materials that are needed to produce certain products (i.e. plastics) in a wide range of market sectors. If railroads slow down or shut down, some of these hazardous materials may be diverted to transport trucks on further congested highways. A freight rail shut down could make it difficult for farmers to both obtain crop fertilizer that is needed to prepare for the 2016 planting season, and deliver 2016 crops to market in an efficient and cost-effective way. Any disruptions and inefficiencies would be reflected in prices paid by consumers at the grocery store. In many metropolitan areas, including New York City, freight railroads carry garbage out of the city to waste facilities. If freight railroads are forced to shut down, garbage could pile up within America’s cities.

This potential rail slow down or shut down raises critical issues for reassessing supply chain risks for businesses and companies. It also casts a long shadow on continuity of operation and business continuity plans for many. This supply chain disaster could affect many companies and businesses, including many who had never foreseen the rail supply chain risks would potentially disrupt their operations.

Looking Down the Track Ahead

Positive Train Control (PTC) is a set of highly advanced technologies designed to make freight rail transportation safer by automatically stopping a train before certain types of accidents occur. It is intended to prevent train-to-train collisions; derailments caused by excessive speed; unauthorized incursions by trains onto sections of track where maintenance activities are taking place; and movement of a train through a track switch left in the wrong position.

PTC is an unprecedented technical and operational system that requires the railroads to develop, test and implement a new safety system across the vast rail network. When Congress originally passed the mandate, much of the technology required had not even yet been developed. The December 2015 deadline is seen by the rail industry and PTC experts as an impossible timeframe for developing and deploying an unprecedented technology safely and responsibly. It simply does not seem feasible that the mandated deadline will be met. Analysts predict that the result will be a national rail slow down or shut down, which would disastrously impact the nation’s supply chain and transportation network.

I believe that PTC is a step forward for rail safety. Railroads should implement these important safety technology improvements in a responsible manner. Railroads need additional time to make appropriate adjustments. Completion of the Positive Train Control mandate by the end of the year does not appear achievable. Extending the deadline is essential to preventing significant disruptions of both passenger and freight rail service across the country. A national slow down or shut down of rail freight would have dire consequences on supply chains for a wide range of industries, companies and businesses.

The encouraging short-term news is that new legislation, which has recently been introduced by the House Transportation and Infrastructure Committee, will extend the 2015 PTC implementation deadline to the end of 2018. Legislative action to extend the PTC full implementation deadline beyond the December 31 date remains possible. It will require prompt and decisive action without political entanglements. It is imperative that Congress pass such a deadline extension as soon as possible so as to avoid the disastrous consequences of a national rail slowdown or shutdown. While I am usually skeptical about political collaboration, I hope that in this case, there may be genuine cooperation “across the aisle” or (between the parties) to act swiftly and properly to address this looming supply chain disruption.

Now is the Time to (Re) Assess Supply Chain Risks

While national politics may be beyond your control, there are some things you can do to improve your preparedness for supply chain disruptions. Whether or not Congressional action keeps the nation’s rail system on track (or not) in the coming months, companies need to reassess their own unique supply chain risks, including the impacts of a national rail shutdown.

Every business should periodically formally assess their supply chain risks as part of a business impact analysis. Even if you have regularly conducted periodic assessments (and especially important if you have not), it is imperative that you conduct a new supply chain formal risk assessment in light of the national rail shut down threat. What are your unique risks? Do you have a clear understanding of how such a disruption would impact your operations? Give thought to your plan(s) for supply chain disruption consequence management.

The keys for increasing resilience of your supply chain and managing a supply chain disruption crisis are planning and preparation. Follow up with the many supply chain disruption planning resources to enhance your readiness. It is important to get your supply chain risk assessment “on track.”

What steps can you take now to mitigate or reduce these risks? Can you take steps now to add resilience to your supply chain(s)? Can you get everyone in your business “all abroad” in this assessment and planning effort?

Do you have a supply chain disruption crisis management process in place? What is your plan? What alternative backups do you have prepared to utilize or adjustments to make in your business processes if there were a major supply chain hiccup?
Is your business ignoring or observing the rail crossing warnings about the fast approaching potential oncoming supply chain derailment disaster? I urge you to look both ways before proceeding any further ahead. Acting now may help you avoid singing the Freight Train Blues for the holidays and beyond.

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