Taking the freight: the advantages of rail
Transportation is a major contributor to greenhouse gases, but also essential to a functioning global economy. We look at one of the simplest changes available to reduce carbon emissions.
The purest way to reduce emissions from transportation of goods and people is to produce locally. But as supply chains have become more global and complex, goods have moved around the world; from efficient producers to their end consumers. The transportation of goods is an important, growing source of greenhouse gases.
The various forms of transportation - largely road, rail, ship, and airfreight - all have different niches and advantages. Where they compete head on, the emission profile can be a major source of differentiation.
On average, railroads are four times more efficient than trucks. This translates into a 75% reduction in the emission profile of freight that is moved over the same distance by rail instead of trucks1.
As the table below illustrates, the trucking industry accounts for 23.5% of all US transportation emissions. This piece of the emission puzzle can either be tackled by a shift from combustion engines to electric trucks (Tesla has a plan and a product on the way here), or by a shift in freight from road to rail.
US greenhouse gas emissions from transport: 2015
Source: EPA – Inventory of US Greenhouse Gas Emissions and Sinks (April 2017). Tg CO2 Eq refers to "teragrams of CO2 equivalent"
Of course, the 75% emission reduction from road to rail is an average, and not all road freight could be migrated to rail. Over shorter distances, and further away from the trunk rail networks, rail is just not competitive with more flexible truck services. However, there is lots of scope for long distance logistics to shift their primary means of transport to rail.
If we look at long term trends for share of total freight transportation in the US (as a proxy because of the quality of data), trucking’s share of ton-miles rose from 30% in 1980 to 45% in 2003, and rail rose from 25% to 30% in the same period. Share gains for both have came at the expense of water and pipelines. Since 2003, shares have been more stable, with the long-term decline of pipelines seeming to have stabilised.
Market share of ton-miles
The picture above is one that suggests the convenience and flexibility of trucking has matched the efficiency of rail, and both have held their own. We think that will likely change as carbon emissions become increasingly taxed and rationed by governments, and thus priced into the cost of service.
In the last two to three years, resilience in truck volumes has also been supported by low fuel prices. As oil prices recover this year and next, we should expect to see a shift in competitiveness in favour of rail.
1. Association of American Railroads. ‘Freight Railroads Help Reduce Greenhouse Gas Emissions.’ April 2017. ↩
The views and opinions contained herein are those of Schroders' investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.'s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.