Rail and road in North America compete for growing auto freight
While rail companies continue to consolidate in North America, railroads are competing for a larger share of vehicle and parts flows with road freight.
A potential Union Pacific (UP) and Norfolk Southern (NS) combination has focused attention on rail consolidation, but the bigger question for carmakers and logistics partners is whether rail can vie for a larger share of flows against trucks. Michigan State University’s Jason Miller was cautious in a recent webinar, stating that while rail has the network and the economics for long distances, road has the speed, flexibility and a pricing cycle that still sets the ceiling for intermodal.
A lack of competition in an already consolidated market
North America’s rail sector is already highly concentrated, with four class-I railroads in the US, and two in Canada. With the potential merger of UP-NS, a “super class-I railroad” would be created, according to Jason Miller, Eli Broad professor in supply chain management, Michigan State University (MSU). “This would be a truly unique entity”, he said. “The scope of connectivity across the US with a UP-NS merger is just something that we have never seen before.”
Breaking down market share, Miller said that UP-NS would have a 46% share of total tonnage, 45.2% market share of containers, and 47% share of automotive and equipment.
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“When I am talking about railroad operations, to me the most important things to think about are the broader macroeconomic trends, to understand and think about this merger and put it in context,” Miller said.
Rail carloads versus intermodal
Using data from the Surface Transportation Board (STB), Miller analysed rail carload movement and rail intermodal movement (including containers and truck-trailers). From 2000-2006, carload accounted for 16m movements a year on rail, while intermodal was 3.3m loads per year in the same time. “This was mana from heaven,” Miller said. “That was the peak railroading activity that had ever occurred. Since 2006 we have been on a secular trend towards fewer and fewer movements, and that has primarily been driven by a big drop in carload volume.”
Following the global financial crisis, freight carload volume dropped to 14m units per year, and after covid this dropped by another 1.25m. Intermodal, in contrast, rebounded well after the financial crisis, but has had three peak periods in 2018, 2021 and 2024.
“If you go back 20 years, railroad revenue was not as exposed to competition from the trucking sector,” said Miller. “Now you have to think, going forward, about where the growth opportunities are going to be for the class-Is. The answer, as far as I can see it, is unlikely in carload, the answer is therefore intermodal.”
Putting this in the context of the potential UP-NS merger, he said there is an open question as to whether the potential synergies of the “super class-I” railroad are going to be enough to unlock additional intermodal market share, “by shaving, let’s say, one day off a west coast to east coast transit”.
Intermodal as the key to unlocking rail growth
Looking at the peak periods for intermodal rail transport (2018, 2021 and 2024), Miller said it’s important to contextualise the wider industry and economy at the time. During 2018, there was a very strong truckload market, which was driving up truckload rates. “That was, all things equal, making intermodal a little bit more attractive than what it had been,” Miller said. “You saw railroads being fairly slow to lower their price for intermodal as truckload rates were coming down and you saw almost 100,000 units a month lost.”
For the 2021 peak, Miller explained the reason lay in the rebound following covid. “And then intermodal plunges,” he said. That plunge was because containerised imports were weak in 2023. “I look at the historical data and say that is at first glance challenging because I can see this ebb and flow is based so heavily on what is going on in just international intermodal volumes. The key thing is, and what I'm going to come back to and stress, there's ebbs and flows to this. And those ebbs and flows are going to be perfectly a function of where the truckload market is at.”
As a result, he said that intermodal rates that intermodal LSPs charge and rates that class-1s have the potential of seeing are dependent on what’s going on in truckload transport. “You need the truckload space to tighten for that revenue to go up,” Miller added.
How North American rail market changes affect automotive logistics
Automotive logistics is fused to the cycles of rail, truck and intermodal transport. When imports soften, when truckload capacity is easy to find and when inventories are comfortable, there is less pressure to use rail. OEMs and shippers will pay more for the responsiveness of trucks, especially for parts that feed assembly lines and aftermarket networks. In other words, rail cannot simply raise prices on intermodal because trucking is always nearby.
Rail can move a finished vehicle very efficiently over long distances and at scale, and can bundle flows from Mexico or from the US Midwest to the Atlantic seaboard, in theory offering single line services that avoid congested interchange points such as Chicago. Union Pacific’s chief executive Jim Vena has argued that more single line routings could take drayage miles off the road network and improve fluidity. For a carmaker this sounds attractive, as it should mean fewer damages, tighter lead times and more predictable yard planning downstream.
But carmakers and shippers are wary, with reservations about the proposed UP-NS plan. The industry is uncertain how a merger, however large, could suddenly make a four- or five-day rail service into something that can compete with a two-day truck move for time sensitive cargo.
Rail is also still exposed to geopolitical changes, as seen in the impact of US tariffs. Intermodal rail volume fell in May and June this year, mirroring sharp drops in Chinese imports as US tariffs rose.
Rail’s strongest offering is still the long, straight, repeatable lane across North America. Where an OEM has regular volume and can fill trains or blocks, rail will keep its cost advantage over time. A UP-NS network that cuts out a Chicago handoff could improve this advantage, even if regulators at the STB attach conditions for the merger.
Overall, rail in North America has stopped growing through bulk carloads. It is facing “a brutal reality”, according to Miller, that future growth comes from intermodal and intermodal is chained to trucking and to container imports. For automotive freight in the US, that means rail will remain the backbone for long predictable moves while road keeps its grip on urgency.
