Rail Freight Industry Review: Biggest News of 2023

Welcome to our comprehensive Rail Freight Industry Review for 2023! This blog provides in-depth insights into the most impactful developments shaping the rail freight landscape over the last year. We’ll cover everything from major mergers to technological advancements, environmental initiatives, and market expansions. Our analysis is powered by a diverse range of expert opinions and insights, gathered from RSI blogs and other reliable sources, giving you an accurate and up-to-date snapshot of the rail freight industry. So, fasten your seatbelts and join us as we take a deep dive into the world of rail freight operations, exploring their impact on businesses, governments, and communities alike.

A railcar maintenance worker in a yellow vest and white safety hat inspects a railcar.

Critical Period for Railcar Maintenance and Qualification Coming in 2024

2023 proved to be an informative year for rail freight as we turned our attention toward the fast-approaching 2024 – a year that holds a significant milestone for railcar maintenance and qualification. An above-average percentage of railcars are slated for qualification, thanks to a production boom between 2013 and 2015.

2024 Railcar Qualification Period and Maintenance Challenges

With a significant number of railcars reaching their ten-year mark around 2024, and thus needing qualification, maintenance facilities will grow more crowded, lengthening any qualification or maintenance processes. Here at RSI Logistics, we’ve seen as many as 30% of our client’s total fleets that will need servicing.

Understanding Turn-Around Times and Maintenance Shops’ Current State

2023 saw a significant focus on understanding the current ‘turn-around’ times at maintenance shops and their capacity to accommodate the upcoming demand. Analysis showed that railcar downtime (the average time cars spend in maintenance before returning to the track) can vary dramatically (from 53-103 days, for instance). Moreover, maintenance shops already operate near maximum capacity (90-100%), and this is likely to continue until we navigate past the expected qualification surge.

Strategies for Making Railcar Maintenance More Effective

To ensure a smoother transition, align your railcar qualification and maintenance schedule with all relevant stakeholders. This collaborative approach can help to effectively manage the expected surge, prevent delays, and avoid a crunch of resources.

Moreover, take some time to review your strategies for diverting and billing cars to shops and possibly consider different cleaning methods like third-party or mobile cleaning units. Shipping railcars early to shops and streamlining operational process can help to accommodate the upcoming surge.

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A railcar with a roll of united states hundred dollar bills inside.

Q3 Railway Results: Rail Rates and Industry Challenges in 2023

The third quarter of 2023 was telling for the rail freight industry, with financial performance revealing critical industry challenges. The sector experienced declining revenues, rising operational costs, and reduced volumes. These trends have important implications for rail rates, business strategies, and contract negotiations.

Key Findings from Q3 2023 Financial Results

Revenue and volume decreases plagued major railroads, with Norfolk Southern and Union Pacific reporting 11% and 10% drops in railway operating revenues compared to Q3 2022, respectively. Union Pacific also reported a 3% decline in business volume. Contributing factors to this negative trend included inflationary pressures, fears of an economic downturn, and the lasting effects of the Eastern Ohio Incident.

Simultaneously, operational costs — particularly fuel and labor expenses — increased, posing a major obstacle for industry profitability and efficiency.

Rising Rail Rates as a Response to Industry Challenges

Considering the declining volumes and revenues coupled with rising costs, the rail shipping industry is likely to experience an increase in rail rates. This move is expected as railroads try to offset higher operating costs and lower volumes.

Impact on the Operating Ratio and Industry Strategies

The Operating Ratio, defined as costs divided by revenue, is an essential indicator of railway profitability and efficiency. Given the financial trends revealed in Q3 2023, the Operating Ratio is projected to increase, posing challenges for industry stakeholders. Railroads must adopt effective measures to reverse this trend, which could include raising rates, leveraging data insights, and adjusting operations accordingly.

Addressing Year-End Contract Discussions and Tariffs

As you approach year-end, contract negotiations will be significantly impacted by the financial trends observed in Q3 2023. Developing a thorough understanding of railroad costs, revenues, and pricing structures will be crucial to successful negotiations.

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A purple and blue rail line goes into a sphere of data analytics.

Seven Pivotal Trends Revolutionizing Rail Logistics in 2023

The Rail Freight Industry, in 2023, displayed dynamic evolution in technology, strategies, and trends. From advanced technologies to sustainability, the future of rail logistics takes shape through various innovative trends.

1. Internet of Things (IoT) in Rail Logistics

The IoT is central to the shift in rail logistics. IoT devices interconnected across networks generate, share, and interpret real-time data. In rail logistics, IoT devices embedded in rail cars, tracks, and cargoes monitor performance, track location, and ascertain cargo conditions.

2. Harnessing Data Analytics for Improved Efficiency

Data analytics emerged as a pillar of operational efficiency. Through data analytics, intricate patterns and potential bottlenecks in tracking and tracing data are scrutinized, improving schedule adherence and customer satisfaction. The outcome is an era of transparent and data-driven decision-making in rail operations.

3. Machine Learning (ML) & Artificial Intelligence (AI)

ML and AI are increasingly used for predictive analytics in rail logistics, predicting equipment failure, optimal route planning, and precise freight demand forecasting. The application of ML & AI reduces operational expenses, minimizes downtime, and revolutionizes processes like preventive maintenance and demand planning.

4. Ascendancy of Blockchain Technology

Blockchain technology enhances transparency and tightens security in rail logistics transactions. Establishing a stable, traceable, and secure record of transactions, blockchain eliminates potential discrepancies and increases trust among stakeholders, simplifying contractual processes, and boosting efficiency.

5. Embracing Green Logistics

Identified as more than an aspirational trend, green logistics emerged as a competitive necessity. Rail freight shifted focus to sustainable practices, minimizing carbon footprint through reduced emissions engines and eco-friendly practices.

6. Developing Digital Platform

Digital platforms have surged as the backbone for real-time information sharing and collaborative decisions. Platforms like Rail Command® offer unified solutions for managing aspects like railcar tracking, rail rate management, and demurrage management, enhancing overall rail operations efficiency.

7. Prioritizing Predictive Maintenance

Predictive maintenance broke new ground in rail logistics. Leveraging IoT and data analytics, rail operators can anticipate possible faults or equipment failures, making a shift from reactive to proactive management.

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A train of rail freight tank cars moving through a forest along a river with mountains in the background.

Leveraging Waybill Sample Data to Propel Rail Freight Business Growth in 2023

Waybill Sample Data, an invaluable resource for rail shipping, saw an exceptional upturn in detail in 2023. More data than ever became key in driving business growth, conducting market analysis, understanding competitors, and identifying new opportunities.

Waybill Sample Data: Its Significance and Expansion

Waybills, critical to rail shipping, outline detailed shipping instructions and other related information. Annually, railroads supply a portion of this waybill data to the Surface Transportation Board, publishing it as the Public Use Waybill Sample. Importantly, in 2023, the sampling rate soared from the usual 2.5% to 20%, meaning there is much more data available for analysis.

The Real Value: Genuine and Masked Data

To glean value from this data, understanding actual (genuine) and masked information is paramount. The genuine information includes commodity, miles shipped, equipment type and owner, shipment size, and lading weight. However, certain details like Station Names and Railroad names, and sometimes Revenue, are masked to maintain confidentiality.

Profiting from the Waybill Sample Data

Despite the masked data, opportunities abound in the Waybill Sample Data:

Market Intelligence

The sample provides insights into market dynamics, such as contracts’ prevalence, Rule 11 rates, and major traffic flows. Analyzing these allows businesses to align their strategies for pricing, marketing, and supply chain optimization.

Competitor Analysis

The data helps analyze how competitors ship commodities. Factors like the type of equipment used, whether private or rail-owned, and cargo weight can influence shipping practices and overall profitability.

New Opportunities

History traffic flows can reveal underserved market areas, paving the way for potential market share growth.

RSI incorporated this information into four easily interpretable reports within their rail rate application, Rail Impact®, proving a valuable tool for rail shipping businesses looking to utilize this data for growth.

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A Kansas City Southern train hauling rail freight along a railroad.

The Canadian Pacific and Kansas City Southern Merger: A Transformative Moment in Rail Freight Operations in 2023

The rail freight industry in 2023 witnessed a merger of giants. The merger of the Canadian Pacific Railway (CPRS) and the Kansas City Southern (KCS) revolutionized North American rail operations. The birth of ‘Canadian Pacific Kansas City’ (CPKC) is expected to enhance the industry’s efficiency while expanding market reach and increasing benefits for shippers exponentially.

Cross-Border Connectivity and Market Expansion

The merger brings about an unprecedented, connected rail network that extends over 20,000 miles across the United States, Mexico, and Canada. For shippers, this means access to broader markets, reduced transit times, and greater flexibility in planning their shipping routes.

Upgraded Operational Efficiency and Cost Savings

The amalgamation of two major North American railroad operators brings about enhanced operational efficiency with unified networks and superior coordination. Shippers can look forward to better service quality, expedited shipment processing, and more reliable delivery times. Moreover, by consolidating resources and optimizing operations, this merger is expected to pass on cost savings through competitive pricing, thereby reducing the overall cost of shipping for businesses.

Green Logistics and Investment in Technology

The merger also promises environmental benefits, making the rail transportation system more sustainable through better fuel efficiency and reduced greenhouse gas emissions. Simultaneously, the merger acts as a catalyst for improved infrastructure and cutting-edge technology implementation. Upgrading facilities and integrating advanced technology will benefit not only railroads but also provide a superior experience for shippers, marking an era of growth and innovation in rail transportation.

A Deal Sealed After a Year of Competitive Bidding

The merger at the start stoked competition between CPRS and Canadian National (CN) who also aspired to merge with KCS. However, after a flurry of bids and counterbids, along with regulatory hurdles, the merger between CPRS and KCS was settled and approved by the Surface Transportation Board in March 2023, marking a new chapter in the rail freight industry.

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Meet the Author: Matt Culver
Matt Culver is the Marketing Manager at RSI Logistics where he is responsible for content creation, managing RSI’s marketing, and developing digital strategies. On a mission to tell everyone about RSI, he is focused on implementing best practices and the fundamentals of marketing. His experience and knowledge have allowed him to focus on the growth of RSI's digital marketing and customer journey. Matt holds a Bachelor of Digital Marketing and Advertising and is a member of the American Marketing Association.