Rail-Served Sites: A Key Factor in U.S. Industrial Location Strategy

The following article explores site selection strategy in the United States, examining the implications of rail service as a top consideration for companies seeking to invest in the U.S. Site Selection Group (SSG), a full-service location advisory, economic incentives, and real estate services firm, regularly facilitates site selection projects for rail-served industrial clients.

U.S. rail system

The U.S. rail system is dominated by freight transportation, a key difference in comparison with international rail networks like those in Europe that have historically favored passenger transportation. According to the Federal Railroad Administration, “Running on almost 140,000 route miles, the U.S. freight rail network is widely considered the largest, safest, and most cost-efficient freight system in the world.” 

The freight rail industry is operated by six Class I railroads (railroads with operating revenue greater than $1.05 billion, as defined by the Surface Transportation Board), and 22 regional and 584 local/short line railroads. The six Class I rail providers are BNSF, Canadian National, Canadian Pacific Kansas City, CSX, Norfolk Southern, and Union Pacific. While Class I providers typically focus on transporting freight long distances across networks spanning multiple states, regional and local/short line providers operate over shorter distances and connect to (or interchange with) the Class I rail providers.

Rail service: required or preferred

For companies embarking on a site selection project, deciding whether rail service is required or preferred will have material impacts on the availability of aligned real estate options. “Rail can be a very restrictive element to introduce into a site selection project,” says Brian Gwin, Sr. Industrial Development Manager of Norfolk Southern Corp. The sentiment expressed in this statement is consistent with SSG’s experience facilitating rail-served projects and is precisely why companies should invest in early project pre-planning efforts, including collaboration with rail providers upstream in the process, to determine whether rail is a necessity or simply a “nice to have.” These planning efforts are not designed to discourage rail use but rather encourage companies to think strategically about their logistics needs and incorporate them into the process early on. This will result in time and potential cost savings, as well as yield a more targeted approach to site selection.

Determining the right rail solution

For companies seeking to incorporate rail as part of their new facility’s supply chain, choosing the optimal rail solution depends on the company’s needs and the goods being transported. Rail solutions can fall into a few distinct categories, including on-site and multimodal.

• On-site, Direct Connection: Whether by establishing a new connection to the network or rehabilitating an abandoned rail spur or siding, direct service allows for a more thorough integration with a new facility. Direct service often reduces transit time and costs (vs. trucking), minimizes handling and is extremely efficient for bulk shipments of commodities or heavier products (e.g., agricultural, chemicals, construction materials, finished vehicles, etc.)
  
  SSG is experiencing a growing demand for projects seeking direct rail-served sites, with many clients preferring sites with access to dual rail service (i.e., direct service by two Class I providers), to leverage rate negotiations. However, limiting a search to sites directly served by two Class I railroads severely narrows options. If logistics costs are a primary project driver, partnering with a short line railroad that interchanges with multiple Class I carriers can unlock a wider range of suitable locations, while still offering the ability to shop for the best rate.
  
  
• Transloading: Also known as “cross-docking,” this is the process of moving freight from one mode of transportation to another, such as from rail to truck or vice versa. Transloading typically occurs at dedicated facilities and can involve full container loads (FCL) or less than container loads (LCL). All types of goods and materials can be transloaded, from food and beverages to solar panels. Companies that do not require or have access to direct rail service can still reap some of the benefits of rail through transloading.
  
  
• Intermodal: Intermodal freight transportation utilizes multiple transportation methods when moving a shipping container. It is an exchange point wherein a shipping container “changes hands”. Common examples include inland ports and rail carrier intermodal yards. Like transloading, intermodal solutions provide companies with access to the benefits of rail without requiring investment in on-site infrastructure and service. SSG explored the benefits of intermodal solutions in a previous blog on Developing a Port Strategy in Industrial Site Selection.

Benefits of utilizing rail

Integrating rail into an industrial facility offers many advantages:

• Cost Savings: Transporting freight by rail offers significant cost savings, especially for long-haul, bulk volume, shipments. Compared to trucking, rail drastically reduces fuel costs and distributes shipping costs over larger volumes, due to its greater efficiency of moving larger volumes of freight. As volumes increase, so do the benefits of utilizing rail transport.
  
  
• Reliability: Rail provides a more predictable and reliable transportation option compared to trucking. This is due to trains being less susceptible to traffic congestion, weather delays, and the labor shortage impacting the trucking industry. Rail users can count on their freight arriving on time, minimizing costly downtime at the production or distribution facility.
  
  
• Safety: Data shows that rail transportation is safer than trucking, boasting significantly fewer accidents per ton-mile. This reduces the risk of employee injury, damaged goods, and company liability. Even when transporting hazardous materials, which are subject to stringent regulations, rail offers a demonstrably safer alternative to trucking. Further, unlike daily truck traffic that may need to share access with employees and/or customers, separating rail operations from these areas creates a safer on-site environment.    
  
  
• Sustainability: According to the Association of American Railroads, “Railroads are the most fuel-efficient way to move freight over land, moving one ton of freight nearly 500 miles per gallon of fuel, on average. On average, railroads are three to four times more fuel-efficient than trucks. A single freight train can replace several hundred trucks.” Simply stated, rail is an eco-friendlier option when compared to trucking alternatives, producing lower levels of greenhouse gas emissions. Further, utilizing rail can potentially generate carbon credits and contribute to a company’s overall sustainability goals.

Pitfalls of neglecting planning efforts in rail-served site selection projects

Companies that fail to consider how to incorporate rail upstream in the site selection process fall victim to a few key pitfalls.

• Overlooking Rail-Served Sites: An incomplete sense of logistics requirements may cause companies to miss out on otherwise ideal sites. Although the shortage of qualified sites is a challenge in the current industrial real estate environment, there remain development-ready sites along, or nearby, rail infrastructure that should be considered. By not prioritizing rail early on, companies may limit their choices and settle for a less-than-optimal location.
  
  
• Taking Steps Back if Parameters Shift: On the other hand, companies that insist on requiring direct rail service when alternative solutions would work can likewise overlook otherwise aligned real estate options. As previously stated, requiring on-site rail can significantly reduce the number of suitable site options.
  
  
• Designing a Facility Without Consideration for Rail Engineering: Failing to account for rail infrastructure during the design phase of a facility can result in costly rework and delays. Rail spurs, loading docks, track layouts, etc. require careful planning and engineering for seamless facility integration. Ignoring these factors early on can lead to significant construction delays and operational inefficiencies.

Site Selection Group can help

Site Selection Group regularly assists companies considering investment in the United States by objectively evaluating critical site selection factors such as labor quality and availability, operating costs, economic incentives, and availability of industrial real estate.