[nthot]

Anecdotally, I have a few friends who work in the railroad industry and they are currently seeing something close to this. The company is almost entirely owned by large institutional funds.

Union Pacific has a huge drive for constantly increasing efficiency. Their profits are up significantly year over year, but this fall they cut about 500 jobs from their headquarters in Omaha, around 6% of their Nebraska employees, and this isn't even the first time they've done it. To keep the big investors happy they are constantly searching for ways to cut costs.

On the other hand, this might also be a product of the industry. The railroad is necessarily growth constrained. It's unlikely that significantly more products will move to being transported by rail and there is very little room for new lines to be constructed.

[hangonhn]

I'm not entirely sure your conclusion is correct. Almost 40% of all US freight is moved via rail. The reason passenger trains suck in the US is because our railroads are built for and prioritized for freight. When Berkshire Hathaway purchased BNSF, they noted that trains connect companies between the two coasts of the US. It is often the case that a company that produces something is on one coast but the port where its products go out is literally a continent away. Even domestically bound products have to be shipped between coasts because of how population centers in the US are situated. So assuming the US population and industries continue to grow, I think freight rail will continue to be in demand.

[xenadu02]

Believe it or not, sometimes products are unloaded on one coast, transported by rail, then loaded on a ship on the other coast.

[chimeracoder]

> Believe it or not, sometimes products are unloaded on one coast, transported by rail, then loaded on a ship on the other coast.

That is surprising, since shipping by water is dramatically cheaper than any other form of surface shipping, even factoring the extra distance to sail down to the Panama Canal. What's the point of adding the land leg?

[SaintGhurka]

Maybe because the canal is too small? Prior to the opening of the new locks in 2016, the largest container ship that could fit through the Panama Canal was pretty small by modern standards. And even with the new locks opened some ships still have to go around the horn.

[ceejayoz]

Shipping via Panama doubles the distance, and it's probably half the speed as well. Some products will likely benefit from shaving off two or three weeks from China to the EU.

[pedrosorio]

Why would you ever go through America to ship something from China to the EU? (which are 6/7 time zones apart vs 17/18 going in the other direction)

[dmoy]

Northern China -> UK by container is like in the neighborhood of 5+ weeks.

China -> US is around 2 weeks, US -> EU is around 1 week.

So depending on where it was coming from, might make sense?

I dunno enough about the routes.

[saghm]

Speed, maybe? I don't know offhand if it's faster or not, but if it is, I can imagine that spending more to get the products to their destination faster could be worth it in some scenarios.

[newnewpdro]

Isn't passage through the Panama Canal expensive?

[xxpor]

Expensive in absolute terms, yes.

Based on the calculator here:

https://www.wilhelmsen.com/tollcalculators/panama-toll-calcu...

It costs $1,196,397.54 for the largest possible ship to go though.

That's for 13,000 TEUs though (so 6500 standard containers) That's $184 per container. Now think about how much a container holds, and per item for sale it becomes pretty cheap.

[steamer25]

My Costa Rican brother-in-law was just telling me that a couple Central American countries are working on new canals because the Panama canal is fairly saturated.

[zacharycohn]

Because if you're in Kansas, there is no water route to the Pacific Ocean?

[Pfhreak]

The original quote was this:

> sometimes products are unloaded on one coast, transported by rail, then loaded on a ship on the other coast.

Not sure how Kansas is relevant...

[dmurray]

The big index funds aren't exactly known as activist investors. Even if it's "Wall Street" collectively, it's not Vanguard or State Street that is pushing Union Pacific to cut costs.

[jandrese]

It's a side effect of having real number feedback on how you're doing. Management can't just make up their own metrics anymore, there is a third party that tells you how well you are doing, and that third party wants to see constant growth or they'll start dropping your price and the financial press will pick up on that and start writing articles about how millennials are killing the rail industry.

It takes real gumption for the upper management to say "screw what the greedy bastards on Wall Street think, we're doing just fine." Especially when their yearly bonuses are tied to what those guys on Wall Street think.

[scott_s]

Your comment still assumes active investors who are looking for value stocks. Index funds don't discriminate, they just buy stocks in the entire market.

[whack]

Index funds don't discriminate against stocks, but they can discriminate against directors and executives who don't deliver their desired profits and returns. Ie, by voting them out. This is already starting to happen. See: https://www.barrons.com/articles/passive-investors-are-the-n...

[scott_s]

I mostly read about passive firms voting more on special issues like climate change or good governance. Where did they they talk about voting out directors who didn’t deliver profits? (Honest question, I mostly read the article, then came back to it and hit a paywall.)

[whack]

> Michelle Edkins, BlackRock’s global head of investment stewardship. “It’s not just about climate. It comes back to the point of governance as a lens, and when it’s not serving shareholder interests, it’s a flag.”

[jandrese]

Right. In fact index funds should be better for management since they won't be rocking the boat so much.

[jonknee]

The pressure to increase profits exists regardless of ownership, if anything having large institutional funds own the majority lessens the pressure (vs an activist fund or something similar). If they're leaving money on the table someone is going to take it.

[xenadu02]

Not really; you can look at BNSF (bought by Buffet) vs Union Pacific. Buffet takes the long view, as a result BNSF has been spending billions on capital projects and hiring.

Wall St is known for encouraging short-term thinking.

[xkjkls]

I'd say it's a lie that Wall Street is known for short term thinking. Hell, it is even a unofficial motto of Goldman Sachs to "be long-term greedy".

Are there a large number of activist investors who want certain companies to trim fat? Yes. I wouldn't always say that trimming fat is always synonymous with short term thinking. For all the companies that are underinvesting in the future, there are 5 whose management has given them mission creep to invest in areas that incinerate capital. Especially in the current interest rate environment.

[whatok]

BNSF is spending money on capex because it's the smart thing to do in that industry right now. That's not a consequence of a Buffet investment. Buffet also invested in Heinz and they immediately fired thousands and are cutting costs left and right.

[atomical]

Buffett lays out some reasons why it's tougher for brands like Heinz.

https://www.cnbc.com/video/2018/05/07/buffett.html

[pmiller2]

You forgot: there's a hard ceiling to how high they can raise prices, because they have to compete with trucks. Together, that all implies that if they want higher earnings, cost cutting is the only way.

[hangonhn]

Uh... not sure if that's actually the case. Trains are cheaper and actually faster over a long distance. The optimal way to ship is actually intermodal: ship for between countries/continents, trains for long trips over land, and then trucks for the last leg. They don't really compete with each other as much as they work together, especially since they have a standardized protocol for inter-process communication known as containers. Of course electric automated trucks could change all that.

[pmiller2]

> Trains are cheaper [...] over a long distance.

Right there's your hard cap. Make trains too expensive relative to trucks, and, suddenly, everything goes most of the way by truck.

[ethbro]

> Of course electric automated trucks could change all that.

Unmanned trucks crossing long distances of rural America sounds like a recipe for hijacking loads.

[elsonrodriguez]

Hijacking trucks filled to the brim with sensors sounds like a recipe for jail time.

The logistics of stopping and looting a truck involves too many parties, and ensuring that each party is following enough security protocols to not be identified via face, vehicle, or gait will ensure that only a few small sophisticated heists will ever be successful.

[a3n]

Anecdata: a fellow driver told me the story of a truck stopped at a light in "a bad part of town." Thieves rushed the back of the trailer, cut the lock and opened the door, just in case there was something worth grabbing.

Another, parked overnight with a load of electronics at the southern boarder. He woke up and discovered the trailer had been broken in to. Yet it didn't seem anything was missing. Maybe something "extra" had been placed on the trailer before it crossed in from Mexico?

In our company we're reminded when we'll travel through high theft areas.

If we're pulling a trailer designated as "high value," wherever we are, we're not allowed to pick it up unless we have the fuel and legal hours to go at least 200 miles before we stop.

My vague point is that every security move in history and to come can be defeated, if it's worth it to someone. And it's always with it, to someone.

[BTW, it "feels" unlikely that a judge or jury would convict based on gait analysis.]

[bdhess]

> BTW, it "feels" unlikely that a judge or jury would convict based on gait analysis.

But it does seem plausible that gait analysis could lead to a suspect, who could be convicted (or more likely, plead out) on additional evidence discovered during an investigation.

[yourapostasy]

> ...filled to the brim with sensors...

Has someone actually worked out that tons of sensors will cost far less than people-driven trucks? As it is, fuel is the big cost, followed by driver salary [1]. L5 autonomous driving is not going to come cheap, that gear is going to price as close to 3X driver salary as they can get away with, on the assumption they can run close to around the clock. Whose margin is getting compressed for the additional sensor gear?

This doesn't even touch upon that as soon as L5 is available and if 24x7 L5 operations approved, you suddenly just increased industry transport capacity 3X, leading to a sudden oversupply in certain segments and scenarios, while still requiring a certain baseline to handle peak load demands. That chaos will cause a lot of margin compression, and lots of rosy profit projections from L5 autonomous driving without drivers will turn into a race for finding more customer demand.

I can see some modest sensor gear, but nothing fancy, and not a lot of them. Perhaps high resolution visual and night vision cameras coupled with lots of street camera access, with lots of back-end software processing will deter most theft attempts?

We might ironically get to L5, only to stick lower-paid security guards on a random number of trucks.

[1] https://www.thetruckersreport.com/infographics/cost-of-truck...

[elsonrodriguez]

The average truck driver earns about $70k a year. Even assuming that the sensor suite costs as much as an entire Tesla Model S(which in addition to a sensor suite includes an actual car), the system will pay itself back in a year.

Also once automated, the trucks can engage in all sorts of hyper-miling shenanigans since they don't have to worry much about traffic during a significant part of their 24/7 operation, especially on more remote roads. That's additional fuel savings.

[jandrese]

Sensor packages and near-AI compute clusters constantly get cheaper as the technology improves.

Today it doesn't make sense, but in 10-15 years when a full self-driving solution costs maybe $1k? It's a no brainer, especially for long haul trucking.

I'd guess that putting a security guard on a truck will be an exceptional occurrence, probably only used when the truck is hauling an especially valuable cargo or going through a known trouble spot.

[zjaffee]

There are multiple mile long trains with only 2 people on board at any given time, unmanned trucks won't be a problem as they'd likely travel just travel convoys with a couple people overlooking the fleet.

[pmiller2]

Automated trucks don't necessarily have to be unmanned.

[jandrese]

They do if you are automating them to avoid having to pay human drivers. It's kind of silly to go to all of the effort to automate a truck and then make someone sit on their thumbs behind the wheel for hours on end.

[_wp3r]

If you can reduce legal risk(accidents) by 50x or 100x and extend the road time by 2x or 3x, then paying a security person seems like a doable call. Especially if you can pass some of that premium risk mitigation on to the customer, if load value dictates.

Raw hourly cost may not even be the primary point under the manpower line of reasoning. It is certainly important, but not necessarily the key issue.

[azinman2]

But why? I would think that trains, which aren’t constrained to gasoline and have dedicated tracks, should be able to obtain higher efficiencies compared to trucks going the same long distances?

[dj-wonk]

Think of shipping as an optimization problem where various modes are selected for different parts of the path. You have to run the optimization problem to see what mix makes the most sense -- and don't expect it to necessarily be simple or obvious.

Logistics is complex; you'll also need to factor many things into the optimization: * both fixed and marginal costs of each mode (e.g. maintaining track, monitoring safety, wear and tear on vehicles, varying fuel costs) * constraints (due to technology, personnel, regulations, etc) * fluctuations in demand and shipping objectives * lots more

If you want to focus on only one slice of the problem... Sure, for the exact same route (meaning that a particular track has already been built), one would expect that trains are more efficient. The data shows that; e.g. https://en.wikipedia.org/wiki/Energy_efficiency_in_transport...

[dwighttk]

you are correct. That's why they don't really compete with each other. You put it on a train for a long distance and then trucks pick it up to spread it out from there.

[dj-wonk]

Sometimes people use "compete" in a casual way that overlooks key economic connections. Competition is a force that is always present, even if it is not currently the "most obvious" factor in play at a given time.

I think any definition of competition must be relative to the sphere of economic activity. So, when it comes to transportation in general, rail and trucks do compete -- by this I mean they offer services with varying prices and characteristics.

Just because rail and trucking have different sweet spots at a particular point in time does not mean that they don't compete. Both (a) think about how and why customers choose them over the other, (b) seek opportunities (for investment or growth) that lead to a competitive edge, and (c) therefore, influence each other.

[dwighttk]

that's what my "really" was meant to convey... "they don't compete with each other" would be contra what you said, "they don't really compete with each other" isn't. A different way of saying it is "Trucking is not competitive with trains at certain distances"

[rplst8]

> cost cutting is the only way

Not always. If you provide a value proposition that a cheaper offering does not, say speed, you can increase volume.

Highway transportation will not likely get much faster, but high speed freight via rail seems like it might have some room to grow.