Only for busy point-to-point connections. You can bundle up wagons from different senders or for different recipients into one train for the bulk of the journey, but the first and last leg are often done by truck because it's more cost-effective than running trains with just one or two wagons from/to individual factories.
Now if you had a train network with autonomously driving wagons that self-assemble into convoys, that would be quite something (and probably more cost-effective than truck convoys in the long run because the lower friction of metal-on-metal compared to rubber-on-asphalt).
Yes, there's a safety limit to how close trains can be.
Sure you can make trains bigger but many times trains are already the necessary size for their time windows, destinations, etc.
Also simply making bigger trains puts more control into the hands of a few companies. If there's going to be more competition driving prices down and offering more options, then there needs to be smaller margins in safety controls to make room for more competition.
1) You can't make the train longer than the station (think of a subway station)
2) I don't need 300 more seats on the 6:30 AM train, I'd like to sleep 30 minutes more and have an option at 7:00 too. The existing 7:30 train arrives too late for my needs.
Now if you had a train network with autonomously driving wagons that self-assemble into convoys, that would be quite something (and probably more cost-effective than truck convoys in the long run because the lower friction of metal-on-metal compared to rubber-on-asphalt).