By James Shefelbine

Executive Summary

Having observed this industry for over thirty years as a seasoned rail consultant, I’ve seen cycles come and go, but the current moment stands apart. The North American freight rail network faces a pivotal period as it moves through 2025-2026. Let me be direct: after weathering a prolonged freight recession and significant operational challenges that tested their resilience, these companies are now shifting strategic focus toward sustainable growth while managing economic uncertainty, evolving trade policies, and changing market dynamics. This isn’t just another cycle — it’s a fundamental strategic reorientation for the rail supply chain and the industrial supply chain management systems it supports.

Current Market Conditions

Mixed Performance Across Segments

Looking at the early 2025 performance metrics, the story isn’t uniform across all business lines:

  • Intermodal Growth: The intermodal business has been nothing short of exceptional. February volumes were up 6.4% year-over-year with container volume increasing 9.5% year-to-date. February intermodal originations hit 276,654 units per week—a February record that reflects solid consumer spending and the railroads’ ability to capture market share through effective rail logistics services.
  • Carload Challenges: I won’t sugarcoat it — traditional carload traffic continues to face headwinds, down 4.5% in February 2025. This continues a troubling trend, with total U.S. rail carloads down 2.0% in the first two months of 2025 compared to 2024. The industry needs to acknowledge this challenge head-on as part of their logistics optimization efforts.
  • Coal Decline Persists: Coal carloads fell 8.2% in February, marking 14 consecutive monthly declines. The structural shift in energy markets continues, with coal’s share of U.S. electricity generation hitting a modern-era low of 15.2% in 2024. While some power plants are delaying retirements, let’s be realistic about the long-term trajectory here and what it means for the rail supply chain.

Service Metrics Improving

The operational performance continues to strengthen. The AAR Freight Rail Index rose 1.8% in February over January, demonstrating resilience despite weather-related constraints. This improvement reflects the billions invested in network capacity, supply chain technology, and operational stability. When railroads run well, they win in the marketplace through superior logistics optimization.

Strategic Industry Shifts

The Growth Pivot

Let me be perfectly clear: the era of focusing primarily on Operating Ratio optimization at the expense of growth is behind the industry. The “Growth Pivot,” as my market analysis consultant colleagues call it, isn’t just a talking point—it’s an imperative:

  • Leadership at UP, CSX, and CN have recently emphasized growth strategies rather than mere cost-cutting during investor conferences
  • The “Great Experiment” at Norfolk Southern has survived an activist challenge, validating the customer-centric, growth-oriented approach that many rail logistics consultants have advocated for
  • The simple math tells the story: gains from further OR improvement are increasingly marginal compared to the upside potential of revenue growth through enhanced rail logistics services

Competitive and Collaborative Evolution

The competitive landscape is evolving in ways that will redefine the industry:

  • The CPKC merger has created new single-line service options, particularly for north-south traffic, requiring businesses to reconsider their supply chain design
  • Competitors have responded with innovative partnership initiatives like the Falcon service, recognizing that collaboration sometimes creates more value than competition in procurement logistics and supply chain management
  • Cross-border traffic, particularly with Mexico, represents significant growth potential if railroads navigate the policy uncertainties effectively with proper due diligence consultation

12-18 Month Outlook: Key Drivers and Challenges

Economic Headwinds and Tailwinds

The railroads are operating in an economic environment that sends mixed signals for their business:

  • Labor Market Stability: The 4.1% unemployment rate provides a reasonable foundation for consumer spending, which drives much of the intermodal business
  • Services Sector Growth: The Services PMI at 53.5% in February indicates continued expansion in a major part of the economy
  • Manufacturing Weakness: The Manufacturing PMI barely holding above 50.3% with declining new orders at 48.6% is concerning, as this directly impacts industrial carload business and manufacturing site selection decisions
  • Inflation Persistence: With inflation still above target at 2.5% (PCE) and 3.0% (CPI), railroads face both pricing opportunity and the risk of dampened demand
  • Consumer Confidence Declining: The sharp drop in consumer confidence from 105.3 in January to 98.3 in February bears close watching for those providing industrial consulting services

Trade Policy Uncertainty

With 38% of rail carloads and 37% of revenue directly tied to global trade, evolving trade policies represent the biggest concern:

  • Potential new tariffs, especially on Canadian and Mexican imports, could severely disrupt traffic patterns and volumes in the rail supply chain
  • The USMCA review coming in 2026 adds a layer of uncertainty for cross-border business planning, requiring careful due diligence by consultants
  • Let’s be honest about near-shoring: while it creates opportunities for supply chain optimization services, the actual investment hasn’t matched the headline expectations

Environmental and Regulatory Considerations

The environmental advantages of rail (4:1 ton/mile fuel efficiency versus trucking) remain a structural competitive edge in an increasingly carbon-conscious marketplace, but several factors require attention from rail logistics consultants:

  • Potential delays in implementing environmental policies that would properly value efficiency advantages
  • Intensified regulatory focus on service reliability and first-mile/last-mile performance metrics
  • Shifting energy policies affecting both fossil fuel and renewable energy-related traffic, impacting warehouse site selection decisions near rail facilities

Sector-Specific Projections

Intermodal

Intermodal represents the greatest growth opportunity over the next 12-18 months for supply chain technology companies:

  • Continued strength in container imports should support solid growth
  • Service improvements and capacity investments position railroads to capture market share from trucking, especially as highway congestion worsens
  • International trade patterns will heavily influence performance, with tariff impacts representing the most significant risk factor for logistics procurement

Industrial Products

For the industrial carload sector, challenges exist but potential improvement awaits:

  • A manufacturing recovery, if it materializes, would significantly boost industrial products carloadings
  • Infrastructure investments should generate increased demand for construction materials, changing logistics procurement needs
  • Chemical shipments remain a bright spot, with 18 consecutive months of year-over-year growth, compelling manufacturing site selection consultants to consider rail access

Energy Products

The energy franchise faces a mixed outlook:

  • Coal volumes will continue their structural decline despite some temporary stabilization
  • Petroleum products remain influenced by both policy considerations and market forces
  • The industry is positioning to capture growing renewable energy component shipments through specialized rail logistics services

Conclusion: Industry at an Inflection Point

I’ve observed this industry long enough as a rail consultant to recognize when it’s at a true inflection point. The “Growth Pivot” strategy meeting the complex economic environment represents exactly that. Success depends on five critical factors:

  1. Maintaining the service excellence achieved during the lower-volume environment
  2. Making strategic investments in network capacity and supply chain technology that enable growth
  3. Building flexibility into operations to respond quickly to evolving trade policies
  4. Strengthening collaboration between Class I networks and short line partners in the rail supply chain
  5. Aggressively leveraging environmental advantages in both marketing and policy advocacy

Yes, geopolitical uncertainties and potential policy shifts introduce significant variables. But the fundamental advantages of rail—fuel efficiency, labor productivity, and infrastructure ownership—position the industry for long-term growth. The railroads that capitalize on these advantages while successfully navigating the short-term challenges through proper industrial supply chain management will emerge as the industry leaders for the next decade.

References

  1. Association of American Railroads. (March 2025). Rail Industry Overview.
  2. Hatch, A. B. (December 2024). Will 2025 Finally be the Pivotal Year for North American Freight Rail? ABH Consulting.
  3. Federal Reserve. (2025). Manufacturing PMI and Services PMI data.
  4. Bureau of Labor Statistics. (2025). Producer Price Index for Line-Haul Railroads and TL Trucks.
  5. Conference Board. (2025). Consumer Confidence Index reports.