Embargoes: A Controversial Tool

In the wake of CN’s recent embargo on shipments destined for interchange to BNSF Vancouver, we’re breaking down the impacts of embargoes, and highlighting how they simultaneously favor the railroad and punish the rail user.

To start: what exactly is an embargo? An embargo is “a temporary method of controlling traffic movements when in the judgment of the serving railroad threatens congestion, accumulation or other interference with operations such as track, bridge or other physical impairments that warrant restrictions. Embargoes may “contain a provision for a permit to provide a controlled movement of traffic to an embargoed destination.”

Embargoes are crude and binary in nature because they stop — or greatly curtail — certain traffic flows immediately. While other options, like delaying or diverting shipments over time, would have a gradual impact, embargoes are abrupt. They can have negative effects on railroads and shippers — railroads lose (or delay) traffic, and thus, the money associated with those shipments. Likewise, shipping customers are unable to complete certain shipments, losing time and money, and resulting in dissatisfied customers.

In short: in a system where asset minimization is the goal, embargoes help the railroad maximize profits, but push off the burden of railway failure onto others, to have more capacity in reserve. In other words, rather than investing in more crews, locomotives, cars, or track to handle either anticipated growth or surges in traffic, the railroads constrain expenditures. Capacity built in excess of immediate demand may reduce ROI temporarily and make the OR look good, but it may also impose a costly burden on shippers and the economy.

How can we avoid embargoes? Information sharing is a crucial first step. With transparent information, shipping customers and railroads, alike, would be able to tell when a traffic build-up is starting to occur. Shipping customers would be able to avoid piling on by rerouting their own shipments, or switching modes. As a result, the railroad would be better able to maintain operations as normal. Information sharing could also avoid the need for the railroad to invest in more capital because its resources wouldn’t be so stretched.

Across the supply chain in trucking, ocean shipping, and air travel, this push for near real-time visibility is aimed at improving network fluidity and the shipper experience. Rail should be no different.

RailState is the only unbiased information sharing database of its kind. Our robust network of sensors tracks every train that passes, and gathers the passing time, direction, speed, and type of each train. Our cloud-based AI then applies machine learning to develop information about the train and each of its cars, culminating in a massive traffic database. Within an hour of a train passing one of our sensors, shipping customers have information on capacity, congestion, commodity flows, and transit times. One hour is all it takes to gather information, assess operations, make a new plan (if necessary), and optimize the supply chain.