Dec 6, 2022Liked by Gad Allon

Great post! Another unique competitive benefit that American freight rail holds is the likelihood of any competing network forming being so low. In today's world, a new rail line (or even interstate) being developed would face much opposition from eminent domain opposers and regulatory scrutiny that it would like be DOA...one last note, the post mentioned that US rail network operates on electricity and that train operators can operate for longer periods of time. Both of these would appear to be slight misnomers. For the electric power, while most all US locomotives do use electric traction motors to move the engine, the high majority are powered by diesel generators on the locomotive with the small exception being passenger rail in the northeast US that uses overhead transmission cables. Lastly, US rail operators are held to similar Hours-of-Service regulations by the US Department of Transportation/Federal Railroad Administration, typically about 10-12 hours.

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Thanks Max, this is very insightful!

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The cost of consumer goods are already high and there is also a short supply due to logistic disruptions. I do not see how rail share can be eroded by trucks any time soon. There will definitely be a reset in prices and it will be upwards and not downwards. The efficiency has included a certain overheads cost for the rail operators. when looking at both automation investments and employee comp and benefits in the rail sector, those costs will have to go into the increased overheads and get passed on to consumer. my 2 cents!

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It's interesting to observe the premium that companies will pay for speed and responsiveness, especially when affecting things like manufacturing production lines. An ex-SpaceX engineer once told me a story: Musk was missing a part in the manufacturing pipeline. He called the company and they said the fastest it could ship to him was in two days. Musk didn't like this answer, so he pointed at two associates immediately to his right, and told them to take his Jet to go pick the part up themselves.

You can imagine the chartered flight would've easily cost $15k, just for one part. While this likely a tail-case, it indicates that in high pressure situations, companies will find a way to pay.

Zooming out to society at large, it seems like high pressure is increasingly common.

First, there is already global chaos (in the form of supply chain issues, trade-wars, COVID-19, etc.). Second, we also culturally value speed. Lean Startup Methodology (while typically about SaaS) is about iterating quickly to come up with a product. Companies receive prestige for how short their timeline to $1B in revenue is. etc.

These pressures add to the incentive for companies to pay for agility and responsiveness.

Great post, Gad. I really enjoyed it.

Just subscribed :)

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