Originally published in Railway Age, January 31, 2018
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The freight railroad industry is considered by many as having a critical role to play in the development and economic growth of the United States. In 2014 alone, it generated $33 billion in tax revenues as part of a total of $274 billion contribution to the economy (Lord, 2016).
Unsurprisingly, expert analysts and investors including Warren Buffett view freight carloads as one of the most important economic indicators (Perry, 2010). Multiple efforts have been made in the past to predict rail freight volume. Accurate prediction is important for freight railroad companies in planning and decision-making for operations, maintenance, labor allocation and capital investment. In the midst of rapid technological development and marketplace integration, prediction of rail freight volumes is all the more crucial. With the right information on future freight volumes, rail companies can efficiently allocate resources to maximize their returns on investments. At the administrative level, this provides a scientific basis for developing policies aimed to improve service delivery (Yang and Yu, 2015). Due to the recent success of TensorFlow; a machine-learning tool used in business applications, this work explored how these tools can be used to predict rail freight carloads in the United States.
Previous Work on Rail Freight Volume Predictions
Past efforts in predicting rail freight volumes involved the use of a variety of regression models including linear, logistic, polynomial and exponential (Ying et al, 2008). Other time series prediction methods such as the Autoregressive integrated moving average (ARIMA) model have also been used by researchers to predict freight volumes in Estonia (Hunt, 2013). Dimension reduction approaches such as principal component regression (PCR), partial least squares regression (PLSR) among others have been used in past studies (Yang and Yu, 2015). Several neural network architectures have also been employed as predictive tools for freight volumes with varying degrees of success (Li and Lang, 2015, Guo and Fu, 2016, Wen and Zhang, 2009).
Focus of Project
Researchers compared the predictive capabilities of long short-term memory (LSTM) networks with three other approaches: naïve forecasting, ARIMA and multi-layer perceptron regression. The LSTM model was developed using Google’s TensorFlow; an open source software library originally developed by the firm’s researchers for performing machine learning and building deep neural networks (TensorFlow, 2017). Common applications of this powerful tool include image classification and language modeling (Abadi et al., 2016).
Due to the capabilities of deep neural networks, they are inadvertently becoming a part of our daily lives and as such, applications in capital-intensive industries such as railroads need to be explored.
Comparing predictive tools for railroad freight volumes Monthly railroad carload data from the Bureau of Transportation Statistics (BTS, 2016) was used for this project. As shown in Figure 1, the period considered for analysis was from January 2000 to December 2016. The impacts of the 2007-2009 global recession on economic activity is apparent in Figure 1 due to the sharp decline in freight carloads during this period. The lowest number of carloads during the analysis period was 1,012,381 recorded in April 2016. The maximum number of carloads from 2000 to 2016 was recorded in May 2006 at 1,521,036. The average monthly number of freight carloads was 1,311,750.