“Carload is probably the step-child of the industry,” Case says, pointing to the way railroads have grown their intermodal and bulk networks.
“Carload is still that complicated thing that we all struggle with,” Case says. “But it has relatively weak market share and it’s packed full of opportunities to either reduce costs or improve service. So it’s the new frontier.”
The industry’s shift to operating plans based on Precision Scheduled Railroading has reduced terminal dwell, enabled railroads to handle traffic with fewer freight cars, and has lowered costs, says Case, a partner at Oliver Wyman.
But operational improvements have not been matched by commercial changes that would make railroads better supply chain partners and take advantage of the increased capacity PSR has created, Case says.
With more than 100,000 freight cars in storage, thousands of locomotives parked, and many train and engine crews furloughed, the Class I railroads have plenty of capacity available to cheaply test innovative approaches that could help boost carload volumes, Case says.
“We hope this inspires the innovation and chance-taking it takes to grow the business,” Case says.
Railroads can gain more carload traffic by doing three things, Case contends.
First, they need to work with shippers to gain end-to-end inventory visibility. Second, they need to become tightly integrated with supply chains. And third, they must understand when receivers need shipments and how big those shipments need to be.
Case cited automotive traffic as an example. Railroads currently handle about a third of finished vehicle traffic, a figure that could fall to under a quarter of automotive moves from assembly plants to distribution centers by 2045, according to an Oliver Wyman analysis.
Loads from assembly plants vary widely, both by day and by lane, Case says. This contributes to increased dwell or interrupted service when a train is full and loads must wait for the next day, whether at the assembly plant, an intermediate terminal, or interchange.
The industry average dwell is 14 days for auto racks, which includes cars sitting at origin, destination, while empty, and in terminals, Case says. The best dwell for finished vehicle traffic is just two days, he says.
Why the difference?
The railroad with just two days of dwell receives 48-hour notice from the assembly plant about not only volume but where it’s headed. That gives the railroad enough time to plan service around traffic levels.
The railroad also pre-blocks the traffic at the assembly plant, so it is picked up by a road train and then block-swapped en route. This means service is faster and more reliable, Case says.
Manufacturers are keen to reduce transportation costs so that they can better compete in a global economy, Case says. Railroads can play into that trend if they can work more closely with shippers.
As coal declines and intermodal growth slows, carload has the biggest opportunity for growth if railroads can better coordinate with shippers and receivers, Case says.
A failure to make carload more reliable and more tightly integrated into supply chains puts railroads’ existing business model at risk, Case says.
Railroads have been losing market share to trucks for decades, and absent changes, carload traffic is expected to see meager growth over the next 25 years as truck traffic doubles, according to an Oliver Wyman analysis.
If railroads had merely maintained carload traffic market share over the past decade, Case points out, they would have $14 billion more in annual revenue today.
The importance of merchandise and bulk traffic can’t be overstated: Both support the broader rail system and the local feeder lines needed to gain new business, Case says.
Case spoke at the RailTrends 2019 conference sponsored by independent analyst Anthony B. Hatch and trade publication Progressive Railroading.
Tesla ships all of its vehicles by truck. I don’t think they even bothered to check with the railroads. It is nearly hopeless with this current stock of suits who seemingly bent on worshiping at the WS alter. Currenly PSR is masking very serious underlying conditions creating a shrinking industry. Frustrating. My hope is that Prime or other serious shipper will purchase a railroad and take it off the market like Buffett did with BNSF. It is the only way the bleeding will stop. Wharton nails it too. That business was low hanging fruit that is shrinking. The railroads had better wake up and start selling the so called great service under PSR.
An afterthought.
Railroads cannot live on Intermodel if the US restarts manufacturing.
Cannot live on Coal as it is phased out as a power source.
Cannot live on fracking sand as the whole fracking industry slows to a trickle.
Cannot live on bulk oil as the pipelines are opened.
And will lose the auto business due to lousy delivery service.
Someone has to look beyond the P&L sheet.
Traveling in Europe, I noted that Freights along the Rhine intermingle with Passenger trains, apparently, very well.
Also noted that freight trains all appeared to be 29 carloads or so.
Got to thinking, if the US roads really wanted to agree on a 1 man crew why not test out a shorter length of the train with a 1 man crew for hot or competitive loads like automobile or other commodities that have been cherry-picked over by the truckers due to lack of meeting service schedules.
This would utilize engines, track, and manpower, and could make the railroad once again competitive with trucks for service. They already have the pricing edge, but price is of no value when the commodity is needed/required on a calendar that the railroads cannot now meet.
Also, as an afterthought, maybe it would get Amtrak off their complaints that the long freights are destroying their schedules. It is pretty obvious, that if there were no other vehicles on the AMTRAK rented tracks, they still could not meet their service schedules.
Mr. McGuire: please correct my assumption if wrong, but your statement sounds exactly like it came from a full “Cult of PSR” convert. And no one in that cult, including EH Harrison himself, sees the forest. Only the “trees” that represent maximizing profit through running the biggest trains with only the highest-margin business. Mr. McGuire, it’s not sustainable. If you’re like EHH and his disciples—who have pruned down the Class Is to the point that operating people in the field are worked to death, don’t have time to talk to existing customers or go after new business, and you can collect your fat bonus because Wall Street loves you (for now)—then congrats. You’ve won—for now. Not every customer of UPS or FedEx or JB Hunt reaps the same profit, and what JJ Ruest (a CEO who gets it) said at this conference is true: an efficient railroad is only half the battle. EHH’s PSR model (and yours) is deeply flawed because an efficient railroad only gets you so far. You must grow the business; you must look for new business all the time; you must take care of existing customers so they will allow you to grow with them. Perhaps you only care about railroad efficiency and profits TODAY. If you care about the future, I’d suggest you re-read Mr. Case’s very wise comments.
Robert, the number one priority is NOT what kind of money a train makes. That kind of mindset is what has given us this decline in market share.
There should be three priorities:
– the VALUE created for the shareholder, which is not not at all the same as immediate profit. Right now immense value is being left on the table.
– the value created for workers, because they are going to keep you going, keep you safe. This too has been completely ignored in favor of an adversarial union protected environment.
– the purpose of the railroad in society. If that purpose is only to make money, then society will organize another way to get what it needs. In this case, that means trucking even though railroads are technologically and environmentally superior.
I work with class 1 railroads everyday, and I can tell you they do not want more traffic and still bend over backwards to get rid of customers. they seem to think they can increase rates on what little traffic they have left to remain profitable.
Great ideas, but the railroads are no longer an innovative industry and certainly not while they worship WS. If innovation does come, it will be from the outside. Shippers are the ones who pushed double stack containers. As for domestic lanes, a new an innovative technology such as Flexivan might be a good start. One 53 foot trailer on integrated trains. Too, I have always been a proponent of open access. Currently, the railroads are happy with soaking more out of the assets they already have as long as the cuts go deeper than revenue loss. A bad recipe for growth. Railroads overall need new ownership. Otherwise, against market share, we will continue to witness a shrinking railroad industry.
Open up the rail lines to shipping companies’s totally privately owned freight trains. Let them run their own private trains on a consistent schedule and sell to them the time and rail space.
The short lines and regionals are doing what the big rails long ago quit doing– turning over rocks and beating the bushes for new business– and doing a hell of a good job at it. Do the Class I’s even have sales and marketing departments worthy of the name? The big guys just have to send a local to the interchange, pick up the pre-blocked loads, and tack them on to a regular run. Let’s hope that they don’t start sticking it to them with a lot a silly rules about how often and when they will pick up and drop off, as they have with many on-line customers.
Mr. McQuire: What you say might be true for some commodities. Yet, looking around I see low value groups such as cement, brick, lumber and steel, all great car load candidates, as the domain of trucks. Also, the 16 counties of my North Alabama area have well over one million residents. None of these eat food brought in by rail car. The potential is great for dependable, more affordable and less highway crowding car load freight.
What is important is not how many trains a railroad runs but how much money those trains they do run make. The number one job of management is to make money for the owners whether they be stockholders, other companies, pension plans or what ever. Carload is too expensive, slow and unreliable for today’s economy. Just because there are a lot of trucks out there doesn’t mean that hauling that freight by rail is profitable. And it has to be profitable or you’re going out of business.
I agree with Mr. Rose. Just look around. All kinds of business lost to trucks.
The railroads need to throw significant effort into improving the operations of classification yards – right now they’re treated as obstacles, when in fact they should be the railroad’s core strength. UPS will tell you that WorldPort – their version of a railyard – is their strength, not their airline.
The last major “improvement” to yard switching tech was the adoption of remote-controlled locomotives. But even then, that more or less was just HR savings. Remotes typically have the same or less throughput per shift than switching with an engineer.
So going back further, and perhaps the last evolutionary change of the classification yard was the advent of computer-generated switch lists. I’m not aware of anything else which has really been improved upon since.
Perhaps the biggest item on the to-do list: in-railyard tracking of rolling stock. Right now, there’s a list when stuff comes in, but then it’s up to the yardmaster and switch crews to follow the switch lists and not misplace cars and end up with missing or out-of-order equipment – which happens with frightening regularity. That’s how a lot of cars end up with extra dwell or worse: end up departing on the wrong train, often in the wrong direction!
It would be a huge deal if yards could turnover their traffic faster and more reliably. In turn, it would drive down the cost per unit switched, and free up capacity at the same time.
Wasn’t this the whole point of the auto mixing centers on NS, combine multiple sources into a single train? Looking at both market share and traffic overall, I’d say PSR / TOP21 has scuttled this. Consider the market for autos in the mid-atlantic population centers of NYC, Philadelphia, Wilmington, and Baltimore. We used to have 2 dedicated loaded and empty rack trains. Now it’s down to one pair, that carries traffic for 4 auto ramps AND regular freight, and has to enter and then REVERSE OUT of Enola. It’s not even close to being fast or reliable.
NS is touting that they removed 59 road train starts (so far). PSR could work a whole lot better if they instead made a concerted effort to fill out those 59 trains. Blend those low-volume intermodal lanes into the general freight network instead of dropping them entirely. Have an empty autorack train haul intermodal. Institute a road local that works from point to point and drops traffic at intermediate yards. JUST DO SOMETHING THAT ISN’T SUBTRACTIVE.
This analyst won’t see anything like what he recommends as long as the only train management wants is a 2-mile long hodgepodge.
Combine carload into the intermodal network. Just like different tiers of IM service exist do the same for carload. Create different service types to suit customer operations. Build more Logistic centers that combine IM Ramps with Warehousing that supports carload freight combining blocks of Carload and IM at orgin… The list goes on..
The Canadian RAILWAYS are an ARROGANT outfit and selective in what they want to haul. There is no reason why
they cannot get back into hauling what they used to .ARROGENT – SELECTIVE .THE ONLY THING THEY LOOK AT IS
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ right ___ wrong ___
Well, okay. So, we want to dress up carload with some IT gingerbread so that it ties into customer supply chains better? Two barriers. One is the long list of improvements in data quality that still aren’t resolved. Some belong to customers – unreliable release load events. Some are RRs like not being able to tell an interchange on a run through train from a cut of cars. The other is execution. If a train is only two hours late into a classification yard, you can figure that 8% of the cars are going to miss their connection and have to wait a day…and two hours late is considered “on time” on some RRs….and that’s if the yard is otherwise performing well.
There are just too many moving parts to carload for it really to perform well. Attempts to do so will be grossly underfunded and wind up being just lipstick on a pig.
Better to get on with the future. Intermodal highway conversion…and organizing the operations around intermodal. Let carload fill the boutique niches where it makes economic sense. I-81, 85 and 95 are still full of trucks. What are we waiting for?
First step is to actually replace the existing 50′ and 60′ boxcars, you remember those 86′ Hi-Cube boxcars for automotive traffic, now imagine that same boxcar for general freight…sell it as rolling warehouse. Wait, this ties into my plan for a rail served retailer that buys product by the carload and has it delivered directly to each warehouse sized store, placed on the floor right from the car and priced to sell…it’s a win-win-win idea. I’ll have to talk to Mr. Buffet about buying COSTCO and putting me in charge to jump start the plan.
You might add another step & this step would be #1. Check with investors first before going to steps 2, 3 & 4. Seems the investors run the show today.
How long have the railroads had to master carload traffic? Maybe 150 years! The fact that we have an industry losing market share in an environment of record jobless claims and a very healthy economy speaks volumes about today’s railroad managers. Talk about “dropping the ball!”