Railway Age: Short Line and Regional Marketing Advocate
September 1999


RETHINKING THE PARADIGM

 

ne way to take costs out is through increased efficiency. For example, if we reduced car cycle time by 10 percent across the system, we could save about $45 million a year on foreign car hire costs, $38 million in lease and repair expenses and $150 million in freight car investment. With every mile per hour we add to train velocity, we get the equivalent of 200 locomotives, which is like getting 200 more units for free. (Ike Evans, President, UPRR)

Evans isnít the only class 1 president looking for ways to speed up the process. Each of the big roads has its own approach, but the goal is the same: do it better, cheaper, faster. What does that mean to you, the shortline operator? What it means is that youíll need a strategic plan that can support these goals.


Each Class I
has its own
business model and
works best with
partners who
fit the model.

The details of your strategic plan will depend largely on which class 1 partners you have because each of the North American class 1 railroads has developed a different business model for improving profitability. CSX looks increasingly at contribution per car day whereas NS leans to the operational efficiency and traffic selectivity side. BNSF is moving toward individual accountability for yield management while UP, as noted above, is driving profitability through better asset management. North of the border, CN is wrestling with excess capacity while CP lives closer to the edge. But the common thread throughout is that the class 1s will work best with partners who can fit the model.

So just how does the shortline operator go about creating a business model to fit the focus of the connecting class 1s? A couple of examples will serve. In one, a North Carolina shortline shifted from carload deliveries to unit trains to fit the NS efficiency and selectivity model. The net result was a doubling of shortline business in less than a year as NS added more trains and the shortline added more capacity, made some adjustments to the interchange time and place, and helped speed up the unloading process.

The other example is provided by the Kansas shortline that teamed up with BNSF to make a large elevator on the shortline a 286 shuttle train loader. The shortlineís first challenge was to answer the question, "Who should I see about this?" Once accountability was established, the parties were quick to reach an agreement under the Railroad Industry Agreement ("Railroad Industry Agreement: Salvation, or More of the Same?" Railway Age, November 1998). Thus the net contribution for the shortline increased and BNSF got the 286 access it needed.

Clearly "business as usual" is no longer something you do with the seat of your pants. What you do today will affect what you do tomorrow, and so on, and thus you need a plan to grow your own business. Moreover, that plan must be part of the connectionís strategic plan. BNSF in particular has made a point of inviting shortlines to share their visions and to have each shortline partner be part of the BNSF business plan. Says Henry Lampe of the BNSF, "Shortlines with a plan or plans in place will no doubt have a distinct advantage."

The plan, obviously, has to do with growing revenue and yield for both shortline and class 1. That in turn means more "value added," that aspect of your service which will delight and surprise your customer, say consistently delivering a transit time of nine days when you say nine days. Knowing exactly where you can add value requires a running analysis of the daily work and monthly patterns: whatís essential and what can be set aside. The questions are "Will doing X add value to the service we provide? Will we have more money in the till at the end of the day if we do X?"

Here again, an example is in order. A shortline in New Jersey was faced with a high-volume move that earned low per-car allowances and car hire costs were going up. Conrail agreed to a bump in the per-car allowance, but not enough to make up for the added car cost under normal cycle times. The shortline then went to the customer to see if cars could be turned faster. As it turned out, the customer wanted the cars pulled as soon as made empty anyway and the next cars placed as soon as possible after interchange.

The questions were asked and the shortline learned that rapid place and pull added value as measured by the customer. Since the incremental operating cost to do so was minimal, turning cars faster meant more money in the till at the end of the day. As it turns out NS will replace CR in this move, and the shortlineís quick-turn paradigm fits the NS model to a tee. As the saying goes, a rolling car gathers less per diem.

The examples above show how important it is to communicate and share goals and objectives with the connecting class 1 roads and Ė no surprise here -- the best time to do that is at the annual shortline meetings sponsored by the class 1s. And of all the meetings Iíve attended Iíve found the UPís format the most beneficial because it gets you to the right people right away.

The 1999 UP session is in Omaha later this month, and half of the allotted meeting time has been set aside for scheduled shortline appointments with specific market managers on specific issues. And since we all know UP is looking for better asset management practices, the shortline manager who goes to his appointments in Omaha with specific thoughts on how to cut out that extra car day will be better positioned than his neighbor who does not. Just rethink the paradigm.


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