act, and deliver -- like a truck
Jim Giblin of RR Donnelley, no stranger to these pages ("Lead, Follow, or Get out of the Way," RA, September, 2000) writes, "We need two things from the railroads: competitiveness and consistency. Railroads need to offer a product that is competitive with truck. It needs to look like a truck, act like a truck and deliver like a truck. And yes, it could probably even be priced like a truck if the previous requirements were met."
Now that doesnít seem like too much to ask. Or does it? Take car supply, for example.
The railroads themselves own 500,000 individual freight cars at roughly $50,000 a pop. Total investment: $25 billion. All these cars have to be replaced or rebuilt every 20 years so a $billion-plus every year has to go to repair and replace freight cars. Therein lies a conflict.
The rails will tell you thereís money to be made by speeding up the railroad Ė increasing the velocity, if you will. UP says that for every one MPH they add to the average train speed they can save 250 locomotive units. At a $million or more a copy thatís a fair consideration. But to get that increased locomotive efficiency more track capacity is needed.
Asked to comment for this article, a good friend involved with class 1 route structure e-mailed me, "Itís a single-track system out there. Too many trains [can kill] line capacity, leaving trains sitting on sidings with locomotives and crews attached." At least, continues my correspondent, when cars are held in yards power and crews can be working elsewhere. So again, track capacity (or lack thereof) drives velocity.
Absent the ability to move trains at the velocity needed to keep systems fluid, consistency and thus competitiveness suffer, which brings us back to Giblinís complaint. He is, by his own account, "really in the business of moving perishable commodities. Most of the printed matter we are responsible for has a very limited shelf life. We tend to have very high service requirements because of this and so conventional railroad carload service is no longer an option."
So. The railroads are spending a $billion a year on freight cars. Reliability issues are drying up much of the merchandise carload business. As a result most of the new cars are for low-rated bulk commodities. Yet the low value commodities move in unit trains, meaning better reliability, better car utilization, and better return on the invested capital.
Now consider that many of these bulk-hauling cars are owned or leased by shippers. Because the rails have no car ownership in the move, per-car rates are lower than they would be if moving in cars supplied by the railroads. Maybe the next step is to blow up the connection between the railroads and car ownership, lowering freight rates and freeing up capital for expanding capacity.
The $billion a year spent on car replacement and repair could then go into making the railroad go faster Ė increasing the velocity. Faster trains mean more frequent trains and better reliability and consistency for the shipper. More frequent trains mean more scheduled trains, and more scheduled trains mean regaining market share.
For example, the rails lost the Louisville liquor business to the trucks eons ago. Yet Anacostia & Pacificís Louisville & Indianapolis (LIRC) has teamed up with Amtrakís Express service to get it back. Peter Gilbertson (LIRC) and Ed Ellis (Amtrak) got their heads together and saw an opportunity to use the scheduled Amtrak service to meet the customersí delivery parameters: four days to LA.
Hereís how it works. Shipper loads trucks in Louisville. Trucks drive to the LIRCís Jeffersonville (IN) facility. Goods are transloaded directly into Amtrak Express cars. Amtrak departs 2150 Day One, arrives LA 0840 Day Four, transloads to customer same day. Consistent scheduled service does the trick.
Although the tracks are owned variously by LIRC, CSXT, Amtrak, and BNSF, neither of the class 1s have anything in the move but track space. No locos, no cars, no marketing departments, no customer service personnel. Itís almost like the intermodal business. Order a truck from Schnieder, it shows up, it gets loaded, it gets delivered. Whether it gets on a train someplace along the way is immaterial. As long as delivery is consistent and competitive, who cares?
The class 1 railroads have themselves demonstrated they do their best work when they neither market the service nor provide the equipment. The advantage to intermodal, they will tell you, is there is no yarding, no gathering or dispersing of individual cars, and the trucks take care of local delivery. And a lot of the marketing is handled by Third Parties.
Maybe what we need is to blow up the connections between railroad marketing, railroad operations, and railroad car supply. Then the railroads can concentrate on moving trains and their customers can concentrate on their core businesses without trying to second-guess the railroadsí transportation performance.