winning, and keeping customers
he Year 2000 has been most instructive for the railroad industry. Weíve seen the business slowly adjusting to a supply-chain environment where customers increasingly buy on transportation value, not just the freight rate. The BNSF-CN merger attempt drove home the fact that the railroads have had some catching up to do in terms of how The Best Companies are run today.
Traditionally railroad operating emphasis has been on running bigger trains infrequently because fewer train starts mean less operating cost per car. Thatís important when service levels are cost-driven and sold so as to beat the lowest bid on the table. However, itís a long-established fact that a quality product as measured by the customer always commands a premium price. Then you can afford to do what the customers want.
Well, customers want dependable service and no excuses. What follows is a summary of how the various carriers have fared in this environment and what 2001 is expected to bring. Perhaps Paul Denton, CEO of shortline Maryland Midland sums it up best: "We must provide a specialized, customer-oriented service which means our trains run when our customers want them to." Increasingly, that means On Time Every Time, and the class 1s are getting a lot better at it. The future looks brighter than it has in a while as the rails come to grips with the modern management practices needed to woo, win and keep customers.
The big difference between CN and everybody else goes straight to execution in terms of customer service and asset management. The real payoff came in October when CN turned in 30% more earnings per share on 5% more revenue YTD. Boxcar miles per day rose 14% over third quarter last year, and half of what theyíre carrying is new business off the highways. For 2001, CN sees more of the same targeting the business now in trucks with new service offerings, continued expense containment, and better asset utilization. Double-digit EPS appreciation and significant free cash flow should result.
At the October analystsí meeting in NYC, Norfolk Southernís Vice Chair and Chief Operating Officer Steve Tobias stressed a return to scheduled service. Don Seale, SVP Sales and Marketing, talked about the importance of the "core carload business" to NS. For the quarter revenues from other than coal, intermodal, and automotive accounted for nearly half the total. Add back auto and itís 57%. So carload customer satisfaction has got to play a key role for NS in the coming year. There is no other choice.
Union Pacific had said earlier this year it expected to increase revenues at a rate of GNP-plus. Six percent year to date surely delivers that. And for 2001 UP cites new services that capitalize on reduced variability, transit times, and car-cycle times to continue the trend. At CSX, merchandise carload revenue (not intermodal, auto or coal) was up 3% in the third quarter and 12% for nine months. CSX is also trotting out new service initiatives, some of them with UP, and CEO John Snow says he is "cautiously optimistic" for the coming year.
Canadian Pacific Railroad CEO Robert Ritchie says just 46% of their business is interline. Thus CP is looking for more ways to involve feeder lines and e-commerce. Octoberís shortline gathering in Calgary showcased a number of new themes including expanded web links and profiles of connecting shortlines and regionals. The secure e-portal for shortlines is next, and the live beta test I saw in Calgary is a sure new-business grabber.
The big BNSF story is about positioning for the changing rail user environment. Says Chief Commercial Officer Chuck Schultz, "We have to be better at listening to customers and doing what it takes to meet their expectations." The company has set up a customer advisory board, holds customer symposiums, and conducts customer satisfaction surveys. And the recurring theme has been consistent guaranteed service. Sounds more like P&G than a railroad.
Recall in late September BNSF was the first railroad ever to offer a money-back guarantee: if the car doesnít show up as planned, you get your money back. All of it. However, this is no pricing gimmick. It takes knowing the customerís processes intimately and being able to provide long-term solutions.
Everybody knows shortlines excel in customizing service offerings and BNSF reports that revenues from shortline-served customers are up 6% YTD vs. 2% for BNSF-served customers. Thatís almost all "loose car business," and Dave Garin, Group VP for Industrial Products, can tell you exactly where some 20,000 shortline carloads of new business are coming from.
So regardless of which class 1 youíre talking about, shipping on, or using through a shortline, there are finally emerging new tools to add value to the supply chain management process. As one rail executive told me, "At one time if we were to exit every piece of carload business we didnít do well, weíd be out of business." Happily, the exits are being sealed.