The Railroad Week in Review:
Week ending July 1, 2000

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Companies attempting to "position" themselves need to take a position. Optimally, it should relate to something their market actually cares about. Bombastic boasts-"We are positioned to become the preeminent provider of XYZ"- do not constitute a position. Cluetrain Clues 23, 24.

It's really nice to have a subscriber base that's not afraid to chime in when I've touched a nerve. My column in Railway Age is gratifying for the same reason, and there's been a car supply and quality of service thread going on over there as well. Following are excerpts from the comments on both.

"Enjoyed your commentary on car supply in the June Railway Age. I think your statement that 'Charging less for a crummy product won't get many buyers, but offering a premium product and charging a premium price will,' says it all. Why is it so hard for railroads to hear this imperative? Maybe it's because mature industries come to be power struggles and not profit struggles in each manager's day-to-day concerns.

" 'Why is car supply such a mess?' Maybe it's because car supply costs (rents and depreciation) were only 10% of total class 1 operating expenses according to R1 Reports in 1998, so the specialists running trains think it is more important to try to cut the 43% spent on Transportation (at the expense of customers' satisfaction). Everywhere you look on a class 1 you find leaders who see their mission as efficiency optimization, or economies of scale, or reducing the asset base, but very seldom do you see someone quantifying customers' service quality thresholds and trying to meet them. So we wind up producing a cheap product that fewer and fewer modern shippers can use." - former class 1 market manager.

"Originating and terminating carload traffic is our bread and butter business, and is highly dependent on the secondary mains and branches. With a few exceptions they all contribute mightily to the revenue line. In the long term customers have options. It's difficult to run [a railroad] successfully in the long term if you're cross-wise with your customer base." - Midwest regional RR Exec.

"In reality, you have to stratify the freight transportation market. Let's say raw materials, semifinished goods, finished products, and consumer products. As you move up the food chain each step adds value and inventory carrying costs increase. Transportation cost in relation to product cost decreases markedly. Therefore, selling on price - as railroads do - is a nonstarter, except where volume is high, product cost is low, and transportation is a significant percentage of total cost.

"Can the railroad improve itself to the point of offering a compelling competitive advantage? I doubt it. First of all, a truly swift and reliable carload service would require an attention to detail and operating discipline that is simply unlikely to materialize. Secondly, legacy investments are poorly suited to the needs of the marketplace. Class yards are designed with long tracks to build big blocks to send to the next class yard. We need yards capable of building short blocks and then designing a service pattern to take advantage of them.

"So what do I think the long-term prospects are? Boxcar traffic will probably continue to decline. Shortlines that serve customers who produce or consume low value products will have a better chance of survival than railroads that depend on higher value products. Over the next 10 to 15 years we will see some retrenchment in the short line industry as marginal properties get squeezed out. Regionals and/or multiple short lines that connect with each other and can control a market stand a chance." - Eastern SL owner.

"If the class 1 railroad can supply the cars, then the shortline's cars would be incrementally more car hire to the big road. If cars are forced on [the class 1], frequently they are expensive cars -- more expensive than the class 1 could have gotten them. You hear this stuff from the short lines, but bottom line reality is they want cars that are free on line or they want excess car hire earnings from off line movements. Conrail, for example, used to incent the use of CR-supplied cars by providing up to five days reclaim for each car supplied and loaded to CR." -- Former Conrail exec.

"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 [our needs] were met. The product needs to be competitive with the needs of the supply chain. While most railroads claim an on-time performance of around 90%, most customers (including us) are requiring something in the 95-100% range.

"Consistency applies to both price and service. We need a price that will remain fixed for a specific period of time, with a clear understanding of the process for increasing the price. We need consistency in terms of both the quality and the availability of empty equipment. This is an area where the railroads are seriously deficient. When we call a Werner or a Schneider for a pick-up, they provide the equipment. They don't make the customer go find equipment before they can ship a load.

"We need consistent service. Obviously, on-time performance is important. But we also need the same schedule every time we ship. Motor carriers offer the same transit time, every time they pick up a shipment going to the same destination. In many instances, railroads have different schedules and different transit times depending on what day of the week the load is picked up. This built-in variability can play havoc with a finely tuned supply chain. - Midwestern paper supply chain manager.

Now you can see that I'm really not inventing all this stuff. There is definitely a lack of joy in Mudville.

A new reader in Australia sends this thumbnail on FreightCorp, a bulk freight railroad in New South Wales. "A few years ago the New South Wales State Government split the government owned rail system into a number of separate entities. The freight operation was called Freight Rail Corporation and trades as FreightCorp (www.freightcorp.com.au). FreightCorp operates mainly within New South Wales, [though a] small coal contract in the state of South Australia commenced in January this year.

"FreightCorp hauled 85.5 million tonnes of freight in the 1998/99 financial year. Of that figure 72.5 million tonnes was coal. This financial year that figure should increase to around 75 million tonnes. Grain accounted for 6.3m tonnes and should again be around that figure this year. Bulk commodities 4.5m tonnes (limestone, cement, base metal ores). General freight and containers come to 2.1m tonnes."

Meanwhile, we know that the railroad privatization process is alive and well in Austrail with Westrail and National Rail on the block this year. Could NSW be far behind with FreightCorp? If you're interested, they have a neat website, www.freightcorp.com.au. Good "brochureware," though it still takes a phone call to do any business.

RailAmerica this week announced the well-earned promotions of a number of their senior staffers, capable folks all. Details at www.railamerica.com. Also, RAIL announced that its West Texas & Lubbock Railroad (WTLR) has sold a 6.5 mile corridor of land to the State of Texas for a cash payment of approximately $9.3 mm and additional consideration of approximately $0.4 mm. Recall that last month RAIL sold a part of its ROW in Georgia to that State's DOT.

CSX this week acted to sensitize its poison pill plan after Tuesday's announcement that financier Carl Icahn filed to buy as much as 15% of the company. The plan, a tactic used to fend off hostile takeovers, will now take effect when an outside party acquires 10% of the company's shares; the plan was previously set to be triggered by the acquisition of a 20% stake. Shares were up a buck for the week.

--Roy Blanchard

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