Shippers, freight railroads and the investor community must tackle the “dysfunctional” relationships between them so that they create an effective and efficient supply chain and meet future demand for rail service, according to a whitepaper produced by academics and consultants.
“Despite substantial changes in the supply chain and transportation landscape, alignment between carriers, shippers and the investment community remains dysfunctional and is not set up for 21st century transportation needs,” according to the Center for Railway Education at Michigan State University (MSU) and supply chain consulting firm Maine Pointe in the whitepaper, “Rail Optimization: Carrier/Shipper/Investor Relationships.”
The whitepaper’s authors interviewed parties and individuals among the three stakeholder groups over the past year. Their findings comprise the paper, which was released at the Railway Interchange conference in Minneapolis this week.
The authors found that looking beyond a railroad’s operating ratio, a Wall Street metric used to gauge the financial health of a company, to also focus on customers’ experiences is key in order for the rail industry to meet a potential 88 percent increase in rail demand between now and 2035.
“The market has softened for over-the-road [freight transportation], but it won’t always be soft,” Michael Notarangeli, Maine Pointe executive vice president of engagement partners, told FreightWaves. Rail is a viable option for shippers to move products, but the industry has gotten away from addressing customer needs more proactively, he said.
To meet that anticipated rail demand, the overall supply chain needs to be effective and efficient, the authors of the whitepaper wrote. The paper defines effective as “meeting outcomes required by intermediate customers and final consumers throughout a supply chain” and efficiency as “the ability to impact operational metrics such as on-time performance, achieving cost targets and resources allocation.”
But before the railroads, shippers and investors can get to that point, they need to acknowledge that communication has broken down between the various stakeholders, according to the paper. Rail service disruptions and shippers’ hesitations to rely on freight rail are symptoms of that broken communication. For instance, while the goal of precision scheduled railroading (PSR) was to improve reliability, the actions of closed yards and and staff reductions without appropriate new communication broke down some existing communication lines, the paper said.
The paper’s authors said the purpose of the whitepaper is to start a dialogue among all stakeholders – the Class I and shortline railroads, shippers, customers and suppliers – to learn about what might make everyone work better together.
“The purpose of the whitepaper is to give a background to the current situation and stimulate discussion on the potential ways forward to help develop an efficient and effective future freight railway network,” said Nicholas Little, director of railway education at the Center for Railway Research and Education at MSU. The center is part of the university’s Broad College of Business.
“Not all relationships are frayed. There are some good practice examples where railways and their stakeholders do work together well… We saw some very good efforts from the railroads in short-term improvements in the last several years, accelerated in the last 18 months in some cases by PSR. However, we want to get beneath the surface and find the longer-term improvement opportunities that we know are there and help the industry as a whole to exploit those opportunities,” Little said.
The paper outlined three potential objectives for stakeholders. One is to begin improving relationships to create win-win partnerships. Another is to evaluate the supply chain model of “buy-make-move-fulfill” to eliminate bottlenecks, enhance throughput and optimize shipment size. A third objective would be for rail carriers to put these ideas into action.
For now, MSU researchers want to investigate and report on anonymized examples of efforts to improve relationships and achieve successful outcomes.
Another step might include facilitating a discussion between leaders among the various stakeholder groups to begin to grapple with the various issues, with an eye on future discussions on how stakeholders can tackle industry-wide concerns such as complying with regulations and improving costs.
Notarangeli said existing dynamics between shippers and the railroads now are similar to what’s happening in ocean logistics.
“There has to be a mindshift,” Notarangeli said.