One of the common themes in presentations from railroad industry executives and experts at the RailTrends 2015 conference in New York City was the shift in customer expectations from that of a speed-oriented service to one based on reliability.
The “new” service imperative in the railroad industry is one of reliability rather than speed, according to several presenters from the RailTrends 2015 conference held in midtown Manhattan last week.
Rod Case, partner at global management and transportation consultant Oliver Wyman, described this as a paradigm shift from scheduled service to “doing what you’ll say you do.” The idea being that rather than focusing on train speed as the ideal metric for the performance of a railway, fulfilling specific customer needs and requests has taken precedent.
This shift starts with the shippers, who have essentially said they would rather have a slower transportation service as long as it is predictable and reliable. As long as they get their cargo when the carrier says it will be delivered, they’re generally OK with waiting an extra day or two.
This favors the railroads from a structural standpoint and higher service levels could drive an increase in rail traffic, but it can’t last forever, according to Case. He said there is a strong chance that the United States could be moving toward a privatized highway system in which users pay for the increasing cost of road infrastructure and repair.
Should this happen, Case continued, freight that has been transferred to rail could easily return to trucking as improved road conditions cause an increase in service reliability.
He also argued that modern consumer culture has caused a redefinition of “good” when it comes to delivery services. It used to be that plus or minus one day was considered good, reliable service, but now consumers can go shopping on E-bay or Amazon and get guaranteed delivery the next day.
“Why would shippers expect anything different when they go to work, when they can get same-day or next-day service when they shop at home?” Case asked during his presentation.
Maintaining reliable service is easier said than done of course, especially in a demand driven industry that can be quite unpredictable, a point made by Canadian National Vice President and Chief Marketing Officer Jean-Jacques Ruest when he spoke about ways to grow the railroad business.
“In the rail industry we are a demand driven industry. We cannot create freight; we can only move the freight the economy offers to us,” Reust told the conference. “But how doe we get a bigger share of that freight the economy offers us?
“And obviously this means getting a share not only from the next railroad, but from the highway, from the seaway, from the Mississippi River, or from different gateways, and we need to work harder to redefine service.
“Train speed, or velocity of cars is maybe not quite the service the customers expect and want. And that goes back to the fundamentals of how we gain market share.”
Like Case, Ruest argued the service imperative lies in railroads doing what they say they will do, but he had a slightly different perspective on what was most important to the customer. The railroads, he said, “talk about metrics which more and more are becoming less and less relevant to our customers.”
“We talk about train speed, we talk about car velocity, we talk about dwell time…but the point is that when you look at these things (from a business perspective) you actually are looking at more costs. You’re sweating your asset, running your asset faster, you lower your cost, and have a better operating ratio, but when you talk to a customer about these metrics, he is not quite seeing exactly what it means to him, or to her.
“What does that do to me?” he continued. “Because my journey actually begins with bringing a container from Shanghai and I need to bring it to a plant in Ohio. So how does train speed help me in that case?
“Or if I’m shipping pulp or lumber from Northern BC to housing start markets somewhere in the U.S., train speed is great, but it doesn’t really speak to whether or not you supply me with all the railcars I asked for this week. Because for a lumber producer job one is to meet his orders.
“It’s order fulfillment, it’s not speed of the train,” that is most important for the majority of shippers, said Reust.
Whether its schedule reliability, being where they say they’ll be when they say they will, or order fulfilment, guaranteeing enough supply to meet a customer’s needs, that are a shipper’s top concern likely depends on the type of shipper and product. That being said, it seems there is a paradigm shift taking place away from train speed as the ultimate measure of railway service.
Either way, a railways ability to adapt to this “new” service imperative in the industry will likely be a major deciding factor in their ability to attract and retain business.
“Rail doesn’t have to be fast,” as Case put it, “it just has to be consistent.”
The ‘new’ railroad service imperative: Reliability over speed
