Friday, July 13, 2012

Of professionalism, and profitability

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Over the last six months or so as I've made my rounds visiting short lines, regional railroads, and Class I's from the locomotive cab to the executive suite, I've found a refreshing sense of renewed purpose. I'm seeing a real desire to find the right combination of professionalism, accommodation, and consistency that will build a sustainable and profitable enterprise.

The most successful Class II and III roads have found a level of collaboration and service design that involves both customers and Class I roads. There are no surprises and "train time is anytime" doesn't work any more.

arizona-easternBut "How much does it cost?" and "Can I afford to switch this customer?" are among the oft-recurring themes. The heart of the matter is that many short lines have franchises that are radically different from what they were 20 years ago.

Where, for example, at the outset there were a dozen or so customers doing 10,000 loads a year spread out over 100 miles of FRA Excepted track, maybe two of the original customers remain and the short line is now doing 30,000 loads a year with five customers. The original locomotives, say three third-hand GP7s, are gone and in their place are six SD40-2s; the track structure is FRA Class II or better, mostly continuous welded rail (CWR).

Now comes the rub: how one meets the service design requirements of the big customers and still switches the cats and dogs. Part of the answer is in managing the allocation of resources and that mandates adequate cost controls. But before one can control costs one has to measure costs, and here is where there appears to be a consensus that most short lines can do better.

Doing so starts with capturing ton-mile data. The Gross Ton Mile is the building block of rail financial analysis, because it's the common measurement (denominator) for work performed. And although any short line with an Excel spreadsheet can run its own numbers, if only on a very rough-cut basis, there's a better way. The good folks at RMI have built a very sophisticated suite of ton-mile data reports, such that one can run just about any combination of inputs -- customer, car type, STCC, load/empty, car owner, etc. -- and see at a glance which customers are consuming what resources.

I'm looking, for example, at a Gross/Net Ton Mile detail report for a short line for the first three days of May. For each car by initial and number, I see load/empty, commodity name, miles, gross tons, net (revenue) tons, net ton-miles, from and to. At the end is a Grand Total with cars, miles, gross tons, GTMs, net tons, and RTMs.

The way you get this is easy. Use the" Ton/Mile Selection" screen and fill in the blanks for the details you want. Any choice you leave blank will return all items that link to what you specified. Run it as a text file and you can download the tables into an excel spreadsheet for further analysis.

For example, the sample report tells me each carload of stone is worth around 3,500 net ton-miles while each car of ammonium fertilizer is worth north of 8,600 net ton-miles. Higher rated commodity, longer haul, private equipment—obviously margins are better on ferts than stone and the RMI report tells you by how much. Now you have something to measure against. And you can tell at a glance which customers are paying their way and which are consuming your assets for free.

Douglas John Bowen

Douglas John Bowen is Managing Editor of RAILWAY AGE. He also served as Editor of Intermodal Age from 1989 to 1991, and has held various positions at Inbound Logistics magazine, High Speed Transport News, The Journal of Commerce, and CNN/Money. Bowen began his journalism career at the Asbury Park Press, a New Jersey daily newspaper. A graduate of Rutgers University, Bowen resides in Hoboken, N.J. He served as president of the New Jersey Association of Railroad Passengers (NJ-ARP) from 1987 to 2000 and again from 2004 to 2010, serving on the NJ-ARP board from 1984 until 2012; he remains a member of the statewide organization.