Are digital railroads now set to fly?
IoT (Internet of Things), Big Data and AI are no longer novelties. Amazon has changed the way we live, and algorithm has become a word that even teens can understand as they seek to optimize online engagement. Promises have been made about the new age of data driven business, but are we really ready for the tidal wave of change? The railroad business sometimes displays reluctance to get on board with new technology.
In this article, I will define the technology landscape, simplify the business cases and spell out the implications of technology selection to make the runway clear. Whether we realize it or not, the race is on, and some are already out of the starting blocks. So, here is a blueprint for digital railroad success.
The U.S. railroad business is unique and not like any other rail operation in the world. The backbone of American expansion and progress, it enabled growth across the entire continent from the start. It made it possible to leverage mineral oil resources by distributing petroleum so all manner of businesses could boom. Large railcar manufacturers play a dual role as both supplier of railcars and leasing provider, to mobilize entire industries, and in turn, enable the industries they serve. Purebred lessors often come from an asset management background, as railcars offer attractive investment opportunities and serve railroads, shippers and cargo owners alike.
Shippers and BCOs (beneficial cargo owners) play a key role in the National Association of Manufacturers (NAM) and often have their own fleets or run large, leased fleets for long-haul transport. This is especially true in the O&G (oil and gas), coal and agricultural sectors. Railroads operate track infrastructure and run locomotives, transporting their own cars, leased cars and shipper’s railcars. Class I railroads have significant influence through AAR and Class II (regional) railroads, and Class III carriers (short lines) provide critical interchange and feeder services to keep the industrial zones alive.
What does all this mean? There is intrinsic complexity and co-dependency built into the system. If there is a risk in missing out on innovation, there is also a perceived risk in driving innovation too fast for adjacent stakeholders to keep up. This does not, however, reduce the need to change. Current infrastructure has severe limitations, and old business practices cannot hope to deliver what customers now demand in the digital age. The system is creaking and groaning under the pressure, and anyone who cares about the future of the railroads knows something must be done fast.
Safety is Non-Negotiable
What are the levers of change? Maintenance, asset utilization, customer service and damage allocation are all high on the list. Before we address these use cases, it’s wise to consider the elephant in the room. Industrial IoT requires hardware to be deployed. Hardware comes in many forms, but one thing is clear. It must always conform to the highest standards in safety, or it simply cannot be considered for rollout.
If a supplier does not treat safety with the highest priority, then huge problems lie in store. Class 1 and 2 and Zone 1 and 2 are the commonly used and accepted explosion protection standards for North America and should be considered the minimum standard for asset mounted devices. Any omission or deviation from this critical yet complex technical area is a complete block to further evaluation. This requirement immediately eliminates many hardware devices from contention, including those from most overseas manufacturers. The process of certification takes around a year, which means any hardware that does not comply today cannot even be evaluated in proof of concepts (POCs) starting now. Class 1, Zone 1 Hazloc certification means that assets with cellular hardware equipped can go into intrinsically safe industrial environments including all plants, O&G facilities and customer sites to load and unload their cargo. Additional sensors used to address specific use cases must also be fully certified to the highest safety standards to allow them to be deployed.
R&D at the Core
With safety being such a critical topic plus intrinsic complexity and the perceived risks of driving innovation already mentioned, R&D must be central to any technology vendor’s DNA. The process of designing, implementing and improving business processes using new data sources is iterative, and each customer’s requirements are unique. Experienced R&D partners are required to decide on which opportunities to focus, according to the wider CEO agenda and the opportunities that present themselves to increase direct market share or share of wallet in the value chain.
Some clients want wheelset monitoring as a priority, which may include temperature sensors applied to bearings. Others want to start with air brakes,where real-time monitoring and data transmission can save significant costs and reduce dependence on unreliable wayside detection. The impact of tried and tested ‘on-asset’ solutions can dramatically reduce the chance of failed components that lead to derailments. Some railcar fleets incur costs of up to $100 million annually on repair or replacement of damaged wheels. Impact detection (measured in kips) and handbrake position detection are also required. These technologies can also be used to prevent tread buildup of brake shoe materials that damages wheels and eventually leads to derailment if untreated. In many cases, the wheelset must be set out or brought to a workshop and removed on a lathe when it’s badly accumulated. Not only is this action costly, but when this happens on a mainl ine, all manner of operations are impacted. Velocity measurements are reduced, as in the end, one breakdown can impact up to 75 trains or more on a highly traveled corridor, meaning these publicly reported KPIs (Key Performance Indicators) soon slip across the network.
A few of the use cases mentioned here are clear wins when it comes to maintenance. Some railroad operations choose to start by focusing on maintenance, as this is often where the quick wins present themselves. Others decide to address utilization as a priority. Technology vendors must be flexible to address both maintenance and utilization in order to offer real value. Empty loads are wasted moves. To get a reliable and future-proof return on investment, customers, shippers and receivers must have all their pain points resolved. Demurrage and detentionare opportunities to put money in the bank. One of the vital considerations is to find ways to improve Intermodal flow. Detention charges in intermodal interchanges, maritime shipping yards, plant marshalling yards and freight hubs all take a sizeable chunk of profits.
It’s not just railcars that need intelligent IoT hardware. Locomotives also require reliable real time monitoring to ensure they are running to the maximum. This opportunity is often overlooked. Vendors must address this as each locomotive that remains on the sidelines is unable to contribute to profits. The two biggest costs in the business remain labor and fuel. With everyone so busy keeping the lights on, fixing problems and cutting costs, it’s no wonder the locomotives can be optimized with the right data and process automation applied. As data flows, it presents opportunities to get a detailed view on the real picture on the ground. PLM (Product Lifecycle Management) is increasingly important. Getting more lifetime out of components is the central pillar of operating efficiency. Testing a new bearing in the lab offers limited chance to get a true picture on how it will perform in the field. With new IoT hardware deployed, we take the research phase out of the lab and enable product improvement decisions to be made on real evidence under operating conditions. If railroads and manufactures can improve the design, selection and lifetime of components, ultimately, they can lease more cars and move more freight.
Main Ecosystem Players
There are many open questions. The world is changing fast. As it becomes standard for end consumers to anticipate next day or same day delivery, so the supply chain must evolve. Railroads need to be enabled to play their part in multimodal and combined transport strategies. Uncertainty around the direction of the Biden Administration with oil pipelines, fracking and sand oil requires an IoT framework that is flexible enough to adapt. We have witnessed the rise of the supply chain platforms. However, these players are in general aggregating existing data, but more than this is needed for digital railroads to really fly.
The RailPulse initiative made up of Norfolk Southern, GATX Corporation, Genesee & Wyoming, TrinityRail and Watco is converging to define the scope of the railroad digitization movement and evaluate potential vendors to service these needs. Rail Pulse partners collectively own close to 20% of the total North American railcar fleet, and they have announced that they are seeking to accelerate the adoption of telematics to meet two specific objectives.
The first is safety, with topics like hand brakes and impact events in focus. This confirms our view that the safety topic is essential to enable digital progress to be made. The second is to bring competitive opportunities out of the data, to make rail compete with other modalities such as road transport. It is important to note that the companies behind Rail Pulse intend for this venture to benefit the entire rail ecosystem, including shippers, Class I, II, III and S&T (switching and terminal) carriers and railcar operating lessors. This is very encouraging, as it shows the intent to provide value to all actors and participants across the value network.
Railinc, as part of AAR, aims to support business processes and provide business intelligence that helps railroads and rail equipment owners increase productivity, achieve operational efficiencies, and keep their assets moving. These are essential goals. They are embedded in critical operations and financial systems throughout the industry. Currently, Railinc claims to manage more than 9 million messages each day through its EDI network, which includes transportation waybills, advance train consists, blocking requests and responses, and trip plans. As we can see from other sectors like maritime shipping, EDI is slowly being phased out, and even though Railinc plans to increase tracking and tracing services to help customers identify cars and their shipments in the rail network, there are still limited hardware devices deployed to get access to that all-important real-time location and sensor data.
TrinityRail’s stand-alone TrinsightTM initiative is also in development. But while it intends to integrate CLM (Customer Lifecycle Management) data, the railcar IoT device hardware has not yet been deployed. There is also the question of whether competitors will be comfortable to have their data on a competitor’s platform. Here, decisions still need to be made, and the rollout also takes time. The Rail Pulse partners will begin development of the platform later this year, with a full-service platform targeted for availability to the North American railcar industry by the end of 2022. The development of a holistic solution that sufficiently priorities safety and all the other commercial business cases is not trivial. It must include open sensor architecture, intrinsically safe devices, connectivity, standards, device management, data management, standards for sharing data, an intelligent IoT cloud that can handle the analytics and ultimately the business process automation.
When we look at comparable initiatives, it is clear that there are many challenges to overcome. ROI is defined over the course of iterative development with experienced and quality focused vendors. Sensors and device hardware must be evaluated, and business models must be created around defined value and prioritized objectives. It is not just a case of selecting something and hiring a team of data scientists. Developing and testing hardware takes time and managing version control and selecting components when the whole world is switching to an IoT based, data-driven approach it is highly complex. It might make sense to select vendors who have a proven track record in delivering an integrated solution, use an existing purpose-built platform that is tried and tested and start focusing on driving differentiation by creating IP (intellectual property) on creative data use, data that could already be flowing. Competition is then redefined, based on reinventing business models that shippers and cargo owners have been crying out for since IoT was born.
When we look at IoT in the logistics space today, we notice overwhelming evidence of a new and significant megatrend sweeping the investment world. Vast capital is being directed at supply chain-focused, data-first companies. A decade ago, venture capital was channeled at organizations selling software innovations to classic verticals. Now, we see that a trickle of investment has transformed into a torrent of funding being ploughed into the IoT logistics companies that generate new unique data, in vast quantities.
The tools of old incumbents like ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management) are being usurped by ML (Machine Learning)-enriched IoT enablers who combine sensors with analytics platforms to create radical services that extend across the entire ecosystem of operators, actors, participants and facilitators. Those who have Digital Twins of entire asset fleets, components and related business processes will leapfrog all previous platforms. To do this, the full value chain of sensors, gateways and analytics must be supported using an integrated approach and extendable UI (User Interface). Not all platforms are created equal. Some are just aggregators; others are not open to integrate data from third-party devices. Some IoT companies focus on the device side but do not escalate value through cutting-edge algorithms and advanced Big Data techniques.
IoT logistics will be won and lost on the ability to disrupt business models across multiple processes throughout the global value network, at pace and in scalable ways. Few realize how much data is already being captured and why this really matters. When Microsoft strategists and engineers prioritized putting their terminals into every office, home and school, they understood that this was the key to selling their software. This ploy was so effective that Microsoft became a global standard in desktop computing. The approach provided the basis to sell iterations of Windows products for decades to come and build the behemoth we all know today. The same thing is happening in IIoT (Industrial IoT). With many more billions of objects around the globe than people, the scale will be like nothing we have seen before. Consolidation is coming too, with “buy and build” plays central to this space. Technology vendors who were first out the blocks, pre-2015, with an integrated product suite are in prime position to take the lion’s share.
Daniel MacGregor is Co-founder of Nexxiot AG. He created and built this multi-million-dollar, digital supply-chain technology company from scratch. The company, he says “has a clear focus on digitizing mobile assets like rail freight and containers to create services for smoother operations in an integrated solution.” Daniel is a leading voice in the drive for sustainability and supports the creation of standards and applications. From hardware to information distribution and business-process innovation, Nexxiot’s clients deploy these solutions to differentiate their services and monetize digital insights. The company recently established a U.S. presence.