U.S. Railroads Resurgent With Digitization at Just the Right Time

Written by Daniel MacGregor, Nexxiot AG
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Vector flat global transportation concept illustration. MIT Sloan Management Review

The first plans to build a U.S. transcontinental railroad from East to West were drawn up in 1845. As “Last Spike” ceremonies came to an end during the late 1800s, this vast investment in infrastructure became the core of American culture and economic power.

By the early 1900s, the U.S. was becoming increasingly urbanized with railroads acting as arteries, supplying cities with food, fuel, building materials and market access. A town’s potential for prosperity became directly linked to the railroad. Culturally, railroads also played an important part in defining the nation. They opened new territories and were in part responsible for the creation of national parks and for powering the fledgling leisure industry, helping to pioneer the arrival of hotels, resorts and restaurants.

We have witnessed the constant rise of road use for freight transport over the past 20 years. During this time, we seem to have lost our railroad heritage or an understanding of its relevance. We might be surprised to discover the nation’s major railroads still create more than $275 billion in economic activity and generate nearly $35 billion in tax revenues every year. Critically, they support nearly 1.5 million jobs across the industry and its connected sectors.

Railroads have many advantages over other forms of freight transport, especially for moving bulk goods across large territories. Railroads deliver massive cost advantages, better safety records, better performance efficiency and play an important part in meeting rising sustainability regulations and goals. Now, surging interest from enterprise and government is bringing rail freight back into focus more strongly than ever.

With such a long history and so much at stake, we are wise to consider the state of infrastructure and the requirements to make rail freight services fit for purpose in a modern-day supply chain. The rail folks I know are all brilliant, highly committed, knowledgeable and passionate about performance and daily improvements. A highly supportive enabler culture exists, but it’s not enough on its own. Railroad workers, engineers, fleet planners, maintenance managers, asset rental agents, operations directors and everyone in-between rely on high-quality information to do a quality job.

It’s important that we don’t get misty-eyed over nostalgia, either. Instead, we must fight to modernize an industry we care so much about. On any normal day, there are 500 “lost” freight cars in the Chicago area alone. Cars are often sent out in error and interchanged to wrong locations. Technical issues, mechanical unpredictability and train blocking issues compound the pains. Most sidings, spurs and industry tracks don’t have electronic or digital means to trace the cars. Seasonal shortages of specific asset groups like gondola railcars create spikes in prices as the volumes of scrap and prices to shift it vary. This can be managed through better planning, but this is only achievable if the tools are in place.

Speaking with our customers, we discovered one case recently where they were ordering the maximum allowance of 999 cars a week in the hope of getting just one car to load with scrap. As the car entered the Chicago district, it would often get lost, sometimes taking weeks to find it, and get it back on route again. In many cases, the load would be pilfered when waiting in impoverished areas and the shipper would lose profits as scrap weights were cut dramatically. This eventually caused a flood of excess cars due to low network fluidity and wasteful empty moves. These problems were compounded as assets were covering long distances to satisfy the customer who had been left without cars but had urgent outstanding orders to deliver. Eventually, as demand slowed, the assets would be found and returned all at the same time, only to result in the new problem of severely congested yards.

Use cases are also found in the utilities sector. Large coal-fired power plants that receive their coal solely by rail unit trains are under pressure to reach target tonnage with long turnaround times from mine to plant. With multiple 110-car sets, they need accurate ETAs for better planning and to reduce and investigate missed loadings and deliveries. With limited data and tools, the only solution until now had been to add more cars to the fleet to soak up the inefficiencies. These leased assets increased costs incurred, and yet service and tonnage continued to decline. After investigation, the additional carsets were determined to be congesting the network, classification yards and mine facilities. Customers realized that accurate location and movement history was required to optimize the fleet and operations, and reduce costs while hitting tonnage targets.

With access to onboard hardware and digital tools like real-time dashboards, alerts and automation of processes, it’s possible to put assets to work by putting the data to work. The data gives a complete picture of the operation, and also offers a way to make continuous improvements.

So, tools that enable speedy responses, improved fluidity, decreased switching and better asset utilization lets shippers and receivers put rail freight services front-and-center of their transport strategy. By providing more value, better experiences and decreasing the risk, the track to greater profitability is open again for rail operators and lessors.

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.

Categories: Analytics, Class I, Freight, Intermodal, Switching & Terminal Tags: ,