This month we’ve put together a high-level quantification checklist to help you determine the cost of railroad service issues to your company and give you some insights on what you can do about them. Remember this is only a guidance document and each individual situation varies accordingly. Gathering data and supportable facts is time consuming and tedious but must be done to identify the resulting impact to your situation.
The quantification checklist is comprised of:
- Identification of the Problem
- Understanding the Problem
- What’s your Pain Tolerance?
- Action! Why Now?
- Next Phase – Options to Engage
Identification of the Problem
Railroad service consistency is an issue that generally surfaces on a seasonal basis. For instance, during grain harvest, times of large importations such as we’re seeing now on container freight, large shifts in demand such as when the west Texas oil companies shifted from white sand from MN and WI to local brown sand in NM and TX. Since Precision Scheduled Railroading there also seem to be a consistent service problem intonation in certain lanes that have been impacted by inconsistent rail operations. While we don’t know the exact impact of these service issues’ we do know they are costly in revenue dollars and productivity losses. And don’t overlook the fact that the service issues may be caused by your operation. In any case you’ll want fact-based data to proceed.
This step for most companies will be generally be easy to identify with general responses such as, “yep we have a rail service problem!” Now to quantify.
Understanding the Problem
In order to understand the problem more intently there is a requirement to measure the service standards and establish a baseline and track progress or regress from this base.
Example baseline requirements:
- What are the number of days for all shipments originated by week, month, quarter, year?
- Cycle time on loaded shipments
- Cycle time at destination
- Cycle time of empty railcar return
- Cycle time at loading location
- What are the number of shipments and days per shipping lane?
- Identify the top shipping lanes that are used for shipping 80% of the product
- Identify those parameters for cycle times as shown in #1 above
- Identify what rail service commitments should be by shipping lane
- Extrapolate run time by using publicly available service data from the Surface Transportation Board and Association of American Railroads and pricing, rate and mileage data from individual rail carrier websites. This will get you in the ball park but won’t be exact
- Discuss with your handling carrier what service parameters should look like. Remember that the day of the week can change the service parameters. A goal here is to try to best line up your shipment needs with the railroad delivery schedule
- Discuss with your marketing or sales representative at the railroad.
Track Progress or Regress
- Tracking progress may be a bit more challenging in that you’ll need a software solution to gathering and storing the vast amount data you’ll want to collect to validate your hypothesis. This data then requires a set of eyes on it for further analysis – yes a human needs to look thru the resulting reports to identify the problem areas more clearly.
- To determine where you’re at establish a benchmark time and performance standard from the initial data. More often than not it’s at this stage you’ll need to scrub out the outliers that aren’t there anymore, have been setting for years, have been scrapped and UMLER not updated, etc. Inclusion of these outliers will distort your data making the results inaccurate.
What’s Your Pain Tolerance
The magnitude of service disruption can be categorized in the following segments.
- Shipments not getting timely to customers
- Value of missed commodity shipments
- Cost of not meeting contractual commitments
- Accessorial service charges
- General rising freight costs
- Ineffective supply chain
- Storage costs enter the picture
- Demurrage becomes a real issue
- The problem is internal to our organization
The Problem Really Hurts– This is where you identify value. Take the nine items listed above and assign them a value on an aggregate basis, average or better yet since you’ll have the data, on an individual railcar basis. Review the Understanding the Problem results and merge the two where appropriate. That will give you the cost of your pain points by individual pain point, for example, a specific lane increase in loaded time results in $500 per load decrease in revenue because of contractual commitments not being met (straight decrease in contract price or as a penalty for out of spec as to time frame delivery requirements) or simply because the market has moved away from your market position during railcar delay.
Action, Why Now?
The railroads aren’t going to fix your problems for you, they aren’t going to fix their problems for you either. They’ll try to get better on service issues it is counter intuitive that they like poor service any better than you do. Remember though the changes they implement are for their improvements and economic gain not yours. The value in either cost savings, execution of existing sales, or lost sales you see or don’t see can be staggering. Loss of cost savings opportunities, loss of focus on materializing each shipment from a profit perspective, and loss of existing sales and or future sales can add up to millions of dollars. Focus on what you can change including your own operations if they facts point that way.
Next Phase – Options to Engage
Do Something! That’s what my first boss on Burlington Northern would say to me every other time he went by even though I was engrossed in doing something some 10 hours a day. That’s his way of saying just get started and stay with it until its complete.
At this point you have to make some critical decisions. Do you engage a software solution and learn the details as you go or do you engage a company that knows the ropes and can provide the data packaged and ready for action, or do you do nothing? Data is just data until its converted into information.
Depending on your frustration level, desire to obtain better results and to stop the pain while more finitely manage your railcar assets will determine your course of action.
We’ve been down this path a number of times. Tealinc guidance is set in a deep understanding of railcar service and rail rate and accessorial rates. We know where to look and how to decipher the complicated messages sent by rail pricing, operations, service and accessorial price movements. All results are fact based on data so the outcome is actionable.
When should you invest in changing the ending of the story? Now! The amount of cash (real and unrealized) a company bleeds from inactivity is huge.