As part of the bigger economic picture, we see railroad traffic slowing down. Less coal and oil moved equals less total traffic- makes sense. In the meantime, the railroads in recent years have worked a lot on adding capacity. In theory, the railroads should be in a good position to get out there and sell some service.
What do you see as the biggest roadblocks towards railroads making those gains in their piece of the transportation pie? In my part of the world, the road block would be a finite amount of outgoing traffic. There’s only so much grain, fertilizer, ethanol and pink rocks to be shipped.
The most important roadblocks are between the ears of top railroad executives, marketing and operating guys.
The top managements have cut HQ marketing staffs back so far that the few left must concentrate on keeping the big fish. They do not have the time to go looking for new traffic. Due to lack of field forces, the carriers have almost no one out on the ground looking for traffic, that is they have no marketing inteligence.
New traffic will often disrupt the operation, and operating guys are evaluated on their cost control, so they tend to resist disruption. You would think the marketing guys could “buy” what they needed from operations, but I know of no institutional mechanism to do so.
For a real world example consider perisahbles out of eastern Washington State. The BNSF has no clue of the long haul traffic they are running past at Wenatchee, Quincy, and Pasco. They gave away much of the margin by allowing a third party to market the anemic service they operated out of Quincy. They could, and should, offer their own service, with their own equipment and control the whole thing door to door. Get all the available revenue! Top management is unwilling to make the admittedly substantial investment in refrigerated containers. When the operational going got tough a couple of years ago, they gave up on the very idea of expedited service of any kind between the PNW and Chicago.
Problems: no knowledge, no champions, no tollerance for risk, no perishable traffic. Same issues apply to even larger market for perishables from California.
Greyhounds sees same issues for meat out of the beef belt that extends to the south and west from your area all the way down to Amarillo.
Mac McCulloch
Grew up in the self proclamed, but truly, Apple Capitol of the World, Wenatchee WA.
So railroads have excess capacity for two reasons. One is that the economy is down, and the other is that they have recently added capacity when business was booming. So what the railroads need to do is have a sale by reducing the price and increasing their speed, consistency of performance, and overall service. That is the economics in a nutshell. As you surmise, they need to get out there and sell their service.
I don’t see any roadblocks to that solution unless the falling economy outpaces it. I am interested to hear what others think the roadblocks will be. We have already heard about some roadblocks in the Super C thread. What are some others?
Railroads thinking that if it isn’t 100 cars at a time and/or moving at least 500 miles (750+ might be closer to it) it isn’t worth bothering about. Also having to actually switch cars, either in/out of a customer or at classification yards to get business is a downer.
They’ve been wholesalers of transportation for so long, I think they don’t know how to be retailers again.
Nor do they really want to become retailers again. Retail loose car transportation would increase costs in switching and the manpower to do the switching.
The simple fact that the railroads do not want carload traffic, but only unit trains.
Shortlines and regionals are better situated, in class 1 minds, to the “smaller” single car loads.
Until the bigger class 1 guys and gals, those higher ups that control things, realize just how much more they could be making on the smaller, single to multi-car shipments that they are bypassing currently, the class 1’s will continue to bypass them.
A speculation: Going after the small fish revenue would increase total revenue. The costs would be closer to the revenue but not exceed revenue. The RR higher ups may be worried about their operating ratio ( OR ) becoming a higher number ? That even though their total profits would be higher ?
In our business- lumber & building materials- we deal with a lot of ups and downs of the market. Like most businesses, we’re always trying to get a bigger piece of the pie. When business is slowing down, we have to work harder to get, and retain customers and sales. How do railroads deal with this type of situation?
Some have been saying that for some time. Sure, loose-car, time-demand railroading costs more than unit trains, but when the coal and oil businesses dry up, the revenue stream does as well. Then watch your operating ratio climb!
The big 4 or 7 have gotten so used to the easy business, it is possible they no longer have the infrastructure or personnel with the expertise necessary.
For roadblocks, look at the Super C thread. Railroad marketing/sales departments probably would not know how to get the business, even if the operating folks could adapt. The rails’ answer? Furlough and storage, i.e., cost-cutting, which is the short-term, no-vision response expected.
Well, of course. That way those at the top can keep getting big salary’s and bonuses.
The cost stay down and the stock stays up and stock holders are happy.
At least until and if the down turn last too long.
The problem with just sitting and waiting during a railroad slowdown is that the enormous physical plant has an ongoing cost of ownership just based on its value. If that plant is not utilized to return revenue, then its cost of ownership becomes a loss.
Given the downturn in railroad traffic, what do you think Hunter Harrison will do to bolster traffic and increase his bottom line at Canadian Pacific in order to take another run at Norfolk Southern? What will NS do to bolster traffic and increase their bottom line to keep from being taken over by CP? [:-,]
“Another goal was to get salespeople out of the office and selling, which means, for the first time, they are being rewarded by commissions, as well as salary. It has motivated people like Caitlin Courteau, 26, who thrives as a regional account manager for energy and merchandise. Whereas sales used to be a transaction business conducted from a desk, she is out on the road meeting customers 80% of the time.”