What’s lost so far in all this is Kaufman’s statement that this shift from rail to truck will have minimal effect on the railroads. Let’s see, the UPS intermodal business is the premium price stuff, right? And why is it we see UPS shifting from rail to truck but not any of those Asian import customers? Wouldn’t you think that if the railroad was in position to start turning away business, they’d start with the low value stuff first and stick with the premium rate stuff as long as possible?
Or is this inability to run faster than an industry average of 25mph finally taking it’s toll on the premium price business?
A lot of the UPS traffic originates in Asia. Just because the traffic is moving in a steamship container does not mean UPS controls the traffic. Its similar to set up automobiles moving in the Western US for Ford and Chrysler. UPS controls the traffic.
To put it charitably, UPS is a VERY demanding customer, and their volumes allow them to pretty much get what they want. Premium rates demand premium service, which in turn means premium costs. BNSF turned down the UPS Bullet Trains because it was more bother than it was worth. A low-rate double-stack may have a higher profit ratio than a premium-rate Q-train, and may be less disruptive of overall operations.
I still know BNSF does not turn it away I have a few friends who work for them and the one thing thye say is you are on a Q train do not expect to see one red light or even a yellow once in a while. The dispatchers know who not to delay.
Union or non-union, UPS is not going away. I don’t know the exact percentage breakdown, but a fair part of UPS’ business is now in logistics management for other companies, not just package delivery. That is the reason the package was removed from their logo when the current “comb-over” logo was designed.
Dave, your first sentence says it all. “Minimal effect” meaning that it’s a small percentage of the overall business. As CSSHEGEWISCH put it above, “BNSF turned down the UPS Bullet Trains because it was more bother than it was worth. A low-rate double-stack may have a higher profit ratio than a premium-rate Q-train, and may be less disruptive of overall operations.”
They’re giving up a small percentage of business that causes more service disturbances in the overall business than it’s worth. Also, the Trains Newswire for yesterday (27 March) has an article about the BNSF that tells a lot of the “why” behind the problems.
UPS is a dynamic company that has a long way to go before they head into decline. Besides growth through diversification, their domestic package business is continuing to grow. According to this story the growth last year was in both the air and ground package segments.
While I would like to see the railroads able to continue to compete for their business, the fact UPS is moving some business off the rails is indicative of the competitive nature of their business model.
I think most of UPS’s “ground” traffic in the US/NA both originates and terminates continentally. The international stuff mostly goes through air, doesn’t it?
Which is why the loss of UPS ground traffic is mostly a loss of more domestic traffic.
Air freight is REALLY expensive. We ship a decent amount of product in from Germany and the air-freight shipments are rediculous expensive compared to a fully loaded 40’ container shipped over the ocean. (even if unloading the 40’ers is a pain at our location…)
Probably the best thing that UPS has done lately was to aquire Overnite services for freight shipping. This means that oversize 3 packages which previously had to go through Roadway (or Fedex) can be sent using UPS’s standard software program, and allows for seamless billing and processing for the end user. This is nice for small companies that don’t have a seperate department to deal with invoices from 5 different shipping companies to make sure they aren’t ripping you off on the backside with “additional fees” etc…
FM what you consistantly fail to understand is that the UPS type business is also the high cost business. All that matters is the net. This is why carload is shrinking as well. Highest revenue, but also very high costs.
To underscore what Redrabbit is saying, my company dropships items for several catalog companies, and day in and day out we ship 40 - 50 items per day. I ship the vast majority of my products to small or very small towns. When UPS went on strike a few years ago and I had a few shipments that had to go out, I called Fedex Ground and in all but one case they said sorry we don’t serve there. To give you an example I shipped an item whose address was something like 45 miles SW of Belle Fourche, SD on US Hwy 79. and UPS handled it. Try that with Fedex Ground. Its UPS for me. As long as Fedex Ground uses private contractors they will never have complete coverage of the US, and so cannot be considered for my company’s business.
Well, it makes sense that a system predicated on 25 mph average velocity will have a harder time (aka higher costs) getting that 79 mph stuff coast to coast. But how much higher is the cost of running a hot TOFC compared to a run of the mill stack train? Are you saying the margins on the TOFC is lower than that on the stack train, aka the railroads aren’t value-adding the rate to reflect the aura of a typical premium priced commodity?
What I was point out, however, is that when it comes to making it harder to do business with the railroads, the railroads seem to always pick the domestic clients for the chop. The latest action simply reflects that premise.
Directly yes, they do set an appropriate rate. On a railroad with lots of capacity
the Premium TOFC would be the most desireable traffic. The killer is the fact that on a railroad running at capacity or above, the Premium TOFC will be constantly overtaking other trains which will make the average speeds even lower. The stack trains, the manifests, and the coal trains all will run at nearly the same speed over the road. Amtrak makes all of the above worse still, since it will overtake the Premium TOFC. What the DS try to due is let Amtrak out of the freight crew change points at the head of a pack where it won’t overtake anybody until the next crew change point. It doesn’t work out that way very often.
Some of that is deceiving, everybody wants to increase their traffic and the railroads have to ration the increases. Remember if they don’t haul the most remunerative traffic, there will be less money to invest to haul everybody’s freight.
I talked to a driver for UPS they are very happy with the RR’s service that they get from them. Why UPS is doing what they are is to make it easier for a 4 day coast to coast delivery say a package leaves Seattle on Mon Friday it can be delivered in say Atlanta. Team drivers give them the flexibility to get stuff there.
UPS is doing what all large volume shippers do…They are shaking up the troops…threatening business changes. They would not be exercising their due diligence if they didn’t and just because they talk about changing their shipping model, does not mean that they will or that they can afford to. All business relationships evolve over time as the specific conditions of the relationship change.
Marital relationships change over time, should not we expect business relationships to change.