How IT is Helping the Railroad Industry Improve Efficiency and Service

Railroads are poised for a comeback, thanks to rising fuel prices. IT provides the linchpin for a shipping model that integrates ships, trucks and trains.

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Here's where IT comes in. Although the Class 1 railroads, including BNSF, CSX and Norfolk Southern, are actively investing in physical infrastructure—laying new track, building new terminals and expanding flatcar capacity—the average railroad spends nearly 80 percent of its capital expenditure budget just maintaining the track it already has. A rail company spends 17 percent of revenue on capital investment, compared with 3 percent for the average manufacturer. The AAR's White says proposed investment leaves a gap of $1.4 billion a year beyond what the rail carriers will be able to raise on Wall Street, according to a study for AAR by Cambridge Systematics.

One solution is proposed legislation. The Freight Rail Infrastructure Capacity Expansion Act of 2007 would allow up to a 25 percent tax credit for rail investments. But AAR's White says the bill isn't moving quickly. Railroad investment in equipment, like new signaling and communication systems to decrease the spacing between trains or more powerful locomotives that can run heavier, longer trains, will help, too. But IT can help the railroads more efficiently route trains and process freight at intermodal terminals, enabling them to increase capacity virtually without spending as much to lay track.

"The entire industry is putting more focus on IT systems as a way to streamline operations," says Morgan Stanley's Longson. When a train is moving down the track, there's little work for anyone but the conductor. But when it pulls into the station, there's a flurry of activity that can be more efficiently managed with IT.

Building for What's Around the Bend

One of the rules of railroading has always been, "You are where you go." A railway's value proposition has always been tied up in where it has chosen to lay track. But today around BNSF's Fort Worth headquarters, you'll more likely hear the phrase "building for where we need to be."

The company is expanding its intermodal hubs and laying additional track. It is also spending about a third of its IT budget on new investments. Some of that investment goes into software for improving what BNSF calls overall "velocity." A movement planner from Siemens, for example, schedules trains throughout the BNSF network, benefiting carload and intermodal customers. Likewise, Norfolk Southern's Thoroughbred Yard Enterprise System (TYES) tracks the movement of railcars and locomotives.

Norfolk Southern employees use the Operating Plan Developer (OPD) to model railcars into blocks, blocks into trains, trains into schedules. Additional models predict locomotive and crew requirements for the train schedules.

But the railroads have begun to make specific IT investments for their intermodal business.

Consider BNSF's Hobart Yard in Los Angeles, which processes 1.2 million lifts (the movement of a "box"—one container or trailer—to or from a railroad car) a year, or Logistics Park, Corwith and Cicero facilities in the Chicago area executing more than 2 million lifts annually. Managing these transfers requires technology to schedule movements efficiently and keep shippers and receivers informed of the boxes' whereabouts. Hundreds of trailers and containers must be transferred on and off trains.

Both BNSF and Norfolk Southern are implementing automated gate systems at their intermodal terminals to help the trailers descending on those facilities make their trains. Norfolk Southern is also using the gate systems to improve safety, reduce gate processing time and reduce the time drivers spend inside the terminal. "That helps our trucks coming onto the railroad property drive through without delays, which improves our productivity," Schneider's Van Kirk says.

The systems use optical character recognition, digital cameras and voice-over-IP-enabled communication kiosks. They scan the trailers for identifying information and send them to the right location for transfer, transforming a system that previously required people with ruggedized computers to spend 20 minutes processing each idling semi into one where truckers can drive through in three minutes.

In an industry where a day without a workplace injury is rare, the gate systems also reduce the chance of someone being run over by an 18-wheeler, says Kathleen Meisinger, BNSF's director of technology services and application development. Jerri Parks, director of intermodal and automotive systems for Norfolk Southern, says her company plans to use the system to process trucks remotely in and out of terminals in the near future.

Containers on an ocean vessel are often stacked 10 high, and managing them is relatively simple: first on, last off. But because of the complexity of transfers at the intermodal station, railcars often carry just one container, even though a locomotive can move double-stacked containers. BNSF has invested in giant cranes—284 feet wide, spanning seven loading tracks and three truck lanes—to load double-stacked cars. They worked with Kone, a Finnish marine software vendor, to develop workflow optimization software that uses GPS coordinates of containers and incoming trains to automatically guide the crane operator. Norfolk Southern's Strategic Intermodal Management System (SIMS) creates a load plan for moving trailers and containers onto a train at the intermodal station, so that they can be efficiently unloaded at their destinations. SIMS also supports train planning, inventory management, equipment storage and EDI communication with customers and other railroads.

CSX—whose lineage can be traced back to the very first U.S. railroad, the Baltimore & Ohio—has built a wireless tool that allows truckers to verify billing with the terminal before arrival. The smartphone-enabled application lets drivers know whether they will be able to offload the trailer without any issues, says Frank Lonegro, president of CSX Technology, the business unit responsible for IT. The driver can reconcile problems by phone en route, saving time and money.

Those systems that improve productivity will only become more important as East Coast carriers like CSX and Norfolk Southern go after the short-haul market, where trucks continue to dominate. Norfolk Southern is moving more freight in the 500-mile and 250-mile lanes, like the route from the Port of Savannah, Ga., to Atlanta. "We want to continue to grow this business," says Jim Bolander, assistant vice president, intermodal pricing and development for Norfolk Southern.

Better Data for Customers

New IT systems aren't limited to increasing operational efficiency, they're also critical to improving customer service. It's something few railroads had been known for in the past. Tools like the automated gate system at the intermodal hubs help. "When you're moving millions of containers a year, saving 17 minutes on the in- and out-gate translates into improved service and improved recoverability [after delays]," says Olsovsky.

But more visibility into container movement and progress is necessary to meet the real-time data needs of intermodal customers. And the increased number of touchpoints involved in intermodal freight movement—versus single trips by one mode of transport—means that more data is being generated.

For truckload carriers, "it's no longer pick it up, drive it, deliver it—one driver, one assignment," explains Schneider National's Van Kirk. "There's the arrival dray, the rail component and the destination dray, and each movement has three separate activities."

The big railroads currently use electronic data interchange (EDI) to share information directly between their systems and those of their intermodal partners. "When one of our drivers picks up a load, we have a satellite system in the truck that sends a macro to say they picked up the load and to generate a waybill that lets the railroad know they have a load coming," explains Van Kirk. "They go through an automated checkpoint (at the intermodal station), and the railroad provides EDI status updates for different events." Most rail providers also provide the same data and the ability to generate reports via their websites, which trucking or retail customers can then use to update their end customers.

Norfolk Southern and other railroads have installed automatic equipment identification (AEI) tags and readers on their tracks at close intervals to monitor the movement of railcars. The AEI readers relay each railcar's location. That data can be viewed online or sent to the shipper's own system. "It's one thing to know your trailer departed Atlanta and the next stop is Birmingham," says CIO Butler. "It's another thing altogether to know where between those two points it actually is."

Real-time tracking information from Class 1 railroads has improved over the last few years, says Dave Howland, vice president of intermodal rail management for Schneider National. There is "better reporting of trains delayed between reporting points due to derailment, washout, et cetera, on a real-time basis," Howland explains. "Before, they wouldn't update those things until the train reached the next reporting station, a day or two after the fact."

If the railroads want to grow their LTL business, they must invest more in streamlining business processes and communications, says Tanowitz. They also need to keep better track of their own assets. Tanowitz says 1 percent to 2 percent of railcars show up as "in unknown locations" on railroad systems. Railroads won't be making huge investments in IT systems like the barcode scanners that UPS uses. But, he says, they could invest more in GPS tracking of railcars and integrate that with their existing networks to keep closer track of trailers and containers than they do with the AEI tags and readers.

To help trucking companies manage their trailers, CSX has developed an IT-enabled empty-equipment-relocation program. It allows carriers that have unloaded a trailer at an intermodal station in an area where they're unlikely to pick up another load to, for a fee, put the empty container on a train to a destination where there's greater opportunity to load up again. "It allows carriers to have better driver utilization in their hot markets," says CSX's Lonegro.

But not every customer is thrilled with the rail offering as it exists today. In the early days of intermodal, the railroads wooed customers with free rides for empty trailers to someplace they could load up again. Not today. "The problem is, they haven't added a lot of rail capacity in the last hundred years, and the service isn't as good as it used to be," says YRC Worldwide's Rapken. "They don't reposition our empties anymore. Investing for the Long Haul

Railroads are poised for a comeback, thanks to rising fuel prices. IT provides the linchpin for a shipping model that integrates ships, trucks and trains.

They've raised their prices." While YRC understands the market dynamics guiding the railroads decisions and says it isn't moving away from rail, the company is moving more of its long-haul less-than-truckload trailers on 18 wheels rather than steel wheels.

The railroads will tell you they've simply decided to focus on their core competency of moving trains and are concentrating on volume. "Over the years, railroads have tended to focus more on providing transportation service and less on equipment management," says BNSF spokesman Patrick Hiatte.

The Limits of Rail

Then, of course, there is the need for speed. In the railroad industry, there's a business metric everyone keeps their eyes on: delays. Everyone is trying to limit it—20 percent of Norfolk Southern's incentive compensation is based in part on a composite service metric that includes goals for train performance, connection performance and compliance with operations plans. But keeping the trains running on time is hard to do.

When there's a storm, an airplane can fly around it. If there's a wreck on Interstate 90, a semi can take a detour. If there's a mechanical failure or a mud slide or some other mishap on a track, the train stops. IT helps mitigate slowdowns. The Midwest floods this summer "made for a tough couple of weeks," says Schneider National's Van Kirk. Union Pacific rerouted its trains on BNSF tracks, but such cooperation between railroads is used only in emergencies. Most of the time, railroads can't reroute trains on the fly.

The rail providers themselves are the first to point out these shortcomings. The risk factors listed in their annual reports will mention that more flexible truck lines will continue to affect their ability to compete for deliveries of nonbulk, time-sensitive freight. Rail remains a no-go for those managing just-in-time inventories and operations.

"A growing segment of the logistics marketplace is small-volume, high-value finished goods," says Tanowitz. Shippers of those goods want "package-level details on their shipments," and railroads today can't provide that. Those most likely to invest in systems to provide more granular data—and compete or integrate with more LTL carriers—are the East Coast railroads like CSX or Norfolk Southern that are going after more short-haul business. The railroads also need to provide more precise forecasts for train departures and arrivals, Tanowitz adds.

CSX Technology's Lonegro says that if retailers provide SKU-level details to their intermodal customer and the intermodal customer includes that information in its shipping instructions, the railroad could modify its systems to allow everyone to have full visibility. But others, like BNSF and Norfolk Southern, say it's just not worthwhile to offer that level of detail today. Says BNSF's Hiatte: "Our trucking-company or ocean-carrier customers know what's in a trailer or container, and our tracing systems provide the location of the trailer or container."

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