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Intermodal moves and profit incentives

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Intermodal moves and profit incentives
Posted by northernroute on Tuesday, July 13, 2021 3:47 PM

 

For years I worked in technical support for a communications , voice and data company. My job was to go to hot spots figuring out what Fortune 500 customers perceived as “problems” on their systems. I worked very well because I researched out the customers business wants and needs before going there so I knew how our systems were supposed to integrate into their operations. Virtually all these companies relied heavily on the railroads for supply movements. The chemical industry and lot of others got beat up badly by the merger melt down in the late 80’s. That made me hyper aware of how much on time transportation effected them. That effected many a corporate bottom line. Lessons learned and now they try and store extra car loads of production product in case there is another Gulf Coast meltdown.

 Now many also relied on inter-modal moves and TOFC for many of their locations and shipments to customers. I still remember the massive complaints when Conrail decided to drop many of the shorter haul TOFC and inter-modal moves because “It was not profitable enough”. I still remember one CFO bitching up a storm when he saw that that Conrail felt anything with less than a 20% profit was going to be dropped and pointed out that he would die for anything over 2% profitability to be filling out his companies coffers. He even pointed out some of those moves his company was often getting only a 5% for that product to be delivered via one of those short haul TOFC / inter-modal moves to a customer.

 Now I see where the class 1 railroads keep eliminating anything without a fat profit margin and think that , like the statements on the KCS / CN merger documents it will create great growth. Many of the regional railroads do great business and grow their business because they cater to the customers needs and will do switching on a short notice. If they can do what the customer wants and needs and do it with a profit it will happen. The end result is lines that were cast off as unprofitable / not profitable enough have become very profitable. It hit home when I saw that several MBTA units that were being overhauled at Wabtec had their shells processed at another company. The trouble was it would take weeks to get a switch move for those shells so they were in fact trucked to the company that would clean , repair and repaint the shells.

 You can’t compete with the trucking industry by eliminating multiple corridors because far to many of those PSR 10,000 foot long trains with inter-modal and TOFC skip all sorts of former terminals. I note in the latest reports that many of the terminals that are left they have huge backups because there is not enough “last mile” truck drivers available and despite the mantra of driver-less trucks there never will be. The end result is long delays in delivery. I found it enlightening to go to YouTube and watch multiple VRF cameras scattered all over the country and see so many trains carrying so much TOFC and inter-modal cargo. But as I pointed out many destinations are clogged yards. The locals for many of those cameras would talk about clogged yards which was visible on the cameras or empty yards that suddenly got flooded with trains. I often see multiple trains dead on the mains waiting for a crew or a yard opening. Then again even in my industry I saw far to many stupid bean counters mess up the system because they got their bonuses based up how much they increased the profitability of the company no matter what it took or the damage it causes. As I was told one day “we can hire 3 college grads straight off the street with no benefits and still have money left over for what it “costs” us to have you work here. When I asked “ Can they face to face communicate with the customer and increase sales like I have” the response was “That does not matter”.

 

 

Tags: inter-modal , TOFC
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Posted by SD70Dude on Tuesday, July 13, 2021 5:14 PM

Welcome to Precision Scheduled Railroading, where the points don't matter but shareholders do.

Greetings from Alberta

-an Articulate Malcontent

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Posted by BaltACD on Tuesday, July 13, 2021 5:46 PM

PSR is being sold as cutting the muscles of a carrier as the way to grow traffic and profits.  The BIG LIE.

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Posted by Shadow the Cats owner on Tuesday, July 13, 2021 7:35 PM

Northernroute I work for a larger OTR carrier that specializes in chemical traffic.  When PSR was being implemented by CSX and then it spread to the other major class 1s except the BNSF thankfully our phones started ringing off the freaking hooks.  Why companies were being told sorry that you're not big enough for railroad service anymore.  So in the ultimate stupid moves of the railroad executives in history they threw overall in the USA billions in revenue out the window to meet their stupid plan goals.  They have driven a massive wedge into their customers who see that while OTR trucking is more expensive and can't haul the tonnage on a per load basis.  At least here where I work we don't tell  customer we won't service them as they're not big enough for us.  My boss has seen his resin business jump double digits in the last couple years and he is expanding the fleet.  Thank you EHH for showing the railroad industry how not only how to kick themselves in the balls with steel toe boots but also hit them with a sledgehammer then shoot off the twins and shoot themselves in the head at the same time.  

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Posted by MP173 on Wednesday, July 14, 2021 2:30 PM

Shadow:

Is most of that SIT freight that is held in pressure covered hoppers and then unloaded for ultimate delivery to customer?

 

Ed

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Posted by Shadow the Cats owner on Wednesday, July 14, 2021 5:24 PM

We do some of that plus custom blended resins for them as requested.  But yeah since PSR was implemented especially by CSX and NS we have seen our growth in that area explode by more than 60 percent in revenues over the last 3 years.  This in an industry were a 5 percent growth in revenue is massive.  

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Posted by MP173 on Wednesday, July 14, 2021 5:42 PM

Alledgedly a big resin shortage right now, or at least that is what we are being told by our film suppliers.

I have a couple of customers over by Joliet that transfer from covered hoppers to pneumatic tankers for delivery.

 

Ed

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Posted by oltmannd on Wednesday, July 14, 2021 9:02 PM

northernroute
I still remember one CFO bitching up a storm when he saw that that Conrail felt anything with less than a 20% profit was going to be dropped and pointed out that he would die for anything over 2% profitability to be filling out his companies coffers. He even pointed out some of those moves his company was often getting only a 5% for that product to be delivered via one of those short haul TOFC / inter-modal moves to a customer.

Margin is kind of apples and oranges.  Stanley Crane once told us Conrailers that 80% OR was just about "break even" for a capital intense operation like a RR.  You have to pay for the capital investment out of the operating profit.  If you didn't net out 20%, you couldn't cover rehabbing track, locos, cars, etc.

Conrail did blow away a lot of small terminals and lanes.  A lot of it was because lanes using RR owned trailers that fed freight forwarders were just flat out money losers.  Managing the trailer fleet was a giant, losing guessing game.  

Another reason Conrail blew away some lanes was the netword got too complicated to operate reliably.  Too many trains had too many set offs and pick ups and as the major lanes grew like a week, they were getting harder and harder to service without killing the end point performance.  The rationalization in 1994 did fix the service problem, although it didn't sit right with many in marketing at the time.  Some of the better, minor lanes were added back in later, but at better rates and with other service issues fixed.

The RRs also made a decision to go to containers, nearly exculsively, and manage the fleet using a much better set of tools that include reservations rather than guessing.  A side effect of containerization is that small terminals can't afford lift equipment. This seems to be a mixed bag.  RRs seem to handle a fair amount of trailers, mostly truckload, parcel and LTL carrier equipment.  It's not clear to me that trying to get to 100% stacked containers was a good idea.

What is the future?  RRs SHOULD be trying to fill in with more terminals and lanes.  NS's Crescent Corridor was a good idea.  Several terminals NOT build in that lane and no line haul improvements were ever completed.  CSX's mixing centers were a good idea, too, killed at the alter of PSR's "Money Now" scheme.

 

-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/

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Posted by BaltACD on Thursday, July 15, 2021 6:38 AM

Some insights into container operations in the present day.

https://www.youtube.com/watch?v=9-IEcZOa4rg

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Posted by Ulrich on Thursday, July 15, 2021 2:54 PM

Don't blame the average shareholder who simply wants to remain invested in good companies over the long term. We don't want actions that will result in longterm harm to what we've invested in.

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