Roadblocks

[tree68]

Many shortlines exist as aggregators of traffic.  Someone saw the need, however the Class 1 serving the locale didn't feel it was worth the trouble (or cost) to staff a crew in a given location.  

In some cases, a shortline may actually serve several isolated locations with the same crews.  Podunk today, East Parsnip tomorrow, etc.  They keep just enough locomotive at each location to do what has to be done.  The Class 1 then makes one stop to pick up and drop off cars.

Some shortlines are part of a larger organization (think GVT, RailAmerica, etc), some were created locally to do the job.

[cx500]

CSSHEGEWISCH

Most of the postings on this thread tend to be suggesting that railroads are missing a bet by not going after the really small (2-3 carloads per week or less) customer.  Even a shortline would have trouble making ends meet with a customer base of small shippers only and more than a few have failed for just that reason.

The business may be out there, is it profitable to pursue this business on a stand-alone basis (no rates based on incremental costs only)?

 

In isolation you are right, chasing that 2-3 carloads a week customer may not be worthwhile.  The point is that there is more than one of those customers if there was a marketing and sales department that cared to look for them.  In a metropolitan area perhaps find 15 of those customers and now you are talking 30-45 cars a week.  It takes more work to find and service those customers, but on the other hand there will not be the same downward pressure on rates by competing railroads that unit train volumes invite.

Often the challenge for a shortline is that the industrial base has disappeared.  Mighty hard to convince a factory to ship by rail if the site is now a shopping mall.  And their good service can be compromised by the Class 1 as soon as the car is interchanged.

John

[Euclid]

jeffhergert

I've heard of 4 or 5 opprotunities for new business that my company passed by within the last few years.  One or two were being developed by local management, but shot down by higher levels.  Most of it could've been handled in existing trains, some of it (shuttle grain trains) would've required operating new trains.

I've heard it was for different reasons, but one common theme seems to come through.  Not enough volume per move.  It's like all they know is unit type operations.  If it isn't 100 cars at a time from point A to point B, they aren't interested.

They've gone from the mentality that, "If it doesn't fit in a box car it doesn't belong on the railroad." to "If it doesn't fit in a unit train it doesn't belong on the railroad."  (I include intermodal in unit type train definition, even though they aren't always a true unit train.)   They've gotten fat on the low hanging fruit, but that tree is about picked clean. 

Jeff 

 

 

Most business realize that they must continually seek out new business opportunities, and continually innovate to make their operation more efficient. 

John Kneiling once said that whenever railroads find a part of their business that is underperforming, their first reaction is to get rid of it. It is sort of like pruning off the weak branches to make the core plant stronger.  But the marketing way of looking at it is that the weak branches can be nurtured and made stronger, so the whole plant gets more productive.   

It sounds like the railroads lack marketing based on the affirmative belief that they don’t need it. 

[CSSHEGEWISCH]

Most of the postings on this thread tend to be suggesting that railroads are missing a bet by not going after the really small (2-3 carloads per week or less) customer.  Even a shortline would have trouble making ends meet with a customer base of small shippers only and more than a few have failed for just that reason.

The business may be out there, is it profitable to pursue this business on a stand-alone basis (no rates based on incremental costs only)?

[jeffhergert]

I've heard of 4 or 5 opprotunities for new business that my company passed by within the last few years.  One or two were being developed by local management, but shot down by higher levels.  Most of it could've been handled in existing trains, some of it (shuttle grain trains) would've required operating new trains.

I've heard it was for different reasons, but one common theme seems to come through.  Not enough volume per move.  It's like all they know is unit type operations.  If it isn't 100 cars at a time from point A to point B, they aren't interested.

They've gone from the mentality that, "If it doesn't fit in a box car it doesn't belong on the railroad." to "If it doesn't fit in a unit train it doesn't belong on the railroad."  (I include intermodal in unit type train definition, even though they aren't always a true unit train.)   They've gotten fat on the low hanging fruit, but that tree is about picked clean. 

Jeff 

 

[Euclid]

greyhounds

The railroads simply do not know how to identify, quantify, and develop new markets.  It's not that they don't want new busines.  It's that they do not know how to go about getting new business.  They have very little market development knowledge or capability.  It's their weak point.  A very weak point indeed.

 

The railroads were basically prohibited from doing market development by the government for most of the 20th century.  It's no wonder they're no good at it.

Do the railroads know they lack marketing or do they simply not recognize a need for marketing?  If they recognize a need for marketing and don’t have the ability, why don’t they create marketing departments and hire the right people to run them?

[ericsp]

Greyhounds, I am assuming you are referring to the pre-Staggers era. That was over 35 years ago. Shouldn't they have been able to develop marketing in that amount of time?

[tree68]

When railroads were the only game in town, it was easy.  No need to develop a market - it was already there.  Even coal had a tendency to move in single car lots (ie, different grades of coal to local distributors), at least that which wasn't running in about the only unit trains that existed.

When competition (namely highways) started to show up, the railroads were powerless to form meaningful competition, as noted.  

That doesn't mean that railroads didn't have marketing departments.  A look through that "Official Guide" I've got from 1957 will find listings for virtually all of the Class 1's of sales departments - some hundreds of miles from the nearest "home road" tracks.  

But those marketing departments are long gone.  In fact, previous discussions here on the forum have noted that these days if a railroad sales rep found a customer with half a dozen cars a week or less, they'd also be looking for a new line of work.

How many times have we wondered why this industry or that doesn't have rail service?

[greyhounds]

jeffhergert

I've often said the plan seemed to be to have one customer and charge the heck out of them.   That and do what it takes to keep the stock price up.  When the easy to handle business dries up, cut or store assets.  Don't try to find new business, especially that which might require spending some money to handle.  Even if that new business brings in more than it costs.  It probably doesn't make enough of a profit to satisfy the major or activist type investors.  Better to buy back stock. Eventually, as they convince themselves that more and more lines of business don't make their numbers, we'll see a rail network maybe a little larger than Amtrak with about the same frequency of service. Jeff

OK, Jeff.

Here's something that was hard for me to learn and remains difficult for me to put in practice.  "Never attribute to malice what can be explained by ignorance."

The railroads simply do not know how to identify, quantify, and develop new markets.  It's not that they don't want new busines.  It's that they do not know how to go about getting new business.  They have very little market development knowledge or capability.  It's their weak point.  A very weak point indeed.

They're fine if someone shows up with a container ship carrying 8,000 containers.  They're fine with a new oil field generating unit trains.  But when it comes to developing the business potential from the Missouri River meat packers shipping to the west coast (domestic and export), the railroads don't have the ability to put it together.

We can stop, scream and blame.  It does no good.  It's like a jockey whipping a horse running full out.  It might make the jockey feel better, but it doesn't make the poor horse run faster.

The railroads were basically prohibited from doing market development by the government for most of the 20th century.  It's no wonder they're no good at it.

It's going to be a slow change.  

 

[jeffhergert]

tree68

 

 

 

 

One might draw from that the conclusion that it doesn't matter if customers are leaving in droves, as long as the bottom line is increasing.  Of course, that trend can only continue so far.

 

Bingo!

I've often said the plan seemed to be to have one customer and charge the heck out of them.  

That and do what it takes to keep the stock price up.  When the easy to handle business dries up, cut or store assets.  Don't try to find new business, especially that which might require spending some money to handle.  Even if that new business brings in more than it costs.  It probably doesn't make enough of a profit to satisfy the major or activist type investors.  Better to buy back stock.

Eventually, as they convince themselves that more and more lines of business don't make their numbers, we'll see a rail network maybe a little larger than Amtrak with about the same frequency of service.

Jeff

[tree68]

Paul of Covington

Just my thoughts:    Business succeeds by pleasing the customer.   The customer was traditionally the person who bought the products or services.   Lately, the customer is more and more the person who buys the stock.

I recently read an article in a railroad magazine that opined that railroading was once based on customer service.  It has changed to being totally profit driven.  As I recall, that change occured right around the advent of Conrail (or was it PC?)

One might draw from that the conclusion that it doesn't matter if customers are leaving in droves, as long as the bottom line is increasing.  Of course, that trend can only continue so far.

[Paul of Covington]

Norm48327

 

Euclid

He is known for challenging the status quo by cost cutting and improving service.

 

 

When Harrison was at CN the service got so bad a couple of GM plants near me began trucking their vehicles to a place they were loaded on CSX. Would you call that improving?

   Just my thoughts:

   Business succeeds by pleasing the customer.   The customer was traditionally the person who bought the products or services.   Lately, the customer is more and more the person who buys the stock.

[Euclid]

Norm48327

 

Euclid

He is known for challenging the status quo by cost cutting and improving service.

 

 

When Harrison was at CN the service got so bad a couple of GM plants near me began trucking their vehicles to a place they were loaded on CSX. Would you call that improving?

 

I was only referring to his general reputation, and not claiming that he has improved all service.  My point is that what is really needed to battle the recession is improved marketing, sales, and innovation to find new service product.  That is different than, and probably more difficult than just cost cutting and improving existing service. 

[Norm48327]

Euclid

He is known for challenging the status quo by cost cutting and improving service.

When Harrison was at CN the service got so bad a couple of GM plants near me began trucking their vehicles to a place they were loaded on CSX. Would you call that improving?

[Euclid]

He is known for challenging the status quo by cost cutting and improving service.  He will also need to challenge the shortcomings in sales and marketing.  That may be the biggest challenge of all.  Marketing needs innovation to find new ways of doing things.  Harrison needs to show his John Kneiling side.     

http://www.theglobeandmail.com/report-on-business/rob-magazine/hunter-harrison-cp-report-on-business-magazine/article18190120/

 

“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.”

[Murphy Siding]

     I guess if you can't beat 'em, join 'em:

     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?

[Euclid]

Murphy Siding

So, is the marketing plan to just sit and wait, because we know know the market always comes back....eventually?

 

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. 

[Murphy Siding]

So, is the marketing plan to just sit and wait, because we know know the market always comes back....eventually?

[Lake]

tree68

tree68 wrote the following post 7 hours ago: Murphy Siding How do railroads deal with this type of situation? Furloughs and storage?

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. 

[jeffhergert]

tree68

 

Murphy Siding

How do railroads deal with this type of situation?

 

 

Furloughs and storage?

 

Most definitely.  

Jeff

 

[schlimm]

ricktrains4824

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.

 

 

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.

[Murphy Siding]

tree68

 

Murphy Siding

How do railroads deal with this type of situation?

 

 

Furloughs and storage?

 

And hoping, and praying, and wishing?

[tree68]

Murphy Siding

How do railroads deal with this type of situation?

Furloughs and storage?

[Murphy Siding]

     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?

[ericsp]

For perishables, I would add decrease car dwell time and increase average car speed.

[Mookie]

Murphy Siding

Then, what?  Try to find more big, wholesale transportation business?  Where would you look that hasn't been looked at seriously before?

 Murphy - I like the way you think!  

[Murphy Siding]

BaltACD

 

jeffhergert

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.

Jeff   

 

 

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.

 

Then, what?  Try to find more big, wholesale transportation business?  Where would you look that hasn't been looked at seriously before?

[blue streak 1]

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 ?

 

[ricktrains4824]

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.