The Wall Street Journal had a pair of recent article that touch on how the business of schlepping goods from Point A to Point B has been evolving in the US market. The first deals with the booming business of railroads. The major US railroads have been on a spending boom (Boom Times on the Tracks: Rail Capacity, Spending Soar, Mar 26). See the graph at right.
Just where has that money been going? To expanding track, enlarging tunnels, replacing bridges, and adding locomotives and cars. The emphasis has, in part, been on increasing the speed and reliability of trains in serving customers such as UPS.
In the past decade, though, under pressure from customers like UPS, trains have become more dependable. UPS “trained us in what it means to perform to their very high standards,” says Mr. Rose at BNSF. “I’m sure there were many times they were very frustrated.”
“I don’t know if we’re the largest customer [of the railroads] but I would tell you we’re certainly the most demanding,” says Ken Buenker, a vice president in UPS’s Corporate Transportation Group. UPS’s goal is an on-time arrival rate of 99.5%, he says. “So think about how much you risk with a train.” One breakdown could delay many deliveries.
Railroads used technology and strategy to tackle such problems. They used sensors to detect mechanical issues before they caused delays. They developed their own version of the airline “hub and spoke system” and organized shipments in trains all bound for the same destination. The latter move eliminated the time- and labor-wasting stops to break trains apart and reset them. It also paved the way for longer and speedier itineraries. Railroads “are always talking about efficiency and speed,” says Mr. Buenker. “The velocity of the network is really key for them.”
Like any kind of process, the logistics of moving freight involves trade offs. With freight that usually means weighing cost against speed. Trucks and trains can’t really compete over long distances with airplanes, but flying is generally very expensive. What’s interesting here is the emphasis the railroads have put on speed — or more accurately faster service delivered more reliably. The article notes that this has allowed the train people to grab some market share from the truckers.
The truckers, however, have not (so to speak) been sitting still. That gets us to the second article (Heavy Trucks Throttle Back, Mar 20). The trucking industry has also been fine tuning its operations.
While railroads have taken some freight from long-distance truckers, greater productivity is having a bigger impact. Lighter weight and smaller packages, better routing and fewer empty trucks on the road have reduced the need for more trucks.
“The average length of a haul has been cut dramatically,” said Rusty Rush, chief executive of Rush Enterprises Inc., the country’s largest truck dealer with 78 outlets selling Peterbilt and International heavy-duty trucks.
Last year, the average distance traveled by tractor-trailers in the U.S. fell to 110,614 miles, a 12% decline from the late 1990s and down about 2% from 2006, according to Wolfe Trahan & Co.
“We’ve been working through a period of super-productivity gains” in trucking, said Kenny Vieth, president of ACT Research LLC in Columbus, Ind. “Everybody has been trying to take costs out of transportation. If your productivity is strong enough, you don’t need a lot of new trucks.”
So what is the connection between these trends? On the one hand, trucking firms have plenty of good reasons optimize their operations and increase their productivity. On the other, the description of what is happening with trucking is consistent with railroads squeezing truckers out of longer haul business. Which may in the long run be fine. These are two technologies with complementary capabilities. Trucks will have an advantage over rail when it comes to shorter trips since the fuel efficiency of trains will not be as much of a benefit. Further coordinating with a train schedule will be more of a relative hassle on shorter runs. Railroads will have the upper hand on longer runs — particularly for customers who need to ship in large volume.