Supply Chain Digest editorial staff

The News: Forbes article describes how Norfolk Southern has used enlightened management and new technology to substantially improve efficiency and service.

The Impact: After many years of dissatisfaction among shippers and generally poor service, the rail carriers are coming around.

The Story: What a concept! Run the trains on time.

Excellent piece in a recent Forbes magazine that summarizes tremendous efficiency and service gains made in the last few years by Norfolk Southern to improve its efficiency and customer service. The gains were made through a combination of a new management perspective and advanced technology, but at the core was the realization that the only way to get out of the miserable business conditions that had plagued railroads since the 1980s was to actually make customers happy and run the train schedules on time.

What kinds of improvements? Consider the changes in a shipment going from Birmingham, AL to Allentown, PA:

Before

• Departs Birmingham, Ala. for Linwood, N.C.
• Sits at Linwood for a day as train cars get split up and shuffled onto a new train.
• Departs Linwood for Lynchburg, Va.
• Sits at Lynchburg for 13 hours, joins yet another new train.
• Departs Lynchburg for Allentown, Pa.
• Arrives Allentown 117 hours after departure.

After

• Train 16T departs Birmingham, Ala. 1:30 p.m.
• Goes through Knoxville, Tenn. and Roanoke, Va., but train stays intact.
• Arrives Allentown, Pa. 11:30 p.m., 57 hours after departure.

Savings

• Two and a half days of transit time.
• More capacity at Linwood and Lynchburg.

The rail carriers suffered through a challenging business climate from the beginning of the 20th century on. Things got even worse when trucking was deregulated in the 1980s, driving down prices for the rail carrier’s’ chief competition. Rail rates basically stayed flat from 1980 until 2004, and the carriers could barely earn their cost of capital.

Service, as every rail shipper knew, was terrible.

In 2000, Norfolk’s then CEO David Goode decided the only chance the company had was this unique concept: deliver a better product by running the trains on schedule. Forbes quotes one rail industry veteran who says the attitude had for decades been “We're the railroad, we'll get to your load when we're ready.”

Norfolk Southern assembled a team focused in improving the way it ran its network, with the goal of moving trains through the system faster and on schedule.

One obvious place to focus – the almost haphazard way the rail companies ran their schedules and routes, with local rail yard managers making decisions that may have seemed right to them, but which had significant downstream implications. For example, they might hold a train with a relatively few number of cars for an extra day or two awaiting more cars to arrive, thinking they were saving on the costs of the engine crews. In addition to the customer service issues, however, such decisions actually often raised costs, as the yard was constantly either choked or empty, and lots of extra labor and overtime was required during the jammed periods to sort everything out.

Part of the answer for Norfolk Southern has been new software that helped optimize the schedule and movement of cars. In the past, the company’s routing software really only looked from one point to the next for a given sets of cars, rather than the big picture about the ultimate origin and destination of the freight and all the other cars going to the same point. The new application solves these problems and more, also anticipating and responding the trouble spots that emerge in Norfolk Southern’s network and making changes to mitigate potential delays. Event management capabilities provide real-time alerts, for example, if a car parked in a yard is in danger of missing its train.

The results? As Forbes writes, “Carload volume is up 14% since 2000, but the number of cars needed to move that volume has dropped 11%. Average speed is up 7% to 22 miles per hour. Average time in the yard, called dwell time, is down 7% to 23 hours.”

Along the way, Norfolk Southern has of course been helped by macro economic factors, such as the growth in global trade that has expanded the need for rail movements to and from ports, and the high costs of truck freight.

For many shippers – and the carriers – the real battle ground may be in the medium haul distances – 500 to 1000 miles. Though trucking dominates that segment now, improved rail service could lead to an increasing share of that market, many observers believe.

How noticeable is the improvement in rail service? Is it carrier specific? Do you believe rail carriers have a chance to gain more share in the medium distance moves? Let us know your thought.

Article key words: Transportation, rail carriers