A leap of thinking needed for rail intermodal transportation

Asian rail intermodal transportation tends to be associated with images of trains carrying containers between China and Europe. Sporadically, there come some news of funding of railway projects under the One Belt One Road initiative. All of that does not reflect the fact, that rail intermodal services are not the staple of land transportation in Asia.

In all fairness, not all Asian countries are suitable for rail based intermodal. A lot has to do with geography, as well as, location of industrial and metropolitan centers which are either exporting or importing containerized cargo. However, we have a few exceptions including China, India and Australia, which resemble U.S. and large European countries that made significant investments in rail based freight transport to reduce pollution and congestion attributable to trucking.

Even though China is on everyone's mind, according to the World Bank and Chinese government statistics, containerized rail supply chains in China have barely made a dent in total volume of cargo carried through intermodal logistics chains. While the connections between inland centers of Chengdu or Chongqin and Europe get all the press, less than 3% of China’s containers flowing through Chinese ports are moved by rail to/from cities in China's hinterland. Majority of containers are brought in or evacuated on truck chassis. Even water intermodal is better utilized than rail, as barges and inland vessels handle about a tenth of container volumes.?

In Australia less than 10% of containerized cargo moves on rails. That’s a departure from the past, as massive investments in roads, improvements in truck productivity and removal of regulations restricting road freight carriage facilitated exponential growth in cargo transported by road.

Situation in India is not much different from the one in Australia. The freight share of Indian Railways, the dominant player in rail freight movements in India, has been consistently declining over a long period of time. Currently, about 18% of containerized cargo moves by rail, while the rest goes predominantly by road. Unlike China and Australia, India is behind in spending on road infrastructure, which means that heavy container traffic gets bogged down on the roads jam packed with all sorts of vehicular traffic and livestock.

Even smaller countries with dense and efficient rail network are not immune from shippers preferencing road transport. Japan, equipped with some of the most remarkable railway infrastructure, manages to move only 5% of containerized cargo on rails.

The statistics on the proportion of cargo moved by trains versus trucks defy understanding, as shippers can clearly see a distinct advantage in shipping by rail which is 3.5 times more efficient than moving the same goods by truck.

Smart mix of rail/road intermodal means approximately 50% reduction in fuel consumption, a significant logistics cost factor in addition to cost of driver. That's huge impact on the bottom line of any company shipping goods around.

Even the cost and efficiency advantages are not enough to sway many logistics executives to give serious consideration to rail. The most common points of resistance is of course the “trains don’t go everywhere” argument. In many Asian economies, high rates for railway freight, lack of reliable scheduling of freight trains due to network congestion and priority for passenger trains, and poor last-mile connectivity can be added as showstoppers.

The environmental impacts and future regulation may change the policies and affect future shifts between the modes. While becoming heavily dependent on road freight transportation, many Asian countries are yet to get more attuned to the costs of environmental damage the trucks are inflicting, the much higher cost of road infrastructure maintenance, and the cost of lives lost in traffic accidents involving passenger cars and heavy loaded trucks driven by tired and rushed drivers. Last but not least, cross-subsidization between unprofitable passenger traffic and profitable freight traffic resulted in diversion of funds for investment in rail freight infrastructure and keenly desired innovation.

While needed changes will be constrained or helped by government regulation, there is plenty to be done by the railway companies to make themselves more attractive to the shippers. The key enabler of changes could come in form of a wave of digitalization sweeping all sorts of industries.

Rail transport is not the only industry to experience seismic shifts due to technological advancements. What the rail freight industry needs to do now is to respond to those advancements by coherently leveraging increases in on-demand computational power, omnipresent connectivity, emergence of analytics and data-driven optimization, new forms of human-process interaction such as augmented-reality systems, and advancement of control systems and devices (IoTs) communicating digital instructions to each other.

Attractiveness of any one mode of freight transport to the shippers could be boiled down to a few elements: freight rate, transit time, and flexibility of accepting the cargo. On the side of the rail transporter, these elements translate mix of optimization undertakings. On the commercial side, those include flexible, demand-driven pricing packages. On the operational side they include optimization of train-forming and re-forming processes. optimization of network scheduling to release additional capacity, optimization of shunting operations at hubs, and optimization of yard operations (dry ports).

Pricing. Traffic should be priced more opportunistically, something that operators have to master. Just like in other modes operating on schedules, carriers can't afford to give occasional shipper the same rate and delivery schedule as high value, high reliability customer. Current software solutions built around transportation management systems (TMS) are detrimental to flexibility and optimal yield. A few rail freight operators added yield optimization solutions akin to those used by the airlines. By varying charges by segment, Origin-Destination, commodity, demand types, equipment supply, time of transit, and value-add services at Origin/Destination, those rail operators achieved higher customer satisfaction, greater yield, and increased efficiencies. Dynamic price optimization solutions are very new to rail transport industry, either by virtue of legacy governmental interference or simply lack of understanding of information technology tools necessary to supplement their poorly performing transportation management systems. While the former may be difficult to change, changing the latter is a matter entirely under control of the operator. What needs to change is the mentality of the intermodal operator stuck with their traditional approach to freight pricing and unable to instigate pricing/yield process changes and IT technology changes.

Demand Planning and Forecasting. Pricing discrimination and optimization cannot be done without modern approaches to understanding demand. Intermodal rail is a tough business. Realizing quickly where the demand is building up, what price can be extracted (spot or short contract), and what rolling stock & equipment will be needed where to serve that demand at the lowest cost are paramount to winning the fight against long distance road transport. Majority of forecasting and demand planning IT solutions implemented by intermodal operators are ancient and nearly all of them have been adopted on top of software better suited to other industries. In freight, we rely a lot on precise segmentation based on mathematical analysis, but the available tools lack the intelligence to help us out with this task. And finding micro-segments that can produce better yields faster than the road operators can find them is a critical competitive advantage. Forecasting demand and dynamically pricing your services to reliably win orders and contracts means that you need to look at your current solution and validate its usefulness to your business.

Yard Scheduling. Better pricing and better forecast are irrelevant, if the intermodal terminals are not operating optimally. Assembler of the freight train has a responsibility to form the trains as efficiently as possible and present them at agreed time slots to the network (below the rail) operator. Surprisingly, many yards operate inefficiently and miss up to 50% of the committed time windows for presentation of their trains. A part of the problem can be traced to a common solution implemented in the rail terminals, a terminal operating system (TOS) similar to those used in maritime container terminals. This is an example of forcing square peg into a round hole. There is significantly more dependencies between the train in the yard and the network outside, than between the maritime network and the terminal. The trains have no flexibility of departing any time the loading/discharging finishes, as they often enter tracks shared with higher priority passenger traffic. This means that a typical TOS solution which helps to improve efficiency within the walls of the terminal is pretty limiting when it comes to synchronizing terminal operation with the events happening on the tracks outside the terminal gates.

To instigate the change, rail freight companies need to look beyond automating the inland terminals with TOS and implement planning and execution IT solutions that optimize performance of the yard and the movement of the train on the network outside the gates of the terminals. Some railways made a leap of faith into the Precision Scheduled Railroading (PSR), but that's only half of the solution. Its effects are questionable without integration of multiple sides of the business.

Network Scheduling

PSR deserves better understanding. Where railroads previously focused on moving trains, PSR shifts that focus to moving railcars. Essentially, instead of waiting for a train to be built to a specified length, trains are always moving and cars are picked up on schedule, regardless of train length.

PSR makes sense from the point of efficient operations. Unlike the maritime shipping lanes, availability of rail tracks is subjected to knock-on effects of passenger and freight train delays. The trains cannot easily pass each other at will. However, agreeing to "by the schedule operation" means forgoing commercial and customer satisfaction impacts. Current IT approach forces the rail freight operator to maintain multiple siloed systems within the operations (the terminal, the entire rail network), but the biggest gap exists between the operations and the commercial systems. This prevents railroads from optimizing on yield from laden car moves, meaning that a lot of possible margin is left on the table.

In that context, visibility of the network is a must, as pricing, transit time promise, cargo delivery window, "empty" car repositioning have to be optimized in response to the events on the network and promises made to the customers. This would allow the rail operator turn every network “calamity” into new opportunity to generate better yield or enhance relationship with the shippers through immediate information sharing.

IoTs and Automation. Last but not least, the rail freight companies need to look at sensors and IoTs as a way to break out of the legacy thinking of “the trains don’t go everywhere” and the 500 mile rule of thumb for using truck versus train. Combination of train control and trackside sensors and intelligent IoT devices enables real-time flow of information that not only provides humans with better insights early, but also allow communication with optimization applications for automated re-planning and rescheduling of activities across the entire “above the rail” network. Having all these new data sources doesn’t only facilitate moving away from heuristic decision making based on past experience to machine self-learning and refining each next decision with richer set of data, but also offers new ways of seamlessly linking first/last rail facility to the first/last-mile transport.

You might have heard of machine learning and artificial intelligence. These technology terms support integrated, intelligent supply chains of contemporary manufacturing. There is nothing stopping the rail transport industry from leveraging them to achieve objectives of the transport operators and the shippers. A real-time planning system knows how each piece of cargo is moving through the network, it knows location of the rail car, and it knows location of the road transport in relationship to the train. Armed with that technology, rail freight operator could easily schedule container pick up/drop off at the most convenient time window and dock location of the shipper in relationship to the process of forming and presenting their freight train. It could replace a dedicated chassis, truck tractor and truck driver with on-demand service akin to the proverbial “über freight” at both the origin and the destination points. Facilitating such seamless door-to-door movement of container would dramatically increase shippers’ satisfaction with rail, reduce the overall cost of transport, and lead to reduction in inter-city road congestion and pollution from trucks. That’s a whole slew of benefits that can be taken into ROI calculations supporting investments in IoT and telematic sensor technologies.

Advice for the rail intermodal operators willing to look at their business in different ways:

• Pricing and yield optimization is not a silo or a curio. An IT solution synchronizing pricing decisions with up-to-date information on demand, equipment location, terminal performance, and network performance should be an integral part of your approach to business optimization.
• Letting your legacy technology to remain unchallenged in light of your business transformation is a serious mistake. Don’t accept traditional IT solutions and approaches of using silo-specific applications tied by expensive, custom-built, inflexible integration. Sticking to that traditional approach persisting in rail freight transport industry will keep you uncompetitive and unable to change in light of operational events or strategic policy changes.
• Digitalization should be instrumental in reforming your freight treatment processes from end to end. If you are paying only scant attention to technology changes, keeping busy with your day-to-day business decisions, you are accepting a long life of business misery, diminishing cargo traffic flows, and decreasing profitability of your business.

If you found this topic interesting, leave your comment or suggestion. I will be happy to listen and respond.

All my writings draw on real life business experiences with my clients. Asian examples feature big, because I live and work in this region and see its dynamics first hand. If that interests you, please?follow me?to receive the latest updates.