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Full text and graphics version. Jim Blaze, Zeta-Tech Associates 900 Kings Highway N. in Cherry Hill, New Jersey, USA, 08034 [email protected] Global Economic Railroad Trends & Efficiencies. “You become a trend maker”. March 22, 2007. Here are my themes

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global economic railroad trends efficiencies
Full text and graphics version

Jim Blaze, Zeta-Tech Associates

900 Kings Highway N. in Cherry Hill, New Jersey, USA, 08034

[email protected]

Global Economic

Railroad Trends

& Efficiencies

“You become a trend maker”

March 22, 2007

slide2
Here are my themes

Finding the Critical Trends in the data “noise”

Efficiency “metrics that matter”

Global Benchmarking to become the best

Becoming a “Trend Maker”

Your Challenge after this conference

Please allow me to introduce background data about which my fellow speakers will address in turn with more details
slide3
R

I am a railway man and this was my company

CONRAIL

Seattle

CONRAIL

Montreal

Chicago

San Francisco

New York

St. Louis

Los Angeles

Graphic tricks make

It look bigger than it it

Major Joint Service Routes

[email protected] 2004

what technical innovations were implemented in the past two to three decades
Containerization

Giant TEU ocean ships

High efficiency diesel-electric locomotives

Doublestack rail wagons

Heavy rail car axle load limits

Very long & heavy train sets

What technical innovations were implemented in the past two to three decades?

We will cover some of these briefly in the coming slides

hard to see the long supply chain pattern in the fog without evidence
Hard to see the long supply chain pattern in the fog without evidence

We will use facts. patterns and “numbers” from data to illuminate the track ahead

slide6
Did you ever have to make up your mind…

…to choose one path and leave the other behind?

You will have to

make choices as to

how to serve

the supply chains

let us focus first on strategic examples of rail freight supply chain measurements
Implementation pace of technical improvements

Changes to meet market competition

Changes in market “elasticity of demand”

Let us focus first on Strategic Examples of Rail Freight Supply Chain Measurements
slide8
Implementation pace of technical improvements

More than 50% of breakthrough improvements

come from adoption of technology

Each generation of managers gets one such opportunity

2 chances if you are really lucky

slide9
Implementation pace of technical improvements

Winners often take advantage of someone else’s idea

…and implement “it” faster and better

Can you and will you do this

slide10
Just as in boxing or soccer the railway market share prize will go to the best “competitor”
  • The railway freight prize will be
    • Market Share
    • Profitability
    • Recovery of asset costs

Indian team members celebrate 1983 Prudential World Cup

2 market competition along global supply chains
2) Market Competition along Global Supply Chains

Identify thy enemy

Learn his weakness

Use your strengths

Density and Fuel Efficiency are your rail advantages

  • Improve your “economies of scale” and
  • Beat the truck with lower costs per unit
2 market competition along global supply chains1
You need to react swiftly to market actions by competitors

Take only 6-hours for publishing a new rail price quote

You cannot wait around for 13 months and convinced customers that you are their preferred global freight leader

2) Market Competition along Global Supply Chains

You “snooze” -- you lose

3 elasticity of demand in key marrkets
3) “Elasticity of demand” in key marrkets…

What is your elasticity in key corridors?

East China to

Rotterdam example

This is the competitor

11,000 TEU’s

What happens to rail demand when the rail price is raised in the face of such vessels?

Will you retain or lose market share?

strategic question can overland rail compete with an 11 000 teu ocean service
13/02/2007NEW PROPOSAL for container train running

CHINA - Kazakhstan – Russia – Ukraine to Western Europe

Russia and Ukraine approved the tariff agreement for the transportation by container train using 40 foot containers

The rates are as follows:

Kazakhstan $ 847

Russia $ 1,104

Ukraine $ 274

TOTAL $ 2,225

PLUS added costs to reach German markets

STRATEGIC QUESTIONCan overland rail compete with an 11,000 TEU Ocean Service?

HOW MUCH RAIL SHARE

AT THESE PRICES?

3 elasticity of demand
You may be faster then the Suez route

But the few days saved is worth maybe $200 per box in on-time inventory

But if you take prices up and demand drops, your demand influence on the market is inelastic

3) Elasticity of Demand

You take price up and you will lose market share and traffic

Because ships like this…

…are the market price leaders

slide16
History shows us how Eurasian railways can

beat the Ships and the Suez Corridor

Both time

…and price charged per box will matter

How close to $1,200 plus can you get

1983 here is what the train had to beat
1983 – Here is what the train had to beat

Launched for APL in 1973

One of four all-container ship design

17 Years after the first Sealand Container ship

The 3rd “President Jefferson” APL ship

Competing with the first double stack train

1,508 TEU’s

90 ft beam

Competition Corridor was “The Panama Canal” route to US East Coast

slide18
My friend Ted Krohn will demonstrate what single action allowed US rails to take a 70% plus market share away from the ships and the trucks

TECHNOLOGY WAS THE KEY TO THIS SUPPLY CHAIN CHANGE

  • By decreasing the rail costs incurred per container by up to 45%
  • Allowing rail PRICE charged per container to drop by about one half to two-thirds third from this single railway action
because the 1984 stack train proved successful giant ships became economical
Because the 1984 Stack Train proved Successfulgiant ships became economical

C-10

C-6

APL built ship’s not capable of the Panama Canal passage

The C-10 Class “Truman” was delivered in April 1988

4,300 TEU’s

129 ft and 3-inch beam

who organizes these supply chain today
Besides APL who are among the best logistics providers?Who organizes these Supply Chain today?

Among the best is UPS

This analysis is called “benchmarking”

slide22
UPS even manages which railway company will distribute many of the finished automobiles by rail wagons

UPS decides who is most efficient railway vendor

slide24
No longer a trend --- Now the skill to beat

Can you do all this with

Quality assurance?

IF NOT, YOU WILL PROBABLY TAKE ORDERS FROM

THOSE THAT CAN

who has these supply chain skills
Who has these supply chain skills?

Here are a few of the emerging quality “organizers”

—ProLogis

Bilex

PACER

“Looks like a trucker, acts like a forwarder”

slide26
ORGANIZERNet IncomeProfit Growth

UPS $ 6.0 Billion 20%

Federal Express $ 2.5 Billion 22%

TNT $ 1.3 Billion-11%

PACER $ 99 Million 29%

UTI Worldwide $ 127 Million 33%

C H Robinson WW $ 332 Million 47%

“Most leading supply chain organizers are so strong they do not need regulatory protection from railways”

TOP SIX in 2006

slide27
Let us look closely at just a few North American railway freight trend numbers and see what they broadly tell us

Railway trends in the face

of supply chain management

a few north america trends
Why begin here?

Because of their pace of change

Because of their wealth of data (metrics)

Because they offer a “best of breed” freight benchmark in a global logistics service market

A few North America trends

Fast Processes

Are data rich

Strong RESULTS

usa ton mile all rail freight
USA Ton-Mile – All Rail Freight

15 Year Business Increase

Up up and up

rail ton miles in past 7 years
…rail Ton-Miles in past 7-Years

Trend tremendous growth pattern

usa intermodal rail
USA Intermodal Rail

15 Year Business Increase to

12.3 Millions Trailers and Containers in 2006

Two Years with negative growth shown in red columns

slide32
10 Year Pattern

In Millions of Trailers and Containers per Year

Total of 12.3 Mil Units

9.4 mil

Containers

Cross-over year in 1992

2.9 mil

Trailers

Trailers versus Containers

slide33
These previous unit numbers are not TEU unitsMany of these are the actual number of unitsup to the large 53 –foot long units

Equivalent to more than 21 Million TEU’s in 2006

made possible by doublestacking technology
Made possible by doublestacking technology

A trucking company is now a leading US rail intermodal player – one of several “truckers”

slide35
The “King”

At 53-feet

48-foot USA

Domestic Box

45-foot

Pacific Box

“FEU

40-foot

Basic Box

“TEU

20-foot

Basic Box

BIG -- BIGGER -- BIGGEST TREND

slide36
Cubic feet

3,787 feet

3,427 feet

3,014 feet

“FEU

2,372 feet

“TEU

SEARCH FOR CUBIC CAPACITY

1,149 feet

slide37
“FEU

Because this TEU box often pays a US rail rate almost equivalent to the 40 or 45 foot rail rate

“TEU

… the “TEU” is slowing disappearing in the USA market

slide38
25% or more of all ocean containers are trans-loaded to larger US boxes on the Pacific Ocean to East Coast Global Corridors

NEW SUPPLY CHAIN TREND

TRANSLOADING

Why?

The answer is “Economies of Scale” from cubic capacity of big box doublestacks

not a decision of regulators or policy planners
Not a decision of regulators or policy planners

Since 1999, more than 90% of US double-stack rail cars have been designed with a 53-foot “well”

The “well” is the lower container position in a double-stack rail car;

The market has voted for the 53-footer

slide40
1,850 intermodal rail wagons

28,700 chassis

used to transport containers over the highways

28,200 containers

This means that for you to become an intermodal player like PACER requires a lots of capital equipment investment

1,000 customers

100 agents

17 offices

700 “contract truckers”

1 Million loads a year

Company is worth about $1Billion on the market.

slide41
Supply chain is focused on what they can get into their box and not what they can get onto your limited wagon

High value cargo needs cubic space

slide42
Efficiencies from modern container trains is not possible

on most of the world’s railways because of overhead clearance restrictions

20.5 feet in North America on strategic routes

Doublestack performance REQUIRES “clearance” investment on key routes

slide43
“We need to electrify in order to save fuel costs” say many railroadersWRONG suggests Jim Blaze and ZETA-TECH Associates Inc.

Electric wires: big challenge to achieving efficient doublestack corridors for customers

slide44
Here are examples of different cost levels and different prices on a Chicago-New York intermodal corridor – per trainMarketing tools like ZETA-TECH Intermodal Model and TrackShare help you identify your costs and then help you set competitive prices

Out of pocket variable cost $ 30,000

Long run variable costs $ 40,000

Marginal costs on congested routes $ 49,000

Full Costs $ 60,000

Full Costs plus profit margin $ 80,000+

((Rounded numbers as examples)

Do you measure your costs to help set prices in this way?

british isles rail freight change metrics
British Isles Rail Freight Change Metrics

19.4 Billion ton-km in 2002 to 22.1 Billion in 2006

7.5%

-4.5%

Yes – increasing rail ton-m

uk regulator reduces freight charges by 50 to win freight to rail
The Rail Regulator announced a significant contribution to the Government's objective of achieving an 80% growth in rail freight traffic by 2010

He ruled in favor of “halving” the access charges freight operators pay to Railtrack for use of its network

DID IT WORK?

UK Regulator reduces freight charges by 50% to win freight to rail

April 2001

uk success
So far has in fact delivered growth

Better volume results than in most of Europe

Far better than Africa and South America

But at a continuing subsidy cost

UK SUCCESS
uk productivity issues remain
UK PRODUCTIVITY ISSUES REMAIN
  • Freights less than 800 meters in length
  • At best a 25.5 ton axle load versus 30 in Norway
  • No double stack economies of scale
in germany
In Germany…

… a six year decline in rail freight tons

DB Rail Freight Change

6 Years

IRJ Reported intelligence from Germany

slide52
25-metric tons per axle is finally appearing in EuropeThree decades after start of N. Am HAL trend began
sweden leads the way on continental europe
Adopting ZETA-TECH recommended HAL

“Our ambition is to reduce operating costs”…

Objective achieved with 30-tonne axle loads

Each 68 wagon train set replaces 52 wagon sets

7,000 trains a year drops to just to 4,000 per year – adding PATHS

Cost reduction by nearly one half per tonne kilometer

Sweden leads the way on Continental Europe

Mine-to-harbor freight capacity of more than 23 million tonnes per year

LKAB uses its own locomotives and cars

european rail freight change pattern so far
After a decade and a half…

EU-15 rail freight share is 14% of k-tm measure

Ten Billion Euro share versus 200 Billion truck

800 million Euro in annual losses (EU-15)

Major strengths are in

Heavy industry like coal (70%) and steel (35%)

Port container short shuttle trains (40% some ports)

High utilization selected Europe corridors like Swiss Apls

European Rail Freight Change Pattern so far
slide55
35-year view of EU Community Rail Freight

Market share loss and real volume drop to Truck and Sea modes

slide56
15 year view of EU Community Rail Freight

At closer scale

NOT A DATA RICH ENVIROMENT

22 november 2005 eu rail freight report by railway transport and interoperability unit
The “turnaround in rail freight performance in the EU has not yet been achieved”

Hopes now placed on the new European Regulatory Agency…

… not upon market forces and commercial actions

So far, ‘insufficient entrepreneurail efforts’…

22 November 2005EU Rail Freight Reportby Railway Transport and Interoperability Unit

Note the 2-year data intel lag

Note the fact that this was the latest report

while the european rail freight market is technically open the results are less than expected
On-time within 30 minutesequals just 64%

About the standard rate for all USA carload in the 1970’s

“Quality improves but remains insufficient”

Cost per unit down only 2% annual in last 3 years

“Need to achieve at least another 20% cost reduction”

“Best practices” adoption

Has improved productivity by 30% in 5-years when implemented

Market entry by new rail operators has been “modest”

Focused on full train operations - excluding mixed freight

While the European rail freight market is technically open… … the results are less than expected
for a review of other global data i suggest a review of world bank tables
Why not on my slides today?

Most of the data fields are “empty”

The data is often very old

Trend analysis capability is therefore limited

For a review of other global data I suggest a review of World Bank Tables
most of your growth and profits will likely come from heavy haul commodities
Most of your growth and profits will likely come from heavy haul commodities

This is how you can compete and be valuable to these global bulk shippers

example using shorter length shorter height with heavier axle loading
Example using shorter length, shorter height, with HEAVIER AXLE LOADING

4.8 Net to Tare

Light weight ----------------------------------- 49,100 Lbs. Load limit---------------------------------------- 236,900 Lbs.Gross rail load----------------------------------- 286,000 Lbs.

proposed equipment specs in net to tare ratio as axle loads increase
Proposed Equipment “specs” in Net to Tare Ratio as Axle Loads Increase

Net to Tare Ratio

Tonnes Per Axle

These economics and the engineering principles are the same the world over

slide64
Acknowledging that the North American business model produces these results:

Growing volume,

Better asset use rates

Lower your prices and hiher profit margins

Able to compete on price with the other modes

  • I predict some of you will finally shift to this business model
  • Some of you will finally shift to this business model
ladies and gentleman together we have reviewed trends
There are few surprises

Most patterns are duplicated in every part of the globe

Most trends look negative

At best somewhat “stable”

But there are examples of success…

Ladies and gentleman, together we have reviewed trends

… like this NS Doublestack

Trainmaster Rob

some of these factors of change
Yet even with a loss of volume, freight railways can in fact become more “self sustaining” by using management tools

Look at CONRAIL and CN history for the economic proof

Some of these factors of change

Railroads do not control

No Monopoly Power

slide67
CONRAIL WAS SOLD IN 1997 AT A HUGE PROFIT TO SHAREHOLDERSTHIS IS HOW OUR “OWNERS” MEASURED BUSINESS SUCCESS

The business value

of the railway increased

from $3 Billion

to more than $10 Billion

How will you measure

your railway’s success?

slide68
CONRAIL SERVED ONLY PARTS

OF THE GLOBAL SUPPLY CHAIN

Big player – small pond

Smaller player – in bigger pond

slide69
Very small supply chain agent – in the big global pond

But very profitable and one of UPS’s very best railway vendors

slide70
I predict that if your Eurasia corridor performance does not improve soon, that CN might try and compete with the China/Europe Rail Corridor via this routing

Pacific Ocean to CN-Prince Rupert and Atlantic ocean partners might compete on price

How? By using their technology cost advantages

[email protected]

when you leave this conference you exit as railway trend makers
I and the other speakers challenge you with 3 simple

questions

What action will you take to make your own trend?

What will be your metrics?

How fast will you act?

When you leave this Conference you exit as railway trend makers

What will be your” to-do list”

my farewell challenge to you
From the speakers that follow me

Find 3 things that matter to your railway

Identify a plan to execute your improved role

Beat the clock on execution of your plan

Seek to become the best -- not just “average”

Set measured goals

Call me in 6-months so I can celebrate you improvement

My farewell challenge to you
remember that mistakes will occur as your execute your plan
Remember that mistakes will occur as your execute your plan

FACT:

Most plans fail

during the

execution

phase

286,000 pounds in a 263,000 pound design can break the wagon’s back

the clock is ticking
The clock is ticking…

“The swift, efficient, and accurate will gain market share”

… even in the face of new supply chain competition

This is Jim Blaze

[email protected]

[email protected]

source credits
Some pictures from www.RailPictures.net

Some pictures from www.parovoz.com/newgallery.net

ZETA-TECH studies for NS, BNSF, Banverket, US Government FRA and FHWA

EU Technical Reports

International Railway Journal, Railway Gazette, Trains, and Railway Age

HAUER Associates Inc

UIC Data Trends

AAR Data Trends

Ted Krohn of KrohnConsult

Mongolia Railway Authority

Dr Alan Zarembski of ZETA-TECH Associates Inc and our technical staff

Source Credits
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