Challenges of outsourcing value-added freight car services

Written by

Jim Blaze, Editor

Trend Reminder: As always, this column represents Jim Blaze’s independent assessment of trends and individual rail freight sales companies. This chronicle focuses on the evolution of rail freight management software tools. As a reminder, there are other suppliers in competition. And some of the Class I railroads might disagree with my assessment that they can’t provide you with such value-added functionality. You, the rail industry public, have to choose.

First mile/last mile, and the challenge of passenger car fleet management: The Big Seven North American freight rail carriers do not conduct personalized or bespoke commercial commerce with their customers. From the 1980s, major railroads encouraged the outsourcing of such valuable coverage to outsiders – initially to branch lines. How can I know? I’ve seen it happen throughout my career.

It all started with the fallout of low-density branch lines when Conrail was created. It continued with other physical lines and low-traffic yards. Class I had experimented with accounting for small geographic profit centers and small management efforts over the past few decades. But substitution with external suppliers such as secondary lines has become essential. It became the service model, creating higher traffic development success centers than the big carriers could reach.

In the years that followed, small businesses emerged to help rail shippers with everything from accounting to railcar tracking and fleet management. Each of these elements represents an added value beyond the long-distance transport function of the Class I rail sector.

Software and communications R&D is now largely advanced by foreigners. These “parties” are, for the most part, not real rail carriers. And with the passage of half a century from when the rail carrier supplied general service wagons for all customers to today’s rail freight world, with more than 70% of the wagon fleets supplied by private wagons (owned or leased by non-rail companies), it is a logical outcome to see digital fleet management by such third-party providers.

Given the so-called Class I PSR rail business model that emphasizes smaller balance sheet assets, it’s hard for me as an investigative journalist and railroad economist to see a future that goes to the business model where major railways can manage personalized service.

Personalized added value is truly the antithesis of the PSR enterprise-centric business model that has driven service opportunities for others. So if manufacturing or supply chain logistics is your core business, ask yourself, “Where can I store my railcars while managing their optimal utilization?” Who helps me manage these expensive freight car fleets? Can I get a full set of these services from one provider? Who should I select as different vendors for different functions?

There are different providers, and some (if not all eventually) will migrate their offerings. One such provider is Standard Rail. Here’s part of a story maturing as the company launches an expanded service called Railcar Lounge™ during August. At my request, they gave me a glimpse of a journalist.

Standard Rail Corporation’s view of the world of private freight cars is that in an ideal situation, shippers using private cars would always have the ideal number of cars in circulation, not too many, not too few. The products they ship would have a stable demand in the market. Railroads would act on time, and car owners and their customers would never need to store a single car.

It’s not realistic. Thus, they must adapt to a random cyclicity. The storage of wagons and often loaded goods inevitably becomes a factor in their daily supply chains. Car disruption and “moving inventory” is a fact of railroad life. And disruptions aren’t always the rail carriers’ fault. Other things happen in the inventory and shipper processing functions. From plant closures to seasonal commodity cycles to dynamic changes in rail service, the need for railcar storage arises repeatedly, and sometimes quite suddenly. And because storage facilities often have some level of access to maintenance services, rail shippers are increasingly using storage services for faster turnaround times for services such as cleaning, maintenance and the repairs.

Standard Rail’s new Railcar Lounge™ software toolset “provides a more controlled and universal means of finding storage facilities that exactly match the owners/shippers service checklist”. The Railcar Lounge™ team sees their tool as “a new way to help shippers procure these cross-functional car storage services.” From their perspective, until now railcar owners and operators had to manually locate available storage locations suitable for their railcars, contact facilities to confirm availability, and then negotiate storage terms separately. Then they would have to finalize the terms of a storage contract, underwrite and manage insurance requirements for the duration of the contract, and finally administer and manually manage this process via spreadsheets and offline emails.

This process is laborious and can take weeks or months. It’s expensive. Standard Rail research suggests that these processes require up to 80 staff hours for medium railcar owners and operators. Sometimes it’s more expensive because they go back to using consultant hours to complete the job.

Railcar Lounge™ offers a new procedure. The digital office software product helps owners/operators privately negotiate rates directly with literally hundreds of geographically located regional tank farms. Each of these storage locations is an independent operator. The software connects them with the shipper/car owner looking to park their cars. Once an agreement for storage and maintenance is in place, then comes the work of moving the cars to the location wherever they are. This and other car moving operations could take perhaps even more than 120 hours per month.

Railcar Lounge™ is built around eliminating these expenses. The approach is to help integrate all search, selection, storage and management functions into the software package.

Once the new storage modalities are in place, then comes the digital processing of these “proprietary” movement functions of the command and control fleet, all supervised and controlled by a single platform:

  • Manage the sorting of “JAT” empty wagon movement orders.
  • Private car audit records.
  • Periodic issuance of a plan and draw order instructions.

Standard Rail promotes Railcar Lounge™ as “a complete, integrated car storage management system” with “easy access using an online connection with a secure proprietary system that allows customers to track all their cars in any storage facility on a single platform”. Customers “can find and select a storage facility and receive authorization quickly. This same platform provides them with audited standardized reports and invoices from all storage providers. All of this information can be exchanged with Standard Rail systems security protocols.

Here is a selection of the types of desktop management screenshots that are part of the service. (The data contained is fictitious for demonstration purposes.):

Those interested in learning more can access the website at http://www.standardrail.com/railcar-lounge. (Standard Rail™ Services and Railcar Lounge™ are trademarks of Standard Rail Corporation, offered in Canada and the United States rail freight market region).

Jim Blaze, independent railway economist and editor of Railway Age, has worked in the railway industry for over 40 years. Trained in logistics, he worked seven years with the Illinois DOT as a long-haul freight planner in Chicago and nearly two years with USRA technical staff in Washington, D.C. Jim then spent 21 years at Conrail in strategic cross-functional roles from side line economics to mergers, IT, logistics and corporate change. He followed that with 20 years of international consulting with railway engineering firm Zeta-Tech Associated. Jim graduated Magna Cum Laude from St Anselm’s College with an MA from the University of Chicago. Married with six children, he lives outside of Philadelphia. “This column reflects my continued passion for the future of the railroad as a competitive industry,” says Jim. “Only by occasionally challenging our institutions can we seek better quality and better performance. My opinions are my own, independent of Railway Age. As always, opposing trade opinions are welcome.