How can railroads regain market share? - Point of View - Industry Overview - Column

Railway Age, April, 2003 by William E. Kassling

Do you fire a salesman who loses market share continuously for his entire 40-year career? If he works in the railway industry as my father did between the 1930s and 1970s, you keep him because he worked hard for his customers while participating in an industry that went from 70% of intercity freight to 35%.

In fact, my father almost got fired for servicing his customer. During the 1950s, he telexed the same request for refrigerated equipment for 100 straight days to St. Louis headquarters to service the fruit and vegetable business out of South Texas when the Missouri Pacific was trying to get out of the business. As you might expect, the railroad succeeded.

I didn't plan to become a part of my father's industry, but it happened 20 years ago. Along with others in the supply industry and the railroads themselves, I have been trying for 20 years to regain market share. We bad some marginal success, raking industry share back to close to 40%. Five points in 20 years still is not a great track record, though I guess I am doing better than my dad did.

How can we speed up progress?

I have two suggestions.

Let's use technology to regain market share. The railroads haul 40% of the tonnage, but get only 10% of the revenue. We have a trucking industry "competitor" operating at a cost advantage in terms of capital requirement, labor, and fuel per ton hauled. With ontime, or at least more certain, delivery, the trucking industry will seek Out railroads as an alternative for high-volume corridor traffic, which now accounts for at least $100 billion of the $300 billion-plus intercity truck business, almost three times current railroad revenues.

Of course we can't demand that truckers use special reinforced trailers, and we have to give them reliable service, but the incremental return to our industry would be significant because railroads operate with a high fixed cost and relatively modest cost per incremental revenue dollar.

Here are some specifics to increase reliability, improve train density, and increase average train speed for higher throughput capacity to allow for growth in existing right-of-way infrastructure. They are: rolling stock and components that are hardened for reliability and redundant to failure, electronic train management systems to promote high throughput with safety, electronic braking for higher speed, unit train quick load/unload over-the-road trailer systems with low-capital-cost terminals to promote incremental revenue, communication systems to provide safety and security, and many other supply industry initiatives that exist today.

These can be invested-in incrementally and over time; there is no need to break the bank. Rank the highest return for incremental revenue and implement one by one and only in geography that needs it. Find a way to segregate upgraded equipment. Cost saving is important, but incremental revenue produces huge cash flow, particularly given a $100 billion opportunity.

Second, let's eliminate the boom and bust cycle of investment. This industry has depended on suppliers to provide innovation and more reliable products to enable the modest market share gain of the last two decades. However, the overbuild of the mid-90s has been followed with the no-build of the last three years. Product development takes a hit when cash goes away and bankruptcies abound. The rail industry is ultimately a cooperative (even while being individually competitive) for all participants--railroads and suppliers.

We need a long-term upgrade plan with modest and continuous per-year steps to get there. Railroads lost market segments over decades, one by one. We can pick them up the same way. They are arrayed two ways, by commodity and by geography. Rank both by attractiveness and then work down the list. And the main competitor, the trucking industry, will help. It needs lower costs.

Long-distance unit train movements of low-value commodities helped the industry to survive.

The unit train concept was our competitive advantage and will be used again and again in different ways to provide the growth we need: unit trains of over-the-road trailers, unit trains of agricultural products, unit trains of trash from urban areas to landfills, and unit trains I have nor even thought of yet. These opportunities exist anywhere concentrated shipments of goods are required. We see them everyday on every interstate.

I came to this industry late. I don't have another 20 years to redeem my father's career. We have to get moving faster.

William E. Kassling is Chairman of Wabtec Corp.