Sunday, 25 November 2012

Slot Maximisation - picking all the low hanging fruit

This last decade has seen Australian rail operators retreat from all but the lowest hanging fruit when it comes to freight handling. If anything is just a little bit too hard or a little bit too marginal it's been abandoned and given over to other transport modes. This method of reducing cost to increase profit has been a perfectly logical path to head down, particularly during a decade of drought and mining expansion. The trouble is, this process eventually becomes a dead-end street - 'easy freight' is not infinite. Non-bulk freight that doesn't have to get there as fast as a truck, or because in a particular circumstance rail finds itself cheaper than a truck, is just freight that just hasn't gone to a truck yet. Rail has to start working to maintain non-bulk volumes, and more to the point, work even harder to grow these volumes.

So where should operators start? Well, they could do what they've got so good at doing, cut costs - except, this time, it could be for the customer.

For rail to keep up with road competition in corridors where it is not time competitive, it has to at least be cost competitive. This means running trains moving every last bit of volume their slot allows for. The trouble is a lot of trains on a lot of corridors do not achieve maximum slot utilisation for a myriad of reasons. Lack of paying customers is one, insufficient horsepower can be another. In the end, train-pairs can run unbalanced in one direction with lots of empty wagons, or worse run as short consists in both directions. This is not necessarily bad. A train-pair could still be making a profit running short or heavy in just one direction. Think about it, a daily train only has to make a net-profit of $2800 per run to achieve $1-million/annum mark.

So lets look at this. If a train can turn a profit hauling empty wagons, what about trying to fill them through discounting? Additional costs for fuel, perhaps locomotives and the slot agreement would need to be considered, but if the operator has a train they regularly find difficult to fill, perhaps they should cap the profit for that service at a workable level and give terminal and accounts managers the opportunity to heavily discount or even give away space to regular customers. This is not meant to be a long term strategy, but this is to push rail into the consciousness of freight shippers. Instead of being Option B, C or D on a corridor, this kind of discounting could make rail Option A. And as the slot fills to its maximum the discounting could be gradually decreased.

Alternatively, capping the profit for a train might make its slot a useful tool for returning to a previously marginal freight. If a bulk or non-bulk freight shares the same origin and destination as the 'profit-capped' train, then why not. This is the volume game. Grow a marginal freight enough and the tonnages make up for its low margin. Canadian National has headed down this path, turning every train-pair into a conveyor for every available commodity. The result? This company now has the lowest cost/profit operating ratio in North America and one of the most diverse traffic bases. And face it, price capping has worked for the Telstra and Optus, why couldn't it work for rail?

Food for thought...


No comments:

Post a Comment