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Oliver Wyman is among the consulting companies that actively conduct their own R&D market research on rail freight futures.The company just released a significant upside forecast. How big? Just over $175 billion in cumulative railway freight revenues between now and about 2030. That is big. But it is not guaranteed.
A significant business culture change must occur. It is not a business-as-usual outlook. A lot of tactical skill sets and communication linkages are required.
The deep market research results were delivered by Adriene Bailey. She is a partner in the firm. One subtle message is this. Her R&D marketing reveals that important railroad customers are not satisfied with a business-as-usual case.
A deeper diagnosis
Bailey needed only a dozen slides to present her business case. Where others see a struggle, she sees opportunity.
Volume growth is possible within a range of what the Oliver Wyman partners call “flexible” commodities as shown below in one of several shared graphs.
The overall ton-mile railroad share is less than a quarter versus the competing modes. And rail’s growth has been dropping.
The good news is that the railroads are not totally going out of business.
The bad news? It is not yet a clear go-to-market path either.
The upside? Oliver Wyman’s market analysis sees a $15 billion- to $20 billion-a-year possible revenue growth over the decade ahead.
But is it new business? Or is it perhaps better described as revenue market share retention?
One path results in growth; the contrary path reflects the risk of traffic loss.
What does $177 billion look like?
- Between 4 million and 6 million carloads a year.
- Perhaps 12,000 to 16,000 a day or more when averaged out.
The formula to calculate is complex, so for the moment, we speculate.
Achievement or failure, either way, amounts to a lot of train business.
Indeed, this is an interesting business case for the strategic rail executives, as well as for their board of directors.
What’s their message to investors going to say?
Bailey did not pull back on her research findings.
Here are a few takeaways.
- The report confirms that rail customers typically prefer trucks to rail; trucks are faster overall and more dependable.
- Rail price is typically cheaper on a ton-mile basis but not always cheaper when the metric is the logistics total inventory delivered costs.
- Railway new business models like PSR may claim improved scheduling and precision movements, but lots of shippers in this target zone are still waiting for the evidence at their receiving docks.
- Shippers want accurate inventory transit reports, not train reports.
- Shippers want RR carrier customer centricity and practical help.
Rail receivers do not care about rail company yard-to-yard train moves. Rail customers want to know how in detail rail executives will execute these service improvements in a truck-like reliability pattern — over and over.
Real growth will require adaptation to these market shifts.
The bottom-line message from one automotive shipper to senior railroad executives and to Wall Street was: PSR railroading has not yielded positive results in service, transit or reliability.
Something more than PSR is required from rail freight carriers as shown in this exhibit from Bailey’s slides.
Execution is a different ballgame
Here is the deal about outsider consultant studies and projections:
- Consultants estimate and calculate.
- Consultants are about the role of innovators.
- But consultants seldom execute.
Executives and boards decide to execute or not.
If senior executives cannot articulate their HOW, their WHERE, their WHY and their BY WHEN tactics, nothing much changes.
Meanwhile, customers get worried. Can the railroads really pivot, they wonder?
Let’s ask which of the Class I carriers are ready to commit to these changes. This is important because the strongest of the species isn’t the one that always survives. It is often the one most adaptable to change.
Many corporations historically settle for the status quo.
Corporate history is full of such case study results. For instance, Pennsylvania RR went from the pre-World War II standard of the world to the failed Penn Central by 1970.
Bailey shows us that rail freight’s future is again a bit up for grabs. Which path will be taken?
How will we know that this generation of rail executives is going to execute the growth pivot?
- They will signal by changing how they will serve evolving new supply chains.
- They will demonstrate a renewed sense of customer centricity.
Investors will want to hear and see the railroad executives’ detailed how-to-do-it response. Because only those executives can authorize change.
Thank you, Ms. Bailey.
Readers, contrary opinions are welcomed.
Bailey rejoined Oliver Wyman as a partner in 2019. She has a diverse, 25-year career in transport and logistics. Her senior leadership roles in the rail, intermodal and management consulting sectors included assignments with Pacer International, CSX Transportation and Southern Pacific Railroad. She earned an MBA from Wharton School of Business and a Bachelor of Science degree in engineering from Princeton University.
Major funding to present the now-15-year-old RailTrends autumn conference was provided by Progressive Railroading.
Other major speakers on these changes included Lawrence Gross of Gross Transportation Consulting; Tony Hatch, senior transportation analyst at ABH Consulting; and Rick Paterson, managing director, Equity Division, Loop.