Rail competition, connectivity, network speed and reliability are some of the big freight rail issues on the minds of shippers like Home Depot Inc. (NYSE: HD), according to the company’s director for logistics.
Because Home Depot sells products from all across North America, from forest products in western Canada to more localized building materials like drywall and concrete, good rail network connectivity “is really important,” said Robin Baggs, director of logistics for Home Depot. Baggs was a panelist for a Jan. 27 session on rail freight growth. The session was part of the annual meeting of the Transportation Research Board, an organization aimed at promoting innovation through transportation research.
If Home Depot’s distribution center is served by one railroad but a vendor is served by another, it takes effort to determine how to connect the two, Baggs said.
To help establish connections between two Class I railroads, short line railroads often play the biggest role. “Short lines are often unsung heroes,” Baggs said.
A competitive rail environment, or access to multiple railroads, is also something that Home Depot seeks because it affects how the company does its own business, he said.
Freight railroads need to consider how they can speed up the overall time of rail moves because speed is one factor in trucking’s favor.
“If we have to wait two weeks to actually get that additional product to the customer, that’s a problem for us. So, the faster we can react, the better … . It’s really about that end-to-end lead time. It’s not [just] about one leg moving faster on the train,” Baggs said.
But coupled with that need for higher speed is reliability since Home Depot wants to be reliable and responsive to its customers’ needs, he said.
Baggs explained how Home Depot’s supply chain has evolved over the past two decades. It is undertaking a $1.2 billion investment in its supply chain infrastructure so that the downstream segment of its supply chain — anything that goes to an end customer, whether that customer is a professional or a homeowner — can be at a competitive advantage.
Atlanta-based Home Depot has 125 core distribution centers and more than 2,000 stores across North America.
“We think it is now [competitive] but we can make that even better by investing and starting to integrate the upstream with the downstream,” Baggs said. Upstream means moving products from vendors to distribution centers, he said.
One reason Home Depot is investing in its supply chain infrastructure is the changing demands of the customer, Baggs said. That means same- or next-day delivery.
“I like to joke, it’s been fun to see fencing grow at a really rapid clip,” Baggs said.
Another reason is Home Depot’s business growth. The bulk distribution facilities on Home Depot’s network and the rail infrastructure supporting those facilities are working on a rail footprint from 20 years ago, he said.
“It’s a great network but an aged network. It’s also one that we managed differently when we [first] built it,” he said.
Previously, Home Depot didn’t manage its inbound transportation to its bulk distribution center network, resulting in a fragmented network across 100 to 150 suppliers.
But now “we’re starting to manage it from end to end,” Baggs said. About 50% of volume into this network is through rail. Home Depot is seeking to build 30 new facilities so that it can increase its square footage and offer more products, he said. The new facilities will also help Home Depot manage same-day and next-day deliveries to its professional customers.
For instance, the Atlanta-area Stonecrest facility opening later this year will be served by CSX (NASDAQ: CSX) and Norfolk Southern (NYSE: NSC). The railroads will bring in big, bulky products, and then Home Depot’s flatbed fleets will bring these materials to professionals and individual customers.
“It ultimately drives speed, efficiency and reliability to these wood products and other building materials that we think will be great for our customers,” Baggs said.
Other insights on freight rail growth
Panelist Tyson Moeller, general director of network development for Union Pacific (NYSE: UNP), said the ability to wield massive amounts of data to benefit customers and the railroad is one area that Union Pacific (UP) continues to work on.
The former method of downloading spreadsheets to track shipments wasn’t very efficient: “There was a lot of manual work that had to be done on our side as well as on our customers’ [side],” Moeller said.
The railroad is now seeking to use technology that enables multiple applications to connect and share information with each other. By integrating application programming interfaces, customers can have better real-time access to data that enables them to perform functions such as automating workflows. The technology also expands customers’ visibility into the supply chain by enabling customers to see where shipments are located, Moeller said.
John Maddox, freight and rail program manager for the Kansas Department of Transportation emphasized the role that short line railroads have in the state’s multimodal freight network.
Approximately 40% of Kansas’ rail network is owned or operated by 13 short line railroads. They operate on 1,476 miles and hauled 167,527 carloads in 2019, according to Maddox.
Kansas has benefited from federal grants and public-private partnerships to improve rail network velocity and capacity and implement in-cab, rail yard and dispatch technologies, among other benefits, Maddox said.
Carlo Borghini of Shift2Rail talked about the need for Europe to digitize some operational and safety components of the continent’s freight rail network. He also discussed the need for the European Union’s 27 member states to research and work together on ways to become a more unified supply chain.