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TOP keeps shipments
on time
Norfolk Southern
uses advanced systems to unsnarl rail lines
by
Garry Kranz
for
Virginia Business
March 2003
Snow
falls furiously as Norfolk Southern train No. 236 pulls
away from Roanoke en route to Norfolk. A messy wintry
mix has caught the crew by surprise. As the black locomotive
crosses a trestle, no cars are traveling on U.S. 460
below. Staying put because of weather, however, is not
an option for Norfolk Southern Corp. if it wants to
execute its new business strategy of upgrading its efficiency
and on-time deliveries.
Engineer
Wayne Gray and conductor Wayne Weeks are unperturbed
by the squall. They chat amiably with their boss, John
Eubank, road foreman of engineers. Weeks needles Eubank,
who is getting off in Crewe, midway between Roanoke
and Norfolk. “You sure you don’t want to ride
all the way to Norfolk with us? We’ll be done in
another 12 hours. Then we can go out on the town.”
Eubank, a fourth-generation railroad man, flashes a
grin. “I couldn’t keep up with your nightlife,”
he tells the 59-year-old Weeks, and the two men share
a hearty laugh.
In
time, Gray throws the throttle wide open and the General
Electric Dash-9 locomotive leading the high-priority
inter-modal train clips along at the maximum track speed
of 60 mph. Eubank, a 32-year Norfolk Southern veteran,
hollers “Clear” as the locomotive approaches
each signal crossing. The 236 is ahead of schedule by
more than two hours, which is good news for Eubank.
It means he won’t be getting back to Roanoke in
the middle of the night.
It’s
even better news for Norfolk Southern customers who
are waiting on the train’s 4,400-ton cargo of chemicals,
car parts and consumer products. The timeliness of the
236 illustrates one of Norfolk Southern’s most
critical business goals for the next decade: to use
technology-driven improvement processes to make train
shipments as reliable as daybreak. The aim is to win
over new customers while keeping existing customers
happy.
Supporting
such goals is a comprehensive new operating plan, developed
after two years of analysis using predictive-modeling
software and other technology tools. Norfolk Southern
also is using technology to offer fee-based logistics
services to customers — even non-rail ones —
for inventory control, supply chain management and warehousing.
Combined, Norfolk Southern is banking these tech-based
approaches will help siphon business away from the railroads’
long-time competitor: the trucking industry.
Railroads
traditionally have focused on running trains on time,
which hasn’t always equated to delivering shipments
on time. To combat this, two years ago Norfolk Southern
began using technology to revamp its train network,
which carried 2.8 million carloads last year. Known
as the Thoroughbred Operating Plan, or TOP, the initiative
was designed to squeeze more efficiency out of the rail
company’s 22,000-mile-long network of track, which
covers 22 states in the eastern U.S. as well as Ontario,
Canada. TOP focuses on increasing train velocity, eliminating
chokepoints and streamlining terminal processes.
One
important objective of TOP is to grab some of the business
that has been lost to the trucking industry. In 2001,
for instance, the U.S. trucking industry accounted for
revenue of $330 billion. Railroads, by contrast, pulled
in a combined $35 billion. Norfolk Southern hopes to
use better operating ratios and improved on-time shipment
performance to increase its tonnage of intermodal freight,
which refers to products shipped via rail and coordinated
with other transportation modes like truck and oceangoing
vessels. “What we wanted was to get the entire
network functioning at a much higher level, not only
to take out costs but be able to attack the truck market,”
says Don Seale, the company’s vice president of
merchandise marketing.
TOP
was developed in conjunction with MultiModal Applied
Systems, a Princeton, N.J.-based company that provides
software and consulting services to railroads. Using
Multi Rail, a service design and operations planning
software developed by MultiModal, Norfolk Southern used
actual waybills to forecast demand over a typical seven-day
period. Waybills provide an accurate database of traffic
variation. Facts such as car handling at terminals,
seasons, and other demand spikes also were part of the
equation. By looking at the subsequent data, Norfolk
Southern planners were able to pinpoint chokepoints
and use computer simulation to test new routes before
making a single change to the track. MultiModal was
hired based on its past successes. In 1999, it designed
and implemented a new operating plan for Canadian Pacific
Railway that was credited with helping produce record
revenue growth.
Another
goal of the program was to help Norfolk Southern get
back on track after its botched takeover, along with
rival railroad CSX Corp. of Richmond, of Conrail in
1999. The two railroads had such serious problems executing
the takeover that both firms saw their stock prices
cut in half. Some of the problems were linked to dividing
up Conrail territory piecemeal, with both railroads
essentially splitting pieces of the lucrative northeastern
routes. However, neither company had fully analyzed
their systems to eliminate redundancies and other delays.
A larger problem was the culture of railroads, which
focused primarily on getting trains out of terminals
on time. “Shippers don’t care if trains run
on time. All they care about is that their car gets
there on time,” says Jason Kuehn, vice president
of consulting for MultiModal.
TOP
uses 250 new train schedules and routings for shipments
of chemicals, agricultural and consumer goods, paper
and forest products, metals and construction materials
and automotive parts. The new plan reduces or eliminates
handlings at Norfolk Southern’s 13 major classification
yards, where cars are organized into new blocks of trains,
and at more than 200 regional and local yards. According
to Norfolk Southern, about 75 percent of its merchandise
customers should see improvements in transit times.
“Every time you handle a car in a terminal, it
costs money,” says David Layman, Norfolk Southern’s
head of dispatchers.
And
it costs time. A rule of thumb in the industry is that
each terminal eliminated saves 24 hours in transit time.
By being able to get more trains to their destinations
quicker, a railroad theoretically will be able to have
more cars available for other shippers. That increased
capacity would lead to increased revenue. It also cuts
down on the potential for mishandlings and other problems.
Some
hump yards, where cars get switched, were shut down
by Norfolk Southern, including one in Knoxville, Tenn.,
and another near Pittsburgh, Penn. Another hump yard
near Harrisburg, Penn. — it once was the largest
in the world — was reopened to provide a more direct
switching stop for freight heading to Baltimore and
Washington, D.C. Norfolk Southern inherited the facility
when it acquired parts of Conrail. Previously, that
same freight would have gone either north to Allentown,
Penn., or west to Pittsburgh, before heading to Baltimore.
TOP also resulted in some new, more direct routes being
drawn, including one for carrying merchandise freight
between Mooresville, N.C., to Elkhardt, Ind., and eventually
to Chicago. Those shipments now arrive as many as 48
hours earlier, according to Norfolk Southern.
The
improvements have some customers beaming. “It’s
been an incredible turnaround,” says Bill Kirk,
president and chief executive officer of Associated
Asphalt Co. in Roanoke, which ships liquid asphalt from
the Midwest to Virginia and the Carolinas. Kirk says
his transit times have been cut by more than half, from
13 days to just six days.
Seale
says the new operating plan helped improve train speeds
32 percent in 2001. Dwell time, defined as the length
of time a train sits idle in a yard — and therefore
isn’t being used to haul freight — fell 30
percent. Also, cars on line per day dropped 19 percent,
from 226,000 in 2000 to roughly 184,000 in 2001. At
the same time, revenue per car day — the average
daily revenue produced by its entire fleet — jumped
17 percent.
Even
so, Peter Swan, a former executive with CSX Corp. and
now a business logistics professor at Pennsylvania State
University, says that despite improvements such as TOP,
other problems aren’t being addressed. One is making
sure the right cars make the right train at the right
time. Railroad companies are faced with unpredictable
demand from shippers, and often have no control over
when they might receive time-sensitive goods that need
to be shipped. “Norfolk Southern is guaranteeing
they’re going to run the trains on time every day.
As long as on any particular day they don’t get
too many cars going to a particular location, or too
few cars (making it economically unfeasible) to run
a train, everything’s fine,” says Swan. “But
if you don’t know what you’re going to get
from one day to the next, running the trains on time
doesn’t guarantee that the proper cars will go
on the proper trains.”
Seale
says TOP is designed to prevent just such incidents
from happening by enabling Norfolk Southern to simulate
how trains will be built. Many industries, including
the automotive sector, have gone to just-in-time delivery
of parts and supplies, so timing and precise delivery
is critical. Norfolk Southern has much to lose if such
missteps were to regularly occur, since the rail company
carries more than 90 percent of all automotive parts
in the eastern U.S. In fact, a second phase of TOP aims
to improve coordination between over-the-road freight
trains and local delivery trains, which carry goods
back and forth over shorter, more intermediate routes.
In some cases, Norfolk Southern offers money-back guarantees
if it does not meet deadlines set by the customer, even
if other railroads are involved. Last year, for instance,
Norfolk Southern teamed with Burlington Northern Sante
Fe Corp., a major western railroad, to offer the first
guaranteed, coast-to-coast rails service with money
penalties if the shipments aren’t on schedule.
Equally
important to Norfolk Southern’s future growth is
another technology initiative known as Modalgistics.
This suite of fee-based services includes modeling software
to help customers control their inventory, optimize
their supply chain and find the best combination of
transportation modes en route to their product’s
destination. It allows shippers to know where their
rail cars are. “What they haven’t gotten from
the railroads is revised estimated times of delivery
if their shipment gets delayed. That’s what we’re
trying to provide,” says David Lawson, president
of Modalgistics, a division of Norfolk Southern. Lawson
declined to provide specifics of how much money Modalgistics
contributed to the bottom line last year, saying only
that it was in the “tens of millions of dollars.”
The
benefits of these new logistics-controls systems and
streamlined operations are beginning to show up on the
company’s balance sheet. For 2002, Norfolk Southern
posted $460 million in profit, a 23-percent bump from
2001. Net income for the fourth quarter totaled $129
million, or 33 cents a share, beating analysts’
estimates by 3 cents. Revenue in its five general merchandise
lines rose 5 percent, and an identical gain was made
in intermodal freight - two key lines targeted by TOP.
Coal revenue fell 2 percent, reflecting diminished demand
by utility companies, but was more than offset by gains
in autos and other cargoes. And while trucks still ship
most freight, Norfolk Southern was able to divert $36
million from trucks to its merchandise rail last year.
Norfolk
Southern has “to be good at this because there’s
only so much coal and only so much grain, and most of
it is already moved by rail where it makes any economic
sense to do so,” says Walt Shuchmann, a transportation
analyst with research firm R.L. Banks & Associates
of Washington, D.C. “They can’t generate more
demand for coal or grain, so what they have to do is
enter the market for premium services. Both TOP and
Modalgistics are ways to do it.”
Down
the line, the 236 is making a special stop in Crewe
to drop off Eubank. Before TOP, Crewe was a regular
stop where a new train crew would take over. But Weeks
and Gray will continue on to Norfolk. They are anxious
to deliver their load so they can hole up for the night
before catching a train to ride back to Roanoke. Before
heading to Norfolk, though, they must brave sub-freezing
temperatures for an ~hour or so for the more mundane
tasks of checking axles, hot boxes and wheels. Technology
may be helping Norfolk Southern become more efficient,
but there are some traditional railroad problems it
can’t solve.
Return
to Virginia Business - March 2003
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