Why Care About Rail?

May 9, 2017
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This past weekend, my APICS (premier association for supply chain and operations professionals) Inland Empire chapter had its spring executive panel and networking symposium on the topic of “Disruptive Innovations in Logistics”. We had an amazing panel of experts covering trucking, rail, import/ export, distribution and policy. It was clear that rail can have a profound impact on logistics, and there is much more involved in rail than obvious at first glance.

rail industry

For example, Union Pacific (represented on our panel) and BNSF are the two core freight rail lines supporting the U.S. There is an amazing amount of disruption and innovation going on in the rail industry to increase fuel efficiency, decrease emissions, enhance safety and improve outcomes for customers. For example, the new train configuration emits 15% less emissions/improves fuel efficiency. There are initiatives going on to stop any train from having an accident with any other train technologically. However, it is never as easy as it sounds. Will the tracks support it? Will the technology and satellites support it? Will the infrastructure support it? There is an amazing amount of money being invested as well. For example, a tier 3 locomotive costs around $1.5 million whereas a tier 4 environmentally-friendly locomotive that also maintains power and performance is double that amount.

What Should We Consider and/or What Impacts Could Arise?

You might wonder if rail matters to you. For the vast majority of companies, rail will impact the end-to-end supply chain in some manner which will impact them. On Friday, I met with a client who was re-evaluating their supply chain network. Rail is and will remain a key aspect of their network because it is an efficient way to transport goods across the country in combination with trucks, ports, etc. In this case, they transport finished goods; however, in many cases, it might not be that direct (and obvious). Many of our clients’ suppliers use the rail system extensively. When I was a VP of Operations and Supply Chain, rail was one of the modes of transportation we utilized (as it was lower cost and reliable, albeit a little slower), and of course, our suppliers definitely used it as well. Undoubtedly, it will impact you in one way or another.

Thus, it is helpful to be aware of what’s going on in the rail industry. Stay in tune with what issues are affecting your logistics system as these topics will impact costs, service and visibility at a minimum. Also, what disruptions are likely to occur? Are you ready for them? Are there risks associated with these areas? Certainly, natural disasters can have a profound impact, let alone strikes, accidents, etc. Within the last year, the freight rail systems largely came to a halt in Southern California due to fire. What backup plans do you have? And, do you understand how you are impacted by the rest of your logistics systems?

 

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