The article goes on to describe how the nexus of new technology (e.g. artificial intelligence, data collection/storage and processing speed) and the exploding amount of data available from all imaginable sources, have created an environment whereby business, government, the arts and science can distill new insights from this tsunami of information.

One of the examples offered in the article is the now-familiar story of “Moneyball.”  In the book by Michael Lewis, and the recent film starring Brad Pitt, the story described how a professional baseball team general manager used new data sources and statistical analysis to identify undervalued players and built a winning team at a relatively low cost.

This reminded me of the story written last year by Oliver Wyman’s David Hunt, and published in the Fall Newsletter of INFORMS Railway Applications Section, entitled “Big Data and Railroad Analytics.”  In his article, David also used Moneyball as an example of the use of big data to analyze new metrics to dramatically improve the performance of an organization.  He went on to to describe how the North American Rail industry is just starting to use the treasure trove of data that they dynamically collect, to improve the analysis of their business, lower operating costs and produce greater profitability.  David also described the use of the new Traffic Flow Analyzer (TFA), that has been developed to manage the analysis of massive railroad databases.  If you missed the article, you can find a copy of it on this blog site.

It looks like big data is here to stay.

The survey focused on five primary areas:  (1) Service Design responsibilities and composition; (2) the planning process; (3) central execution/control systems; (4) planning tools (developed in-house and acquired externally); and, (5) demand management planning.

There are generally 80 to 100 people employed at each of the Class I railroads for planning how the railroad operates.  Some of these staff are part of the Service Design group, while others are scattered throughout the company in a specific line of business (intermodal, coal, grain, etc.), in the dispatch center (locomotive planning), in Engineering (maintenance planning), or in operations research/information technology (tool building).

As might be expected, there were several similarities among the Service Design groups.  All of the Service Design groups plan road trains, blocking, hazardous material shipments, interline movements, and local service (usually jointly with the field).  All of the Service Design groups also develop trip plans for general merchandise and automotive traffic, and they generally measure trip plan compliance as the initial ETA plus 24 hours.  An interesting result of the survey was that all of the Service Design groups have a very limited number of staff (typically around 5) with the authority to directly make changes to the production version of the operating plan.  This tightly controlled access is necessary due to the complexities of the plan and to the mission critical nature of the information.

There were also several key differences identified between the railroads.  Some of the railroads make continual changes to the operating plan, while other railroads make changes on a fixed (typically weekly) schedule.  Short-term forecasts are used to develop the plans at some railroads, but the others prefer to use history due to concerns over forecasts accuracy.  There were also several differences between the groups in the planning of intermodal and bulk services.  While most of the railroads produce trip plans for intermodal flat cars, not all of the railroads produce trip plans for intermodal boxes.  Also varying from railroad to railroad was the planning of which bulk traffic moves in unit versus merchandise service, and whether or not bulk traffic moves in blocks.  Finally, all of the Service Design groups provide some planning for local service, but the level of detail and the accuracy of these local service plans varied greatly.

Follow this blog in the coming months as we release more detailed information on specific topics from the results of the Oliver Wyman survey of the Class I railroad’s Service Design groups.  If you have any questions about service design and our survey, please contact me at david.hunt@oliverwyman.com.

A great example of this is a recent piece from our Aviation, Aerospace and Defense (AAD) group on ”Crews Control.”  In a story, published in Airline Business, Oliver Wyman Partners argue that while C-Suite management would like to ignore the complexities of crew supply chain issues, at 10-20% of an airline’s cost structure, management would be well served to focus on this issue. The authors outline a plan for senior managers to aggressively focus on all facets of their crew management function, which can reduce crew costs by more than 20%.

Another publication, recently produced and distributed by our Corporate Finance and Restructuring Practice, suggests that the rules of the private equity game have changed and that investing decisions are increasingly dependent on operating performance gains rather than financial leverage.  In “Value Due Diligence,” the authors outline their thinking that the  “extension of scope, the combination of industry and functional expertise, and the focus on the key levers for post-acquisition value creation and risk management, pave the way for better decision making, immediate action and faster results.”

Our Energy Practice produces many fine publications each quarter, but I thought that their recent piece, provocatively entitled “Are You Ready For the Wrath of the Customer?” would be very appropriate as it deals with pricing and customer expectations in a capital intensive industry.  The piece states that as customers become more agitated by the constant upward creep of rates, “utilities will need to work closely with regulators and policy makers to achieve constructive regulatory outcomes while building and leveraging their capabilities, offerings, tools, and resources to create new value for their customers.”

Lastly, I would like to once again highlight the Oliver Wyman Transportation and Logistics Journal, which was posted in November of this year.  The Fall 2011 edition of our journal was very well received and I mention it here, just in case you missed it…

Have a great Holiday Season!

Carl Van Dyke of Oliver Wyman

The dominate message of the conference was that for the European Railways to achieve sustainable profitability, a fundamental change of the business model will be required.  In the presentations, Q&A, and conversations among the attendees, we noted that there were key issues that should drive the changes needed for the growth of European freight rail profitability:

• After years of cuts and restructuring, a more analytical approach to network and capacity management is the developmental stage, and could be the basis for more sophisticated commercial models in Europe.
• There was significant discussion on managing capacity through a booking process or similar means.  Attendees suggested that capacity management should include wagon supply, train management, and yard management, and also include shipment transparency for the customer.
• Several speakers expressed a desire to see railways take a more aggressive approach to reducing costs by carefully reviewing plans to maximize train length, reduce handlings, increase equipment velocity, speed border crossings, and better manage local services.  Integrated planning and operations will blur the line between wagonload and train load.
• Many railways talked about the need to improve consistency or reliability of service through the creation of better plans, better plan adherence, and through better execution.
• Most railways would agree that improving capacity, network, costs and asset planning is not possible without good computer systems for both planning and execution.
• Any change will require huge organizational change and consistent senior management support of a multi-year period. This is critical, and of equal importance to everything else.
• The regulatory framework continues to be a crucial factor in planning and operations, but the railways are critical of the implementation of railway reforms and want a stable environment for the future.

I believe that most of the conference delegates found the presentations and informal conversations to be valuable, and I expect that the discussions initiated at the conference will continue among the attendees.  We plan to continue our series of rail planning events with a North American conference in 2012 and a second European-based event in 2013.  Hopefully you will be able to join us at one of these future events.  More information on these events will be provided when it is available.

Copies of all of the conference presentations are available on the tab at the top of the home page labeled “2011 Rail Planning Conference – Presentations.”  The presentations are password protected and if you would like access to the documents, please contact me or Bonnie Painter.

1. The application of yield management to capital investment decisions to manage a portfolio of business through a constrained asset, and
2. A review of the impact of variability in supply chains and how that variability needs to be understood and managed, but likely not using the ‘traditional’ approaches to yield management which have been widely used in the travel and hospitality industries, but instead more of an approach of understanding the costs and value of accommodating variability and charging for it

 
These issues require a considerable amount of data through the coordination of commercial as well as operational information into a single view.  These ‘big data’ problems were the subject of a paper written by me and Oliver Wyman’s Dave Hunt, and published in the fall 2011 issue of the INFORMS Railway Application Newsletter (see page 12).  Oliver Wyman is currently working on tool sets to manage ‘big data’ problems at railroads.  Stay tuned for future updates.

As with previous versions of this report, we have included all important financial data such as operating ratio (OR), revenue, operating income, ROIC and capex, showing a year-on-year comparison with the third quarter of 2010.  Other information included in the report are carloadings and revenue ton-miles (RTM) per employee.

Oliver Wyman only uses publicly-available data as the basis of our graphs and analysis and no proprietary railroad data is used in any way.  We would like to expand and improve upon the scope, analysis and presentation of this type of freight rail information.  If you have found it useful, or have suggestions for improvements, please contact me at kevin.foy@oliverwyman.com

1. The application of yield management to capital investment decisions to manage a portfolio of business through a constrained asset, and
2. A review of the impact of variability in supply chains and how that variability needs to be understood and managed, but likely not using the ‘traditional’ approaches to yield management which have been widely used in the travel and hospitality industries, but instead more of an approach of understanding the costs and value of accommodating variability and charging for it

 
These issues require a considerable amount of data through the coordination of commercial as well as operational information into a single view.  These ‘big data’ problems were the subject of a paper written by me and Oliver Wyman’s Dave Hunt, and published in the fall 2011 issue of the INFORMS Railway Application Newsletter (see page 12).  Oliver Wyman is currently working on tool sets to manage ‘big data’ problems at railroads.  Stay tuned for future updates.

Jason Kuehn, an Associate Partner in the Oliver Wyman Surface Transportation Practice, presented “A New Roadmap for High-Speed Rail.”  In his presentation, Jason argues that mixed-use corridors will not be the high-speed routes envisioned by many HSR enthusiasts.  Instead, Jason recommends that federal and state money be spent on securing low-density freight corridors that can be converted and developed into higher-speed or actual high-speed routes.

For more information on Jason’s presentation, you can contact him directly at jason.kuehn@oliverwyman.com.

“Growth Strategies for Profitable Logistics” examines the recent phenomenal revenue growth of leading logistics companies—driven mainly by M&A.  These activities have proven difficult to translate into profits, however, without parallel attention to optimizing critical performance levers.

In “Rail Outlook: Interview with Oscar Munoz,” the Executive Vice President and CFO of CSX provides his perspectives on the current and future state of railroading in North America, including challenges the industry faces and factors that will continue to drive growth.

“Coming to a Road Near You: E-Mobility,” presents recent Oliver Wyman research on transportation electrification.  Through 2040, e-mobility can be expected to increasingly impact all avenues of transport—creating many new opportunity spaces for savvy businesses.

We next offer a pair of short perspectives on fleet costs: “Why Airlines Need a New Aircraft Purchasing Strategy” looks at how the total cost of ownership needs to figure more heavily into new aircraft purchases.  “Optimizing Fleet Management Costs in Public Transit” describes the options that exist to better manage and reduce transit fleet costs.

“Scheduled Operations: Not Just for Railroads Anymore” discusses a concept that has revolutionized how freight railroads operate, and which could be applicable to a wide range of other transport modes.

And finally, “Dynamic Risk Management in Infrastructure Finance” addresses how the risks of large infrastructure projects can be better managed—and reduced—through dynamic risk modeling, ensuring projects are both approved and completed.

I hope you will agree that this issue provides a wealth of timely and provocative information.  If you have any questions or comments about Oliver Wyman Transportation & Logistics, please contact me.