On November 14th, I had the opportunity to make a presentation at the annual INFORMS Meeting in Charlotte, NC.  Attached is an updated version of my presentation, in which I tried to further flesh out and make more concrete, what types of business issues we might consider in Yield Management and how we might approach them.  There are two concepts presented:

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.

I am pleased to provide our blog readers with the Fall 2011 Oliver Wyman Transport & Logistics Journal, a publication that examines issues facing the global transportation and logistics industries.  This issue highlights new thinking and strategies that we believe can give transportation providers an edge in what continues to be a challenging economic environment.

“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.

We have just completed a very successful European Rail Planning Conference in Hamburg on October 24-26.  The event was attended by 37 delegates from 15 rail, intermodal and infrastructure companies, and organizations represented at the conference included DB Schenker Rail, JSC Russian Railways (RZD), Kazakhstan Railways (KTZ), Green Cargo, SBB Cargo, Rail Cargo Austria AG, FGC – Catalonia Railways, Norfolk Southern Railway (USA), BLS Cargo AG, Evrosib – Transport Systems, and Hupac Intermodal SA.  Oliver Wyman is very appreciative for the excellent presentations given by the attendees, and we also want to extend our thanks to DB Schenker Rail, who hosted a tour of the Maschen marshaling yard.

Presentation by DB Schenker's Thorsten Dieter

A dominating 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.

The final agenda is now available for our 2011 European Rail Planning Roundtable and Conference being held on October 24th through the 26th at Le Royal Méridien, in Hamburg Germany.  The theme for the conference is “Designing a Profitable Freight Rail Network in Europe” and we have confirmed registrations from delegates representing 12 railroads from Germany, Switzerland, Kazakhstan, Russia, Spain, Sweden, Austria, and The United States.

The conference starts on Monday evening at Le Royal Méridien with registration beginning at 17:00 in the Le Soleil Foyer, to be followed by a cocktail reception at 18:30.  The Conference Welcome Dinner will be served at the hotel’s Restaurant Le Soleil II at 19:30.

Conference sessions will begin on Monday morning at 09:00 in the Blankenese Conference Room.  Refreshment breaks and lunch will be provided during the conference and Tuesday evening’s dinner will be held at Brook Restaurant Hamburg.  Prior to the dinner, we have secured a group reservation for an optional trip to Miniatur Wunderland, considered by many to be the largest and most detailed model railway layout in the world.

If you have any questions about conference registration or hotel accommodations, please contact Andrea Steverding at Oliver Wyman at +49 89 939 49763 or via e-mail at andrea.steverding@oliverwyman.com. In North America, you can contact Bonnie Painter at +1 609-520-2190, or via e-mail at bonnie.painter@oliverwyman.com.

Oliver Wyman’s Joris D’Incá was one of the keynote speakers at the 6th International VDV Railway Congress, held on October 5 – 6, 2011 in Frankfurt am Main.   Joris delivered a presentation entitled “Developments and Trends in Single Wagonload Rail Traffic in Europe.”  In his speech, he asked the questions: “What is the future of single wagonload rail traffic in Europe? Are we heading towards growth or shrinkage? Are the numerous restructuring programs of the various rail operators helping the system as a whole, or are they reducing the likelihood of a European solution?”  And finally, “what are the chances for competition?”

In answering these questions, Joris outlined the current challenges in the European single wagonload rail traffic; the future market opportunities; and the steps for making single wagonload rail traffic successful.  In examining the market opportunities, he argued that several logistics market trends could increase the attractiveness of the single wagonload business.  Included in these trends are:

1. Relocation of production and longer transit distances
2. “Green” logistics
3. Volatility of flows and smaller shipment sizes
4. Integrated supply chains and outsourcing

In the concluding section of his speech, Joris outlined the various steps that the industry can take to make this market successful.  He stressed that the single wagonload system needs to be fundamentally changed to achieve a sustainable development, and then went on to deliver specific suggestions for this fundamental change.

Joris D’Incá is a Senior Partner in Oliver Wyman’s Surface Transportation Practice and is based in Zurich.  Please contact Joris directly if you have questions about this presentation.

Two giants of technology passed away over the past two weeks.  One received attention throughout the world – Steve Jobs.  The other one is remembered by only us “geeks” – Dennis Ritchie.  Both, however, had tremendous influence in how our world operates.  Enough has been written about Steve Jobs.  In this blog posting, I will focus on Dennis Ritchie.

Ritchie and Ken Thompson at Bell Labs developed in the early 70’s the UNIX operating system.  40 years later, all modern operating systems such as Apple’s iPhone/iPad iOS5, Apple’s iMac OS X, Android, Linux, “Watson’s” AIX (the winner at Jeopardy) and many other operating systems evolved from UNIX.  Even Windows shares some heritage with UNIX.

Dennis Ritchie in 1999

The beauty behind UNIX is encapsulated in a paraphrase of an Einstein quote: “Everything should be as simple as possible, but no simpler”.  UNIX was simple enough for literally throngs of people to understand, learn, and expand.  Complex enough to be expandable and to grow for use by the most modern of computer processors.  That took genius.

UNIX also was the first (or nearly so) and arguably the single most successful example of “open source” code.  Bell Labs decision to release it to academia ultimately led to research and enhancements that kept it alive and in use today.

While UNIX was a technological marvel, Ritchie is most remembered as the inventor of the programming language “C”.  Also invented 40 years ago to support the development of UNIX, it is the grandfather of the most popular computer languages in use today, and the ones that run the internet (C++, Java, C#, and of course, C).  Other popular computer languages used on the internet such as Python, Perl, PHP can trace themselves to the creativity and thinking of Ritchie.

Ritchie, with co-author Brian Kernighan, also created a revolution in teaching computer programming through their small monograph about “C”.  It became the classic programming book for its clarity.  Their opening example “Hello, world” has been literally copied by most other authors of books on programming languages.  Their book continues to be the standard for all programming texts.

Indeed, the world lost two giants this month.  One everyone knows, and the other – Dennis Ritchie.

Marc Meketon is a Vice President for Software Product Development at Oliver Wyman

Oliver Wyman’s Rail Team has a long history with both the Institute for Operations Research and the Management Sciences (INFORMS) and more specifically with the Railway Application Section (RAS) of the group.  Once again in 2011, Oliver Wyman will be sending a delegation to the INFORMS annual conference scheduled for November13-16 in Charlotte NC.   David Hunt, one of our Senior Rail Specialists, will be chairing a session entitled “Advances in OR/MS for Passenger Railways.” In this session, presentations will be made by TEMS, Indian Institute of Management, Southeastern Pennsylvania Transportation Authority (SEPTA) and Oliver Wyman.

Marc Meketon, who manages software development for the “MultiModal Group” in Princeton, will be presenting “An Equipment Optimization Model for SEPTA,” in which he will describe a new equipment optimization model for SEPTA that focuses on equipment repositioning and matching seat capacity to demand.  SEPTA operates one of the largest commuter rail systems in the USA, covering southeastern Pennsylvania (including Philadelphia).  The software development in passenger equipment optimization is being done by Oliver Wyman as part of the new MultiRail Enterprise Passenger Edition, scheduled for delivery to SEPTA in the second quarter of 2012.

Another new functionality in the Enterprise Passenger Edition will be a crew schedule optimization module.  John Dezio, a Service Planning Manager for SEPTA in Philadelphia, will be presenting “Software Tools to Optimize Crew Schedules for The New Hours of Service Rules.”  The US Federal Rail Safety Improvement Act of 2008 (H.R. 2095) stipulated new hours of service (HOS) regulations, impacting total hours spent operating trains, and implement fatigue management factors in determining legal shifts. This presentation will explore modeling techniques to optimize the creation of crew jobs to meet the HOS regulations, while creating a set of crew schedules that cover the operating timetable for the lowest cost.

Other presentations in this passenger rail session include,  “Capacity Planning for Shared Use Corridors” by Chip Craft of TEMS, and  “An Exploratory Study of Revenue Management System (RMS) for a Railway in South East Asia” by Goutam Dutta of the Indian Institute of Management.

Aihong Wen, of CSX’s Operations Research group, will be chairing a session entitled “Revenue Management with Flexible Capacity.”  In this session, Oliver Wyman’s Jason Kuehn will be making a presentation on “Yield Management – The Next Advance in Railroad Profitability” in which he argues that the next logical step for the railroad industry after operations optimization is to maximize the revenue produced by an essentially fixed constrained asset base.  We published Jason’s Yield Management paper here in March of this year.

David Lehlbach, a Senior Specialist in our Rail Practice, will be making a presentation on “Small Yards: Increased Network Flexibility at Low Incremental Cost,” which was co-written by David, along with Oliver Wyman Partners Rod Case and Carl Van Dyke.  The paper argues that while today’s railways focus significant effort on the throughput of large yards, most small-sized yards are focused to consistently meet local operating needs, and as a “hidden” sunk-cost assets, they can be actively utilized for alternative operations that support broader rail network goals.  David will be presenting this paper during the session on Modeling Opportunities in Improving Pickup/Delivery Freight Operation to be chaired by CSX’s Dharma Acharya.

If you have any questions about Oliver Wyman and the INFORMS Conference in November, please contact Kevin Foy or Dave Hunt.

Photo by John Mueller – Flickr

Oliver Wyman will be hitting the road this Autumn to participate in two of the higher-profile rail conferences of the year.  We are a co-sponsor for Passenger Trains on Freight Railroads, October 24-25 at the Washington D.C. Marriott Hotel, and for RailTrends, being held on November 1-2 at the W Hotel in New York City.

RailwayAge Magazine is the host for the Passenger Trains on Freight Railroads conference, which is a two-day event dedicated to “developing common ground among passenger and freight rail interest.”  The keynote address will be made by Ed Hamberger, CEO of the Association of American Railroads (AAR), and presentations will be made by representatives of Amtrak, Union Pacific, Parsons Brinckerhoff, AECON, Conrail and New Jersey Transit.

Oliver Wyman is a co-sponsor of the conference with our sister company Marsh, the world’s leading insurance broker and risk adviser.  Jim Beardsley, Managing Director for the Marsh Global Rail Practice, will be speaking on “Risk Management and Insurance: Who’s Responsible and For How Much?” Oliver Wyman’s Jason Kuehn will be making a presentation on “A New Roadmap for HSR.”  You can get a preview of Jason’s presentation by reading his April 2011 article on “Can Freight Railroads be Brought on Board in the Development of High Speed Rail?”

Progressive Railroading and Tony Hatch are hosting the RailTrends Conference and the theme for this year’s event is “Growth Strategies for the Next Golden Age in Rail.”  Featured speakers include Ed Hamberger, CEO of the AAR, Bruce Calton, President and CEO, The National Industrial Transportation League (NITL), Joseph Szabo, Administrator of the FRA and Michael Haverty, Executive Chairman, Kansas City Southern (KCS).

John Larew, an Associate Partner in our Boston office, will be making a RailTrends presentation entitled “Risk Management for the Growth-Oriented Railroad.”  In his talk, John will argue that while risk management has long been a high-profile concern for railroads, they may not be getting maximum value from it. Drawing on the experience of companies in other sectors, John will explain how dynamic risk modeling tools can be employed to facilitate growth strategies, by supporting investment decisions, improving the allocation of capital, and creating the transparency over risk and return that capital markets reward.

If you have any questions about Oliver Wyman’s participation in either conference, please contact me at kevin.foy@oliverwyman.com.

Each quarter we make our Class I Freight Rail Analysis and Summary available to the readers of RailPlanning.com.  While much of the raw data on financial and operating performance of the North American Class I railroads is available from various Internet sources, we find it very convenient to aggregate this information into a single report.  As with previous versions of this report, we have included important financial data such as operating ratio (OR), revenue, operating income, ROIC and capex, showing a year-on-year comparison with the second quarter of 2010. Other information included in the report is carloadings, RTM/employee, and velocity and dwell.

Please note that we only use 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

The preliminary agenda is now available for our 2011 European Rail Planning Roundtable and Conference on October 24th through the 26th at Le Royal Méridien, situated on the An der Alster in Hamburg Germany.  Our theme for the conference is “Designing a Profitable Freight Rail Network in Europe.”

We believe that it is a critical time for the European freight railways and infrastructure operators to consider how the changing regulatory and competitive environment will impact their profitability.  What are your other European colleagues doing to meet and overcome the challenges of designing a profitable rail planning and operational strategy?  Are new processes, tools and planning concepts available for all types of operations including intermodal, unit, bulk and wagon-load?  The European Rail Planning Roundtable and Conference will provide a forum for sharing professional insight to these questions and will introduce you to innovative strategies during the course of the event.

The Conference sessions will include speakers from European railways, infrastructure companies, private rail operators and members of the Oliver Wyman Rail Practice. The roundtable and conference agenda will include:

• A roundtable on “Designing a Profitable Railway” that will include representatives from the planning departments of several European railways
• A moderated discussion by senior European rail executives on topical issues that will include: “Restructuring Intermodal as a Profitable Mode,” ”Cross-border Production Management,” and “Development of a Pan-European Rail Planning Group”
• Case studies on service planning and execution in Europe and the CIS
• Presentations and demonstrations from Oliver Wyman team members, and other industry experts, on the latest developments in planning software
• Oliver Wyman Rail experts will present some of our latest thinking on profitable railway management, with talks on “Using Operating Strategies to Defend Market Share,” “The Use of Traffic Forecasts and History in the Planning Process,” and “Best Practices in Long-Term Strategic Planning for Capital and Capacity Planning”

Information on registration and hotel accommodations are included in the preliminary agenda and we have an on-line registration available here.  German language and Russian language versions of the preliminary agenda are also available on the web site.

You can also register for the conference by contacting Andrea Steverding at Oliver Wyman at +49 89 939 49 763 or via e-mail at andrea.steverding@oliverwyman.com.  In North America, you can contact Bonnie Painter at +1 609-520-2190, or via e-mail at bonnie.painter@oliverwyman.com.

We look forward to seeing you in Hamburg in October.