March 2005 | Case Studies | Casebook

Shippers Make Tracks to Rail

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A CSX-GATX joint initiative helpsbulk liquid shippers realize economies of rail.

As congestion clogs highways and escalating diesel prices unplug already shallow profit reserves, many over-the-road shippers are heading toward the tracks in search of cost-efficient transportation solutions. The promise of shifting freight to the railroads, where transportation costs are lower, and transit times are arguably more reliable—albeit slower—is appealing. And equally daunting.

Dry bulk shippers have made a nearly seamless transition to rail, thanks mainly to railcar leasing services that mitigate the cost of new equipment investment. For businesses moving bulk liquids, however, the shift has been considerably more difficult, primarily because railroads traditionally do not lease specialized tank cars.

This differentiation is a result of the specialized nature of the goods being shipped rather than legal concerns about moving potentially hazardous goods, says John Woodcock, manager of chemicals market development for rail services provider CSX.

"The railroads' reluctance to supply bulk liquid equipment doesn't stem from liability concerns," he notes. "The precedent for private tank cars goes back to when they were introduced more than 100 years ago. The railroads decided they did not want to be directly involved with the equipment simply because it was difficult taking cars from one service and putting them into another.

"A boxcar shipping paper, for example, can immediately be reloaded with another commodity," Woodcock adds. "A tank car loaded with ethyl methyl ketone, however, needs a specialty wash before it is reused, or has to be returned empty to the customer where it can be reloaded with the same product. Chemical companies are concerned about contamination, so those shipping via rail keep tank cars in dedicated service."

Because they require additional upkeep and don't bring in backhaul revenue, leasing specialized tank cars has rarely been a priority for rail carriers. As a result, bulk liquid shippers have had limited opportunities to access rail without making large capital investments in specialized equipment.

To help change this paradigm and open the tracks to bulk liquid shippers, CSX and GATX Rail launched a joint initiative in 2002. Their Redi-Rail program simplifies the process of securing tank car equipment by combining the companies' complementary expertise: GATX Rail's capacity to provide immediate availability of tank and hopper cars; and CSX's transportation rate and service packages.

Richmond, Va.-based CSX provides rail transportation and distribution services over a 23,000 route-mile network in 23 states, the District of Columbia, and two Canadian provinces. It also offers connecting service through Union Pacific, BNSF, Canadian National, and Canadian Pacific, as well as more than 250 shortline railroads.

For its part, Jacksonville, Fla.-based GATX Rail provides specialized leasing services from a fleet of more than 155,000 railcars worldwide. Together, both companies can leverage each other's resources to mine business opportunities and offer shippers a consolidated transportation solution.

"GATX has what shippers need—availability of liquid and dry bulk rail equipment. CSX has the rail transport network and customers," says CSX's Woodcock. "The value of Redi-Rail is our ability to bundle the product and services to all rail shippers."

Redi-Rail also simplifies the process of setting up rail rates and determining the equipment needs of businesses that are new to rail or haven't used the service in a long time.

Rail at Your Disposal

"Many companies ship by truck because they never had time to research and understand rail shipping," says Dan Penovich, senior vice president of sales, GATX Rail. "For these companies, Redi-Rail provides a single equipment and transportation source that can offer substantial cost savings."

"The details of securing rail equipment can be daunting," adds Woodcock. "CSX partnered with GATX to make the process easier by offering a one-stop shop. Shippers using Redi-Rail can call one number and get answers to their questions about leasing and rental information—from freight pricing and equipment needs to car availability."

When environmental services company U.S. Waste opted to use the Redi-Rail program it was looking for a way to enhance service to customers while cutting costs—two seemingly diametric goals.

The Walterboro, S.C.-headquartered company, which offers disposal, recycling, reuse, regulatory, and engineering consulting services to manufacturing companies, traditionally used both rail and over-the-road transportation to meet customer demands.

"Some of our customers receive large volumes of product. To remain cost-effective moving material regularly over great distances, rail seemed like a natural progression for us," says Keith Rudd, director of reuse operations, U.S. Waste.

The simplicity of requesting and securing cars has been one advantage of using the Redi-Rail service, notes Rudd.

"We find a comprehensive relationship between CSX and GATX," he says. "They answer our questions about rail car specs, leasing, and car movement immediately, and we get accurate information. We have used rail in the past, but this was the first time I could make one phone call to one person and get an answer to my question."

When Rudd looks for a rail car, he calls his contact at CSX, who in turn checks on availability with GATX.

With less frequent or new shippers, CSX goes through a screening process. "I talk to the shipper to identify the specifics of the move and what type of commodities are being transported," says Woodcock. "That helps determine the shipper's needs and the type of car required. I take that information to GATX for a quote and availability of cars, and get an answer generally within one hour."

To the shipper, this communication between CSX and GATX is transparent, which simplifies the process and eliminates confusion. Shippers similarly have access to real-time track-and-trace technology, which is important given the nature of the cargo.

"I have the ability to track my rail cars, which is a huge benefit because of safety concerns," explains Rudd. "If I couldn't track shipments, it would be a logistics nightmare."

The Value of Rail

Perhaps the greatest tangential benefit of the Redi-Rail program is that it provides traditional over-the-road shippers with a new perspective on their supply chains. As a result, bulk liquid companies are able to drive transportation efficiency without sacrificing cost savings or compromising safety.

"Any time you use trucks or ship smaller volumes, safety issues during loading and offloading come into play," Rudd notes. "As a rule, shipping in bulk is more efficient. The larger the quantity you can ship in one move, the better the price will be."

Shipping in bulk also enhances safety. Consider that one tank car has the capacity of four truckloads. That eliminates not only three other potential moves, but also three other potential mishaps, adds Rudd.

Not surprisingly, rail plays a growing role in U.S. Waste's supply chain. But, as Rudd notes, "our transportation needs are contingent on our customers. Each customer is different. A smaller business might not have a rail spur on site, so we have to truck product to a facility where we can load it onto a rail car. That can be cost prohibitive."

To alleviate these infrastructure gaps, CSX has integrated the Redi-Rail program with its Transflo business unit, which provides rail-centric transloading, materials management, and distribution services across North America. Transflo incorporates a network of 85 terminals throughout North America where shippers can bring rail cars and transfer product directly onto trucks for delivery to destination. Bundling these two services allows CSX to reach shippers who are not rail served.

"The product is transferred from a rail container into a truck container, rather than changing the equipment," says Woodcock. "This allows our customers to extend their reach beyond the traditional rail network to their customers not served by rail.

"It can also work in reverse from a non-rail-served origin," he continues. "U.S. Waste, for example, tracks product from a non-rail origin to a Transflo terminal, transfers product to a rail car, then ships it to a rail-served destination. This ultimately offers shippers a bi-modal transportation option."

"Ultimately, Redi-Rail enhances our ease of doing business," says Woodcock. "By creating a program that caters to shippers with less-sophisticated logistics resources, we can get them on the tracks with less hassle than in the past."

While Redi-Rail's target customers represent a niche demographic of smaller companies often naive about rail shipping, making rail transport more accessible to shippers in general has broader implications.

Increasing capacity and congestion constraints on the West Coast and in urban areas, for example, have shed light on the efficacy of rail and intermodal alternatives. CSX is currently growing its relationship with shortline railroads to "establish, nurture, and develop business opportunities," says Woodcock.

"A shortline, for example, recently called us about a customer that is shipping modified diesel fuel," he says. "Because the company ships a liquid petroleum product, it needed private equipment but didn't want to invest in ownership. The shortline asked us for a rate quote on tank cars for this company's service."

Businesses are similarly using the Redi-Rail program to meet unexpected demand and add extra capacity on short notice. The advantages of the program are equally apparent to businesses looking to increase capacity as they are to new rail shippers, says GATX's Penovich.

"Some of our customers are receiving heavier shipment volumes," says U.S. Waste's Rudd. "This created an opportunity for GATX to supply us with more cars and track them until they got to their specified destination."

Meeting Long-Term Needs

This level of flexibility and responsiveness has attracted customers to Redi-Rail. Whether or not these shippers make a more progressive commitment to using the railroad as a supply chain strategy, however, depends on their long-term needs.

"The ultimate gauge of success for us is to convert Redi-Rail customers to direct account customers with GATX," says Woodcock.

"Some customers aren't interested in shipping, but are renting the equipment purely for short-term storage," he adds. "The majority of our customers, however, have grown with us. U.S. Waste, for example, has expanded from approximately 15 cars to 30 cars. As its business has grown, and it has seen the benefit of using Redi-Rail, the company is looking to convert some other movements to rail."

For U.S. Waste's Rudd, the practicality of using Redi-Rail is simple. "We have a need and Redi-Rail meets it," he says.

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