DC Velocity - October 2018

go figure …

80%

The portion of supply chain processes that typically occur outside a single company’s computer platforms, as inventory moves between manufacturers, suppliers, carriers, wholesalers, retailers, and other third-party trading partners.

SOURCE: INFOR

UP pledges performance improvements through precision railroading plan

Western railroad Union Pacific Corp. (UP) expects that its plan to implement a precision scheduled railroading (PSR) model across its sprawling Western U.S. network will lead to cost reductions in its utilization of locomotives, crews, and freight cars, while opening up new markets by delivering more reliable service, company executives said in a conference call in September.

The Omaha, Neb.-based freight carrier recently announced that it would implement a PSR strategy in October for its mid-America corridor, stretching from Wisconsin to Texas, and roll it out to the company’s entire network by the end of 2019.

PSR is the practice of prioritizing on-time departures from each station, instead of holding a train at a location until all of its cars are full.

The strategy promises to improve delivery predictability by running freight trains on rigid preset schedules, like Amtrak passenger trains. However, PSR also puts extra pressure on shippers to make sure their freight is at the yard in time for departure, at the risk of having to wait for the next train.

UP’s current plan follows a PSR pilot program called “Blend and Balance” that the company deployed in its Pacific Northwest region in 2017. The initiative is part of a broader corporate strategy it calls “Unified Plan 2020” that is intended to lower its operating ratio—operating expenses as a percentage of revenue—to 60 percent by the end of 2020 and to 55 percent by an unspecified future date.

Executives on the call acknowledged that UP is late to the game in applying PSR principles, a tactic that has led to better financial results at competing rail operators like Canadian Pacific, Canadian National, and CSX. But in comments to analysts, Lance Fritz, UP’s chairman, president, and CEO, said, “We are not shy about adopting best practices from other railroads.

“By a number of measures, it is evident we have not made the kind
of progress I expect in improving our service and productivity perfor-
mance in recent months. We are not meeting the expectations of our
customers, and we know we can be better,” Fritz said. “I believe a large
part of the problem is attributed to the complexity in our network trans-
portation plan that has emerged over time, compounded by significant
changes in business mix. Unified Plan 2020 is a way of addressing that
network complexity.”
UP’s embrace of precision railroading could improve its operating
record and financial performance, as long as company executives
are successful at implementing the strategy, an industry analyst said.
“The label ‘precision scheduled railroading’ obviously elicits excite-
ment among investors given its notable success at Canadian National,
Canadian Pacific, and now CSX. However, ‘vision without execution
is hallucination’—and focus turns to whether [UP] can implement
the PSR concept,” Benjamin J. Hartford, a senior research analyst with
Baird Equity Research, said in a note to investors.

FedEx Corp. said last month it would expand the U.S. operations of its ground delivery unit, “FedEx Ground,” to six days a week year round, thus matching the frequency offered by UPS Inc., its chief rival, which launched Saturday service in 2017.

The FedEx unit operates six and sometimes seven days a week during the peak holiday season, but has always stuck to a Monday-through-Friday delivery schedule for the rest of the year. It did not specify in its announcement when, during the post-peak period, it would begin the expanded service. “The rise in demand for e-commerce goes beyond peak. It’s a year-round phenomenon, and we are ready to meet that demand,” said Raj Subramaniam, FedEx’s executive vice president and chief marketing and communications officer, in the announcement.

E-commerce, and the business-to-consumer (B2C) delivery demand it generates, accounts for about 20 percent of FedEx Ground’s traffic, according to Shipware LLC, a consultancy. B2C traffic for FedEx Ground spikes to as high as 50 percent of overall volume during the peak period, said Rob Martinez, Shipware’s founder and CEO. UPS’s launch of Saturday ground deliveries was a significant development because, unlike FedEx, UPS does not segregate commercial and residential routes. As a result, UPS’s addition of a sixth delivery day benefited B2C shippers wanting deliveries six days a week, according to Martinez.