Rail is another form of land-based transportation. The United Kingdom and most European Union countries have extensive rail networks. In the United Kingdom, private rail freight providers offer highly competitive rates for companies moving large and heavy bulk materials, such as shipping containers, aggregates, liquids, and other high-volume, high weight loads. Material by the train-load is highly economical, provided the volume is sufficient to merit the single train-load configuration. In most cases, volume requirement is sufficient (low volumes tend to go more economically by road), hence train-load configurations are these days more common than wagon-load.
(In the wagon-load configuration, wagons carrying different loads are marshalled together by shunting to form the train. in the train-load configuration, all the wagons that comprise the train are loaded with the same material or cargo - ideally for the same customer.)
The train-load formation is typical of UK freight by rail, with only a few companies these days committed to and capable of profitably configuring wagon-load trains. The case of intermodal containers is representative. Few of the UK's rail freight operators perform intensive wagon-load operations, since wagon-load configurations require marshalling processes that incur non-value adding activities. Freightliner, for example, prefers to run trains that include empty intermodal wagons rather than shorten trains according to exact requirement. Shortening the train is regarded as an unnecessary and uneconomical operation, so is avoided. Costly marshalling is minimized. In Continental Europe, marshalling yards are more common, but still impose a profitability constraint.
With the Channel Tunnel, inward rail freight has increased. Inside the United Kingdom, shipping container movement is currently the most common type of freight moved by rail. Although the advantages of rail are considerable, the disadvantages are also acute. The following describe the advantages and disadvantages of freight by rail. ...continue reading
The advantages of rail freight can be summarized thus:
- The inflexibility of the modality is also its strength, provided the characteristics of the commodity conveyed exploit the economies supported by the characteristics of rail (see points 7, 8, and 9 below).
- There are several CSR advantages for companies who switch to rail (see 3, 4, and 5 below).
- Rail is increasingly seen as an effective “green” alternative to road transport.
The advantages of rail freight give us some insight into the possibilities and challenges faced by a rail freight service provider. The strengths and weaknesses of rail freight as a modality have been briefly covered. A rudimentary appreciation of the constraints reveals the activities in which value can be amplified or eroded, according to management decisions, group-wide concerns, long- versus short-term ambitions, and so on.
So far, we can see that value-creative activities are likely to cluster around the risk-incurring activities, which are:
- Track – labour (skilled, technical, engineering, and unskilled), signalling equipment, electrification management and support (possible but unlikely, since most of these functions will be provided in-house).
- Facilities – construction and maintenance of yards and permanent way.
- Fleet – locomotive and wagon manufacturers (including supplier liaison), maintenance of wagons and locomotives, and stabling of locomotives and track maintenance vehicles.
- Transport operations – automated (and possibly manual) train formation switches, shunting engines, GPS and RFID technology and management, goods and materials distribution facilities (additional logistics processes involving, for example, forklift trucks, container cranes, warehousing), road vehicles.
- Fuel – procurement and handling/distribution.
- Transport support functions (waste management).
- Products and supplies (IT products and consumables).
Detailed knowledge of the general DB procurement strategy will be valuable, if a supply chain-level understanding of the organisation is sought. Central procurement is likely to generate volume purchase economies, but given the variety of rail systems across Europe, locally-specific locomotives might have several cost/efficiency advantages, such as proximity to the maker’s facilities, local availability of drivers qualified to drive that class of locomotive, low cost of spares, network suitability, and so on. However, from the group perspective, such advantages are likely undermined by the practical difficulties of deploying a highly regional locomotive to elsewhere in the group (in response to sudden requirements for capacity increase, for example).
DB Schenker Rail provides locomotives and single wagon or block train carriage of freight. The division performs marshalling/train composition operations. Yard activities represent numerous cost factors, few of which will be, from the customer’s perspective, value adding. In terms of customer value, flexibility – the capability to acquire wagons and cars in response to demand fluctuation – will represent value-addition. To provide such flexibility, the DB fleet must include functioning, load-appropriate vehicles in adequate quantity, and locate them sufficiently close to the customer to prevent internal logistical costs offsetting profitability and eroding value to the customer.
Value Chains as Value Systems
According to Porter (1984), value depends on how the customer uses the product; value and cost incurred are dissimilar; costs include raw materials for example. Only when the product meets the customer/end consumer can the value of the logistical provision be understood. Key to understanding value drivers in the case of DB SR is a detailed appreciation of the requirements of the customers of DB SR’s customers. These will vary, but the SLAs and quality requirements will likely be covered in the golden trio: “on-time, in full”; “right first time”; and “error free”. ...continue reading
Value-Driving in Logistics
For customers purchasing logistics services, value is created by the following capabilities:
- Accommodation of changes to freight form. If variance in lot sizes and unitized loads can be supported by the transporter’s equipment with acceptable time/cost incurred, value is created. There exist positive opportunities for suppliers who are able to change the configuration of their supplies in accordance with the preference of their customers. Hence, transporters that can support such variance are attractive. ...continue reading
Companies are keen to show their CSR credentials to customers and the public at large. To do so authentically, they must demonstrate visibility, economies, and dynamic control and responsiveness throughout their supply chains. Rail freight companies provide their customers with “external logistics”. Choice of logistics provider impacts directly on a company’s supply chain performance and green credentials. Rail freight companies are also composites and syntheses of their own supply chains, so must be as sensitive and responsive to CSR issues as their higher profile B2C customers. The greenness of rail freight can only bear scrutiny if the rail freight company’s own supply chain is green. This means supply chains must be subject to rigorous monitoring and control. Companies who fail in this regard run the risk of exposure. Companies whose suppliers use materials sourced in unregulated environments or produced by ethically dubious means will reap negative publicity. The construction and enforcement of supplier audits and procurement codes of policies are typical measures companies take to lower such risks. ...continue reading
In terms of pure logistical activities: restricting variance creates efficiencies that add value. Use of standard wagons, for example, allows automated unloading. In non-automated scenarios, operations involving standard wagons are safer and quicker due to compatibility and familiarity. Restricted variance in handling practice and rolling stock contributes to value/service quality. Flexibility in scheduling and wagon availability maybe attractive offerings, but reduced variance in practice and equipment decreases risk.
In the non-rail activities of railfreight, usable, intuitive customer interface points and proactive communications by customer services are value-adding activities. ...continue reading
Rail freight marketing has two core challenges:
- To attract and maintain trade from businesses whose products are rail-suited.
- To entice trade from businesses whose products are less rail-suited but can be conveyed to customers with comparable time/cost.
In the case of 1., the marketing department’s task is the wresting of trade away from competitors moving rail-suited freight. When time/cost equivalence characterises the market, customer service and associated complementary capabilities represent the potential order-winning, business capturing value-drivers. Ambitious railfreight providers will offer superior customer service.
In the case of 2., time/cost factors are prioritized over the modality, which will likely be of little interest to the service user. The provider is able to leverage multimodal capability as a failsafe measure: single modality deliverers lack the ability to switch between modalities when constraints arise. The group’s multimodal logistics capability is thus exploited.