Value and Quality in Rail Freight Logistics (2)

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.
  • Faster conveyance to customers. Static inventory is a particularly profit-eroding source of cost. While extensive inventory can provide agility (supplying from stock is the quickest way of meeting customer demand spikes), the cost of holding stock can be prohibitive. Perishable goods are particularly sensitive to delay. The value of goods such as fresh fish and cut flowers resides in the brevity of the period between initial extraction and final consumption. Such goods lose value fastest. Refrigeration wagons are used extensively in North American rail freight (with energy and other costs incurred), but less so in Europe, where distances between conurbations tend to be lower. Aggregates, chemicals, coal, and other bulk commodities tend to be highly robust and time-insensitive compared to consumer products, but depreciation is still a concern. Even products that do not degrade physically will incur costs if not collected, dispatched, and handled appropriately. Scheduling errors that result in trains standing immobile on mainline routes will be costly. Deliveries that are too early could result in material being piled in sub-optimum locations, incurring time/labour costs and system interruption. Delayed deliveries cause retailers to stock out. Because transport contracts usually ensure users are generously compensated for such events, the continuation of poor service quality – as measured by the customer’s definition, i.e. KPIs – will be economically unsustainable if continued, even in pseudo-monopolistic cases where the rail freight provider is the customer’s only feasible transporter.
  • Understanding of end customer’s/receiver’s value perception. Companies who move their goods by freight understand that value is reaped after the conveyance of goods to the end customer/receiver. The customer’s post-receipt satisfaction influences probability of repeat business. If the transporting company fails to recognise that the satisfaction of their customer’s customer is determinative of future business, the risk of service quality failure increases.

To retain established rail freight customers, the continuation of consistently satisfactory performance at tolerable prices is key. Some commodities are intrinsically rail-suited. Movement by road of, for example, coal or pig iron, would be unduly costly and environmentally problematic. Identifying the value-adding activities particular to those businesses will likely yield little in the way of competitive advantage enhancing strategy.