A Rail Freight Consultancy Project

One of the biggest projects I worked on involved assessment of the pan-European rail freight industry – its markets and the capabilities and constraints of one of its biggest players (the client). Usually, this type of project requires the consultant to produce a document outlining who does what where and for whom. That is, the client wants both a big-picture and a detailed view of which companies are providing what kinds of services, on which national and transnational routes, and for which customers.

Often, the client will request specific value drivers/profits enablers to be identified. This can be extremely complicated, but is usually the gold nugget that the client seeks. The client typically wants to know where the most value-adding activities are performed, including knowledge of the nature and location of their own and relevant third parties’ operations.

So, for example, in rail freight, there will be certain activities that erode profitability and certain activities or operations that add value, which generates profits. The consultant’s job is to show what is done where and how, and the value that those operations bring in terms of profitability.

Sorting value-adding from value-subtracting activities is a big part of the analysis. Often, the best way to approach the analysis is to create a high-resolution account of all relevant operations, and then colour those operations according to value addition, neutrality, or subtraction, creating what is effectively a heat map, with red (hot) areas identifying those operations that are most value-adding and light green areas showing those operations that are most value-subtracting.

When we have identified these, we can then specify the locations of these activities and, in most cases, an interesting pattern will emerge. Normally, we will find that the highest value activities are highly technical in nature and performed in high-cost environments, such as high PPP countries, where technical know-how is plentiful and supporting supply chains are present and efficient (but costly, usually). Less value-adding or value-subtracting services are typically done in lower cost environments, such as low PPP areas where technical skills in the workforce are harder to come by, but labour is inexpensive, land and infrastructure are low-rent, and supply chain requirements/capabilities are more basic.

Market penetration projects can be quite challenging. The client often tasks the consultant with the job of collecting, ascertaining, and analysing all factors of relevance to their business in a particular, usually foreign, territory.

A basic way to begin is with a PESTLE-type analysis. But this is way too generic, so a great deal more specific data including up-to-date statistics from verified sources on the reports of other consultants, where available, is usually thrown into the mix. There might also be the necessity to survey or interview the demographic that the client envisages as their key consumer and/or other actors in the industry, such as suppliers and even competitors. It might be possible for the consultant to review the performance of a comparable company in a compatible territory and use their performance for benchmarking or at the very least to provide a detailed case study, showing how their strategy is enacted and with what results.

Usually, the consultant will try to produce a list of useful local service providers in an area and a list of local product and service suppliers. Depending on the client’s envisaged strategy, the consultant may produce a table of entry options, such as joint venture, strategic alliance, or direct investment, and then show the pros and cons of each option.

The consultant will also review the presence and cost of acquiring and maintaining the necessary human resources in the territory. Factors such as the availability of technology and specialist skills will also have to be considered, and these may be more or less important depending on the nature of the firm and what it intends to insert into the market. Consequently, this type of report is usually broken down into sections reflecting the various concerns, e.g. human resources, availability of suppliers, technological infrastructure quality, and local regulations such as tax and employment law.

Depending on what the client is asking for, this kind of project can be extremely complicated and costly, and frequently requires consultants to make physical visits to the locations of operations, which adds to the overall cost charged to the client.