A compliment to one of our lurker.
Here is some link on our new Editorial Director.
From Plants Sites & Parks magazine, August/September 1998
Keeping Costs on Track
Rail Transportation Can Make Financial Sense
By Maria N. Weiskott
From Plants Sites & Parks magazine, August/September 1998
It's safe, it's economical, it's efficient, and its distribution network can be competitive with the nation's highway infrastructure. We're referring to rail: a shipping option for some companies, an operating essential for others.
While there may be any number of reasons a company opts for rail transportation, chief among them is the bottom line. Rail is very competitive with road transport for distances of 200 or more miles.
For companies that manufacture and supply hazardous materials, it is railroads' long history of safe handling that is the attraction, especially since they, too, are accountable for the materials being transported. Overall, railroads have an excellent safety record no matter what their cars are carrying, which is another important transportation consideration.
1997 was a good year for freight traffic by rail. The number of car loadings increased to 17.8 million, representing nearly a 1 percent increase over the previous year, according to the Association of American Railroads. It was a record year, in fact, for the amount of freight in tons carried per mile, as well as for intermodal shipments-freight carried by rail on some segment to its final destination. And these records were accomplished in the face of rail traffic gridlock throughout the western United States brought about by a complicated merger between Union Pacific (UP) and Southern Pacific (SP) railroads.
All told, railroads carry about 40 percent of all U.S. intercity freight, a percentage that likely will increase as major carriers launch massive capital improvement and service enhancement projects. UP alone will spend $1.4 billion over the next five years on expansion and improvements. And as part of the plan for dividing Conrail Inc., both Norfolk Southern Corp. (NS) and CSX Transportation (CSX) will spend hundreds of millions apiece upgrading competitive single-line routes. Their expectation: to divert upwards of 1 million truckloads of traffic from road to rail.
In addition to capital outlay, there also are a number of strategic alliances and partnerships by other players in the rail business that are geared to increase rail's share of the shipping market. Among these are a new intermodal service for New England planned by NS and Guilford Rail System and a 15-year marketing alliance among Canadian National, Illinois Central and Kansas City Southern Railway that will provide a competitive rail freight NAFTA network. Moreover, Amtrak-the major U.S. passenger railroad-recently was given permission to carry freight on some routes.
Many of these innovations are possible thanks to the Staggers Act, which deregulated the rail industry almost two decades ago. The by-products of deregulation, such as strategic alliances, mergers, acquisitions, and shortline rail ownership growth, all have increased market accessibility by rail and the potential for businesses that use rail.
This is good news for companies that are not only heavily dependent on rail for their operations, but that need to have direct access to them as well, especially when large-volume shipments are involved.
And We Do Mean Big
How else could "we ship and receive 1,400 tons of material a day?" rhetorically asks John Obel, material control manager for GalvTech, a producer of flat-rolled steel coils. "Rail can do that," he says.
"For every rail car we ship out of here, that's three trucks we didn't have to bring in. Rail allows us to utilize our people effectively, our time effectively and to ship more freight in an efficient manner," Obel explains.
GalvTech uses CSX, which helped the company set up a workable transport solution, both to deliver raw material to the Pittsburgh, Pa., facility as well as to distribute the finished product to customers in the Midwest.
It works for plastics, too. "We deal with hundreds of thousands of pounds of plastic resin," explains Nancy Fisher, operations manager of the Trans Western Polymers facility in Hometown, Pa.'s Tidewood East Industrial Park. She says the facility, which manufactures plastic bags for the supermarket industry, receives two rail cars a week, each car carrying 193,000 pounds of plastic resin.
The resin is delivered by C&S Rail, a shortline that connects with Conrail facilities in Allentown, on tracks that lead right into the back of the plant. The resin is deposited directly in surge bins. "There's no other way to operate efficiently," Fisher says. "We just wouldn't have enough floor space to store raw materials."
Storage also was a consideration when Tropicana opened a new distribution facility in Cincinnati, one that is served by CSX. Each week, a single CSX train arrives at the site with 180,000 cases of fresh juice, on a route that was once dominated by truck.
The facility could not operate with the space it has available without rail access, according to Dan Zink, general manager of Tropicana's grocery sector. "Trains benefit our distribution facility because we have one arrival time for most of our products. It's a unit train, as opposed to trying to schedule 60 to 70, even over 100 trucks at one time," Zink says.
Tropicana opened the Cincinnati facility based on the success of what the company says was the food industry's first unit train-the Tropicana Juice Train. In operation for almost 20 years, the Juice Train originates at Tropicana's juice facility in Bradenton, Fla., travels to Baltimore's Bayview Yard, where it switches to Conrail for the final leg of its journey to Kearney, N.J. The company is considering extending the Juice Train route to northern New Jersey, New York and New England when the joint acquisition of Conrail by CSX and Norfolk-Southern is complete.
It's About the Economy
Large-as in savings-also is critical to many companies that locate their facilities adjacent to rail operations. "An average rail car holds three truckloads," explains Central Oregon & Pacific Rail's general manager Robert Libby. "This makes rail very competitive with road on the long haul."
"For us, it's the economics of carrying large coils over the road versus rail carriage; the cost of rail is very economical," explains John Hillis, manager of automotive tubing business at LTV Steel's soon-to-open facility in Marion, Ohio's Dual Rail Industrial Park.
The economy of rail transport probably accounts for why all but two of Cleveland-based LTV Steel's facilities are located with rail access. The Marion site was chosen specifically because it is bounded by CSX and NS, giving the company more than one option for carrier service.
Hillis says rail will be used primarily for bringing steel bands into the facility from a variety of suppliers in the local area. The turnaround time from order placement to delivery is expected to be between three and five days, he notes. The bands will be used to produce welded tube for use in the automotive industry and the finished product will be transported by truck to meet the just-in-time demands of the auto industry.
--------------------------------------------------------------------------------
"Get the carrier dependent on your success. ...
When the vendor is dependent on your success,
you get a much higher degree of service.
If your business drops, so does theirs."
Dennis Williams
Roseburg Forest Products
--------------------------------------------------------------------------------
At LTV's facility in Counce, Tenn., however, rail is used both to bring in raw materials and ship out the finished product-standard line pipe and oil country pipe. According to plant manager Lou Vekasy, between 25 percent and 30 percent of raw materials are brought in by rail, while 40 to 50 percent of pipe production is shipped out the same way.
The Counce facility is served by a shortline owned by Kansas City Rail and a track that goes right into the plant. The biggest drawback is that there is no competing carrier service. Vekasy says that while the transport is "relatively economical," service is not always satisfactory.
Johnstown Wire, which also uses rail for economy's sake, is another company developing a new facility with rail access based on the success of another of its plants. Based in Johnstown, Pa., this producer of industrial wire and wire products for the refrigeration and cold-heading industry uses rail at that facility to receive raw materials from diverse locations. "It's more financially feasible to bring raw materials in by rail," explains staff engineer David Smith, who adds that tracks are within 100 yards of the manufacturing site. The Johnstown plant is served by Conrail and CBL Rail, a shortline.
The company's new wire plant is to be located in Lima, Ohio, a city served by three Class I railroads (Conrail, NF and CSX) as well as two shortlines (Indiana & Ohio and R.J. Corman). A rail spur on the property selected by Johnstown Wire will be reactivated and rail doors to the plant will be reopened to accommodate the company's rail transportation requirements.
Owl Wire & Cable, which manufactures fine wire for the electronics industry, is another company that set up operations with rail access for economic reasons. Like other manufacturing facilities of its type, this Canastota, N.Y., producer brings raw materials in by rail from a variety of locations, including Massachusetts, Georgia, Michigan and Canada. Again, the economy is in the long haul explains Kent Price, Owl's facilities manager.
But because of just-in-time industry demands, only 10 percent of finished product is delivered by rail; the rest is hauled by truck. "There's usually not enough finished product to fill a boxcar," Price explains. "But if we could do it all by rail, I'd be the first one to lobby for it."
A Little Help From Their Friends
There is such enthusiasm at Owl about the economies of rail, that the company is trying to encourage other businesses to use it as well. Price says the company bought an existing warehouse, refurbished about 800 feet of track leased from Conrail and hired a warehouse manager in an effort to encourage other businesses to use rail. "We want to get companies to use the rail facility instead of hauling by truck" in order to get heavy tonnage off the roads. "We're trying to build rail business back up," says Price.
And he's not the only one.
In many cases, railroads themselves are going the extra mile, so to speak, to maintain existing business as well as secure new business. In Minnesota, Progressive Rail, a shortline that connects with Canadian Pacific Railway, bought 21 acres of property to preserve its rail link. The investment paid off: It was this very rail link that drew Alcorn Beverage to Airlake Industrial Park in Lakeville, where it was able to negotiate a very attractive transportation arrangement.
A distributor of Miller Brewing Co. products, Alcorn receives product by rail directly from Miller's Milwaukee brewery and it can send back the empty kegs free, a service Alcorn had to pay for in the past.
Ken Ellen, rail and marine manager of the salt division of Cargill, Inc., gives Conrail credit for implementing a value-added service that helped the company increase its competitiveness. In this case, Conrail put a weekly dedicated train in place to carry Cargill salt from Ithaca, N.Y., to other Eastern locations. The move streamlined operations considerably, Ellen says, "stripping between two and three days" out of previous transit time.
The dedicated train also helped Cargill be more competitive in the Northeast and increase its market as far as Vermont. "In our business, where salt is sold under state bid awards, pennies count for a lot. Anything we can do to reduce costs and make us more competitive is a plus. I really give Conrail a lot of credit in the timing and implementation of this service," says Ellen. "Having good rail economy makes us able to maximize our competitive edge."
Railroad Ties
While some companies rely on rail to maintain an edge, others depend on it for their very survival. For them, upheavals in the rail industry can be problematic at least, catastrophic at worst. The UP-SP merger, which disrupted rail service in the western United States for many months, for example, had many shippers scrambling for alternatives. Some even set plans in motion to ship from the West Coast to the East Coast by water to avoid the rail gridlock. Others suffered financial loss because of production downtime in western facilities until production could be increased at other locations. One plastics manufacturer, solely dependent on rail delivery for raw materials, lost upwards of $100,000 in a few months because production at the company's Nevada facility was forced to shut down for 10 days.
In the wake of the UP-SP merger, companies served by Conrail are holding their collective breath. While reaction generally has been positive to plans for Conrail and its facilities by both CSX and NS, companies now using Conrail are concerned about the future of their rates, service quality and equipment supply as well as a potential lack of competition.
"We are concerned about the service equipment availability and rates," says John Churley in reference to the breakup of Conrail into CSX Transportation and Norfolk Southern Railroad. Churley is traffic manager for Cronimet, a Rochester, Pa., processor of stainless steel and high-temperature alloy scrap material that supplies Allegheny-Ludlum Steel and J&L Steel companies. While raw material either is trucked or barged into the facility, which is located on the outskirts of Pittsburgh, product is shipped out "predominantly by rail. The ratio is four to one, rail," Churley says.
Nevertheless, some companies develop methods of turning dependency into co-dependency or, better yet, partnership.
"We have a joint railroad coordination meeting every quarter," says Harry Klein, railroad/construction manager for BP Lima Integrated Complex. Conrail, NS, CSX, Indiana & Ohio Railway and RJ Corman serve the Lima, Ohio, complex with 15,000 cars annually. All the railroads send representatives to the meetings, which have been ongoing since 1985.
"We don't keep any secrets," Klein says. BP even discusses its future plans at the meeting. "We could not function without access to rail," the manager says. By exchanging information, BP and the carriers work together toward optimum service. In addition, the carriers develop competitive rates, Klein notes, which benefit the complex in the long run. Next year, BP expects to use an additional 2,800 cars annually.
"Get the carrier dependent on your success," is the advice from Dennis Williams, manager of transportation services for Oregon-based Roseburg Forest Products. The company, a producer of plywood and veneer, has facilities in Dillard, Green, Coquille and Riddle, Ore., as well as one in Weed, Calif. Roseburg ships its finished products via Central Oregon & Pacific Railroad, which accesses Union Pacific.
"With 85 loading spots for rail and five for trucks, it's pretty obvious how dependent we are on rail service," Williams states. "Rail is absolutely necessary for our operation," he emphasizes, adding the company uses 300 cars per week. "In 1995, we tried to divert as much as possible to truck. In a maximum effort, we could not divert more than 15 percent of total production from rail to truck," he admits.
Nevertheless, the company always has maintained a "close partnership with the railroad," whose "interest must be kept, even in a weak competitive situation," Williams says. "By keeping a positive relationship, railroads are more inclined to help us market our product. Our customers see us with the ability to deliver, and rely on that ability. The ability to deliver makes our business successful, which also makes the railroad successful. When the vendor is dependent on your success, you get a much higher degree of service. If your business drops, so does theirs."
The partnership also works by matching needs and capabilities, advice Williams gives to companies looking to locate a facility having rail access. "It all boils down to matching needs and capabilities, each working with the other's strengths." ps&p
|
