Joris D'Incà, Rodney Case, and Kevin Foy
Consultants in Rail Planning and Optimisation at Oliver Wyman
CONVENTIONAL wisdom says that wagonload freight in Europe is hopelessly inefficient - and in some countries it has already vanished. Yet, in contrast to trainload business which is dominated by low-value bulk cargo, wagonload is well suited to high-value merchandise. If wagonload can be made more efficient, then profits are in prospect.
Faced with increasing domestic and cross-border competition and lower margins, incumbent operators are developing an expanding array of tools to keep their market share. This is partly a response to shippers who are more willing and able to switch to the provider that offers the best service at the lowest price. One of the newest ideas is the 'mixed train' concept as a means of turning around loss-making and inefficient wagonload services.
In the days when national railways had a monopoly, point-to-point trainload or unit train service was more economic to operate, but liberalisation has brought about a steep decline in trainload profitability. Stable and predictable, trainload flows have been subject to intense cherry picking by new entrants. As a result, prices are falling by 2% to 3% a year. In some of the more mature open access markets, trainload prices have dropped to 50% of wagonload prices measured on a €/tonne-km basis (Fig 1).
In comparison, wagonload has always been more complex to operate and less cost-efficient, and discounts were often offered to customers as a 'starter' to move them toward eventual use of the trainload system. But with trainload under pressure, wagonload could represent a new source of profit and competitive advantage for incumbents given the right planning tools and mindset. In particular, some operators are beginning to explore a 'mixed train' service that could meld the economics of trainload with the greater geographic coverage and flexibility of wagonload.
Using capacity wisely
The crux of the matter is that current European rail service strategies make poor use of available capacity. Railways often run three or more parallel product services - on different trains - that take no advantage of capacity available on other services. Improving this capacity usage would increase efficiency and reduce operating costs - which could then be passed on in the form of lower rates and better service for customers.
European railways purchase capacity on train paths that provide for the maximum use of both the length and weight of a train. But a recent analysis by Oliver Wyman of key European corridors found that most trains operate well below the capacity limits: trainload services are routinely only half the permitted length, while many automotive and intermodal trains are very lightly loaded.
Interestingly, wagonload trains show the best usage of capacity, regularly operating at 70% of length and weight limits. Fig 2 shows the aggregate performance for all wagonload and trainload services in a typical European domestic corridor in 2007, as well as the 'zone' of capacity usage that rail operators should be targetting.
The downside of traditional wagonload service is that moving a single wagon may involve four or five trains and two or three yards. This high switching frequency is often cited as the key reason for both the poor service and high costs of wagonload. Unfortunately, some of the 'improvements' that railways have made over the past 10 years to revamp wagonload networks - with a focus on cutting costs - have actually made the problem worse.
Cutting the number of yards, for example, forces wagons to travel further to be sorted through fewer yards, while simply increasing train frequency to reduce the time spent at large yards does not reduce the number of connections between trains - a key source of service failures. How then can railways capitalise on the better capacity usage of wagonload, while also improving the economics of the service?
A third way
Some railways are starting to assess or implement techniques that combine the best of both trainload and wagonload service. Doing so requires a change in planning perspective - from train-centred to wagon-centred - and a corresponding change in marketing from selling trains and hours of transit to capacity and service levels.
In simple terms, the core of the mixed train concept is to build train services in more flexible ways. Many railroads will run either a single-client trainload train or wait for enough wagons to fill a wagonload train. But a mixed train service can, for example, add wagonloads onto a part-trainload service, building a longer, heavier train and thus maximising capacity usage.
Or, rather than holding wagons in a yard until enough going to the same destination accumulate to fill a train moving once or twice a week, a 'daily block' of wagons can be run, with additional wagons added on that are going in the same direction (but not to the same destination) to fill up the train.
Most freight railways are familiar with creating large blocks in yards, but few have taken the approach of operating trains with multiple blocks to replicate the productivity and service gains of trainload operations. Yet the same gains that are achieved from running large blocks of wagons in trainload service can be achieved by using smaller blocks on mixed trains (Fig 3).
Mixed-train blocking also offers advantages over hub reduction as a means of improving wagonload service. Handlings and wagon-km are reduced and train utilisation increases, driving down operating costs and improving traffic flows across the network. In one example, five trains and four handlings can be reduced to three trains and two handlings, with wagons using a shorter route and train-km reduced.
Better handling of infrequent trainload traffic is another key issue that can be addressed through mixed train service. Too often, European railways respond to major customers' service needs by creating new irregular trainload services. This puts more under-utilised trains on the network and creates a yet more complicated interface and planning/scheduling environment. Instead, infrequent trainload traffic can be converted into a daily 'anchor block', so creating space on the train for small blocks of wagonload traffic.
Green Cargo in Sweden is an example of an operator that has developed a successful mixed train service. Green Cargo uses 'anchor blocks' of wagons for large customers, plus smaller wagonload blocks travelling in the same corridor, to build its mixed trains (Fig 4). As a result, Green Cargo has significantly improved utilisation of train capacity, and its wagon turnround times are among the fastest in Europe.
Mats Granath, Vice-President, Planning, at Green Cargo, is a strong advocate of this methodology based on the results it has delivered. 'We have been able to maintain our extremely important high level of service performance while reducing our costs, in part through the use of multi-block trains. Green Cargo is continuing its growth as a railway that can create attractive services, while improving its profitability, by organising client traffic in blocks less than a full train.'
Green Cargo has extended the use of multi-block trains throughout the network and across commodities in its 2009 operating plan, which will enable it to accommodate projected traffic growth with the same train-km as in 2007. This success continues Green Cargo's remarkable run of profitability, which is particularly notable for a railway dominated by wagonload operations.
Whatever the specifics of planning, the focus of the mixed train concept is to break down traditional and outmoded ways of doing business and instead concentrate on meeting the operational objectives that are mostly likely to improve an incumbent railway's profitability, flexibility, and strategic control - that is, reducing wagon handlings, cutting the number of trains, and increasing the stability of operations.
A mixed train approach, backed by sophisticated operational planning tools, holds out the promise of better allocation of resources, while helping incumbents to refocus their commercial offers on service levels rather than product silos. This strategy can provide a predictable base of business that can enhance the potential for traffic growth and profitability, even as liberalisation continues to change the face of the European rail freight market.
- CAPTION: Green Cargo has developed a successful wagonload network through the use of 'anchor blocks' of wagons
- CAPTION: Fig 1. In some markets, revenue from trainload traffic is just half that of wagonload as competition increases and new entrants force down rates
- CAPTION: Fig 2. In many cases railways do not make good use of tonnage and length limits - in this typical European corridor in 2007, many trains do not meet the length and weight criteria of the 'target zone'
- CAPTION: Fig 3. Blocks of wagonload traffic are combined to form a single train for the long haul from a marshalling yard to two or more destinations; no shunting is needed once the train has left the yard
- CAPTION: Fig 4. Green Cargo in Sweden has adopted the mixed train service concept, and most mixed trains run close to the target limits for weight and train length