Market Overview

Will rail freight service benefit from better technology?

Will rail freight service benefit from better technology?

FreightWaves is providing a forum Market Voices for a number of market experts.

Jim Blaze is a railroad career economist with an engineering background and a strategic analysis outlook. Jim's career spans 21 years with Consolidated Rail Corporation (CONRAIL), 17 years with the rail engineering firm Zeta Tech Associates, 7 years with the State of Illinois Department of Transportation in Chicago urban goods movement research, and two years studying what to do with the seven bankrupt and unrecognizable Northeast railroads at the federal agency USRA. Now primarily a teacher and writer, Jim likes to focus on contrarian aspects of the railroad industry.

Today, freight railroading has the opportunity to use two business processes to support better customer rail freight service, improve safety and generate higher returns for railroad investors. The senior management of North American railroads can integrate the benefits of precision scheduled railroading (PSR) with the robust new private communications networks and two- to four-meter accuracy of positive train control (PTC)  technology.

PSR seeks to improve return on investment with cargo delivery that is more "truck-like" in terms of reliability. The initial PSR results have been financial in nature. Shareholders, rather than freight customers, are receiving the early PSR benefits in the form of higher dividends and increased stock buybacks.

Leaders like Canadian National (NYSE: CNI) chief executive officer Jean-Jacques Ruest are seeking a balanced outcome of increased customer service and returns to shareholders. At a recent Next Generation conference, Ruest stated that the emphasis on PSR cost savings is not sufficient to grow CN's railway business. He is taking a marketing approach instead of just a financial one.

So far, the "precision" part of PSR has not produced outstanding results. Rail car arrivals at final destinations are not yet "truck-like" (in terms of on-time delivery). By using more scheduled train operations, the arrival time of rail cars at a shipper‘s dock has marginally increased from a range of 50 to 70 percent to a pattern of 75 to 80 percent.

At the same time, financial improvements from the PSR model are producing annual earnings per share increases in the double-digit range. Returns on balance sheet assets have improved from an 8 to 12 percent range to a 15 percent or higher range since PSR was implemented widely.

How can precision scheduled railroading improve even more? The answer is in the roll-out of the PTC safety device system.

The digital age  business hypothesis is that PSR and PTC can support each other.

The simple message is that the solution to better precision-like scheduling of freight cars could be satisfied using the precise "GPS-like" features of PTC for train and crew dispatching.

When Congress passed the federal law that mandates PTC (the Rail Safety Improvement Act of 2008), it wanted a train control system designed for a minimum level of functionality to prevent: train-to-train collisions; over-speed train derailments; incursions into established work zone limits along tracks; and the movement of a train through a switch left in the wrong position that could cause a crash into freight cars on sidings adjacent to warehouses or industrial plants. That was the minimal expected functionality of PTC.

To be blunt, the railroads have collectively failed almost entirely to implement PTC. On October 29, 2015, the Positive Train Control Enforcement and Implementation Act of 2015 (PTCEI Act) was signed into law to extend the original statutory deadline for full implementation of PTC systems from December 31, 2015, to December 31, 2018. The PTCEI Act also established six criteria that a railroad must meet in order to qualify for an alternative schedule. Under the terms of the Act, each railroad was to fully implement a PTC system certified by the Federal Railroad Administration (FRA) on all required main lines by December 31, 2018 (unless the railroad qualified for and obtained FRA's approval of an alternative schedule). Railroads that received FRA approval must meet a deadline for full PTC system implementation no later than December 31, 2020.

There are 41 railroads that were required by Congress to implement PTC systems by December 31, 2018. Only four railroads self-reported that they fully implemented an FRA-certified and interoperable PTC system on all of their required main lines.

As of December 31, 2018, 33 railroads had submitted a written notification requesting FRA's review and approval of an alternative schedule, and each railroad provided documentation intended to demonstrate that they met – or, in many cases, exceeded – the six statutory criteria necessary to qualify for an alternative schedule under the PTCEI Act.

Based on FRA's review of railroads' supporting documentation, the federal agency had approved nine railroads' alternative schedules as of December 28, 2018. Among the railroads with approved alternative schedules were: BNSF Railway; Canadian Pacific Railway Ltd (NYSE: CP); CSX Transportation (NASDAQ: CSX); Kansas City Southern Railway (NYSE: KSU); Norfolk Southern Railway (NYSE: NSC); and Union Pacific Railroad (NYSE: UNP).

Yet, PTC with its GPS real-time monitoring could be a game-changer, helping railroads compete against trucking's superior digital capabilities.

Think of it this way. For many years, any trucking company or trucker using one of multiple GPS packages, or even the Waze app, has been able to track his or her vehicle location with precision. Truck and automobile drivers can estimate their final destination arrival (even if it is hundreds of miles away) within one or two minutes of driving time. Railroads have not been able to do that.

Now they can.

With the PTC navigation aids and a robust private railroad communications system integrated into PTC, railroads can now develop such digital software applications.

To date, only a few railroads (like BNSF) have signaled to their customers and investors that they are committed to both the safety and the improved train and carload movement aspects offered by PTC.

The Holy Grail-like mission of PSR has been to create, then monitor and execute rail carload freight movement using a carload trip plan. The North American railroads have been chasing that goal for about three decades.

The PTC network of GPS constant position-reporting of trains on the rail industry's private radio network is the missing part.  

Leaders like BNSF's CEO Matt Rose and FRA's administrator Ron Batory are on record as defining this advanced Next Generation PTC Version Two as an accuracy enabler.

At this time, traditional train dispatching efficiency is only about two-thirds to three-quarters effective according to Zeta Tech Associates Inc studies and other sources.

Typical location information when a train is in a long signal block (perhaps 10 to more than 20 miles long) can be computed with PTC to exact head-end and rear-end location within six to 12 feet of track.

That accuracy improvement can increase the number of trains moved along an otherwise restricted trains-per-day section of railroad. The improvement with software advances can be in the 20 percent or better range.

The possible improved rail yard to rail yard movement and arrival of trains at the next yard or customer delivery point can also be improved. The target for carload freight delivered to a track siding at a plant or warehouse is 85 to 95 percent on-time as originally scheduled in a rail car's trip plan. Not exactly truck-beating performance. However, it is a huge improvement for freight customers who must suffer with today's 50 to 60 percent on-time percentages.

What are the key components of PTC that will improve train and carload movement that are different than the use of GPS in trucking?

The critical components of a railroad PTC system are: the on-board engineer's computer; the private communications digital network; the central dispatcher's computer console; the back-office data warehouse for PTC "reads/writes" actions; the way side track switch (open or closed) sensors operate; and the continuous GPS "reads" and transmissions.

Railroads won't need to use cell phones or public cell networks to communicate in real and continuous time with trains.

Writing and testing software to integrate things like rail car weights from automatic equipment identification (AEI) using radio frequency technology into braking algorithms and testing rail car trip plans is going to take some time. Early technical results may still be six months or more away.

The technical delivery of better performance may not come from engineers or marketing folks. It is more likely that systems integrators in the Information Technology departments will create these new digital application packages.

Ironically, the GPS enabler in systems comes from a federally mandated $10 billion capital investment in PTC. This amount equates to a decade or more of railroads' typical research and development programs, which are generally funded at 1 percent of revenue.

In summary, rail freight could see a 20 to 33 percent improvement in on-time customer arrival service levels. This is still not "truck-like."  But it is much better than today. Railroad car cycle times might improve by 20 to 30 percent.

Therefore, PTC may cause an unexpected commercial utility of GPS data that could pay huge dividends for railroads and their customers. In other words, shippers and freight rail car owners could see a huge productivity gain.

This is a benefit that is long overdue…

Image sourced from Pixabay

Want more content like this? Click here to Subscribe 



Related Articles (CNI + CP)

View Comments and Join the Discussion!

Posted-In: Freight Freightwaves Logistics Railroads Supply ChainNews Markets General