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Overcoming Significant Rail Freight Challenges (CS228a)


railYard

 

Reducing rail costs and improving delivery performance for a global chemical manufacturing company.

 

This story is for CEOs who:

  • Are preparing to embark on a supply chain transformation project to improve competitiveness
  • Need to move logistics relationships from tactical and transactional to strategic
  • Use rail transportation services where rail is the primary mode of transport and railcars are used onsite for storage
  • Use intermediaries such as 4PL service providers to execute in the supply chain

The Challenge

This global chemical manufacturing company was facing several challenges with its rail freight each of which had the potential to shut down the client’s production plants:

Embargo – Railcar congestion resulted in an embargo by the railroad, limiting the company’s ability to move freight into and out of the largest plant.

Railcar utilization and availability – As the number of unique product formulas increased significantly, railcars were used as a short-term storage and blending solution. As a result, 70% of the 540-railcar fleet was used for product storage. This significantly reduced the availability of railcars for product shipments.

Inefficient scheduling and routing – Management of rail freight had been outsourced to a 4PL which did not have adequate processes controls and governance to ensure rail freight, routing and scheduling was optimized.

As part of a wider Total Value Optimization (TVO) supply chain transformation engagement, Maine Pointe partnered with the client’s
logistics and plant operations personnel to implement substantial improvements and rail cost reductions.

Cost and operational Impacts

Railcar storage & demurrage – As railcar congestion increased at the storage yards, advanced placement yards were added, demurrage at the plants increased and extra rail freight costs spiraled to an annualized level of $3.5 million

Higher rail freight costs – An analysis of the rail routes being scheduled by the clients 4PL revealed freight costs could be reduced by optimizing routes using both end-to-end and Rule 11 moves

Increased switching costs at the plants – The increased number of switches required as a result of using railcars for product
storage meant switching costs had increased by more than $1M

Solutions

To overcome these challenges, Maine Pointe helped implement improvements in the following four areas:

1. Third-party railcar switching – Designed and implemented a third party railcar switching solution and a partnered with the client to
design a dynamic yard management solution. This enabled the company to plan inbound and outbound freight moves more effectively
and reduce the number of moves required. Savings were comprised of rate savings (cost per move) and activity (reduction of the number of moves required). This initiative also helped the client address an embargo on one of their plants that, if not addressed in a timely manner, could have resulted in a plant shutdown. Maine Pointe team members worked with the client, the new third-party switching company and two railroads that shared
rights to the tracks connecting the plant to the mainline.

2. Rail route optimization – An analysis of the client’s rail freight spend and the specific routes the 4PL had selected for each origin-to-destination
pair, revealed cost savings and transit time reduction opportunities. Maine Pointe partnered with the client’s new manager of rail freight to:
  • Review each route – Completed a detailed analysis of each freight move, mapped the route to assess the current state and costs
  • Identify alternative routes – Defined alternate routing that reduced freight costs and decreased transit times
  • Engage the railroads to confirm freight rates and transit times – Worked directly with railroads to cost and plan new lower-cost rail routes, including previously unidentified Rule 11 options

3. Railcar availability reporting – The rail industry’s transition to precision railroading meant the client needed improved visibility to the
status and location of each railcar in its fleet. Maine Pointe partnered with an industry solutions provider to develop a near real-time
railcar reporting tool which allows the client to plan deliveries to plants and inbound and outbound freight moves.

4. Insourced rail freight contracting – As the client recognized the critical need to reduce rail freight costs and improve delivery
performance, the company hired a manager to lead freight negotiations with the railroads. Maine Pointe provide training and support
to improve contracting and procurement processes and develop the ability to forecast and plan capacities which further increased
negotiating leverage.

The Results

Maine Pointe’s industry and rail experts worked closely with the client’s leadership and logistics team and plant operating personal to deliver the following results:

  • Reduced rail switching costs by 46%, rail freight costs by 18% and rail shipping costs by 2%
  • Defined alternate routing that reduced freight costs and decreased transit times
  • Provided railcar fleet visibility and tracking with a comprehensive tool that provides up-to-the minute status and tracking of the entire rail fleet
  • Developed a logistics playbook that ensured sustainable business benefits and new capabilities

Lessons learned for other executives

  • Optimizing the use of railcars requires visibility across the enterprise and integrated planning and forecasting
  • Executives must demand a risk mitigation plan for every function along the end-to-end supply chain,
    including service providers and other value-added or regulatory intermediaries
  • Organizational transformation begins and ends with people; sustained executive commitment, communication, and collaboration are necessary on an ongoing basis

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