Connecting with customers
August 2012
Anand Medepalli
Freight operators need to move to a more customer-focused business model, says Anand Medepalli
The European rail freight market has been de-regulated since 2007, enabling a rail operator to offer their services in any EU country without the hurdle of cross-border delays and the inherent complexity of individual nation regulations. This allows them to offer customers an enhanced logistics management experience by being a one-stop-shop. Such an ability naturally fosters competition in the industry, especially as national operators have to give up on their monopoly in their state.
While this is great news for rail freight operators, they still have a long way to go. Statistics from the UK Department for Transport showed that in 2010, road freight carried 81 per cent of all domestic freight traffic in the UK while rail freight covered just five per cent; with organisations seemingly failing to see the value in rail freight. But a potential rise in taxation for road freight discussed in European Parliament last year means it stands to get more costly.
So, with the ability to offer lower costs with higher capacity than road freight – especially for heavy or specialised loads – and therefore greater efficiency, rail freight has a golden opportunity to gain market share from road transport in particular, competing effectively within the overall freight transportation market.
In order to fulfil this potential, rail freight operators need to move away from thinking of themselves as a purely operational companies but, instead, as customer-centric entities. Instead of focusing primarily on how to move goods once they arrive, a more commercial way of thinking is needed by first planning for what goods they wish to move and how. While some freight operators have recognised this, many need to begin undergoing this change by implementing transformational strategies.
In the EU’s deregulation proposals in the late 90s, the ‘freeway concept’ was defined as giving rail operators fair, equal and non-discriminatory access across all EU railways. To truly enable this concept, rail operators must invest in EU -wide sales and marketing with integrated systems that provide pan-EU quotes, pricing, invoicing and tracking capabilities – much like their counterparts in air cargo do.
In air cargo, 80 per cent of revenues are provided by just 10 per cent of the customers. Air cargo carriers invest significantly in these customer relationships by offering logistics expertise and services such as handling and warehousing. Rail freight operators need to begin emulating this winning approach from air cargo; especially since competing on a pan-EU basis will require these operators to have a strong base of key customers looking for more than just transport.
Planning for demand
In many organisations demand is not tracked at all – at least not for commercial reasons. To move to a commercial focus, rail freight operators should be monitoring demand, anticipating requirements of their key customers and feeding that information into all their planning activities. Understanding market segmentation and customer preference for transportation mode is imperative to gain market share overall.
Some rail operators wait for enough orders to accumulate before announcing which train service they would offer. This has a significant effect on customer service, where a customer placing an order does not quite know how that order is likely to be fulfilled. However, smart and effective demand planning can provide the needed information upfront to allow the rail operator to define a timetable schedule to offer to the marketplace.
A huge issue for all rail operators is allocating wagons efficiently across their network. This assignment becomes complicated due to the need for minimising empty wagon movements across the network. Considering demand forecasts, service levels, storage costs, transportation costs and utilisation metrics, operators should look to optimise capacity to meet the forecasted demand, the planned timetable and service levels promised.
Profit optimisation
Optimising profits is easier said than done in this industry of high capital costs and thin margins. Air cargo is similar in this regard and the rail freight industry can benefit from adopting the ‘revenue management’, technologies the air cargo carriers have developed to identify profitable pricing strategies by factoring in market trends and competitive behaviour, including being able to provide optimal customised pricing for key customers. Delivering on service level agreements has to be seen as the bedrock for achieving operational excellence. Rather than relying on ad hoc or just-in-time information, with proper collaboration based on sound planning practices, the operations department can better plan for the activities for any given day. By creating sufficient lead times in planning activities, it should be possible to simulate what-if scenarios for likely service level disruptions and have back up plans ready rather than follow the current practice of reacting to events with little time to spare for any analysis.
While de-regulation is a great opportunity for rail freight operators to finally compete with other freight transport industries, it also means that they will be competed against. To capitalise on the new opportunities, the industry needs to begin implementing a more commercial business model than the operational one it uses now. By doing this, it can highlight to customers the advantages of using rail freight, such as cost efficiency and greater load capacity. Not only will this change benefit the current low market share rail freight has in the freight industry but it will also give the rail freight industry the reputation and profitability it deserves.
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