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Finding New Revenue Sources in a Down Economy

Finding New Revenue Sources in a Down Economy. How NS short lines can enhance their customers’ competitive advantage Norfolk Southern Short line Conference, Brosnan Forest, April 2009 Roy Blanchard, The Blanchard Company Railway Age Contributing Editor TRAINS Contributor. Agenda.

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Finding New Revenue Sources in a Down Economy

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  1. Finding New Revenue Sourcesin a Down Economy How NS short lines can enhance their customers’ competitive advantage Norfolk Southern Short line Conference, Brosnan Forest, April 2009 Roy Blanchard, The Blanchard Company Railway Age Contributing Editor TRAINS Contributor

  2. Agenda • Infrastructure and Equipment • Classifying NS short lines • Be careful what you ask for • Trends Going Forward • “Heat and eat” • Consolidation and abandonment • Markets and Competition • Creating a shortline niche • Understanding the customer perspective • The Smarter Railroad • Asset productivity • Doing more with less www.rblanchard.com

  3. The purpose of any business is to create customers. -- Peter Drucker Customers will increasingly focus on the complete door-to-door trip. -- Dr. Joe Giglio, Mobility www.rblanchard.com

  4. Where the Short Lines Live: Infrastructure and Equipment • Track and power good to marginal or worse • Some “one-trick ponies” • Over-reliance on grants or subsidies to exist • Some cut-backs already • “Stimulus” unclear • Financial strength varies • Handling lines and switch carriers volume-dependent Staged accident, NC, 1996 Reading & Northern Open House, Sep 2008 www.rblanchard.com

  5. Where the Short Lines Live: Good Track Equals Competitive advantage Short Line, Virginia, 2006 NKCR, Nebraska, 2005 www.rblanchard.com

  6. Where the Short Lines Live: Classifying NS Short lines by Ownership • More than 250 names • Holding companies: G&W, RA, Watco, G&O • Individually owned, unaffiliated • Strong stand-alones • Marginal properties • S&Ts – BOCT, IHB, TRRA, CSAO • Joint ownership with another Class I: WSSB UP, Gibbon, NE, 2005 www.rblanchard.com

  7. Where We are and What’s Coming: Ownership Trends in 2009 and beyond • Strong unaffiliateds bought by holcos with economies of scale and marketing savvy • Merch service in single-car lots of low-rated commodities going away • Financially weak names are at risk • “Heat and eat” here to stay NKCR, Nebraska, 2005 NKCR, Nebraska, 2005 www.rblanchard.com

  8. Where We are and What’s Coming: Service • Merch carload service improving • Focus on service to improve volumes, revenues, or both • Customer and market segmentation • Scalpel, not a meat ax Maine 2-foot gauge, 2008 Maine 2-foot gauge, 2008 www.rblanchard.com

  9. Is the business model profitable and growing? It must be for both to prosper www.rblanchard.com

  10. Cash Cow or Sacred Cow?Milk the cash cow, kill the sacred cow www.rblanchard.com

  11. Markets and Competition: Creating a Shortline Niche • Marcellus Shale formation in Pennsylvania • 353 new drilling permits • 300 tons frac sand in 100-ton PD hoppers • 200 pieces casting pipe in OT gons, 150 per car • Transmission pipe 24-42” diameter on TTX flats • Up to 20 sections per car • Arrives in 20-car cuts Natural gas pipe, Lycoming Valley RR, 2008 www.rblanchard.com

  12. Markets and Competition: Creating a Shortline Niche • Create a bypass • Offer a 40 mph RR to parallel the Class I’s 60 mph core route • State grants, RRIF loans • Expand service offerings • Local service • Transload • Bridge traffic Western NY & Pa first run www.rblanchard.com

  13. Markets and Competition: Creating a Shortline Niche INRD increases unit train to 100 cars from 65 cars for utility • New aluminum cars • 286 vs. 263 • New SD90 MACs • Same tonnage with 45% fewer trains • Increased available track capacity • Lowered operating expense www.rblanchard.com

  14. Markets and Competition: Understanding the Shipper Perspective • We need our shipments on time every time; easily as bad as late • We need an end to transit L&D • We need an end to RR-caused demurrage problems • We need to have the right car in the right place at the right time • We need total shipment visibility door-to-door • We need a quality product on a consistent basis • Everything else is irrelevant N&W, Waverly, VA, late 1950s www.rblanchard.com

  15. The Smarter Railroad: Doing More with Less • Use technology to produce more revenue per asset • Increase throughput on existing corridors – short lines as alternate routes? • Price to the market but contain costs • Match service design to customer supply chain • The smart and nimble will prosper. DM&E, South Dakota www.rblanchard.com

  16. Rule 99 in Effect. Hope you enjoyed the ride. NYC, Briarcliff Manor, NY July, 1954 www.rblanchard.com

  17. Personal Savings Ratehttp://research.stlouisfed.org/fred2/series/PSAVERT www.rblanchard.com

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