A major freight railroad

Opportunity

Railroading, like many capital-intensive industries, has high infrastructure and fixed overhead costs.  Incremental revenue and new customers are particularly desirable.

With this in mind, one of North America's Class I railroads worked with Princeton Consultants to create a new business model that leveraged optimization to provide the immediate, real-time presentation of route options, schedules, capacities, and price directly to shippers and transportation brokers.

Challenges

  • Real Time: the need to quickly analyze and present many different options with capacity changing in real-time, including trucking, containers, rail facilities, and trains.
  • Human in the Loop: the ability to show multiple good options varying on schedule, service, and price to human purchases via a web interface
  • Black Box: the ability to commit the railroad to price and capacity without the traditional railroad operational employee performing these functions
  • Stochastic: differences in actual transit times from published schedules that varied by many factors, including lane, day of week, season, and overall freight volumes.
  • Noisy Data: Sometimes missing and erroneous data fed from truckers and other railroads.

Approach

Princeton Consultants analyzed the best practices of single-airline and multiple-airline travel websites for consumers, and then designed a workflow and web-based user interface providing comparable ease of use and high speed.  This was transformative in the intermodal/rail freight industry.

Hidden underneath this user-friendly front end were advanced optimization techniques assessing thousands of possible combinations of origin/destination rail facilities, train schedules, drayage truck companies and containers.  The application also provided real-time interfacing with the railroad's IT systems to keep up-to-date on capacity and to communicate booked orders without human intervention.

Results

The resulting system, completed in under one year, yielded over $100M in additional sales in its first  year of operations, with pricing and capacity fully under control of the railroad's marketing and commercial staff.

This allowed the railroad to start new trains, generating a "virtuous growth cycle" that provided even greater service options--and therefore more freight.

Asset utilization (cars, containers) increased.

The new spot-market sales yielded higher margins than those of traditional annual-commitment freight.  Many spot-market sales came from truckload customers who had not recently used rail/intermodal and were favorably impressed. Many of these shippers became repeat users and some even converted to high-volume annual-commitment freight.

Gross profits and margins increased.