Modern supply chains demand the evolution of PSR 2.0++

Modern supply chains demand the evolution of PSR 2.0++

Escalating trade disruptions, rail strikes, blockades, weather events, and the COVID-19 pandemic have highlighted the urgency to make supply chains more resilient. Containerized supply chains are under increasing pressure to meet demand while keeping inventory levels low. The weaknesses in the international supply chains have been exposed, and the escalating domestic transportation turmoil demonstrates the need for end-to-end approaches, standards, solutions, and greater service level accountability and safety.

Precision Scheduled Railroading (PSR) revolutionized the rail industry, and it has been applied in one form or another to many North American Class I railroads. Yet, it has not been applied widely to Class I, Class II, short-line, tenant, and passenger railroads. This gap in PSR deployment represents about 40 percent of the continent’s route miles.

To meet tomorrow’s supply chain needs in our rapidly changing world, it’s time to take a full transportation ecosystem view. It’s time for PSR 2.0, which provides the means for implementing and scaling PSR for mainstream adoption — not just within individual railroads, but across railroads and across the entire transportation ecosystem. 

The current wave of digital business transformation is already revolutionizing many of the industry partners that feed the rail industry. The key drivers of business transformation are not the digital technologies themselves because they are simply the enablers. The focus is on transforming the business to remain relevant and thrive in a highly competitive and evolving market. For example, in the fragmented logistics brokerage industry, analysis by the Wall Street Journal in 2019 found that over $4 billion was invested to date into logistics digital transformation to drive efficiencies.  

Linking rail logistics with other modes would provide more accurate forecasting, leading to better prioritization of capital investment, end-to-end transparency for the all partners or where the goods are, less waste, and overall greater safety and operational efficiencies. It could also provide the foundation for more automation. 

The limits of the current PSR model 

In our experience, PSR, in its current context, is not executing at its full capacity and potential. Quite frankly, it is all too often substandard in practice — neither precise, nor scheduled for some customers. The focus has been on making incremental improvements in narrow contexts that do not lead to breakthrough results and sustainability for the entire transportation ecosystem. One can only cut costs so far before one needs to transform the cost base. The scope of PSR 1.0 is focused on individual railroads and their respective internal operation, namely: optimizing their own assets for saving money and trying to support new business ventures that were not yet mature. For other partners in the rail and transportation ecosystem, this created an issue of downstream impacts, with some partners, such as Class II railroads, having to step up to function as the shock absorbers. Customers experienced broad ranges of service quality, from painful marked degradations to unprecedented improvements. 

The container rail network heavily relies on repeatable end-to-end execution across geographies and industry partnerships, such as product coming off the shop floor in Asia, transport to seaport, shipping across Pacific Ocean to North American seaport, train transport to inland distribution center, and transport to retail locations. Currently, the visibility across the supply chain is generally segmented and does not transcend entities well. This impairs the ability to make precise, informed decisions, resulting in lost productivity and opportunities to adapt and respond to operational realities and fluctuations. This only covers the import direction.

For the export direction in the container rail network, it is not a direct reverse route. Rather, there is complex domestic repositioning for North American exporters, utilizing the empty container return for revenue generation. These aren’t always available to the receiving railway. 

What PSR 2.0 promises

With the current inward-facing and limited PSR implementations today, downstream ecosystem partners of Class I railroads are forced to adapt and, oftentimes, respond reactively in ways that are not necessarily cohesive or in the best interest of the customer. This exacerbates process inefficiencies, safety issues, poor reliability of service, and customer concerns, just to name a few.

Supply chains must be focused on customers’ goods, rather than transportation shortcomings. 

In order to fully leverage the value of low-cost, environmentally friendly railway supply chains, it must integrate well with the other means of ground transportation. With the unified PSR 2.0 platform, all parties in the end-to-end supply chain are measured, monitored, and accountable. We believe PSR 2.0 can be a transformative reliable, scalable, and high-gain approach for delivering sustainable financial results — safely and securely — while building goodwill with customers, regulators, and communities. It is anchored by an operating methodology and structure that leverages optimal revenue generation and growth strategies. It embraces entrepreneurship and partnerships across the ecosystem, fostering integration amongst all parties (rail and non-rail). 

PSR 2.0 provides for a shared platform (voice at the table) for all parties, ensuring integrity for delivering service propositions; where shock absorbing assets and disproportionate costs are replaced by seamless service, balanced asset costs, and smoothed operational flows. This allows for just-in-time responsiveness to competitor moves, geopolitical events, weather events, and even pandemics, while building resiliency for the end-to-end supply chain.

We believe that waiting for the rising tide of the economy is folly as it could be a protracted wait. And supply chains themselves could shorten as North America contemplates onshoring and building national capacity in critical areas. PSR 2.0 provides a unique opportunity to transform the rail industry and the entire transportation ecosystem. It has the power to achieve sustainable operational effectiveness, organizational effectiveness, and profitable growth.       

Sonia Bot, chief executive of The BOT Consulting Group, and John F. Orr, a  senior operations executive for railroading and transportation ecosystems, can be reached at sdbot@botgroupinc.com and OrrJohnF@outlook.com, respectively.