Rails Adding A+B

Rails Adding A+B

Copyright 2004, Traffic World, Inc.

Canadian National Railway and CSX are betting that fast pricing will translate into brisk business.

Undaunted that they are turning to the Internet years after other modes created web-based pricing and operations programs, the railroads unveiled a rate initiative called "A+B Pricing" that CN and CSX believe will make railroads as easy to use as trucks.

The program will allow shippers to obtain a rate for interline carload shipments instantly over the Internet for any origin, destination and commodity.

"Before A+B Pricing, a railroad had to contact the connecting carrier by telephone or email to request a revenue requirement," said James Foote, CN''s executive vice-president, sales and marketing. "This would result in delays of days, even weeks, in getting the interline price quote to the customer. In today''s business environment, that''s not acceptable. We needed to change to be more competitive."

The initial phase will involve communication only between the railroads, which then must convey the information to their customers. However, the tool will be available on the railroads'' Web sites later this year for customers to access directly by going to the originating railroad''s Web site and requesting a combined interline price. CSX plans to make the service available on its Web site sometime during the second quarter. CN said it will be available on its Web site towards the end of the year.

"Because interline moves comprise more than half of our business, this innovation is another important step in making our railroads more progressive in the industry, and more focused on our customers'' needs than ever before," said Clarence Gooden, CSX Transportation senior vice president for the Merchandise Service Group.

Obvious though the benefits of real-time information may seem, the railroads acknowledge they face challenges of habits created long before the Internet age.

"The railroads have been doing it the old way since the 1840s - the goal is to automate," said John Crouch, director of pricing strategy and yield management for CSX. "Seventy percent of our prices move about 9 percent of our revenue. We''ve got hundreds of (sales) people taking care of less than 10 cars a year for a particular customer - two cars here, three cars there. That''s a lot of effort given the amount of business."

"There''s an opportunity here to better utilize the time of our sales force and to make that day-to-day transaction activity for requesting interline prices more effective," said Anita Ernesaks, vice president of e-business for CN. "One of the purposes is to free up their time so that more attention can be paid to market development and new business opportunities."

Whether the benefits to the railroads help bring more business is another matter.

"I think it''s an important tool that the railroads are offering, but whether or not it will make a significant difference and kick-start the growth rate of general carloading is another question," said Jim Blaze, director of strategic planning for Zeta-Tech Associates, a rail technology consulting firm.

Intermodal and large-contract movements of unit train shipments have been the growth engine for the railroads over the last 20 years, Blaze said.

Although railroads should make it easier for customers to do business with them, Blaze said, "technology as applied by the railroads to their customers is still a market in transition."

Shippers appear wary that simplified pricing could close the door on rate negotiations. "It may not be the case that the fast rates we get over the Internet will be lower than truck rates," said Jim Bruno, logistics analyst for Madison International Sales, a Norwalk, Conn.-based paper products shipper. "But we need the ability to go the next step if there are other variables such as volume and whether using railroad-owned or shipper-owned rail car equipment.

"We don''t want to be closed from negotiating," he said.

"Will customers still pick up phone and negotiate? Sure," said Ernesaks. "But our objective is that the customer will be happy with the price he gets on the Internet. ... Our goal is to make prices not just easy to get but competitive and commercially viable to make them more competitive with trucks and improve our market share."

Ernesaks said CN wants to roll out Internet pricing to other business groups once the technology is established for carloads. "Intermodal is something we''d consider later on, and we''d also like to incorporate transloading services as well. ... This gives us something to build on."

CN and CSX plan to share their experience with the other Class I railroads that are in the midst of getting up to speed on a concurrent industry-wide initiative to put interline pricing on the Internet. "We started our pilot project with CSX over a year ago, so we had an opportunity to get something in production sooner" than the other railroads, Ernesaks said. "To wait for everyone to be at the same speed would have taken us a lot longer."

Burlington Northern Santa Fe Railway and Union Pacific Railroad both are working on making fast prices available to customers. "We''re very early in the process" of making A+B pricing available, said Union Pacific Railroad spokesman John Bromley. "We''re hoping to get to the point where we can implement something this year."