Get Your Logistics On Track
HOW SHIPPERS LIKE AMERICAN HONDA ARE MAXIMIZING RAIL SERVICE
We are heavy rail users. It is an integral part of our logistics network,” says Dennis Manns, vice president for Sales and Logistics Planning at American Honda. “We are dependent upon our rail partners for movement of all of our automobiles out of all our plants.” American Honda is a net exporter of automobiles, having exported more than 100,000 U.S.-made Honda and Acura vehicles in 2013.
“Our exports have been growing,” says Manns. “We do a lot of exporting by rail directly to Canada and Mexico and expect that business to grow.” American Honda currently exports to 49 countries from operations in Ohio, Alabama and Indiana through ports in California, Florida, Georgia, Maryland and New Jersey.
Choosing to put products bound for export on the nation’s rails can be an agonizing choice for many shippers. Compared to trucks, rail will almost never be the cost-effective choice for hauls less than 500 miles, and it will always be the slower of the two.
But shippers like American Honda warn us that the railroads should not be ignored. For longer hauls, rail transportation will save you a lot of money. And it’s the more fuel efficient, greener alternative to trucks that has the added benefit of not tearing up the nation’s highways and byways. In at least one case—exporting to Mexico—rail is a quicker, more efficient option, and shippers should be able to negotiate advantageous rates over that lane.
But the secret to getting the most out of rail is to be your own supply chain expert. Playing it smart can maximize the value of rail in your logistics program.
American Honda maintains a fleet of its own rail equipment to facilitate the flow of its automobiles through the rail network. “There is a cost savings involved,” says Manns, “but the most important reason for doing this is that it helps us to maximize lift capacity at the plant and integrating our operations with the overall rail network. This has become especially important of late as rail equipment is at a premium.”
The key to the success of American Honda’s relationship with its rail partners is its continuing communications with the carriers.
“The railroads provide three things,” says Manns, “a supply of empty cars, labor to move the product, and power. Two out of three doesn’t work. So we need to know of the carrier’s labor issues and any shortages of power or empty car supplies. Communications become paramount. We need to know how the railroad is operating on any given day and week.” (See sidebar, “Load Up On Advice!”)
To that end, American Honda has also evolved to integrate its information systems with that of its rail providers.
“Shippers have become more sophisticated in how they look at their supply chains,” says Tom Finkbiner, an intermodal industry veteran and CEO of Tiger Cool Express.
“The growth in rail commodities in the last 10 to 15 years is more a result of supply-chain professionals learning to live with the inconsistencies and slow service of the railroads than the railroads improving service to the customer.” Tiger Cool Express provides domestic refrigerated intermodal service for produce and also transports meat exports from the Midwest to East and West Coast ports. As such, it is a customer of the Class I railroads.
Goya Foods, Inc. exports by rail directly to Mexico and plans to do a whole lot more of that once its newly-opened facility in Brookshire, Texas, gets revved up. “The advantage of exporting by rail to Mexico is that it is an integrated move,” says Matthew
Montour, the company’s director of Logistics. “That means you don’t have to unload shipments at the border for inspection, warehousing and transfer to other carriers, as you do with trucks. That process costs money and causes delays.”
Rail shipments are typically cleared, not at the border, but at the through destination. “That makes it a little bit easier to get across the border and it also means less delays at the border,” says Montour.
A healthy proportion of the output of Goya’s Brookshire facility is planned for shipment to Mexico, notes Montour. Union Pacific and Kansas City Southern, two U.S. Class I railways, together with Ferromex, the largest rail consortium in Mexico, jointly offer direct service from Houston to San Luis Potosi, about 250 miles north of Mexico City and the location of a large rail terminal.
“When you look at rail transit times, they aren’t a lot faster between major markets than they were 50 years ago,” says Finkbiner.
“In cases of shipments that get handed off between carriers as they cross the Mississippi, service is actually a little worse.”
To make matters worse, the weather troubles of the last winter exposed rail capacity shortfalls. Surprisingly, the fastest growing commodity moving on the rails is crude oil.
“There is less capacity in the system than was formerly thought,” says Finkbiner. “The railroads are dedicating a lot of capacity to moving oil from North Dakota and the Permian Basin [in southeastern New Mexico and west Texas] both east and west. These shipments move on dedicated unit trains that move at high speeds and take up lot of track capacity.”
Despite these performance problems, the railroads still provide an attractive alternative to trucks, according to Finkbiner. “The long-haul economics of rail is superior to that of trucks,” he says, “and it is a greener and leaner methodology of moving freight.”
Intermodal can save shippers as much as $500 to $600 per container—some 25 to 30 percent—as compared to long-haul truck service, according to Montour. “We decided six years ago to convert all of our long-haul trucking to intermodal, even if there was only a small saving,” he says. “Many of our industry peers are doing the same.”
For rail to work on a large scale, the shippers have to be mindful of the needs of their carriers. “You have to be able to position equipment from a location that ships a lot of cargo to another location that is advantageous from the railroad’s standpoint,” says Montour.
In fact, the availability of equipment is perhaps the key issue facing rail carriers in their relationships with their customers.
“Refining the delivery cycle of empty equipment so that we can get shipments under load is the single biggest struggle American Honda has with its rail carriers,” says Manns.
Repositioning equipment to Mexico happens to be one of those moves that helps carriers deliver equipment to their customers.
“The railways need equipment positioned in Mexico to handle all of the manufactured goods that are coming north,” says Montour.
“It is sometimes difficult to find equipment in Mexico for shipments that need to go north because there is not as much southbound cargo coming through.”
In other words, if you are able to export to Mexico via rail, you will be looked upon favorably by the carriers and should be able to negotiate a pretty good deal with them.
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Deconstruction of the Value Chain