Watco Companies

How Shippers and Class 1 Railroads Can Partner with 3PLS to Grow the Bottom Line

At a recent INFORMS conference hosted by BNSF Railway, Jon Gabriel, vice president of network strategy, design, and innovation, shared a slide created by Oliver Wyman, a leading international management consulting firm, showing 100 percent of executives surveyed “found truck superior to rail on all attributes of customer experience." This means when given the choice of mode ‐ aka "freight that has a choice”‐ shippers prefer trucks. While that data point alone isn’t late breaking news, the three attributes that influenced these results make me want to jump up and down raising my hand like the nerdy (and overly competitive) kid I was. The conversation hit on these three attributes:

● Equipment/capacity

● On‐time performance

● Shipment visibility

INFORMS attendees listening to ideas on how the railroads can help transition the mindset of shippers who prefer trucks to rail. There must be a better way! As someone with decades of experience working at Class 1 and Class 3 railroads and on the 3PL side, I know there is absolutely a better way. We have all got to let go of our pride and get comfortable working together. Shippers can use 3PLs to optimize their supply chain. Class 1s can expand their sales reach by identifying rail‐centric third‐party providers, replicating their proven models for premier trans load provider networks and intermodal carrier partner initiatives.

Enter 3PLs

Prior to joining the 3PL division at Watco, I held various roles at a Class 1 railroad, including leading the demurrage team. Looking through my lens then, I wholeheartedly believed and, therefore, frequently told shippers that there was no need to work with a third party. I was confident I could help them solve all their transportation woes. While I had the best of intentions, I was short‐sighted and assumed my Class 1 was their entire supply chain. I now know the error of my ways. Here are different ways railroads and shippers can get the most out of their 3PL relationships:

● Do your research. Does your existing 3PL offer services across all transportation modes, or do they specialize in specific freight like LTL or air? Do those specializations align with your growth strategy? The key is to vet and understand the specific services you desire, recognizing that rail expertise and focus are critical and require a much different skillset than the truck. Railroads looking to capture freight that is moving over the road can gain valuable insights into competing modes by working with a 3PL to convert the freight to rail.

● Consider your goals and objectives. Do you need a resource base to manage the complexities of your network or shipping patterns? Does your 3PL offer consulting services to help you build out your supply chain network? Can they show you why it makes sense to locate in a certain area based on your or your customers’ needs? Since 3PLs are agnostic when it comes to carriers, railroads can work with 3PLs to drive potential business to their preferred sites.

"If we can start thinking about the freight that has a choice, we improve the customer experience and make it easier to choose rail when that option exits."

● Move quickly if you need to. If you’re already in a predicament, like struggling with railcar supply issues or demurrage, can your 3PL roll up their sleeves and jump right in to help get you quick results? While railroads may initially view pipeline management solutions as a competing service, decongesting the Class 1 network is a win‐win situation. Fewer demurrage dollars for a shipper and a more fluid network for the railroad.

● Move toward your sustainability goals. Can your 3PL evaluate carriers based on your ESG needs or show you potential carbon savings if you convert your freight to rail? 3PLs can identify highway lanes that are a better fit for intermodal and truck freight that may make more sense to ship via rail and drive that freight to the railroads.

● Make it as easy as the truck. Can your 3PL provide you with real‐time visibility, fleet metrics, cycle analytics? Do they have a preferred technology platform or even better, can they provide the same levels of service using your existing technology choice? Can they keep your freight moving? Railroads can benefit from technology that provides visibility beyond their own lanes without having to wait on their interchange partners to provide offline visibility. In the rail space, a good 3PL team knows who to call and what to say to find available car supply or at least set realistic expectations. I’ve seen my fair share of new rail shippers transition right back to the truck when realistic expectations weren’t set up front. A good third‐party provider will advocate while collaborating with the shipper and railroads, along with dozens of other key stakeholders, to develop a solid scope of services, implementation plan, and communication strategy; these should be flexible in nature to support unforeseen shifts in priorities. If we can start thinking about the freight that has a choice, we improve the customer experience and make it easier to choose rail when that option exits.

Working with the right 3PL is a cost-effective and sustainable solution for shippers to save time and money and for railroads to pick up some of that coveted freight!