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As competition heats up in freight transportation, Class 1 rail operators are facing increasing pressure from truck operators. How can the rail transport industry lay the tracks for sustainable growth? By building effective and profitable business ecosystems. These are collaborative networks of organizations that collectively create and share value. By working together, they can innovate at a higher level and help deliver more expansive offerings.
Class 1 rail operators can create streamlined, end-to-end freight ecosystems by forming strategic alliances, adopting advanced technologies and improving operations. These ecosystems are designed to improve service delivery and build resilience in a market where real-time tracking in trucking has heightened expectations for faster, more streamlined shipping.
The challenge: Addressing competitive pressures in the freight industry
Class 1 freight operators are seeing shifts in market share, in part due to gaps in offering complete door-to-door shipping solutions. They also face challenges with operational reliability and not having real-time information on where goods are during transit — leading to impacts on customer service.
When it comes to intermodal shipping, the disconnect in seamlessly integrating truck and train logistics can cause substantial delays and inefficiencies. Many shippers find themselves challenged to coordinate their supply chains during these crucial transitions. Operators struggle to manage the handoff between different modes of transportation, and railcar owners are hindered by outdated data systems, which can lead to postponed maintenance and delayed safety protocols.
This results in underutilized railcars and resources, making it tough for rail operators to effectively compete in the transportation market.
The opportunity: Scaling rail ecosystems for compounding benefits
Rail companies have the potential to improve their bottom line by embracing ecosystems, but doing so requires sustained focus, investment and a willingness to take calculated risks. Other industries have already embraced ecosystems to help drive significant growth and profitability. Our Ways to Play analysis of industry leading technology, media and telecom businesses, for example, found that ecosystem drivers achieve 50% to 60% profit margins compared to 30% to 35% with traditional product-led companies.
Ecosystems can help rail companies expand their infrastructure to better manage increased freight volumes and faster delivery options. They can capture routes traditionally dominated by trucking by adding and expanding intermodal terminals near key distribution hubs, like ports or large warehouses, enabling smoother transfers of goods from trucks to trains, and vice versa, for long-distance shipping.
To further scale their operations, ecosystems help rail companies forge strategic partnerships across the industry. These alliances are important for tapping into new manufacturing shifts and expanding the overall volume of goods transported. A practical way to consider providers when building an ecosystem strategy and blueprint is to segment potential partners into two categories: digital (software) and assets (hardware).
As these relationships form, M&A opportunities, like acquiring short line railroads, emerge to further integrate the network and improve service consistency — facilitating seamless transitions and deliveries. Additionally, collaborations with logistics companies help rail operators increase shipping volumes and improve service transparency and reliability for shippers.
The result? Connected stakeholders who collectively build a more resilient and adaptable rail ecosystem. While expansions and partnerships drive growth and innovation, aligning them with customer expectations and regulatory standards is critical for long-term success.
Addressing freight rail pain points through technology
To overcome current challenges, rail operators can embrace a digital revolution driven by data-led transparency and improvement across the entire goods journey. Advanced technology, such as telematics tracking devices, can provide important data on railcar location, condition and health to all stakeholders.
This data enables shippers to provide payload and railcar assurance, operators to plan and sequence car movements more effectively, and owners to automate safety reporting and predictive maintenance.
To unlock the potential of these technologies, the freight industry should form profitable and effective ecosystems with common standards, data repositories and applications systems.
How do they do that? It requires building a unified system with set standards for telematics hardware and data sharing. Technology vendors would gather, clean and organize the data using advanced platforms from major railroad associations. Developers would then use this data to create analytics, planning tools and predictive tools based on machine learning.
This infrastructure would enable real-time visibility and analytics to shippers, operators and owners, allowing them to fine-tune their respective supply chain operations and asset management.
The technology framework for a connected rail ecosystem
To establish a resilient rail ecosystem, operators should focus on eight essential elements that can enhance efficiency and help streamline operations, providing the foundation for an effective network.
- Railcar sensor data: Collecting real-time data from railcar sensors (edge devices) and integrating it with modern core systems using middleware
- Data management: Centralizing railcar data within the organization’s platform for use by various consumer applications
- Ecosystem integration: Connecting with external systems to unify data for services like last-mile shipments and other logistics
- Core and legacy system integration: Bridging modern core systems with legacy ERP platforms, especially during modernization or acquisitions
- Access management: Managing user access and identity controls for railcar data within the extended network
- Peripheral system integration: Integration to legacy peripheral systems making use of railcar data for internal operations
- Infrastructure and cybersecurity: Facilitating seamless network connectivity, application programming interface (API) authentication and other essential operations; monitoring new access points and securing against sophisticated threat agents
- Third-party vendor integration: Collaborating with external vendors for new app functionalities like planning and prediction tools
People: The heart of the ecosystem
Building a strong freight transportation ecosystem starts with focusing on people, making sure the team has the appropriate skills such as digital know-how, data analysis and logistics management. Enhancing employee experiences, providing upskilling opportunities and developing a workplace culture that supports teamwork and adapts well to change is important to success. Leaders should steer the growth of this ecosystem effectively, helping to create a connected framework in which people and technology work together more seamlessly.
Transitioning to this integrated and digital ecosystem isn't without its challenges, like resistance to new technologies and the complexities of integrating different processes. Yet, the benefits make these hurdles worth overcoming. Improved collaboration can lead to innovation and better efficiency, and it gives employees valuable career growth opportunities.
Additionally, a well-managed business ecosystem can enhance a company’s sustainability efforts by reducing waste, boosting morale and helping the environment. By focusing on these elements, companies can create successful transportation ecosystems that can benefit both the business and its people.
Examples of evolving ecosystems in freight rail
When deployed effectively, ecosystems can unlock new market segments, enhance consumer loyalty and provide pathways to increased value through new commercial opportunities.
Here are a few ways that companies are starting to expand their capabilities as they lay the groundwork for effective ecosystems.
How we can help
At PwC, we understand the complexities and opportunities involved in building effective rail ecosystems. Our experience and knowledge in transportation and logistics services enables us to provide assistance to rail operators through:
- Strategic advisory services to define and deploy transformative digital strategies
- Technology integration solutions to help enhance real-time visibility and operational efficiency
- Talent management programs to help develop the necessary skills and foster a collaborative ecosystem culture
- Governance and policy development to help establish effective leadership and oversight
By addressing these important components, we help rail operators create scalable, profitable ecosystems that can improve operational reliability and the customer experience.
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