FreightRail’sDigitaltheBendJanuary2023ByDavidSchaar,AndreyTimofeev,PallaviKansal,LukeH.Young,andGrantZellerasBOSTONCONSULTINGGROUPXTRINITYRAIL39DrtngarketsharematdailFreightRailIsLosingMarketShare,DespiteExhibit1-InFreightTransport,RailIsLosingSharetoTruckingStonmilesoflandfreightcarried201220132014201520162017201820192020TruckRail(coalshipments)Rail(excludingcoalshipments)Sources:USBureauofTransportationStatistics;USEnergyInformationAdministration.4FREIGHTRAIL’SDIGITALFUTUREISJUSTAROUNDTHEBENDThistrendunderscoresamorebasicproblem:manyship-persviewrailassimplytoohardtousecomparedwithtrucking.Akeyadvantageoftrucktransportistheabilitytotingtheneedtocoordinatefirst-andlast-milehandoffs.ThetruckingindustryhasincreasedthisadvantagebyadoptinguntetheredGPStrackingtechnologyfortrailersandcontainers,givingshippersreal-timevisibilityintothelocationofshipments.Toclosetheperformancegapandpromotevolumegrowth,therailindustrywillneedtorelievepainpointsexperiencedbyparticipantsacrossthevaluechain.(SeeExhibit2.)Shippers.Inanageofnonstop,digitallyenabledintercon-nectedness,railtransportoftenremainsananalogexperi-enceforshippers.Supplychainmanagersmayhavelimit-ed,ifany,visibilityofthegeographiclocationoftheirmaterials.Theproblemlies,tosomeextent,withtheshort-comingsoftheAutomaticEquipmentIdentification(AEI)trackinginfrastructureusedbyNorthAmericanrailroads.ThereisconsiderablevariationinthespacingofAEIread-ersacrosslinesandregions.Insomeareas,thedistancebetweenreadersis50milesorless,whileinotherstheyarehundredsofmilesapart.Moreover,thesystemdoesnotprovidereal-timelocationstatus—whenrailcarspassareader,severalhourselapsebeforeupdatesappearinthesystem.Someareaslacktrackinginfrastructurealtogether.Atinterchangepoints,particularlywhencargoismovingfrommainlinestoshortlines,shipperstypicallylosetheabilitytotracklocation.Thechallengesarisingfromantiquatedtechnologyandfragmenteddatasourcesmeanthatsupplychainmanag-ersmustrelyonestimatedtimesofarrival(ETAs)basedondatathatishours,orperhapsdays,old.Thismakesithardforsupplychainmanagerstooptimallycoordinatelast-milelogistics,whichinturnunderminesothereffortstoachieveoperationalefficiency—suchasschedulingproduc-tionshiftsaccordingtowhenincomingrawmaterialsareexpectedtoarrive.RailroadsandTerminalOperators.Railyardsandter-minalsarechokepointsintherailnetworkbecausemanag-erslackreal-timevisibilityoftheirinboundpipeline.Thispreventsthemfromusingadvancedplanningtogainefficiency.Moreover,modaltransitionsareinherentlyunwieldytomanage—myriadshipmentsarrivefrommulti-pledirectionsandmightbeoutboundviaatruck,ship,oranothertrain.Thesheercomplexitydrivesasignificantgapinreliability.Theplannedmovementsofrailcarsmightbedelayedoreventuallypostponed,leavingthemunpro-edintheyardovernightorperhapsfordaysdependingonseveralfactorsincludingfrequencyofservice.Ship-persknowthatrailcarswiththeirfreightareheadingtowardsthem,butareunclearonhowmanywillarriveandonwhatday.Exhibit2-CurrentPainPointsAcrosstheRailValueChainShippers?Unexpecteddelays?Lackofaccuratetracking?UnreliableETAs?Uncertainpayloadconditions?Inaccuratedwell-timereporting?Slowrailcarusecycles?InabilitytosynchronizethesupplychainRailroadsandterminals?Lackofreal-timevisibilitytoinboundpipelineatloadingandunloadingpoints?Slowhando?s?Congestedrailyardsandtracks?HighcostoftracksideinfrastructureRailcarowners?Delayedmaintenanceandsafety-issue?Reactive?eetmanagement?Lackoftargetedmaintenance?Extendedcar-cycletimesandslackcapacityduetouncertaintyanddelaysSource:BCGresearch.Note:ETAs=estimatedtimesofarrival.BOSTONCONSULTINGGROUPXTRINITYRAIL5rOwnersRailcarownerswhethershippersincestehealth.TheOpportunities:TransparencyandOptimizationatses6FREIGHTRAIL’SDIGITALFUTUREISJUSTAROUNDTHEBEND?Assuranceofrequiredpayloadconditionsthroughoutprocessing?Improvedplanning(forexample,inboundqueue)?Fasterhando?s??Assuranceofrequiredpayloadconditionsthroughoutprocessing?Improvedplanning(forexample,inboundqueue)?Fasterhando?s?ReducedcongestionCarriers,operators?Noti?cationofanyincorrectorpotentiallydangerousconditions(forexample,handbrakeon)?Improved?eetmanagementandplanning?LessslackcapacityrequiredRailcarBroadersocietyLocationConditionLocationCondition?Assuranceofrequiredpayloadconditions(forexample,refrigeration)??Assuranceofrequiredpayloadconditions(forexample,refrigeration)?Capacityutilizationdata?ImprovedETAs?Greaterpredictability?PeaceofmindShippers,forwarders?Greaterreliability?Improvedfailureprediction?Reducedneedfortracksideinfrastructure?Moree?cientmaintenance?Targetedmaintenance?Improvedfailureprediction?HigherutilizationownersGreenerfreightmix?Greenerfreightmix?Breakingtraditionaltradeo?sthatfavortrucktransport?Growingrail’sshareoffreighttransport?Constantmonitoringofvolatileordangerouspayloads?PredictivemaintenancepreventsequipmentfailuresthatcouldcausederailmentsSource:BCGresearch.Note:ETAs=estimatedtimesofarrival.Forrailroadsandoperatorsofrailyards,terminals,ports,andothermodalhandoffpoints,widespreadadoptionoftelematicswillallowforadvancedvisibilityoftheinboundpipelineaswellaslivein-yardlocationtracking.OperatorscanapplythisvisibilitytooptimizeorevenautomatepipelineplanningandreceiveAI-generatedrecommenda-tionsforsequentialcarmovements.Digitaltwins—digitalvisualizationsofhighlycomplexoperations—willfacilitatetheseefforts.Railcarownerswillgainafarmoreaccurateandup-to-dateviewoftheirfleet.Theycanapplythisvisibilitytoimprovefleetmanagementand,intime,maybeabletoreducetheneedforslackcapacity.Condition.Othertelematicshardwarewilltransmitdataregardingtheconditionofarailcartostakeholders.Thiscanassureashipperthatitspayloadhasnotbeenac-cessedviaanopenhatchbyunauthorizedparties,andthatitisbeingkeptattherequiredtemperatureorpressureifitisrefrigeratedorvolatile.Conditiondatawillenableauto-matedcorrectiveactionsanddispatchingofemergencypersonnel—fire,police,ormedical—asthesituationwar-rants.Asmoresensorsbecomeavailabletoprovidedatafromadditionalsources,companieswillundertakeevenmorevaluableoptimizationefforts,suchasimprovingcarcapacityutilization.Health.Usingtelematicstoreportonrailcarhealthisparticularlyvaluabletorailcarowners,whocurrentlymayonlybeabletoperformoccasionaldetailedchecksontheirequipment.Sensorswillprovidereal-timevisibilityofdam-agedparts.Railcarownerswillapplyconditiondatatoautomaticallyschedulemaintenance,includingprioritiza-tionbasedonurgency.Theywillusemachinelearningtosensepossiblefailuresbeforetheyhappen.Thisenablesfarmoreefficient,targeted,andpredictivemaintenancewhileimprovingreliabilityanddramaticallyreducingmaintenancecosts.ClassIrailroadsalsobenefit,astheywillnolongerneedtomaintaintracksideinfrastructureforsensingmaintenanceissuesandwillgainmoredetailedvisibility.BOSTONCONSULTINGGROUPXTRINITYRAIL7?Track-levellocationprecision?Proximitytootherobjects?Refrigerator-carhealthandfuellevel?Linerhealth?Loadshiftingorsloshing??Track-levellocationprecision?Proximitytootherobjects?Refrigerator-carhealthandfuellevel?Linerhealth?Loadshiftingorsloshing?Weightofcargo?Carcapacitylevel?Wheelsandbearings:temperature?Brakes:reservoir,line,andhosepressure?Stability:hunting,pitch,yaw,andslackNearterm?LocationIn-cartemperature,moisture,pressure,andlight?RailcarsensorsConditionDoor/hatchopenorclosedCouplers:wear,forcesbetweencars,andreleaseHealth?LongertermToday,railcarscanbeequippedwithtelematicsdevicesthatprovidedataonlocation,impactdetection,andexter-naltemperature.Inboththenearandlongerterm,manyotherdevices,someofwhichareinthepilotingstage,willbecomeavailable,offeringunprecedentedreal-timevisibili-tyandtransparencytoshippers’supplychainsandrailcarowners’assets.CurrentandFutureTelematicDatafromRailcarSensorsRealReal-timelocation?Impactdetected?Externaltemperature?Caremptyorloaded??Handbrakeonoro?Sources:RailPulse;BCGresearch.8FREIGHTRAIL’SDIGITALFUTUREISJUSTAROUNDTHEBENDTheTheKeyEnablers:ASharedDataEcosystempplicationLayeryataplatformASecure,Cross-CompatibleEcosystemTheindustryneedstocreateasecure,cross-compatibleecosystemtopreventtheproliferationofdifferentstan-dardsthatwouldhamperthedigitizationofrailandulti-matelyharmtheindustry.TheRailPulsecoalitionofrailcarowners(includinglessors,shippersowningtheirownfleets,andClassIandshort-linerailroads)seekstoprovidethistelematics—includinghardware,compatibility,andotherspecifications—andtoidentifytechnologyvendors.Itwillalsoprovideinfrastructuretocollect,harmonize,aggregate,andstorerailcardata.rRailPulseexistsornot.WithoutRailPulse,itwillcomein members.”telematics.turewillallowRailPulsetotaandshippers.suBOSTONCONSULTINGGROUPXTRINITYRAIL9AATransformativeApplicationLayerephesofticsonsthatleveragerealtimeendtoendlocationandrelatedinformationarecomingtomarket.WespokewithshippersusingtheTrinsightlogisticsplatform,aplatformlaunchedbyTrinityRailthatcombinestraditionalindustrylocationinformationwithnewlyavailablead-vanceddatasets.Thesediscussionsprovideinsightsintothetransformativepotentialofsuchapplications,ofwhichTrinsightwillbejustoneofmanyavailabletoshippers.rlAdoptiondussislyneshipttapremiumpricexndotnsCollaborationAmongIndustryParticipants.Thenew10FREIGHTRAIL’SDIGITALFUTUREISJUSTAROUNDTHEBENDyyanFleetManagementDashboardtheionSensorsServiceETADashboardsDataConsolidationPlatformrsatesTemperatureSensorsBOSTONCONSULTINGGROUPXTRINITYRAIL11ononTheMosaicCompanyanddmetrics.”eeelltimens“Digitalizationwithintherailsectorisstillinitsinfancy,”hesays.WCSCisamongtheearlyadopters.Ithaspart-neredwithTrinityRailtostandupperformancedashboardsthatindustryconstituentscanapplytomakeinformedsupplychaindecisionsandidentifyareasofopportunity.gys tryconstituentsarepressingforserviceimprovements.eatersenseofurgencyacrosstheboardtobroadlyrolloutthebenefitsoftelematicsfor shippers.”12FREIGHTRAIL’SDIGITALFUTUREISJUSTAROUNDTHEBENDIncreasingIncreasingadoptionBydevelopingsharedstandardsandservingasaclearing-housefordataandpermissions,RailPulseisprovidingauniversal“plug-and-play”architectureforrailusersandvendors.Additionally,itisutilizinganinitialsetofpilots,vendorvetting,andbulkpurchasingtojumpstarttheuseofsensorswhilekeepingcostslowandpromotingsuppliercompetition.Earlytrialsandproof-of-conceptpilotsaredemonstratingthereturnoninvestmentintelematicsandlayingthegroundworkforwideradoption,flatterlearningcurves,andgreaterdemandfromshippers.Asadoptionincreases,companieswillcapturebenefitsthatrequirecriticalmass—suchasimprovingthemanagementofrailcarfleetsorpoolsoreliminatingtheburdenofhavingtracksidemaintenanceinfrastructure—allowingthemtocreateadditionalvalue.(SeeExhibit4.)Theresultwillbeavirtuouscycle.Continuedadoptionbyuserswiththegreatestneedandsophisticationwillin-creaseincentivesfortechnologyproviderstooffertheapplicationlayerthattransformsdataintoinsightsforoptimizingoperations.Inturn,asgreaterscaleincreasesthevalueofbenefits,otherindustryparticipantswillbemotivatedtoinvestindigitization.AcceleratingAdoptionAcrosstheValueChainBypreparingforthisdigitalrevolution,shippersandotherrailindustrystakeholderscanaccelerateadoptionandenhancethevaluecreated.Shippers.Currentrailcustomersshouldcontinuetopressrailroadstogivethembettervisibilityandinsights.Thiscouldinclude,forexample,accesstoRailPulseequipmentandthenecessaryanalyticsplatforms.Shippersnotcur-rentlyusingrailtransportshouldreconsiderusingrailtocapturethebenefitsofsafety,efficiency,andsustainabilityasenhancedbytelematics.Exhibit4-TheStagesofTelematicsAdoptionyears:fullsystemRailcarDiscretesitesToday:individualcarsDiscrete?eetsExamples?Visibilitytoshippersofkeyshipments?Assuranceofconditions?Maintenancedataforspeci?ccarsSource:BCGresearch.?Full?eetmanagement(forandslackcapacity)?Integrationwitherinsystemsintelligentmaintenanceregimesfor?eetrstools?PredictivemaintenanceforOnsitesafetyandsecuritymaintenanceorrailcarm