Railroad CEO plans logistics offensive for e-commerce after pandemic boom

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  • The Union Pacific Railway is moving an increasing number of packages and other e-commerce goods.
  • A tight trucking market presents an opportunity for railways to capture more retail freight.
  • To get and keep more e-commerce business, railways need to improve their game.

US Railways are bidding for their share of the post-pandemic e-commerce boom despite their apparent mismatch with its frantic pace.

Union Pacific Railroad CEO Lance Fritz told Insider it’s a banner year on track for packages in 2020, and he’s putting the pieces in place to keep as much of that business as possible.

Railways already transport e-commerce goods. They transport products daily from ports to warehouses. They also work with parcel carriers like UPS, FedEx, and the United States Postal Service, providing an alternative to transporting goods by truck.

“We’ll take some of their package shipments from, say, LA to Chicago, or LA to Memphis. And that relieves them of having to find team drivers for that route,” Fritz told Insider. He argued that Union Pacific is uniquely positioned to take advantage of the era of electronic commerce. Part of it is geography: Union Pacific covers much of the United States west of Chicago. Thus, in a few days, a package can travel most of the country by train.

Where the rail fits

Trains provide cheap transportation compared to trucks (especially now), but at the expense of speed. And that could be a problem as e-commerce speeds up and demands more precision.

“The speed of e-commerce doesn’t necessarily match rail capacity, and we’ve had a lot of direct conversations with our customers, as they speed up their networks, to understand the impact on us,” said Fritz.

Today, the really urgent goods that do not require the speed of an airplane are transported by truck. In fact, when UPS CEO Carol Tomé decided to speed up UPS ground service, her plan was to cut rail.

But Fritz, who works with UPS and FedEx, plans to fight to get more packages in his tracks. Most of America’s Class I railroads are on a mission to learn the skills needed for urgent shipments, because that’s the way the economy is going: less coal, more consumer goods.

New movements

Over the past four years, all but one major U.S. railroad has moved to run longer, faster trains on fewer tracks, following a manual designed by the late CEO of CSX and controversial rail expert Hunter Harrison. The idea is that the railways will be able to give more precise delivery times and better serve the more time sensitive shippers. Results have been mixed and rail customers often scoff at the strategy as being too disruptive and focused on profit rather than service.

But the railways see the strategy as a success, because what players like UPS and FedEx expect from the railways reflects what consumers expect of them: knowing when a package will arrive.

“Our customers tell us very clearly… that they like reliability. In the absence of very good reliability, visibility is a compensation tool so they can plan better,” said Fritz. The railroad has made an effort to provide more live updates on the location of trains and feed that information directly into their customers’ systems. This information is particularly critical this year, as port congestion spills over to supply chains – especially the railways operating in the Port of Los Angeles, including Union Pacific.

In the long run, the CEO said UPS and FedEx have several reasons other than price to stick with railways: Rail is less carbon-intensive than trucking, for example. But low cost can’t be the only big draw.

“Everyone is worried and thinking about how they continue to improve their margins and their return on their invested capital, so we are in this wheelhouse, and we are working hard to be much more reliable, as well as more transparent and user-friendly,” did he declare.


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