5 Factors that Drive Railroad Efficiency and How to Improve Them

5 Factors that Drive Railroad Efficiency and How to Improve Them

All around the world, railroad companies are striving to make their operations as cost-efficient as possible without compromising safety, quality, and reliability. While there are a number of fundamental differences between railroad systems in different countries, and consequently differences in where improvements are most needed, there are a few common practices that typically increase any railroad’s financial efficiency and cost-effectiveness. Read on for descriptions of these practices and examples of how different railroads worldwide are achieving such improvements.

Better asset utilization.

Making smart business decisions to ensure that assets are used to their maximum advantage is one of the most basic ways to create a cost-efficient railroad. While the utilization of rolling stock and track infrastructure differs widely across countries, truly efficient utilization requires proper planning to ensure that both passenger and freight trains are always operated at or near capacity. It may also require shifting operations to focus on profitable routes, and making the sometimes difficult decision to close segments of track or entire routes that are highly underutilized.

Better personnel allocation.

While the number of personnel required to run a railroad differs across countries, keeping labor costs in check and improving worker productivity through smart investments in technology are efficiency-improving strategies that can be useful regardless of location. For example, in the United States, one of the key tactics that has helped freight railroads become more efficient is smarter personnel deployment on major network routes. This change was brought about in part by an increased focus on automation, as described below.

Performance standards for infrastructure managers.

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Incentives designed to promote better performance can be a helpful way for both infrastructure managers and train operators to reduce costs and improve service. For example, incentives to reduce train delays due to infrastructure issues can produce positive outcomes for infrastructure operators and managers, freight and passenger rail, and a railroad’s efficiency as a whole.

For example, the German Federal Ministry of Transport has considered implementing a new performance regime for charges related to infrastructure and stations. Under the new performance-based system, delays would be investigated and attributed to the appropriate party; when performance goals are met, appropriate compensation packages would be developed and awarded. The goals of this kind of system would be better understanding and monitoring of the factors that cause delays, which in turn would increase overall cost-efficiency and encourage a stronger focus on the rail customer’s experience. Alongside Germany, several other countries have also considered implementing such performance-based systems.

Investments in technology and automation.

server farmThe development of new technologies has had a huge impact on the cost-efficiency of railroads around the world. Smart investments in technology can significantly reduce overhead and personnel costs, as well as improve logistics management, safety, and customer satisfaction. For example, the seemingly simple ability of a passenger to book a rail ticket online has a number of benefits, including a reduced need for service personnel, greater customer empowerment, and potentially greater fare revenues, thanks to a system that is widely and constantly available and easy to access. To consider an example from freight rail, an increased level of automation in rail yards has helped improve the speed and oversight of goods, which in turn has helped to reduce costs.

In the United States, many forms of technology improvements, driven largely by market competition, have been implemented by freight railroads in recent years. Companies have reduced administration costs through such developments as new electronic or computerized systems that allow for automated transactions between shippers and railroads. These systems have also simplified transaction accounting by automating the process of data collection. In addition, automated track maintenance technology has helped reduce the costs of track maintenance and upkeep, while other technical advances have enabled the safe operation of longer freight trains, such as newly engineered tracks built to handle more advanced locomotives and heavier loads. All of these innovations have helped freight railroads drive down costs for customers.

On the other side of the Atlantic, Sweden is presently investing heavily in radio-frequency identification (RFID) technology, which has helped streamline freight railway operations around the world. Sweden intends to establish a national RFID reader infrastructure that, when complete, will facilitate a range of operations, including the organization of goods in railway yards, the management of railyard processes, and inventory management. The system will also allow freight rail customers to track their shipments more effectively.

Corporate governance and railroad management.

For the long-term cost-efficiency of railroads, effective leadership in all major departments and for the railroad as a whole is hugely important. Particularly significant corporate governance matters include the selection of managers, the relationship between the railroad’s board of directors and its CEO, and management accountability and incentive structures.


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