The second oldest franchise of the railroad industry is carload or merchandise traffic, which some lines now call "single shipment" business. Recently the Class I lines have been returning to this business not only to capture lost traffic but also for the simple reason that carload traffic has better margins than intermodal. One recent study suggested that in comparison to a "typical" intermodal train, a merchandise train had a better revenue ratio by almost two to one.

Yet recapturing this traffic could take some doing. Problems with long and erratic transit times drove many customers away from rail, and the well-documented merger-related troubles only aggravated the situation. Not only were transit times erratic, but efficiency lagged way behind the rest of the transportation industry: The average number of miles that a freight car moved a day had stayed flat since the mid-1960s and even dropped during the merger era.

In an attempt to arrest this market erosion, the railroads resorted to rate cutting, but this only led to the commoditization of carload service—a trend that resulted in extreme downward pressure on rates. Both the poor service and commodity-type pricing had to be reversed if merchandise traffic were to grow.

Still, railroads retained their optimism. "Carload service had become a commodity and was priced as such, but we knew that if we provided a quality service, we could price on a non-commodity basis," says James Foote, executive vice president, sales and marketing for the Canadian National (CN). Certainly, the CN had an economic incentive to turn things around: "We do not have the same traffic mix of coal and intermodal as do the U.S. Class I carriers, so merchandise business means much more to us," Foote says. In the end, CN's efforts to regain this traffic paid off. Foote reports that the rail has gained market share in the past few years, with its carload business growing at two to three times the rate reported by most other railroads.

Within the last two years (and starting in 1998 in CN's case), the Class I lines have embarked on significant operational changes and service improvements to retain existing carload traffic, regain lost business and attract new customers.

One of those railroads is the Norfolk Southern (NS), which took a high-tech approach to turning things around. "We feel that single-shipment traffic has great potential for us and we needed to examine how we serviced this business so we could increase our market share," says Donald Seale, the railroad's senior vice president-merchandise marketing. To accomplish this, the NS modeled 2.2 million carloads using a software package called Princeton Transportation Network Model (PTNM) to develop a base case plan for handling this business.

Developed by Princeton, N.J.-based ALK Technologies, PTNM includes macro-scale representations of the North American highway, railway and waterway networks; software for geocoding, flowing and displaying traffic data; and editing tools to create "what if" scenarios. With these features, PTNM can help users determine which markets to enter or exit, quantify the benefits and costs of opening or closing interline gateways, identify backhaul corridors, locate hub facilities and summarize traffic statistics in graphic form.

In NS's case, PTNM's modeling ability proved invaluable. "From this modeling has come our Thoroughbred Operating Plan—or TOP—which we have implemented with the support of all our people from senior management to the operating employees," says Seale. He reports that NS has seen dock-to-dock improvements in transit times ranging from 17 to 58 percent.

The Union Pacific has also been working to improve its handling of merchandise traffic, both for single-line and joint-line business. In addition to developing trip plans, the railroad has made changes in how it handles joint-line traffic. "Starting two years ago with the CSX, we began reviewing gateways and traffic flows to remove days from the transit time and provide a more consistent service," says Woody Sutton, Union Pacific's vice president-manifest products.

All this activity by the Class I carriers really does not mean much if their customers and short-line partners do not see significant improvements and greater service consistency. But based on interviews with shipper customers using the various carriers, it appears that the rails have made some headway.

Golden, Colo.-based Coors Brewing Co., which moves more than half of its total production in carload service, will attest that rail service has improved. "We, like other consumer product shippers, were forced to divert traffic to trucks because of service problems. Recently, we have seen improvements in transit times in some corridors and are increasing our use of rail," reports Charles Stelmokas, vice president-logistics. He adds that Coors is looking into a boxcar-based cross-dock operation in southern California now that service in this lane has improved.

Another shipper who has seen better and more consistent service is Rick Sasser, purchasing agent for Goldsboro, N.C.-based Goldsboro Milling Co., a producer of animal feeds. "The transit time for our cars from Bellevue, Ohio, is not only [shorter], it is much more consistent," says Sasser. As an example, he cites a recent case in which cars waybilled from Bellevue on June 20 were delivered to the Goldsboro plant on June 26.

Service consistency is critical to the railroads' ability to secure new business. Though future growth is dependent on such conversion, current shippers want the benefits that come from long-term, dependable dock-to-dock service as well.

"Consistency is very important to us, not only because of its implications [for] inventory but also because it allows us to resize our private railcar fleet," confirms Robert Erickson, director of corporate logistics and distribution for Livingston, N.J.-based Formosa Plastics Corp. U.S.A.

Like shippers, short-line railroads have a large stake in the Class I carriers' efforts to improve carload service. Short lines and Class I railroads work closely together; under a typical arrangement, a short line gathers, sorts and forwards railcars to a connecting Class I carrier in return for a portion of the revenue. Though the short lines may not always carry much clout with their larger partners, the traffic they generate can represent a significant source of revenue for the Class Is. The smaller roads that connect with NS, for example, account for about 22 to 23 percent of the carloads the Norfolk Southern handles.

"For some time, the Class I carriers treated single-car traffic as though it was a red-headed stepchild, but that has changed recently," says Terry Hart, vice president and general manager for Georgia Florida Rail Net, based in Albany, Ga. Hart's railroad operates about 315 miles of track and handles 30,000 carloads annually. He reports that both of its connections, CSX and NS, have displayed increased interest in carload business recently.

"We see service starting to get better, and our connecting carriers are much more interested in our carload business [than in the past]. This is reflected in our increased carload traffic," echoes Gordon Fuller, vice president and chief operating officer for the Morristown N.J.-based Morristown & Erie Railway. This has encouraged Fuller to bring potential business to the Morristown & Erie's Class I carrier connection and even to look at additional opportunities.

Though most observers have seen indications of positive change, all agree that more needs to be done. Can the railroads raise the service bar? Can they convince shippers that they're in it for the long haul? They've made a good start. The rest hinges on how well the rails follow through on their newfound interest in their second oldest franchise.