UPS executive talks about company’s relationship with rails at RailTrends 2014

Railroad operations are well known for a combination of things, including being detail-oriented, sophisticated, and labor-intensive. When railroad operations are running smoothly, things are good in that shippers are satisfied and their objectives are being met, due to fluid network operations. Conversely, though, when shipper goals are not being met, the optimism and faith in the railroads can drift away on down the line.

When railroads are doing business with a larger than large customer like UPS, it stands to reason, it can often be the best, and worst, of both worlds, depending on how things are going. That was one of the main takeaways from a presentation by UPS Vice President of Corporate Transportation Services Ken Buenker at this year’s RailTrends conference in New York, which was hosted by Progressive Railroading and independent railroad analyst Tony Hatch.

In his presentation, entitled “On-time rail availability is key for UPS,” Buenker made it clear from the get-go that it is “not easy” to do business with Big Brown.

One reason for this, he explained, is that the expectation for UPS’s integrated network is to operate at a 99 percent success rate.

“That 99 percent really translates from when a service provider picks up a package, say in Seattle, and delivers it to Miami,” he said. “That 99 percent includes all of the individual touches and all of the pieces of that puzzle that run as efficient, safe, and reliable as possible. Having a success rate in the high 90s really leaves no room for excuses or explanations.”

When dealing with its transportation service providers, Buenker said that UPS’s needs are pretty simple in terms of the questions it has: did it get to where we needed it to go and when it needed to go? Those two questions are at the root of everything the company does in terms of moving goods, whether it is on its small delivery trucks, tractor-trailers, or air charters, among others.

As for railroad operations, Buenker said 2013 presented a bit of a challenge and 2014 has been even more difficult from a service perspective.

“To be kind, it has been somewhat underwhelming this year and we have had to make some network adjustments that have interrupted some of our flow in terms of getting service to be where it needs to be in our lanes,” he said. “Railroad performance is tied directly to how we serve our customers and now it is nowhere near where it needs to be.”

But looking ahead, he said things should be improving, given the significant capital investments railroads are committing into their networks for infrastructure and capacity expansion, and he expects those investments to make a positive impact.

In terms of the relationship between UPS and the railroads, he said, the performance of UPS and its customers is directly tied to the railroad carriers’ performance, whether the carrier is a Class I or a short-line.

And when looking at how carriers are handling UPS’s rail freight “on a train that handles UPS business,” Buenker said he usually is told that the trains and the rest of the network are running well as an integrated solution for the network itself.

While the expectation for UPS’s integrated network is to operate at a 99 percent success rate, he said the figure for UPS’s rail on-time performance, regarding when its freight is moving and where it is going, is closer to 95 percent.

“With 95 percent, we can recover normally by making adjustments to our network if needed,” explained Buenker.

But late last year and into 2014, he said some of UPS’s rail providers dipped well below the 95 percent threshold, with two carriers it uses coming in below 70 percent, which he said is a level difficult to recover from. 

Buenker said that UPS has a relationship with the railroad industry going back four decades.

“In many ways, UPS and the rail networks grew up together,” he noted. “Our ability to perform is directly tied to the [railroads]. The first big question is how the partnership should work, and the general answer is ‘not as well as it used to.’ It was difficult in 2013 and 2014 was just as difficult, if not more so. We have hit the 95 percent availability rule at different times over the years with some of our providers but in general the overall number has been far below that, which is very concerning. It is a combination of issues, including bad weather, service in different markets and key operating sites having more congestion than anticipated, maintenance work projects, and capacity improvements.”

Compounding these factors, he said, is rail’s shortfall of capacity, explaining how the largest rail operators are running more slowly on average in recent quarters on an annual basis.

“When you multiply that experience by the fact that $550 billion worth of goods are shipped by rail each year, the ripple effect of the decline of rail [service] is huge,” he said.

Despite the current challenges, Buenker said rail still provides many advantages and opportunities for things like reliability, sustainability, recoverability, scalability, and repeatability, which he said are the elements that make UPS’s business work well and serve as the basis for its precision-driven network.