Canadian Pacific invents a better mousetrap to smooth intermodal volume

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CPIMSmoothing
Canadian Pacific
CALGARY, Alberta — Canadian Pacific has developed a high-tech solution to a problem that has long bedeviled railroads: The feast or famine volume swings in intermodal traffic over the course of a week.

Like most railroads, CP saw a flood of intermodal traffic arrive at its terminals Wednesday through Friday, with much lower volumes the rest of the week. Day of the week pricing, which offered lower rates on slow days and higher rates on peak days, did little to smooth volume.

CP’s premier domestic intermodal train, Toronto-Vancouver hotshot 101, would swell to 12,000 feet on heavy-volume days, but shrink to 5,000 or 6,000 feet on low-volume days.

It’s the sort of thing that drives a Precision Scheduled Railroad nuts. The operating model strives to keep crews, locomotives, and cars in balance. And when you’ve got a long consist some days, and a short train on others, efficiency and capacity are lost.

Jonathan Wahba, CP’s vice president of intermodal sales and marketing, and Mike Foran, the railway’s vice president of market strategy and asset management, set out to solve the problem. Last year they created a small “skunk works” team that was so secret that top management didn’t know about it.

As a first step, CP went out and talked to its intermodal customers.

“We were surprised. Two-thirds of all the traffic we delivered in western Canada on any particular day didn’t need to be there that day. Didn’t need to be there the next day. Or the day after. We were hurrying up to wait,” Wahba said during CP’s Oct. 4 investor day.

So CP came up with a concept called the requested arrival date. The shipper would tell CP when its container needed to arrive, and CP would manage when the box moves to ensure on-time delivery.

A few large shippers signed up for a low-tech pilot project. Using pen and paper, CP tracked about 200 boxes a week. The pilot and subsequent larger-scale testing went well enough that Wahba and Foran asked the executive team for about $1.2 million for a full-blown information technology program.

CP now uses a homegrown algorithm that automatically monitors and schedules shipments based on the customer’s requested arrival date. This allows CP to shift boxes to lower-volume days.

The result? Train 101 now routinely runs at 10,000 feet every day, with length varying only by about 500 feet over the week.

“Every aspect of our business is now perfectly planned and balanced,” Wahba says.

CP gained $50 million-worth of capacity without adding train starts, pulling locomotives out of storage, or hiring more crews.

It also did away with day of the week pricing. In its place, CP now offers several tiers of pricing, much like how FedEx charges based on varying levels of speed and service.

“This is obviously a win-win and a great plan,” says intermodal analyst Larry Gross. “A key requirement is that the parties must trust one another, and at the risk of stating the obvious, if the shipper is going to tell the railroad when they really need the box, then it is incumbent for the railroad to reliably get the box there when it is needed.”

It would be more difficult for a U.S. railroad to develop a similar program because the Canadian railroads retail their intermodal service and therefore have direct connections to each customer, Gross points out.

CP expects to see continued intermodal growth over the next few years, Wahba says.

Domestic growth will be driven by e-commerce parcel service, big-box retail shipments, reefer service, and retailers who co-locate at CP intermodal terminals, Wahba says.

Next year, CP hopes to win back some of the five steamship line contracts that come up for bid and are currently moving via Canadian National. Collectively, the contracts are worth more than $600 million, he says.

“We have zero desire to win all that business,” Wahba says. “It would be wildly irresponsible to our current customers to try and swallow that much freight because we don’t have that much capacity.”
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