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Published: February 26, 2008

 
 

On Track for Growth

This market responsiveness, which CN shares to some extent with the BNSF Railway, Union Pacific, Norfolk Southern, and others, is typical of a visionary rail company, as is CN’s disposal of unprofitable lines of business. Take, for example, dropping off and taking on single boxcars loaded with industrial products at small towns en route. This used to be an established part of freight rail company service. But CN has largely dropped that part of the business, focusing instead on becoming a “scheduled freight railroad” with on-time performances to not only rival, but beat, trucking over medium to longer distances. The impact is enormous, with a reduction in rolling stock possible thanks to reduced complexity in point-to-point services and higher train velocity. Similarly, CN has been a market leader in the introduction of radio-controlled locomotive switching, which reduces employee costs.

Shippers, too, have changed their business practices to reap the benefits of new, more efficient rail services. Grain producers, for example, have invested in larger silos; because the producers can load more grain at a time, the railroads can use multiple cars and longer trains for each shipment, rather than running smaller trains several times. This gives CN economies of scale that allow it to offer lower rates to shippers, as well as providing better service.

Railroads still confront issues involving a unionized workforce, outmoded work rules, and various legacy agreements and restrictions from an earlier era. But de­spite a small dip in rail freight tonnage figures in early 2007 and some highly publicized train derailments in ecologically sensitive areas, the North American freight rail industry’s future looks bright.

Amtrak’s Unexpected Triumph
Probably no passenger railroad turnaround story is as significant as that of Amtrak; it suggests that dedicated management can overcome a host of obstacles. Since it was formed in 1971 as a U.S. government–owned amalgamation of the largely declining passenger lines of private railroads throughout the United States, Amtrak has fought a losing battle for financial independence. Even in its most successful years, since 2002, Amtrak has barely survived on a federal government handout of $1 billion per year on top of fare receipts. Its funding allocations are driven largely by political considerations, rather than by Amtrak’s operating and capital needs. As a result, investments in rolling stock and infrastructure have repeatedly been postponed.

Nowhere is this felt more acutely than in the Northeast Corridor, from Boston to Washington, D.C., the most densely populated area of the United States. There, freight and commuter railway companies all use Amtrak-owned track while competing with Amtrak for business. The Northeast is the oldest section of railroad in the U.S. and has been in disrepair (some would say “patched together”) for decades, due to underinvestment by a series of administrations in Washington. This has led to power outages, bridge closures, and disruptive engineering work. The rolling stock is also old, and Amtrak trains in the Northeast Corridor are often late and sometimes canceled owing to mechanical problems. Commuters in the country’s Northeast are among the most frequent train riders, but their experiences have too often landed them in the dissatisfied or disgruntled camp. As a result, Amtrak has been plagued by negative public perceptions throughout most of its history.

Yet despite these adverse circumstances, Amtrak was able to launch the Acela Express, a higher-speed rail service and an immediate hit with businesspeople and politicians shuttling among the eastern seaboard’s major cities. (See Exhibit 2.) The company had recognized an underserved rail passenger niche that needed a reliable, speedy, and relatively comfortable alternative to air travel. To market a new rail service to them, Amtrak studied Eurostar, made up of private companies that had broken free of their largely state-owned parents in 1994 to establish a separate and unified marketing organization known for innovative advertising, competitive leisure promotions, and a generous frequent traveler program.

 
 
 
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Resources

  1. Harry Bruce, The Pig That Flew: The Battle to Privatize Canadian National (Douglas & McIntyre, 1997): An overview of CN’s history and illustrates its progress and growth as a company.
  2. Viren Doshi, Gary Schulman, and Daniel Gabaldon, “Lights! Water! Motion!s+b, Spring 2007: Forward-looking view of expansion of transportation, energy, and water infrastructure, which are all linked together, with rail systems particularly important for travel within and between cities.
  3. Edward Landry, Andrew Tipping, and Jay Kumar, “Growth Champions,” s+b, Summer 2006: Survey data from Booz Allen Hamilton and the Association of National Advertisers identifies marketers who drive growth by leading product innovation and new business development.
  4. Geoffrey Precourt, ed., CMO Thought Leaders: The Rise of the Strategic Marketer (strategy+business Books, 2007): Insight from 15 top marketing leaders on the current and future direction of their field.
  5. National Association of Railroad Passengers (NARP) Web site: Includes a helpful overview of the U.S. Passenger Rail Investment and Improvement Act of 2007, with regular updates.
  6. For more business thought leadership, sign up for s+b’s RSS feed.