Asset Velocity

May 24, 2006

Asset Velocity, Terminal Performance and
Network Fluidity
The critical role of terminals, protecting the manifest network,
and the need to manage and measure more than train velocity
Prepared for:
MultiRail User Conference

CONFIDENTIAL

Contents

Importance of Asset Velocity, Cycle Times and Terminal Performance
Railcar Velocity and Cycle Time
Terminal Performance
Locomotive Velocity and Cycle Time
Manifest Traffic and Network Fluidity

© 2006 Mercer Management Consulting www.mercermc.com 1

Importance of Asset Velocity, Cycle Times and

Cycle times are critical in determining:
– Total fleet requirements for railcars and locomotives
– Customer service levels

As the determinant of fleet requirements, cycle times impact millions of dollars in investment decisions
All equipment cycles are made up of a series of processes:
– For railcars these include: – For locomotives these include:
- Shipper load time - Servicing & fueling time
- Terminal and yard time (loaded & empty) - Idle time waiting for assignment
- Train movement time (loaded & empty) - Time in held trains
- Consignee unload time - Time moving in trains
- Storage time (loaded & empty) - Deadhead movement time
- Shop/repair time - Shop time
Asset velocity can be viewed as an alternate measure of cycle time, but only when it is measured as
total distance traveled/total cycle time
– Measuring only train speed leaves out many important components of cycle time that are not
dependent on train performance
– Some of the most significant additional components being terminal processing time, terminal wait
time, and servicing time
– These additional time components often exceed the time spent in trains


How Cars Spend Their Time:
General service rail cars spend the vast majority of their time in activities other
than moving on trains.
The relative size of individual cycle time components has varied little over the last 30 years.
Unfortunately, the data to support analysis of cycle time components is no longer publicly available –
however there is substantial evidence that the basic factors have remained unchanged for 30+ years.

Cycle Time Components Carload Cycle Time
All car types in general service 1972 - 1990
30
Empty
Movement
7% 25

Empty Yard Loaded 20

& Term Movement D
8% a
35% y
15
s

10

Loaded
Yard & 5

Term.
26% 0
Consignor 1990 1980 1972 All
Boxcars Boxcars Cars
12% Consignee
12% Shipper Time Loaded Time Consignee Time Empty Trip Time

Source: Reebie Associates, “Toward an Effective Demurrage Source: Little, Kwon & Martland, “An Assessment of Trip
System,” 1972 Times and Reliability of Boxcar Traffic,” 1992


Evaluating Equipment Cycles
For manifest traffic, terminal performance is of equal or greater importance
compared to train speed
For any equipment cycle, part of the cycle time is spent in trains, and part is spent in other activities
Train speed determines only one or two of the time components that make up the overall equipment
cycle, and thus cannot be the sole measure of a railroad’s operational effectiveness
While on-time performance of the trains may influence the time spent in non-train activities, in
general train speed has little impact on the duration of these non-train activities
The relative importance of managing and measuring these non-train activities depends on the
percentage of total time spent in each of these activities
For example, if 60% of a general manifest movement is spent in yards and terminals, then managing
this time is very important
– By the same token, if only 20% of the time is spent moving in a train, then this time is
comparatively less important
Because time spent in terminals represent over half of the cycle time for manifest traffic, terminal
performance becomes one of the single most important determinants of cycle time
– Studies undertaken at M.I.T. starting in the 1970’s clearly demonstrated the critical role of
terminals in overall cycle time
– They also showed that most trip plan failures occur at the terminals, and thus they strongly
influence overall transit time reliability
Similar issues relate to locomotives in terms of servicing time, wait time at terminals, and deadhead
time.
Equipment velocity, cycle time, and productivity measures that encompass all of the elements of the
equipment cycle are the only true way to determine operational performance (and customer service)

Contents



A Typical Carload Movement

Release
An aggressive 5 day-20 hour schedule with no failures
From Activity Time Day Train Hrs Yard Hrs Distance Speed
Shipper Shipper Release 1600 Day 1
Local Pick-up 1 Day 2 8
Arrival at Yard A 600 Day 2 6 75 12.5
Local Train from A 1800 Day 2 12
Arrival at Yard B 600 Day 3 12 200 16.7
Local Road Train from B 1000 Day 4 28
Serving Arrival at Yard C 600 Day 5 20 400 20.0
Yard A Local Train from C 1000 Day 6 28
Arrival at Yard D 2200 Day 6 12 200 16.7
Switcher from D 600 Day 7 8
Customer Delivery 1200 Day 7 6 75 12.5
Totals 56 84 950 6.8
System
Yard B 40% of time spent in a train
60% spent in a yard
Result is an overall 6.8 mph for the car (163
miles/day)
Local Delivery 5 mph or 8 days transit would be more typical
System
Serving To
Yard C
Yard D Customer Additional 2 days is typically all yard time!


Asset Velocity and Trip Time Levers

For carload, at best, train time represents perhaps 40% of total cycle time, and 15% to 20% is
closer to reality
– This means that changing train speed will have little impact on total transit time or railcar
asset requirements
– Improving local service delivery and reducing (or eliminating) yard time will have a much
bigger impact as it represents a larger proportion of total transit time
– Improving yard connection reliability is one of the best ways to reduce transit time and
increase asset velocity
From a customer’s perspective, it is car or shipment velocity, not train speed, that matters
For pure shuttle train operations, train speeds are a more significant component of overall cycle
time
– However, operating “single commodity” trains may provide false economies (see later slide)


Activity Time Day Train Hrs Yard Hrs Distance Speed
Shipper Release 1600 Day 1
Local Pick-up 1 Day 2 8

Trip Time Levers
Arrival at Yard A 600 Day 2 6 75 12.5
Local Train from A 1800 Day 2 12
Arrival at Yard B 600 Day 3 12 200 16.7
Road Train from B 1000 Day 4 28
Arrival at Yard C 600 Day 5 20 400 20.0
Local Train from C 1000 Day 6 28
Arrival at Yard D 2200 Day 6 12 200 16.7
Consider a 1 mph increase in train speed for all trains Switcher from D 600 Day 7 8
Customer Delivery 1200 Day 7 6 75 12.5
– Current composite average speed is 17 mph Totals 56 84 950 6.8

– A 1 mph increase would reduce transit time by 3 hours

Consider a connection failure at any yard with once-per-day train service
– This would add 24 hours to transit time (with no change in train speed)

Typical hump yard connection failure rate is about 25%
– Consider 100 cars making a 22 hour connection, with a 25% failure rate
– 75 cars will take 22 hours, and 25 cars will take 46 hours, for a 28 hour average
– If the failure rate was reduced to 10%, the average would drop to 24.4 hours, saving 3.6 hours
with no change in train speed
Average yard time as reported to the AAR by several major railroads is about 28 hours
– A number of yards on these railroads are above 36 hours
– Consider a yard with: (a) evenly spread, random car arrivals, (b) once per day, evenly spread
train departures, and (c) a minimum processing time of 10 hours
– Such a yard would achieve 22 hours average yard time (10 hours processing, 12 hours on
average spent waiting for a train departure)
– Using this simple model, a yard with a 12 hour minimum processing time would need a 50%
connection failure rate to reach 36 hours of average yard time, or a series of cascading failures
for a smaller subset of cars

Single Commodity Trains
Operating “single commodity” trains may provide false economies

In many cases single commodity trains are created by accumulating cars until a full train can be run
– A common example is grain trains, but this may apply to other commodities including soda ash,
ethanol, steel products, etc.
Release
From Example:
Shipper – A series of shippers release 30 cars per day, these cars are accumulated over a 3 day period to
create a single commodity train
– A set of local trains pick-up the cars, and bring them to a central collection point
– The fastest scenario (for the third day’s traffic) is as follows:
Activity Train Hrs Yard Hrs Distance Speed
Assembly
Shipper Release
Point
Local Pick-up 8
Arrival at Assembly Point 6 75 12.5
Train from Assembly Point 22
Customer Delivery 25 400 16.0
Totals 31 30 475 7.8
Delivery
To One must add 48 and 24 hours of yard time to the above for the 1st and 2nd day’s traffic
Customer
This yields an average yard time of 54 hours, and an average transit time of 85 hours
– In this example the cars are spending 64% in yards, not too different from our carload example
– Also indicating that increasing train speed will not significantly impact asset velocity (or yard space
requirements to hold cars being accumulated)


Contents



Norms for Hump Yard Performance

A large hump yard approximates a situation where one can view
Time arrivals and departures as a statistically random process, evenly
distributed across the day
Train
Arrival Assuming once per day departures for all blocks, this means that the
Processing average yard time for the case where all connections are made, and
Time all trains are operated as expected, should be the yard’s processing
time, plus 12 hours
Cutoff or processing times for a hump yard should generally fall in the
Waiting 8 to 12 hour range, producing a statistical average yard time of 20 to
Time 24 hours
Train – Based on above we will use 22 hours as the statistical “ideal”
Dept. average yard time
Less than daily train service (e.g. 5 day/week service), cancellations,
Delay and connection failures will push the average yard time up
Time – A 25% connection failure rate on a 22 hour base, pushes the
For idealized average yard time to 28 hours (failure causes could
Missed include cancelled trains and the need to leave tonnage behind)
Connection Timing high volume inbound/outbound connections and providing
multiple departures per day will drive the average yard time down
Train
Dept. This generally means that a well run hump yard should have an
average yard time in the 18 to 28 hour range (assuming we do not
count stored and bad order cars)


Impact of Yard Reliability and “Daily Doubles”

Improving yard connection reliability is one of the best ways to reduce transit time and increase asset
velocity – as noted earlier:
– Consider 100 cars making a 22 hour connection, with a 25% failure rate
– 75 cars will take 22 hours, and 25 cars will take 46 hours, for a 28 hour average
– If the failure rate was reduced to 10%, the average would drop to 24.4 hours, saving 3.6 hours with
no change in train speed
Now consider the situation where an outbound block leaves on two trains a day, evenly spaced every
12 hours
– Average dwell time will drop to 16 hours (10 hours processing, 6 hours of waiting time)
– When a car misses its connection, instead of a 24 hour delay, it will now only be delayed 12 hours
– In the above example, 75 cars will take 16 hours, and 25 will take 28 hours, for a 19 hour average,
saving 9 hours on average, with no change in train speed
The standing car count or car inventory for a yard has a direct impact on the fluidity of the yard – simply
put, too many cars get in the way of operations
– Consider a yard processing 1,000 cars/day, with a 22 hour processing time
– The above yard will have an average inventory of 917 cars
– As the average time rises to 28 hours, this means 1,167 cars in inventory
– At 36 hours, average inventory Average Base Failure Average Average
reaches 1,500 cars Number Processing Departures Wait Yard Failure Yard Yard Standing
of Cars Time per Day Time Time Rate Time Time Inventory
– At $20/day in car hire costs, this 1000 10 1 12 22 25% 46 28.0 1,167
excess inventory over the 22 hour 1000 10 1 12 22 10% 46 24.4 1,017
1000 10 2 6 16 25% 28 19.0 792
case represents $11,667/day or 1000 10 2 6 16 10% 28 17.2 717
$4.25 million/year 1000 10 1 12 22 50% 46 34.0 1,417

Improving Terminal Reliability

Many factors influence terminal reliability
– Operating plans that are not well matched to traffic can result in annulments, extras, and
tonnage being left behind
– Operating plans too tightly matched to traffic may not have sufficient capacity to handle volume
variations, also causing traffic to be left behind
– Erratic inbound train arrivals can overwhelm the yard
– Poor or inconsistent hump utilization
– Delays in in-bound (or out-bound) train inspection
– Availability of crews and locomotives
– Early make-up of outbound trains can effectively reduce the time available to make connections
– Poorly planned hump sequence, or train make-up sequence may adversely impact some
connections
– Clogged receiving, departure, or bowl tracks
– Disruptions due to car or locomotive failures
– Blockages due to train or switch movements
– Cherry-picking for hot cars
– Yard maintenance downtime

Many of these issues can be mitigated through quality planning and management, and ensuring that
the yard has the resources that it needs


Contents



Locomotive Fleet Requirements
As discussed with rail cars, a host of activities consume substantial portions of
locomotive time.

Railroads have reported that as little as 50-60% of
road locomotive hours are consumed in physically
hauling trains 1 Locomotive Time Components
The remaining time is consumed by a host of other (Indicative)
time segments, including:
Repositioning
– Terminal dwell, including / Others

- Servicing & Fueling Mechanical,
8%
- Standing in terminals waiting for assignment
(scheduled dwell, fluctuations in arrival and
departure patterns, etc.)
- Idle time due to loco management assignment Hauling
policies (locomotive matching, restricted Trains, 55%
Terminal
service parameters, consist splitting/building) Dwell, 30%

- Delays due to inbound locomotive failures
– Maintenance activities (running repair, shop time)
– Repositioning/deadhead movements

1
Highly dependent upon portion of locomotive fleet in unit train service, measurement parameters (e.g., when ‘on
train hauling traffic’ measurements commence and terminate, average length of locomotive trip on same train, etc.


Locomotive Velocity – An incomplete measure
Measuring locomotive performance solely on the basis of line-of-road velocity ignores the
impact of the range of activities that represent nearly half of total locomotive hours.

Increasing locomotive line-of-road velocity will result in improved locomotive utilization and
productivity – assuming all other factors are held constant
But, measuring performance based solely on line-of-road velocity overlooks a host of opportunities to
improve locomotive utilization
– “Velocity” does not encompass the many non-train running factors impacting locomotive use
– “Velocity,” depending upon how measured, may record as “positive velocity” time spent
repositioning locomotives to other locations/geographic areas to address imbalances or
maintenance requirements
– “Velocity” typically does not adjust for non-productive excess HP/Ton
In fact, some railroads have found that focusing solely on line-of-road velocity induces behavior that
actually reduces locomotive utilization
– Dispatching to maximize LOR velocity without regard for the implications upon locomotive
standing time in terminals (“get the locomotive on the velocity clock”) or terminal/LOR congestion
may reduce over-all locomotive productivity
– Assigning power in a manner that focuses on trains that will generate the highest “velocity,” not
necessarily those trains that need to be protected to maintain service levels, may result in
increased yard congestion and imbalances in locomotive maintenance work requirements

Some major railroads have replaced ‘velocity’ with more holistic measures to better measure
locomotive utilization and productivity – measures such as GTM/HP day, or productive
locomotive miles per day.

Locomotive Productivity
Many railroads have found focusing on dwell time reductions provides far higher
returns than improvements in line-of-road velocity.

Studies have consistently found that achieving a 10% reduction in ‘standing time’ is both easier and faster to
implement than a near-equivalent impact 10% improvement in locomotive line-of-road velocity
– Dwell reduction issues typically involve policy or process changes (frequently within a terminal) for which
specific organizational units can be held accountable to implement and to deliver results
– Improving LOR velocity, on the other hand, typically not only entails a host of accountable organizational
units (dispatch, road foremen, infrastructure, mechanical) in geographically dispersed locations, but can
be highly dependent on external factors such as traffic volume fluctuations outside the direct control of
the Operating Department
Studies have identified a range of actions to address standing time that have produced demonstrated results,
including:
– Addressing policies that result in some locomotives experiencing very long terminal dwell times
(in one major study it was found that over 50% of locomotive dwell time in excess of 10 hours was
accounted for by locomotives with dwell time in excess of 24 hours)
– Improving locomotive inventory management practices (converting from responding to existing
imbalances to proactive look-ahead processes)
– Minimizing the number of restrictions on the allocation of specific locomotives to specific trains, or
due to mechanical defects
– Reducing processing time from arrive terminal to consist ready (in multiple studies average dwell
time was reduced 3-5 hours per locomotive)
– Developing an effective short and medium term fleet sizing process that leveraged commercial
volume projections to proactively manage the number of road locomotives available for revenue service
– Instituting revised train assignment and maintenance policies (revising policies on when to pull a
locomotive from service for 92-day inspection in order to minimize dead-in-tow time, for example)

Contents



Protecting the manifest network, and ensuring it operates smoothly is critical to
network fluidity

The primary symptom in a poorly performing manifest network is clogged yards
– This occurs at both the local and system yard level
– At the system yard level, yards fill up, and can no longer receive additional trains
– At the local level, yards fill up, and make switching operations difficult or sometimes impossible
Clogged yards end up impacting overall network performance in many ways:
– Cause trains to be held out of terminals, blocking passing sidings, and slowing overall network
speeds and reducing line capacity
– Cause trains to be by-passed to other terminals, increasing car and train miles, consuming
additional line capacity, and degrading yard performance further at the yards receiving the by-
passed traffic
– Degradation of terminal performance slows manifest car velocity (and through spill over effects
velocity of other lines of business), increasing total fleet requirements
– Erratic manifest train operations make crews and locomotives difficult to manage, increasing
deadheads, idle time, and total crew and locomotive requirements
Not protecting the manifest network is the most common cause of clogged yards
– The inability to depart trains is the primary cause of clogged yards
– Terminals are continuous flow facilities, if you don’t depart trains, the whole system backs up
– Trains are delayed in departing through lack of locomotives, crews, line capacity, and annulment
decisions – all symptomatic of a failure to protect the manifest network
– When trains are then released on a “spasmodic” basis, too many cars are then sent to the
downstream yards, overwhelming them, and causing them to become clogged

“Scheduled” or “Precision” Railroading is Focused on Protecting
the Manifest Network

The fundamental premise of scheduled or precision railroading is that by protecting the “plan” one can
maximize asset utilization, network capacity, fluidity, and customer service – ultimately reducing costs
Statement by Tony Ingram (while VP-Operations at NS):
“With TOP, we created a more disciplined operating environment. Traffic moves by plan on
scheduled trains, so our field operations managers are better able to allocate resources to meet
customer needs. The way in which we plan work for yard and local crews is simplified as well.
Yardmasters can process traffic through the yard facilities in a planned and consistent manner.
Each terminal processes traffic to meet a connection standard. With more reliable on-time train
performance, yard operations have become more consistent. This avoids the need to "replan"
work to fit circumstances that vary each day.
“TOP gives us the means to improve our use of capacity across the rail network. For example,
with more predictable train operations, terminals can allocate track space with a higher degree of
certainty about the track space required, and the duration that the track is occupied. With more
predictable train operations, we're able to assign locomotives from inbound train to outbound train
more effectively. The end result is improved capacity utilization, lower operating costs and
improved service reliability. With TOP's advantages, it's clear that the Norfolk Southern network is
poised for growth. Our terminal facilities can handle additional volumes.”


“Scheduled” or “Precision” Railroading is Focused on Protecting
the Manifest Network

To quote David Goode:
“We improved the throughput of our hump yards… Now that's building capacity without touching a
piece of [hardware] -- that's just people, systems, and efficiency. The reason we resist giving you a
percentage number on capacity is if we'd done that last year, we would have been wrong. We
discovered we have a lot more capacity than we might have told you last year. I fully expect that as
we continue to perfect and add systems, and we're doing that quarter after quarter, we're improving
our operating systems, and as we do that, we're building train capacity – we’re building network
capacity. We are excited about it and we're eager to see how far we can push that envelope.”

To quote Canadian National on Precision Railroading:
“With precision railroading – an evolution of CN’s scheduled railroading – the focus is clearly on the
carload and the customer’s shipment, rather than on the train. That is what matters most to CN’s
customers – whether a train is on time or late is not of concern, but they do care that their
shipments are on time.
“Within CN, precision railroading has made the Company more competitive and more reliable, and
has improved its cost control and asset utilization efforts on the network and in its yards.”


Back-to-the-Future:
The Freight Car Utilization Program Circa 1977

Overall the FRA/AAR Freight Car Utilization Program concluded:
“…development of an effective operating / service plan and an organization geared towards
successfully executing that plan appear as key elements in fulfilling a top management commitment
to improve car utilization and service reliability.”*
Specific 1977 FCUP conclusions:
– Railroads generally do not know the quality of dock-to-dock service they provide to most customers
– Most railroads do not give enough importance to service reliability and car utilization
– Train operations, not total service performance, is generally emphasized
– Car costs are often not associated with operating budgets
– Operating department personnel do not make effective use of available data
– Documenting the impact of service design changes on service is difficult, but important
– When railroads focus on reliability and car utilization benefits accrue
- People respond to what they are measured and rewarded on
– Railroads generally do not have clearly specified service standards for most movements
– Railroads need to develop complete operating / service plans covering movement of both loads and
empties, and continually update it
– Analytical tools can be used to develop more effective operating / service plans
– Improved interline coordination is a necessity

* Freight Car Utilization and Railroad Reliability: Conclusions and Recommendations, October, 1977, Final Report


1977: To Succeed FCUP Said Railroads Must:

Have a commitment to service
Have a well defined, detailed operating / service plan
Ensure the feasibility of the plan
Build flexibility into the plan
Have a firm commitment to operating according to the plan
Have a control system to ensure plan execution
Understand what level of service it provides to its customers (or wants to provide)
Ensure coordinated decision making & awareness of impacts of decisions by all actors
Have the necessary data systems to support its goals

The road map does not appear to have changed in 30 years. While we have
traveled a long way along this road, we clearly still have a long way to go


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