The speed isn’t so hot, either. It takes 10 days for a freight car to go cross-country. Tractor-trailers make the trip in 4 days. “Moving goods by train is a slow process,” notes Aimi, “because cargo is moved rail yard to rail yard.”
Labor featherbedding only serves to slow the works. Union rules dictate what hours rail hands can work, and generally prohibit overnight loading/unloading of trains. Moreover, the generous Railroad Workers pension plan has seen large numbers of train workers retire of late, leaving some railroads shorthanded.
To cope with the problem, Peabody Energy hired third-party facilitators to load and unload coal trains, which often comprise 140 cars and stretch out over a mile in length. And while CFO Navarre says rail service has improved this year, the company is looking at the possibility of BTU conversion — that is, turning coal into a diesel-like substance, then shipping it via pipeline. Peabody is also currently building two mine-mouth operations. As the phrase implies, such mining facilities are built in tandem with adjacent power plants. And the transportation system that will get the coal to the generators?
Conveyor belts. Says Navarre, in typical CFO understatement: “It takes the risk and the cost out of shipping.”
John Goff is technology editor at CFO.
Straight to the Source
In the complaint department, there is no middle man — at least when it comes to delayed shipments.
In a bid to ditch noncore competencies, many companies sold off their truck fleets years ago. Instead, to guarantee overland shipping, many rely on trucking companies such as JB Hunt and YRC, or third-party logistics providers. But the use of outside shippers does not insulate the original manufacturer from liability. When there’s a missed shipment, for example, retailers such as Wal-Mart and Home Depot don’t generally go to cargo carriers to gripe — they go straight to the source. “Service providers have some risk,” notes one supply-chain analyst. “But ultimately, companies have the risk of getting products to stores in time.”
You don’t have to tell that to Leif Holm-Andersen. The director of transportation at Arrow Electronics, Holm-Andersen deals with a number of third-party logistics and trucking companies. Those outsourcers move thousands of transactions a day for Arrow, which supplies components and computer products to manufacturers and commercial customers. Given the massive volume handled by outsourcers, Holm-Andersen says he’s not surprised that problems arise. Still, he acknowledges that when troubles occur, all roads lead to Rome. “It could be a warehouse issue. It could be a transportation issue. But I become the complaint department.”
Interestingly, some observers have suggested that companies design financial instruments to help parse delivery risks. One suggestion: a tiered pricing system. Under that setup, a shipper would reserve a percentage of its overland truck capacity in exchange for higher rates (based on advance notice from clients). But the recent spate of mergers in the industry has left some carriers scrambling to integrate their systems. Moreover, some industry watchers have real doubts whether a typical trucking operator has the IT chops to run a commodity-trading operation. “Carriers can barely send you an accurate bill,” says AMR Research senior vice president Kevin O’Marah. “And you want them to set up sophisticated financial instruments?” — J.G.
The worst highway bottlenecks for trucks (2004)
|1. I-90 @ 1-290, Buffalo-Niagara Falls|
|2. I-285 @ I-85, Atlanta|
|3. I-17; I-10 Interchange, Phoenix|
|4. I-90/-94 @ I-290 Interchange, Chicago-Northwestern, IN|
|5. San Bernardino Freeway, Los Angeles|
|Source: Federal Highway Administration|