There are four components to the fleet order-to-delivery (OTD) cycle: ordering, scheduling, production, and delivery. Fleet vehicles are particularly vulnerable to OTD delays because most fleet orders are concentrated among a handful of models. Delivery delays can occur because of quality holds or component constraints for a high-volume fleet model. For instance, a single option can delay OTD. This became abundantly clear following the selective part shortages resulting from the plant closures and energy rationing that occurred in Japan following what is now officially known as the Great East Japan Earthquake of 2011.
However, the fourth component of the OTD cycle is always out of the control of the automotive industry. For the past 10 years, the nationwide rail car shortage has been a factor for fleet delivery delays. Railroads are the primary long-distance transporter of automobiles. Vehicles are transported in specially designed, fully enclosed rail cars that have either two or three levels within them. Called bi‐level and tri‐level autoracks, these enclosed rail cars protect autos from damage by falling or thrown rocks, bullets (trains are frequent targets for amateur marksmen), and other vandalism. The enclosed autorack rail cars also curtail auto parts theft and prevents “hobos” from living inside the automobiles while in transit. During the economic downturn, many of these specialized rail cars were removed from service as railroads right-sized rail car capacity to vehicle order volumes of the time.
In addition, the increased ratio of trucks sold has compounded the rail car shortage because fewer numbers of trucks, due to their larger size, can be loaded on a rail car than cars. In the early 1990s, approximately two-thirds of the rail fleet was tri-levels. The industry shifted to two-thirds bi-level and one-third tri-level because of the swing to larger SUVs, minivans, and pickup trucks.
Allocating Rail Car Resources
The operation of the industry-wide autorack rail car fleet is managed by the Reload Division of the TTX Company, which is wholly owned by the largest North American railways. TTX provides rail cars to railroads on a usage basis to allow them to conserve capital for infrastructure needs. Authorized by the Interstate Commerce Commission (ICC) in 1981, the Reload Pool permits railroads to pool their autorack fleets for the transportation of finished vehicles. TTX manages Reload, which functions as a cooperative venture between the railroads, TTX, and auto manufacturers. Railways contribute rail cars to a pool proportionate to their volume of automotive shipments. Under the Reload system, the automotive OEMs provide their loading demand requirements directly to TTX, which schedules rail car disposition.
In addition to a rail car shortage, another factor lengthening OTD is rail congestion, primarily occurring at rail choke points, which are comparable to freeway choke points that exacerbate rush-hour congestion. Two examples are Houston and Richmond, Va. When train traffic backs up, it causes a ripple effect of delays. These choke points occur in areas where multiple railroad right-of-ways converge or where trains are frequently handed off from one railroad to another. One-third of all rail freight passes through Chicago since all of the six biggest North American railroad company networks intersect there. It can take 24 hours to move 20 miles in Chicago due to congested rail traffic and time-consuming coordination of numerous inter-railroad train moves.
There is a seasonal peak in freight volume, which extends from mid-July to autumn. The peak season is triggered by the fall grain harvest, the high-volume shipment of retail merchandise for Christmas, and transporting new cars and trucks to dealers at the start of the new model-year. The degree of congestion within the rail network is influenced by the strength of the economy, the volume of new-vehicle sales, and the bountifulness of the harvest.
Another factor contributing to rail congestion has been staffing constraints due to workforce reductions at railroads. Currently, 36 cents out of every dollar spent to run the railroads goes to labor costs. As part of cost reduction initiatives, many railroads reduced their workforce, with most of the cuts in operating staff. The railroad industry says it takes five years to become fully qualified in most jobs. Even if railroads started hiring today, it will take years before they have a fully qualified increase in their workforce. In addition, federal work rules contribute to freight delays. Freight trains sometimes must stop mid-track to relieve crews who have reached the federal maximum they are permitted to work – a 12-hour shift. Trains sit until new crews take over.
The Baton Pass to Uncontrollability
The U.S. Department of Transportation forecast freight transportation demand will nearly double by 2035 from 2002 levels as the economy and population grow, necessitating even greater investment to expand rail infrastructure. During the last three decades, railroads invested more than $480 billion (more than 40 cents out of every rail revenue dollar) to build, maintain, and improve the national rail network. However, it is not enough.
The “baton pass” to the railroads to deliver fleet (and retail) orders causes OTD to fall out of the control of OEMs, making them vulnerable to the infrastructure constraints of the rail system.
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