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Managing Profitability of an Intermodal Container Fleet

Managing Profitability of an Intermodal Container Fleet. Opportunity Description. Fleet of Intermodal Containers carrying Domestic freight on rail network in the U.S., Mexico and Eastern Canada.

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Managing Profitability of an Intermodal Container Fleet

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  1. Managing Profitability of an Intermodal Container Fleet

  2. Opportunity Description • Fleet of Intermodal Containers carrying Domestic freight on rail network in the U.S., Mexico and Eastern Canada. • Business Model is rail ramp to rail ramp Wholesale loaded moves (does not include the pickup and delivery components of the moves). Customers are IMC’s. • Objective is to maximize the ultimate return on the container assets. How to identify and capture more of the most beneficial freight in the network to drive the best total profit contribution from the fleet.

  3. Economics of a Loaded Move • Variable contribution to fixed costs • Revenue (ramp to ramp paid by IMC) • - Rail Linehaul (ramp to ramp paid to Rail) • Contribution • Other Network Costs • Container cost • Chassis costs • Maintenance & Repair of Assets • Repositioning costs (empty containers to next load point)

  4. Evaluating profitability • City A City B ($300) • City A City C ($250)

  5. Evaluating profitability • City A City B ($300) 15days = $20/day • City A City C ($250) 10 days = $25/day • Introducing the concept of “velocity” • Trip days include empty awaiting dispatch, pickup, rail transit, delivery, return of container. • Contribution/day more of a surrogate for return on investment

  6. Evaluating profitability • City A City B ($300) 15days = $20/day • City A City C ($250) 10 days = $25/day • City B is a balanced/deficit equipment market (all inbound loads become subsequent outbound loads). • City C is a surplus equipment market (50% of inbound loads are repositioned out empty to another market at cost of $200). • Introducing the concept of “market balance”

  7. Evaluating profitability • City A City B ($300) 15days = $20/day City B outbound loads avg. $250 contrib. • City A City C ($250) 10 days = $25/day City C outbound loads avg. $200 contrib. Surplus equipment is repositioned out at $200 cost to another market. Subsequent loads from that market avg. $500 contrib. • And so on………………

  8. Load Center Concept • Each Market evaluated for Outbound CTB/day adjusted for empty repositioning costs out net of the subsequent load CTB at repo destination • 100 Outbound Loads: • 80 at $350 CTB; avg. $25/day (multiple destinations and customers) • 20 repos at $200; subsequent load at $300; net=$100 CTB; avg. $5/day (including repo + load days) • Load Center weighted avg. = $21/day

  9. Using the Analytics to Manage the Network • Drive more business into profitable Load Centers • Drive less business into less desirable Load Centers • “High Grade” business into surplus markets by choosing the best inbound business and handling less low end business (more important if total fleet is fully utilized) • Accommodate seasonality by viewing Load Center on Quarterly basis.

  10. Mechanisms to Manage What the Analysis tells you…. • Sales Focus • Seek business into attractive Load Centers • Deemphasize growth into underperforming markets • Pricing • Establish pricing floors on new business in/out markets to improve network profitability • Repositioning • Direct repo flows to most optimal market opportunities • Equipment Dispatch • Influence volume flows in support of network optimization. “Street turns” defeat next load discretion.

  11. Key Financial Drivers to Network Total Contribution Per Period $5,400,000 Contribution per Container/Period $540 Number of Containers 10,000 Loads per Container/Period 1.68 Contribution Per Load $320 Loads per Active Box 1.9 Active Inventory 89% Contribution b4 Equip per Load $350 Empty Repo Cost/Load $30 Total Inventory 10,000 Out of Service Inventory 300/ 3.0% Surplus Container Inventory 800/ 8.0% Empty to Load Ratio 10% Unit Empty Repo Cost $300

  12. Method to Improve Profitability • Fleet Capacity Planning • Empty Repositioning • Network Balance (Including Spot Pricing) • Network Directed Sales • Network Pricing Guidance (Floors, Targets) • At Capacity: High Grading, Velocity • Underutilized: Incremental Opportunities • Load Center Management (Cross-Functional Teams to Implement)

  13. Equipment Reservation System • Using equipment dispatch to influence the network • Constraining dispatch to undesirable markets • “Wait List” management (constrained environment) • Customer priority • Destination priority • Dispatch Limits (allow “overdispatch” based on historical gate turn data and customer behavior) • Equipment Specifications (limited to selected customers or destinations)

  14. Network Modeling • Simulation to identify optimum flows/mix • Challenge in setting proper boundaries and constraints in the model (demand, limits, etc) • Work began but not seen through with change in the network business model • Provided some insights into opportunities that we had not fully considered previously. • Complexity of any modeling will be greatly increased by incorporating the “street” economics of the load pickup, delivery and empty miles.

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