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Railroads make time, money on the web

Americas big railroads may have been slow to adopt the Internet, but they are gaining steam. Over the past year, The Burlington Northern and Santa Fe Railway, Norfolk Southern Railway and Union Pacific Railroad have rolled out a variety of Web initiatives designed to reduce costs and give their customers better service.

While the initiatives are laudable, the rail industry has been lagging other sectors in adopting the Web. For instance, Covisint, the business-to-business supply portal formed by the Big Three automakers, debuted in February 2000., a comparable portal for the rail industry, was launched just three months ago.

A number of theories attempt to explain the industrys slow adoption of the Web. One is that rail companies are older and more conservative, and thus less likely to quickly adopt new technology. UP, for example, was created in 1862, when Abraham Lincoln signed a law mandating the creation of a railroad to link the East Coast with the rapidly growing West Coast.

In addition, the rail industry is highly centralized, particularly compared to the trucking industry. "Web markets go after industries where there are lots of buyers," says John Lanigan, CEO of, a logistics software provider. "There are few railroads and lots of trucking companies." Lanigan says there are dozens of large and midsize local and long-haul trucking firms, as well as hundreds of smaller, independent haulers competing inthe trucking business. Dozens of Web sites have sprung up to service that industry. By comparison, just seven firms dominate the freight rail business.

Although trains are cheaper and more energy-efficient, trucks are faster and can haul loads door-to-door. Given the increasing focus on speed and transparency in supply chain management, those factors give trucks an advantage in todays market, says Roy Blanchard, principal of railroad consultancy The Blanchard Co. "The intercity freight market is worth $500 billion per year," Blanchard says. "Railroads have 7 percent of that. The challenge for them is to steal some of that back from the trucking guys."

Blanchard and other analysts believe the railroad that is doing the best job of using the Web is BNSF. The company was the first in the industry to do reverse auctions for diesel fuel on its Web site. BNSF was also the first to institute "Web fares" that give shippers discounts on underutilized shipping lanes.

"Youll be hard-pressed to find any companies that are leveraging the Net more than we are," claims Kathleen Regan, BNSFs vice president of e-business development. BNSF started upgrading its Web site about three years ago, after the company saw the efficiencies that could be gained by moving away from telephone and fax-based customer service. In the old system, customers called or faxed in their logistical information. Clerks keyed the information into the companys mainframe traffic management system. The system then developed crew and train schedules. Now, customers enter all that information through the Web. The change reduces mistakes, speeds the flow of information and allows BNSF to achieve greater efficiency.

Today, BNSF customers can conduct all of their business on the companys Web site. Everything — from ordering rail cars, filling out bills of lading, checking on the status of a car, reviewing billing problems and arranging payment — can be done on the Web, Regan says. Through a new service called CarsOnTrack, individual consumers can get price quotes from BNSF for shipping their personal automobiles throughout North America. Another new program allows shippers to get prices and handle all the paperwork needed to send intermodal shipments — truck trailers and shipping containers — anywhere in Canada, Mexico or the U.S.

The railroad plans to add more features to its Web site over the next few months, including a feature that will give customers access to the railroads train scheduling system. Another program will let automakers track their vehicles in near real-time while the vehicles are in transit across North America — from the time they leave the factory on a BNSF train to the time the vehicle reaches the dealership.

The company is also using the Web to increase the efficiency of its purchasing. Every year, BNSF spends more than $4 billion on items ranging from locomotives to fuel filters, and for decades much of that purchasing was done via phone and fax. Last year, BNSF worked with its major vendors to create a set of online catalogs that contain the majority of the items it purchases. Savings from the online purchasing program allowed the railroad to recoup the investment in its procurement software in just eight months.

BNSF wont say exactly how much it is earning or saving from its online operations, but the company did note that 60 percent of its freight-related revenue is now obtained electronically. In addition, 90 percent of equipment requests are now handled through BNSFs Web site.

Other railroads, including Norfolk Southern and UP, are also investing heavily in the Web. UPs site allows customers to get prices, reserve rail cars, track shipments and pay bills online. The company is even mimicking strategy used by and allowing shippers to make a bid for service on underutilized segments of the railroad. UP is also selling surplus equipment on the Web through what it calls its "yard sale." Mark Davis, UPs assistant vice president of e-business, says the industrys move to the Web will continue to accelerate. The railroads use of the Web, he says, "is here to stay, and its just going to get larger." And as the industry gets better at using the Web and improving service, "well start taking trucks off the road."

While the big railroads are pursuing individual strategies, they are also cooperating on a site designed to make it easier for shippers to use rail service. Steelroads, a site supported by the seven major railroads, provides pricing, tracking and service data from more than 300 major freight rail carriers in Canada, Mexico and the U.S. The site, which went live in February 2000, lets a customer get a price quote for almost any type of rail service in North America. Nearly half of all the freight moved by rail on the continent is handled by more than one railroad, explains Jim Gardner, president of Railinc, the railroad-supported company that runs Steelroads. In the past, getting pricing, delivery and other data meant shippers had to contact one or more railroads. With Steelroads, the shippers get all of those services, including the ability to track their shipments, in one location. "Its all about ease of doing business," Gardner says.

Although BNSF has saved money by putting applications on the Web, the key motive was improving customer service. In addition, Regan says, the Web is giving the company more opportunity to create revenue-producing services and, therefore, broader appeal in the transportation marketplace.

"Before the Web, we could only communicate electronically with midsize and large companies that had EDI [electronic data interchange]," Regan says. "This world has a lot of small businesses we couldnt reach. Now, with the Net, we can reach all of those potential customers."