Rail Freight in Europe: different perspectives on achieving higher service levels.

Detailed understanding of the quality structures demanded by customers, groups of customers, and market segments is required to develop effective strategies for quality enhancement (Ludvigsen 1999). In such ongoing processes, intelligence about the modal choice process, supply chain management, and relationship marketing should be gathered and the outcomes should be used for strategy selection and service development. Market segmentation is considered key to pricing and revenue, with different market sectors in a position to pay differing amounts for a very similar service (Harris 1999). Linking services to market segments allow carriers to differentiate themselves from other transport providers and enables it to position the company in the market with respect to competition, covering costs, and maximizing net revenue for each individual activity (McGinnis 1990).

The increase in cross-border traffic is expected to result in growing demands for protection against theft and damage. Both are difficult to insure and may lead to a situation in which only providers who can monitor all security requirements are selected. Intelligence about customer's market requirements such as the position of the hub (one central, a number of regional, or a combination of both), the required delivery times, the origin of goods, handling of the goods, or phase in the product lifecycle, would give RFTCs a better understanding of customers' perceptions and about influential factors that are of importance for managing the entire supply chain.

Relationship marketing is considered a people business; the intention to jointly solve problems and to be concerned about the other party's success is likely to improve the buying organization's service rates by increasing on-time deliveries and shortening lead times (Morris et al. 2005). As RFTCs move towards longer-term relationships with shippers, LSPs, or other modes, the strengthening of (potential) customers' confidence in their services is important. Firms that focus on providing logistical services that satisfy customers will nurture long-term commitment and repurchase intentions (Daugherty et al. 1998). RFTCs will likely focus on reducing uncertainty (unpredictability of processes) and increasing cooperation (goal alignment aimed at improving relationships) in their relational exchanges, rather than attempting to reduce the propensity to leave (likely continuity of the relationship) or increase supplier acquiescence (willingness to accommodate to changing needs) (Evers and Johnson 2000).

RFTCs' initiatives aimed at a better understanding of their customers' modal choice processes, supply chains, or relationships with (potential) customers may affect service levels in the short term. These factors lead to research question 4.

Research question 4: How can more customers benefit from improved rail freight services?

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METHODOLOGY

Questionnaire Design

A two-part questionnaire was developed for this exploratory study. The first part contained twenty-five questions assessing perceptions of RFTCs regarding the service levels offered, the perception of their customers, and the effect that their own initiatives might have on service levels in the short term. The second part contained twenty-five questions assessing RFTCs service levels on their most serviced/high frequency routes.

The questionnaire was mailed to 138 principal executives (managing directors, commercial directors, or fleet managers) of an estimated 250 European major RFTCs (HIDC/ NFIA 2003). This group consisted of traction providers and traction providers that offered logistics services (rail-asset based LSPs), incumbents as well as new entrants. The number of usable responses was 42, obtained from 31 RFTCs (of which three were incumbents), for an effective response rate of 30 percent. Eleven respondents answered the second part of the questionnaire. Respondents not having answered the questionnaire received an e-mail reminder three times and a one-time telephone reminder. The questionnaire was sent out in April 2006.

An adapted version of the questionnaire was also sent to 113 truck-asset LSPs and non-asset LSPs to assess their views on rail freight, and if they made use of rail freight, assessing what RFFCs should do to increase their use of rail. Twenty-six of thirty-three respondents indicated that they had no experience with rail freight or had no intention to use rail freight operations in the short term.

To complement the survey, in-depth interviews were held with principal executives from five road carriers, five LSPs (three truck-asset-based LSPs and two non-asset-based LSPs), five shippers who were considered potential customers of rail freight services, and with three officials from governments (one national, one regional, and one local). The interviews were held between April and July 2006. FINDINGS

Differences among Stakeholders

RFTCs appear satisfied with their own performance and specifically with their service levels. On a 5-point Likert scale with scores ranging from "excellent" to "poor," the majority of RFTCs evaluate all items as "good" and market knowledge and flexibility/adaptability as "excellent." Nevertheless, they admit that a variety of issues cause problems that affect their service levels; they were reluctant to divulge relevant information, such as key performance indicators like train productivity or tonnage carried, claiming confidentiality. Confirmation of what constitutes "acceptable levels" was difficult to obtain during the additional interviews.

Within the group of RFTCs, traction providers were generally more positive about their service punctuality, damage handling, project capability, innovation ability, and cost perception than rail-asset LSPs. Most respondents were satisfied about the service levels that are achieved on their high volume routes, which usually include international connections with Germany as important points of departure and/ or destination. A few traction providers and non-asset-based LSPs were critical of the levels of service punctuality, reliability, and cost perception.

Contrary to the rail-bound RFTCs, truck-asset-based LSPs indicate that they have only a limited understanding of rail freight, but confirm that the future of road is likely to change. They fear the position of rail as it may take business away from them. Some have taken action to start or at least study the possibility of cooperating with rail. The position of non-asset-based LSPs is similar, but they appear to have more experience with rail freight. Those with significant rail freight volumes appear to be more satisfied than those without.

The shippers that deal directly with RFTCs claim to be satisfied with the performance of these rail freight companies. The shippers managing in-house logistics have no opinion about rail freight, but seem to be open for alternative modes of transport.

Rail-asset-based LSPs emphasize efficiency with respect to specific rail issues, cooperation with other modes, and a flexible attitude of the RFTCs towards the interfaces of these modes, image building and awareness towards the government and the public at large, and improved customer fulfillment.

The responding regional and local government officials seemed unaware of the ongoing harmonization of EU efforts and developments that concern rail freight and communication issues to promulgate policy initiatives to all levels of government.

Rail Freight Technical Elements

How can rail technical elements contribute to improved rail freight services?

Many issues seem related to assets and other equipment that significantly affect the service levels of RFTCs. In the area of information technology, obtaining more and better information and improvement of communication capabilities are considered important initiatives that could affect service levels. Increases in equipment productivity are the most important initiative in the area of productivity and operations for RFTCs.

RFTCs tend to emphasize a "corridor strategy" on the development of long trains, the construction of large terminals or shunting infrastructures, with the aim to bundle transport flows on a few corridors and terminals, where economies of scale can be achieved. Traction providers favor the establishment of new partnerships because company size is considered a major condition for continuity and reliability.

According to respondents, RFTCs could start a number of initiatives that may affect the service levels in the short term. Initiatives in the area of marketing include improvements in personal selling with a focus on expansion to new markets and on the definition of target customers. RFTCs indicate that more specific, internal training programs, a change in management style and labor relations, and professionalism in frontline supervision may improve service levels.

By carefully selecting a number of strategies that are aimed at revenue and cost efficiencies, RFTCs may be able to increase service levels (Mancuso and Reverberi 2003). Strategies that help a company to achieve its objectives usually consist of a network of relationships, including customers, suppliers, communities, government, and businesses, who interact with and give meaning to it (Henscher and Brewer 2001). Strategies that support a differentiated approach may enable RFTCs to standardize certain processes in one or more defined market segments, resulting in acceptable service levels.

Road Transport

How can road carriers contribute to improved rail freight service?