In 2014, oil production across North America hit all-time highs. With limited pipeline capacity, additional production from the oil sands and the Bakken Shale and the delays of new and expanding pipeline projects, companies were forced to look for alternative ways to move their product to market. Shipping crude by rail became a viable option and necessity for many companies. Capital investments were made into loading and unloading facilities, which allow crude oil producers to utilize the existing rail network to reach desired markets.

Today, the outlook of the energy market is a hot topic within the rail industry. Many are concerned about the volatility of energy prices and its effect on the crude by rail volumes. Some industry experts are bullish about crude prices for 2015 while others forecast a slightly gloomier outlook.

Either way, the crude by rail increase seen in the industry over the past few years will be sustained by contractual volume commitments, existing infrastructure investments and current drilling programs in the near-term, albeit at a slower pace. Longer-term outlooks will depend on the levels of crude prices throughout 2015 as additional exploration and investments will depend upon oil prices.

The Slowing Fleet

The management of rail-car fleets and the optimal utilization of rail assets are paramount to successful rail logistics.

A significant difference can be achieved by a single percentage point gain in asset utilization. If a shipper managing a rail-car fleet of 5,000 tank cars can increase asset utilization by 1.2%, this would equate to having an additional 60 tank cars in the fleet. Financially, this represents an annual savings of about $1 million in rail-car lease costs.

Efficient utilization of rail-car fleets is achieved through in-depth data analysis of cycles to find transit time performance for all origin-destination pairs. To maximize efficiency, the supply chain as a whole needs to be examined, and origin loading and destination unloading capacities and capabilities must be considered on an ongoing basis.

Optimal shipping requires this examination throughout the entire movement of the railcar. For instance, if a destination location is experiencing a delay, a push for railways to move idle-flagged railcars can have an adverse effect if the cars will just be stalled at the endpoint of their route. This is analogous to merging into traffic. When vehicles in the merging lane and incoming lane allow for space on a shared road, merging is smooth and does not halt traffic. However, when vehicles from either lane do not allow for space, it ultimately results in a slower flow and creates a backup. This queue will take longer to move vehicles through than if cars were continually moving. When a backlog of rail cars occurs at a destination, the same concept applies—it will take longer for them to get through the queue.

Proposed regulations could also play a role in slowing the fleet. If speed reductions are regulated for crude oil traffic, the impacted rail capacity would decrease overall by 10% to 11% for commodity rail transportation. Additionally, if route revisions are required for crude cars and delays are incurred through lost time while cars are retrofitted, the overall utilization of the fleet would decrease with the increase in cycle times. The reduced rail velocity across the entire network would also increase locomotive and railcar asset requirements for the railroads. If the same shipper lost a one day average in cycle times on his 5,000 tank cars, the reduction of shipped product in a one year period would be 1.4 million barrels of crude oil.

Opportunity Of Shared Data

As efficient fleet management becomes increasingly imperative to the bottom line, additional data analysis can help fleet managers make faster, more accurate decisions. Railroads currently provide all raw data on car movement via Car Location Messages (CLMs) to an industry-shared service that provides that data, at a cost, to the shippers, car owners, system providers and other railroads. The data allows users to monitor the status and movement of their particular rail traffic on all 530 railroads.

The benefits of expanding this shared industry service could provide information via the CLMs to be analyzed and summarized, after the removal of competitor data, into reporting tools for shippers. As a result, a fleet owner/lessee could gain more transparency throughout the entire rail network, and in turn, make organizations’ fleet management more efficient.

They could have visibility, via a variety of reports, into the performance of rail operations, schedules including current delays or backlogs, percentage commodity breakdowns, traffic moving on lanes, and railroad capacities. This would give shippers and consignees information to determine best shipping routes, railway shipping patterns, best day of the week shipping and switch and interline performance. This information could also be utilized by railways to determine interline carrier performance, potential route changes, schedule revisions and performance measurements, as well as new business opportunities.

With a high-level view of the overall supply chain, available data and the right technology firms can take advantage of changing environments and capitalize on market opportunities. Each company that utilizes rail to transport product should be asking themselves if they have the efficient tools required to manage their business, and the available data to determine how well they are managing their overall railcar operations.

Karen Lukacs is a director of Sapient Global Markets in Calgary, Alberta, Canada. Lukacs works with multiple clients as an account executive, workshop facilitator and midstream advisor. She has more than 25 years of experience in the North American energy industry as an NGL marketer, transportation analyst, ETRM software vendor executive and a business process improvement consultant.

Carolyn Barless is a senior analyst of Sapient Global Markets Business Consulting practice in Calgary, Alberta, Canada, specializing in rail logistics within the midstream industry.