What challenges does a digital, rail revenue management solution solve for short lines?

New and innovative business models, digitalization, and changing industry regulations are leading to disruptions across the rail freight industry, and railways are finding innovative ways to adapt to these changes and create value for their company. Short lines must also respond to this changing environment, competing with the trucking industry to streamline their operations, utilize their resources, and lower operational costs.

Serving approximately 10,000 customers, short lines are characterized by a customer focus and an entrepreneurial spirit. As small, regional businesses, short lines can benefit from technological innovations in their railways, empowering them to automate key operations processes—including revenue management.

One of the key rail transportation management processes is revenue management. For short lines specifically, revenue management can accelerate the lead to cash cycle via automation of key revenue processes such as pricing, rating, and invoicing. Let’s explore what unique challenges a digital revenue management system can solve for short lines, helping them adapt to innovations within the rail industry.

Short line railroads: Delivering value in today’s industry

Short lines play a critical role in the United States freight transportation network, partnering with Class I and other short lines and acting as the first or last line to serve the customer. According to the American Short Line and Regional Rail Association (ASLRRA), most short lines invest a minimum of 25% of their annual revenues in rehabilitation and maintenance. As of 2017, there were 603 short lines in the U.S. which employee almost 18,000 people, haul more than 14 million carloads per year, and operate more than 50,00 miles of track, according to the ASLRRA.

Unlike Class I railroads—which operate over large geographical distances—short lines operate in short distances and are independent rail networks. Most are majority owned by rail holding companies like GWRR or Watco. As solely owned businesses, they work in some of the most vulnerable divisions of the railroad, working as connectors transporting shipments from one location to another or to interchange revenue traffic with each other. They bridge the gap in Class I railroads’ networks, and compete aggressively to serve their customers’ unique needs, providing flexibility with their services.

Challenges for short line railroads

Let’s identify some of the major challenges that short line railroads face in their current revenue management systems:

1. Amazonization of transportation
   Due to a lack of scale—causing operational and economical inefficiencies—short lines are put at a competitive disadvantage. They lack the technology to streamline their operating processes, ensure transparent rating and invoicing processes, accelerating shipments, and supporting new revenue models. Given the competitive market they’re working in, they must reduce shipment dwell times to compete with the freight trucking industry—but don’t necessarily have the technological infrastructure to do so.

2. Difficulty accelerating revenue recognition
   It’s hard to achieve revenue acceleration in your short line when pricing, rating, and invoicing processes are manual. Because of the manual effort and time involved, interline dispute resolution time is slowed, and there is a decrease in the speed of lead to cash workflows. This creates a need for a system which interfaces with other business systems regarding revenue waybills, pricing, and rating data to ultimately streamline the revenue recognition process.

3. Lack of REN certification readiness
   Under traditional revenue management processes, short lines broker, negotiate, and publish their rates for the movement of freight on their tracks through the RailInc Rate EDI Network (REN). However, there is a potential that an amendment to Rule-2 of the Railway Accounting Rules will be passed, which would require short lines to obtain an EDI-based REN certification. Meeting this requirement would be no easy task for short lines, who lack the capabilities to develop and implement a solution that enables REN compliance. As a result, short lines would have to rely on larger, Class I railroads to meet this industry requirement if the amendment is made, which sacrifices their data privacy.

The technological disruption

Disruptive business models and technological innovations are posing a challenge for short line railroads, who must adapt to a digitalizing landscape by modernizing their revenue management processes. They are competing with the trucking industry, which is likewise catching on and streamlining their operations with digital solutions.

Revenue is critical for a healthy, successful business, and a digital revenue management system can help short lines meet their business needs and respond to the technological disruption. In order to support sustainable, long-term growth, and compete with trucking in a digitized market, short line railroads need to embrace a digital-first solution that impacts every process in a railroad, including revenue management.

Benefits of a digital revenue management system for short lines

There are 3 major benefits that short lines can realize from integrating a digital revenue management solution in their railways. Instead of disrupting, change and innovation can bring growth that short lines can be a part of and harness to automate key processes and operations. These benefits impact key areas of focus for short lines in their revenue management processes.

1. Demand prediction and revenue forecasts
   As a result of automating rating with information from a waybill, pricing, and currency exchange, you’ll enjoy increased visibility into the revenue recognition process. Smart algorithms drive insights into revenue forecasts based on net revenue and estimates to automate the forecasting process. Insights into revenue predictions based on seasonal patterns and historic revenue data allow you to compare forecast reports with actual data. This visibility drives profitable decision making in your short line railroad, improving your cash flow.

2. Accelerated revenue recognition process
   Given the speed and cloud-based structure of a digital revenue management system, short lines can enjoy a more streamlined revenue recognition process. Automated rating, electronic invoicing, and the easy creation of pricing dockets and quotes will reduce dwell time. With a digital system that interfaces with other business systems (including RailInc’s CISS), short lines can maintain revenue waybill information for line haul, extra services, and accessorial services, and create workflows between the revenue management system and all revenue systems to streamline the revenue recognition and automate rating workflows.

3. Ensured REN compliance
   We talked about the Railinc Rate EDI network above. Rating for short lines has traditionally occurred through the REN web interface, but there is a potential that an Amendment to Rule-2 of the Railway Accounting Rules will be added. This would require short lines to become REN certified. This certification will enable electronic rating, a big step towards automating the rating process. Implementation of a digital revenue management system would enable electronic rating through internal applications, supporting REN Certification readiness.

The CloudMoyo Revenue Management System (RMS)

Here at CloudMoyo, we’re passionate about partnering with railroads—including short lines—to integrate digital solutions within their operational processes. The CloudMoyo Revenue Management System (RMS) is poised to help your short line railroad meet its revenue management needs, including, accelerate the revenue recognition process, and ensure compliance with industry standards through electronic rating and invoicing.

Are you interested in finding out more about how digital revenue management solution can help your railroad adapt to a digital environment? You can schedule a demo with one of our rail experts today to find out how you could implement this solution in your railway.