NEW COMPETITIVE REALITIES: GROWTH AT A LOWER COST€¦ · 29/11/2018 · Source: US DOT 2016...

© Oliver Wyman© Oliver Wyman

NEW COMPETITIVE REALITIES:GROWTH AT A LOWER COST

Rodney CasePartner

NOVEMBER 29, 2018


Competitive Context


Rail1.75T46%

Truck2.05T54%

Technology transformations will start where leverage is high…rail is a niche market for techFreight rail, a small piece of the surface transport economy…

2015 surface transport vehicle-miles: 3.14T

…Generates slightly fewer ton-miles than trucks…

2015 freight ton-miles: 3.79T

…And a tenth of trucking revenue

2015 freight revenue: $791B

Source: US DOT BTS, National Transportation Statistics, tables 1-35 and 1-50; AAR, Analysis of Class I Railroads 2015; Oliver Wyman analysis

Rail$71.7B

9%Truck$719B91%

Passenger (Cars

& Pickups)2.8T90%

Truck280B9%

Freight rail36B1%

TECH FIRM VIEW RAILROAD VIEW SUPPLIER VIEW


Tech focus is shifting to areas adjacent to core transport Inventory carrying cost reduction is a consumer imperative

• Reducing the level of stock buffers is increasingly a shipper priority

• Smaller and more frequent shipment orders

• Large investments by tech firms and start-ups are focused on developing tools and techniques

• Costs due to poor or inconsistent service are areas of current third-party innovations and profit

Source: US Logistics Council, “2017 State of Logistics Report,” Oliver Wyman analysis

US business logistics costs, 2016$ billions/% of total

$88/6%$410/29%

Other

Financial

Storage

$299/21.5%

Water

Air

Parcel

Rail$72

Pipeline

$596 /43%

Private/Dedicated

Full Truckload

LTL

OtherModes

Other Logistics

Costs

InventoryCarrying

Costs

Trucking

Shipper Admin

Carrier Support


Connectivity services

Professional services

Communication

Mobility services

Fleet, Traffic & Infrastructure management

1170Training

SignalingAsset management

Traffic management

Roads & corridors

Energy distribution

Operations

MRO & Aftermarket services& onboard systems

370

Onboard systems

Autonomous Vehicles

740

TrainSea

Air

MRO

Services, systems & data

1,150City services Cybersecurity

Data managementDefense services

Ground

VEHICLES22%

OPERATIONS & SERVICES78%

More than three-quarters of investment in surface transport will NOT be spent on the vehicle but on informationAutonomous technologies 2030 global market forecast Total = $3,430B


Acceptance of advice

Technological transformation has already begun – and is accelerating

CONDITIONALAUTONOMY

FULLY AUTONOMOUS

HIGHLYAUTONOMOUS

PARTIAL AUTONOMY

OPERATOR ASSISTED

L2

Autonomous

Interrupt

Advised action, unless revoked

Revoking action

Advise, action if authorized

Authorize action

Provision of advice

Advise only if requested

Full, requesting advice if necessary

Operator Authority

System autonomy

• Advanced driver assistance systems• Increased safety & fuel efficiency

(including platooning) OCCURRING NOW

• Human driver + autopilot

• Better driver supply/retention NEXT FEW YEARS

• No driver needed/conditional• Parallel evolution to diagnostics/

remote sensing• Radical change for trucking REGULATORY BARRIERS

Platoons will soon move beyond testing, and vehicle autonomy will continue to grow

L1L3

L4L5

Levels and benefits of autonomous vehicles


Autonomous vehicles: Projected timelines The pace will be set by regulatory barriers not technology

Year Passenger vehicles Commercial trucks

2018 L4/L5 testing L2/L4 testing

2019 L4 pilots

2021 L4 limited urban operations L4 platoon testing (3 drivers)

2023 L4/L5 regulatory reform

2025 Regular L4 platoons (3 drivers)

2028 L4/L5 ridesharing widespread

2030 L4 platoons (1 driver)


Urban road network congestion will increase through 2045

F

E

DABC

Highway level-of-service (LOS)

Source: US DOT 2016 Highway Performance Monitoring System, Oliver Wyman analysis. Roadways selected in HPMS where NHS > 0 and Facility Type = 1 or 2. Values are for the peak hour.

ATLANTA

2016 CONGESTION 2045 CONGESTION


Rapid adoption of shared vehicles/micro-transit could counterbalance congestion projections Estimated percentage of congested miles, LOS D-F, five state-sample, National Highway System roadways

0%

10%

20%

30%

40%

50%

2016 2025 2035 2045

Optimistic

Most Likely

Pessimistic

Note: Sample states are California, Georgia, New Jersey, Ohio, and Texas. Values are for the peak hour.Source: US DOT 2016 Highway Performance Monitoring System, Oliver Wyman analysis. Roadways selected in HPMS where NHS > 0 and Facility Type = 1 or 2.

0%

10%

20%

30%

40%

50%

2016 2025 2035 2045

INTER-URBAN URBAN


Implications for Rail


Risk: Innovations drive trucking costs down by nearly 40 percent, partially offset by increased use taxesPotential reduction in intercity trucking costs2015 vs. future ton-mile cost, assumes fully implemented tech innovations, in US cents

Does not include truck dray costs, or the impact of any rail responses. Five-axle 53’ dry van used as a reference point. Source: National Transportation Statistics, Table 1-50, OW analysis

10.28 0.860.44 0.18 0.71

0.06 0.441.10 7.36

1.33

5-trailer platoons Driver-

less trucks

Curr

ent t

ruck

cost

SuperTruck I Super

Truck IIADAS

3-trailer platoons

(3 drivers)

3-trailer platoons (1 driver)

Added road use

tolls/ taxes

Futu

re tr

uck

cost

L0 L1 L2 L4 L4 L5

Would raise ~$22.5B per year

• 28.4% truck cost reduction• Change of 2.92 cents per ton-mile


22%

27%

32%

37%

42%

47%

2017 2020 2025 2030 2035 2040 2045

Forecasted rail ton-mile market shareRail and truck net ton-mile growth (trillions)

Risk: Truck demand grows faster than rail. Technology adoption rates define the scale of market loss

Note: Truck and rail IM estimated. Source: US DOT FAF 4.4, Oliver Wyman analysis

0

1

2

3

4

5

2017 2020 2025 2030 2035 2040 2045

2017 to 2045CAGR

Rail carload +0.16%

Truck+2.84%

Rail IM +2.21%

Truck IM +3.21%

Trucking will double in size in

the next 25 years

2017 rail market share:

45.3%

2017 to 2045

share loss

15.8%

18.8%

22.1%

Difference: 193B ton-miles

Difference: 212B ton-miles

Most likely

Most likely with rail initiatives

Status quo


General merchandise (billions of ton-miles)All commodities (billions of ton-miles)

Risk: Rail loses share in all mileage segments, with the >1,000-mile segment losing the most share

Total rail volumes will grow but share will drop in each core segment

5,000

2,500

0

500

1,500

4,500

1,000

2,000

3,000

3,500

4,000

20302017 2020 2025 2035 20452040

32%2,000

1,500

0

3,000

1,000

500

2,500

3,500

4,000

4,500

5,000

20352017 2020 2025 2030 2040 2045

Rail Share %RailTruckSeries

45%

30%

32%

22%


Opportunity: Peak-hour daily congestion grows steadily to impact >40 million loads/year by 2045, creating a major diversion opportunity

05

1015202530354045

2016 2020 2025 2030 2035 2040 2045

Rail intermodal unit forecast and diversion potentialMillions of intermodal units

Potential diversion traffic

Intermodal unit forecast

With 20% diversion

40M

25M

8M

Source: AAR Weekly Traffic annual reports, FAF, Oliver Wyman analysis


Rail Response


Moving forward: Rail must build from the advantage of vertical integration while massively leveraging technology adoption

Improveresilience

Leverage network

Encourage innovation

Increase productivity


GENERIC CORRIDOR: TRAIN VOLUME VS. AVERAGE DELAYVo

lum

e:tr

ains

per

day

Average delay per train

2014

Improve resilience: Daily network operation is inconsistent Resilience in operations is necessary for consistent service and future profitable growth

© Oliver Wyman

Increase productivity: Railroads must adopt more technologies than just driverless trains

Class I rail marginal operations costsTrucking marginal operations costs

Railroads have the strategic advantage of vertical integration to optimize the use of assets and labor in one system

Source: ATRI 2015 Report, STB 2015 R-1s, Oliver Wyman analysis

7%

Equipment lease or purchase

Repair &maintenance Tires

Tolls

Insurance & permits

Driver wages & benefits

Fuel Fuel

Salaries, wages & benefits Casualties &

insurance

Materials, tools, supplies, purchased services, & other

Repair &maintenance

Equipment lease or purchase

Other

Train crews

© Oliver Wyman

Leverage the integrated network: Rail can reduce its costs by half for long-term viability, but only 25% of that will likely come from T&E costs Potential reduction in rail freight costs2015 vs. future ton-mile cost, assumes fully implemented initiatives & technology, in US cents

Note: Does not include rail dray costs, STB open access, or the impact of any truck responses. Average Class I railroad costs / ton-mile used as a reference point. Certain initiatives not impacting costs were omitted (e.g., extended reach, increased penetration)Source: Oliver Wyman analysis

2.73

1.32

0.290.16

0.190.33

0.04 0.180.04 0.18

0.060.44

1.10 7.361.33

Electricpropul-

sion

Cur

rent

rail

cost Tighter

inte-gration 1-

personcrews Driver-

less trains

Line-of-road

fueling Auto-mated

dispatch-ing

Futu

re

rail

cost

• 51.6% rail cost reduction• 1.41 cents reduction

Simplifyauto-mated

processes

Maint: fail to

preven-tive

© Oliver Wyman

Innovation: European express rail freight pilot

• Punctual: On-time performance is at passenger train levels • Consistent: Train path integrated into the network design • Congestion: City core terminals to leverage urban congestion • Shared capacity: Open to all shippers using standard rolling carts• Retailed: Priced by rolling cart not by carload or trainload

Photo source: Mercitalia

© Oliver Wyman

The example of passenger train evolution: From locomotive-hauled coaches to integrated modular train designs

• Bidirectional

• Auto coupling

• Modular design

• Smart systems

• Integrated data

• Auto fueling

Terminal

Terminal

Mechanical

Mechanical

Capacity

Terminal

A single locomotive driver has been the constant. The technology opportunities for rail are abundant outside of the cab

Photo source: Bombardier.com

#RailTrends18

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This report is for the exclusive use of the Oliver Wyman client named herein. This report is not intended for general circulation or publication, nor is it to be reproduced, quoted or distributed for any purpose without the prior written permission of Oliver Wyman. There are no third party beneficiaries with respect to this report, & Oliver Wyman does not accept any liability to any third party.

Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been independently verified, unless otherwise expressly indicated. Public information & industry & statistical data are from sources we deem to be reliable; however, we make no representation as to the accuracy or completeness of such information. The findings contained in this report may contain predictions based on current data & historical trends. Any such predictions are subject to inherent risks & uncertainties. Oliver Wyman accepts no responsibility for actual results or future events.

The opinions expressed in this report are valid only for the purpose stated herein & as of the date of this report. No obligation is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof.

All decisions in connection with the implementation or use of advice or recommendations contained in this report are the sole responsibility of the client. This report does not represent investment advice nor does it provide an opinion regarding the fairness of any transaction to any & all parties.

NEW COMPETITIVE REALITIES: GROWTH AT A LOWER COST€¦ · 29/11/2018 · Source: US DOT 2016...

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Transcript of NEW COMPETITIVE REALITIES: GROWTH AT A LOWER COST€¦ · 29/11/2018 · Source: US DOT 2016...