Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Switching Rail to a TMS Track

ConnectBlog_IntermodalCan rail shipments be managed by a transportation management system (TMS) in the same way that a TMS handles over the road (OTR) freight traffic?

It’s a question that many shippers ask, and for good reason in this age of integrated freight management systems that can analyze and compare the performance of different transportation modes.

The answer to the question is yes. In fact, TMC has developed such a service and is actively using it to execute true rail shipments on behalf of shippers. Managing intermodal moves has been a part of TMS functionality for some time—TMC’s new service now brings direct rail shipments under the same umbrella.

How do shippers ascertain whether other TMS service providers can handle the complexities of managing rail transportation? First, they need to understand how rail and OTR differ in the TMS world. Here are some of the main disparities.

The electronic data interchange (EDI) conundrum. Creating automated electronic links with carriers is a huge piece of any TMS implementation, and in that sense, rail is no exception. But the mode differs considerably in the complexity of the task.

Class 1 railroads use electronic files that differ from those used in the OTR industry. Making the connection between a TMS and rail carriers requires additional electronic files, such as an EDI 404 (similar to an EDI 204), car location messages (CLM), and 410 for invoices. The process is usually time consuming due to the number of parties involved. Similar to OTR carrier integrations, each file type must be set up and tested with each individual rail carrier.

Carriers in the driver’s seat. The dominant market position of Class 1 rail carriers gives them the upper hand when dealing with customers. With the balance of power tilted in rail’s favor, carriers tend to expect shipper customers to comply with their requirements. An important issue that illustrates this skewed relationship concerns the testing of electronic communications links, a critical element of TMS implementations. In general, the onus is on the customer to ensure that a link is consistently reliable. This means that some of the testing has to be carried out after the system goes live.

Low tolerance for errors. In OTR transportation there is some leeway for master data inaccuracies, but there is much less room for error in rail.

Details, such as the names of shippers and consignees, have to be 100% correct every time. This task is not made easier by the special nomenclature used by railroads, which shippers have to learn. Moreover, the penalty for faulty information can be much more serious than a delayed communication. For example, a waybill (similar to a bill of lading) that has been rejected because there is a discrepancy in the data has to be corrected immediately—by manually keying-in the data if necessary—otherwise the railroad can impose a hefty fine. The reasons for the failure might not be readily apparent, but it’s largely up to the sender to figure out the snafu.

The rating puzzle. Rail rates can be very complicated and are based on many variables, including lane, specific route between origin and destination, car owner and size, and payment type. Adding to the complexity is the way payments are processed. Typically, payments are sent directly to the Class 1 carrier on the lane. However, if a shipper implements Rule 11, they agree to pay the Class 1 carrier and one or more of the subsequent rail carriers separately for the segment of the route utilizing their rail line. Payment disputes can take a long time to resolve, and rail carriers have been known to bill more than the rate, expecting the customer to renegotiate after paying the higher amount.

Overcoming challenges like these takes a lot of hard work and perseverance. But achieving integration is hugely beneficial. It’s possible to provide much the same information on rail movements that is available for truckload and less than truckload (LTL) transportation. Shippers can view as many as 20 CLM updates a day per car, for example. Multimodal analyses that benchmark the performance of rail against other modes as well as key metrics can be carried out. And, of course, automating the exchange of data eliminates time consuming manual work when managing rail movements.

As TMC has proved, rail and OTR shipments can be managed by a single TMS solution. Has your TMS service provider solved the rail puzzle yet?


- Implementation Consultant