Pricing

One part of increasing revenue is pricing. Most of the time pricing is too low and the operator struggles to gain increase.

Pricing and Revenue

Rail freight does not exist in a vacuum. It is a service to shippers and needs to generate revenue in the performance of these activities to remunerate its operations and generate real returns on investment in assets.

Put simply, the commercial objective is to secure as much business as possible as profitably as possible.

A starting point within the control of a business is to identify loss making customers and sectors and either secure price increases or ultimately cease servicing these areas. Losses should only be tolerated where actions are underway to address the cost base, including by improving productivity, or where there is a market tested appetite for an ‘extended product’ (ie by providing additional services such as administration, stock management and final mile logistics management).

In the absence of any currently unforeseeable event the overwhelming majority of non-commodity freight will largely remain on road truck. The challenge for train operators is to open up other lines of business. The one-off opportunistic cargo market is effectively closed because of the practicalities of securing train paths. Short haul freight will inevitably remain on trucks. This leaves longer haul  routes serviced on a regular basis. The key to making these services economic will rely on:

1. Drastically reducing costs by achieving higher asset productivity; 
2. Securing back-haul/multiple destination traffic; 
3. Introducing value adding additional services.

Profits

The need to make a profit is often overlooked, particularly where the rail operation is largely nationalised and unreformed. It has to earn revenue from the delivery of traffic services at a competitive and attractive price. This also needs to reflect shipper’s expectations of the products and services offers and the prices they are prepared to pay in comparison to alternatives.

Shippers will pay for routinely reliable exemplary service including add-ons such as documentation processing and pro-active and available points of contact in the event of delays or disruption.

Pricing down and being driven by the pricing stratagems of the competing modes must be resisted as this ultimately dilutes revenues and profitability. Pricing and the ability of a shipper to pay what the market will bear needs to be reflected in routine close contact and understanding of the shippers product and service requirements and the ability to fulfil these. The positive attributes of the rail/inter-modal product and service need to be marketed and sold.

The key questions to address in any Market Plan are:

What do we have to sell?
Why would a shipper/user buy from us when other competing alternatives are available?

Answering these points sets the strategic agenda for the allied commercial and operating plans


business@railgrowth.com