Volatile fuel prices are a huge concern for transportation companies. Even those that pass some of the fuel-related expenses on to their customers must stay abreast of the ever-fluctuating costs associated with fuel. This is but one in a long list of issues that challenge the transportation industry. The industry has only recently emerged from a challenging couple of years, in which consumer spending was anemic and the corresponding demand for freight services stalled.
The transportation industry overall is now in an interesting position. True the global economy is showing signs of recovery, but overall confidence is still tentative and an unforeseen event could reverse the current upward trend. This is one reason why companies are continually searching for ways to reduce costs and grow revenue, while improving service. Technology can play an important role. For example, it can help businesses accurately predict demand and allocate resources accordingly; it can be used to improve customer service; and it can improve safety and security. These are not abstract ideas -- smart technologies have already dramatically altered the landscape for the industry.
One Asian port operator, for example, needed several employees to manually calculate where to store transshipment containers throughout the day. It was a challenging exercise given that there is a limited amount of space at this port and these containers arrive and depart this port continually like passengers at a large airport. It could take several hours to devise a plan to determine where to store these containers in the interim and that plan was prone to human error. The port operator now uses software in the form of a rules-based decision engine that accurately determines the best place to store each container in the port so that is it easily retrieved when it is needed.
While railroads are expected to spend roughly $12 billion this year on capital investments, most of that money goes toward maintenance. Union Pacific, for example, plans to spend $3.2 billion on capital investments this year, more than half of which will go toward replacing portions of the infrastructure. With just a modest investment in technology, railroads can reduce maintenance costs and increase operational effectiveness. In fact, improving network velocity by just one mile per hour is the equivalent of idling 250 locomotives (as an industry study suggests); the important question is how to increase velocity.
Consider that the average railroad suffers two derailments per day; that's two derailments too many. Some mechanical problems may be unavoidable, but derailments are costly and often preventable. A network of digital sensors can gather data on operations, including wheel wear, wheel heat and railcar brakes. A smart system can identify system vulnerabilities before they become serious problems thereby preventing accidents and lowering overall maintenance costs.
Similarly, better connecting data across shipping networks has enormous potential for customer service. In an industry especially vulnerable to empowered customers, carriers can offer a differentiated service by providing stellar end-to-end service with more precise tracking information. As it stands now, tracking updates can come from a variety of sources, depending on how many people are handling a shipment, and it's not always timely or accurate. A cohesive and interconnected tracking system allows customers to log on and check on the real-time status of a shipment at every single point in the journey for themselves.
By connecting all of the information that is scattered throughout the complex shipping networks, companies get a big-picture view of business across their entire network. They can find hourly or daily upticks in business as well as broad seasonal patterns, and they can adjust their assets to best suit their customers' needs and maximize profits. This is no minor feat -- a common issue for freight logistics providers is how to meet a sudden spike in demand for transportation services. Recently, capacity has been so limited that some automakers have had to delay vehicle shipments. Increased demand should be good news, but it's meaningless if it can't be converted to sales or profit growth.
Demand in freight is seen as a leading economic indicator. Shipping companies are not in the business of predicting the various turns of the economy, but they can benefit from being prepared for booms or slowdowns. Watson, a DeepQA (question and answering) system, could prove particularly useful for this purpose. As anyone who watched the computing system compete against Jeopardy! record holders Brad Rutter and Ken Jennings noticed, Watson absorbed massive amounts of data and information and answered natural language questions in just a few seconds. That same ability to absorb information could be applied to economics -- Watson could look at metrics hundreds of thousands of sources -- including odd economic indicators such as men's underwear sales -- and suggest, with reasonable certainty, whether business is poised for an uptick or a decline.
It may be a difficult time for freight companies to justify investment in anything other than hard assets, but if the U.S. economy is indeed on the verge of recovery, there is no better time to invest in information technology, which can insure the long-term health and growth of the industry.
John Maley is the Global Freight Logistics segment leader for IBM. IBM is celebrating its Centennial Anniversary this year.