RAIL FREIGHT SERVICE FLEXIBILITY AND YIELD MANAGEMENT

Several North American railroads have expressed interest in booking and management systems similar to airline yield management systems. The basic yield management concept is applicable to railroads as well as airlines. However, freight railroads differ in a number of fundamental ways from airlines. In looking at rail freight operations, two key distinctions between freight railroads and airlines become apparent: variable capacity, and the capability to strongly differentiate service. Of all rail services, intermodal seems to be the best initial target for yield management. This is because service is essentially fully scheduled (like airlines) and a spot market exists in which booking can be controlled. Nevertheless, yield management techniques can also be applied to general carload service. The bulk of this paper investigates the implications of variable capacity and differentiated service in some detail using numerical examples. Four alternative operating strategies are investigated: a. fixed capacity, single service; b. variable capacity, single service; c. fixed capacity, differentiated service; d. variable capacity, differentiated service. Strategy d. appears to be the most promising. The primary conclusion is that railroad yield management systems should not be simple adaptations of airline systems. Instead railroad yield management should exploit variable capacity and differentiated service to improve cost and service performance.