Industry:

Commodities, Inter-city

BN and other RRs historically have provided poor service in terms of reliability, delivery, and breakage

Competition is increasing among traditional RR competitors

Prices being forced down

Customers wanting better service (just-in-time)

RR have been a no growth industry

Deregulation has forced prices down, but made it important to think about their business (what and how?)

Safety is an important concern as well (regulation??)

Trucks have become a substitute for trains with many advantages

Flexibility, service, reliability (on-time much better)

Taking all the growth in Inter-city, especially high margin commodities

Deregulation + productivity improvements dropping prices

New entrants unlikely

BN:

Coal and grain (unit trains)

Much track

Single track, handling meets and passes

Turnover in management (4 CEOS)

Problems:

1920s control technology (radio at best)

Extremely primitive information system (meets and passes, for example)

Maintenance a problem (locomotives and predicting failure, track)

Poor capital utilization

Track capacity problems (especially in important coal territories)

High debt

Demand for capital investment (track, train equipment)

What about a corporate strategy?

The ARES Decision

Is ARES enough (to beat trucks)?

Does ARES fit BN's corporate strategy?

Analysis:

Economic

Cost estimate of $350 million (almost all of BN's traditional capital investment in a year, but spread out over several years), is uncertain.

Management not convinced of benefits (lots of good effort from consultants, however). But, lack of information makes benefit determination particularly difficult (e.g. savings from reduced meets and passes).

What is benefit from safety?

Operational

Operations originated and backed system. Very poor job of achieving buy-in on part of senior management and other key functions, especially the powerful marketing area.

Would require a major change in way of operating the RR.

Technological

Very large, risky project

New, leading edge technology

Problem of competing standard

What about accuracy to be achieved (+/- 100 feet)?