The North American rail industry (especially freight rail) has long been key to United States and Canadian economic prosperity. In the early 19th century, the United States’ east coast saw development of the first tracks and freight-hauling trains. Within several decades, both countries experienced a steady westward expansion thanks to the rail industry’s growth. In the 21st century, railroads continue to haul materials in-country and to ocean-bound ships on both countries’ coasts. Greg Aziz, owner of a Hamilton, Ontario-based railcar manufacturer, offers an historical perspective of the railroad industry. “This is a very, very old industry…I mean, railroads started in the 1820s and 1830s in the United States and Canada. The railroads, all through the 1800s and early 1900s, were basically the Internet of industry in those days. That’s how both countries, Canada and the United States, were able to expand across the continent. It would have taken much longer without the railroads,” Greg Aziz concludes. Today, advanced technology helps railroads and equipment manufacturers operate more efficiently and reduce operating expenses. Decreasing labor costs is an important part of the equation.
Railroads Continue to Focus on Profitable Operations
Railroad operators charge businesses that want to transport materials and products via the company’s tracks and railcars. Naturally, these railroad owners want to operate efficiently and turn a profit. This snapshot of typical railroad company operations expenses illustrates the scope of each railroad business’ challenge.
- Fuel Expenses: Fuel makes up about one-fifth of each railroad’s operating costs. On the positive side, trains operate more efficiently than over-the-road trucks. When prices are rising, however, a railroad company cannot always offset the extra fuel costs by imposing a customer surcharge.
- Labor Expenses: With a mostly unionized workforce, some railroads spend over one-third of operating expenses on labor costs. This percentage includes workers’ wages along with their benefits.
- Economic Environment: Railroads derive their income from hauling customers’ products and materials between two points. The larger economy dictates the demand for the railroad’s services. In a downturn, for example, fewer customers are likely to need the railroad’s transport services.
- High Capital Requirements: Tracks, locomotives, and railcars are expensive to acquire and maintain. Therefore, a railroad company must have continued access to affordable capital.
Snapshot of Greg Aziz’s Railcar Company
A railcar company manufacturer sells its products to North American railroads and individual customers. Greg Aziz, CEO of National Steel Car, owns a railcar business that operates out of Hamilton, Ontario. His firm has gained an international reputation for building premium products with innovative features.
Greg Aziz’s railcars also benefit from superior manufacturing standards. “We’re the
only ISO-certified car builder…ISO is a manufacturing regimen that most of the manufacturers try and build to the ISO standards and qualifications, which our competitors have not bothered to do. It just gives us a much higher bar to hit as far as quality and our metrics that we’re able to measure how we do things. Our competitors don’t bother with that,” Greg Aziz emphasized.
Since acquiring the firm in 1994, Greg Aziz has overseen the fabrication of thousands of custom railcars. In fact, his firm often accepts orders for thousands of railcars for a single customer. Besides the railroads, Greg Aziz’s North American customers include transport businesses that haul freight for their customers.
World-class Engineering Makes the Difference
To design and build his premium railcars, Greg Aziz relies on a world-class engineering team. He says that’s how his company stands out in a crowded marketplace. “Yeah, right from the get-go, we emphasized engineering in order to differentiate ourselves from our competitors.
“We believe that we’re the leading rail car manufacturer in the world from an engineering standpoint. We’re not the biggest rail car manufacturer, but all of our designs are cutting-edge designs. Our engineering department is superior, we believe, to our competitors. We’ve used our position in order to basically maintain ourselves as the top-tier manufacturer,” Greg Aziz emphasizes.
Well-Compensated Employees Increase Greg Aziz’s Overhead
To build his premium railcars, Greg Aziz employs a highly skilled workforce. He recognizes their proven talent, and he compensates them accordingly. “We look after our people very well. They’re very well paid. It’s a union workforce here,” he explains.
Greg Aziz Harnesses Technology to Drive Cost Savings
Greg Aziz is keenly aware that high labor costs affect the company’s bottom line. Therefore, he has implemented multiple technologies that will help offset those labor expenses. He is always seeking ways to maintain a competitive edge.
Greg Aziz’s Investments in Capital Equipment and Automation
When Greg Aziz acquired his railcar company in 1994, he made investments that would set the stage for large-scale growth. First, he beefed up the company’s manufacturing facilities. Next, he invested in technology that would increase automation during the railcar production cycle. In fact, Greg Aziz’s company is the most highly automated railcar manufacturer in North America.
Welding Robotics Investments Bring Two Benefits
Greg Aziz has integrated welding robotics into much of his railcar manufacturing. Besides producing superior-quality welds, the robot-driven automation delivers significant time and cost savings.
“We use an awful lot of welding robotics. Our customers, and there are several very, very large customers who come in and tell us that when it comes to robotic welding, no human being can weld like a robot can, okay? Correct. That’s kind of an important takeaway.
“But our customers will come in…Of course they’ve had the luxury of being able to visit other car builders and everything. We keep being told that there’s nobody in this industry who is even close to our scale of robotics and automated equipment,” Greg Aziz emphasized.
Increasingly Aerodynamic Railcar Designs Enable Cost Savings
Greg Aziz’s company employs talented car designers who have created over 350 custom railcar designs. The product line includes flatcars that haul irregularly shaped items such as steel beams and oversized loads. Today’s boxcars are mostly configured to haul specific freight types. Although tank cars continue to transport oil, they now haul other petroleum products as well.
Regardless of the railcars’ configurations, the company’s innovative cars reflect today’s more aerodynamic shapes. This minimizes drag and enables operating cost reductions for the railroad or transport company.
Greg Aziz Discusses How Technology Drives Rail Industry Labor Cost Savings
Over the past several decades, the rail industry has implemented technologies that streamline operations and offer safety benefits. In some cases, technology implementation has also resulted in reduced personnel needs.
Precision Scheduled Railroading System
Greg Aziz notes that a Precision Scheduled Railroading (or PSR) model differs from traditional train operations. A PSR model uses general-purpose trains that haul bulk commodities, products, and intermodal items. In contrast, traditional train operations involve transport of a single commodity.
The PSR model also utilizes longer trains and involves the same number of trains running in each direction daily. As a result, locomotives and train crews are always in the right places and rarely sit idle. With reduced locomotive and car fleets, railroads have shuttered repair and maintenance shops. Greg Aziz says these developments continue to reduce rail industry labor costs.
Reduced Crew Complements
Historically, each rail freight run was staffed by a road train crew of up to five workers. During the 1970s and 1980s, labor agreements resulted in the elimination of each train’s locomotive fireman. Over time, each road train crew was whittled down to two workers.
However, Greg Aziz says labor agreements weren’t the only reason for the headcount reductions. As technology became more sophisticated, the train’s caboose also fell by the wayside. A trackside failed-equipment detector replaced a paid crewmember who observed the train’s rear-end operations. An electronic rear-end assembly replaced the caboose’s air-brake functionality.
Centralized Train Operations and Documentation
Mutually beneficial labor agreements helped to implement emerging computer technology and communications systems. These developments enabled a single railroad operations center to efficiently coordinate crews and dispatch trains. In addition, computers streamlined accounting systems and other documentation. Together, says Greg Aziz, these efforts eliminated duplication of effort and resulted in cost savings.
Decreased Equipment Maintenance Needs
Several factors have resulted in reduced equipment maintenance needs. In turn, fewer maintenance personnel are required. The process began when railroads switched from steam-powered to diesel locomotives. This newer means of propulsion means a roughly three-quarter reduction in the locomotive maintenance team.
Higher-capacity railcars mean fewer of them are required to haul the same quantity of products and/or materials. This results in decreased maintenance for each car’s coupling and air-brake assemblies. Finally, faster maintenance turnarounds have contributed to smaller car fleets. This has reduced the need for car facility maintenance staff.
Streamlined Track Maintenance Technology
Greg Aziz emphasizes that railroad track maintenance is key to safe rail system operation. The introduction of mechanical tampers replaced dozens of hand-tamping workers. In addition, each tamping machine performed both tamping and lining functions. This efficient sequence also replaced dozens of men working on each lining operation.
Transferred Track Inspection Technology
Certain technologies are transferable from one industry to another. Specifically, electro-magnetic field imaging (or EMFi) is a non-destructive evaluation modality developed to detect oil and gas pipeline corrosion.
In the rail industry, EMFi technology may be able to accurately evaluate track surface conditions. With this information, rail workers can determine the timetable for scheduled maintenance. This represents cost savings compared to paying workers to regularly inspect the tracks.
Greg Aziz on Decreased Rail Industry Employment
For much of the past three decades, rail industry employment has remained stable despite periodic economic fluctuations. However, from November 2018 to December 2020, the number of United States rail workers dropped by 40,000.
Greg Aziz says three primary factors spurred large-scale job losses during the period. First, the widespread adoption of Precision Scheduled Railroading resulted in significant labor reductions. In addition, coal continues to lose favor as a natural resource. This caused less demand for its applications.
Next, the rapidly evolving trade environment led to market uncertainties. Finally, the COVID-19 pandemic triggered a widespread economic shutdown. This led to reduced product and material demands in many industries.
Building a Premium Product While Minimizing Labor Costs
Successful railcar company owner Greg Aziz puts the issue in perspective. He emphasizes that his business has always focused on supplying the customer with a premium product. The process begins when the company’s design engineers create a custom design that stands out for its elegant simplicity.
To execute the design, Greg Aziz heavily utilizes technology to reign in costs (including labor costs). He says the finished product always provides excellent value for his business and the firm’s diverse North American customers. “We build a premium product, and we’re able to do better from a value standpoint, both for the company and for the customer,” Greg Aziz summarizes.