WEBVTT

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15 to 40% of freight rail costs can be
reduced and up to 10% of that within one

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year.

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Freight rail businesses operate in a
low-margin, high-competition environment.

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With high direct costs energy,
vehicle costs, drivers, maintenance,

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overhead -

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cost efficiency is critical.
In a network-based business like freight

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rail

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cost structure is heavily linked to
service levels.

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Many costs are fixed,
making cost reduction without service

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impact a strategic challenge.

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Investors demand stronger total
shareholder returns.

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To stay competitive,
freight operators and carriers must

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actively manage their cost base.

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BCG’s Rail Cost Comparator initiative
reveals a wide gap in cost performance,

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proving that major savings are possible.

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There are three main areas where freight
rail carriers and operators can unlock

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cost savings.

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First, indirect cost optimization,
or SG&A.

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This is often the most addressable lever.

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A good rule of thumb is that SG&A
costs in rail shouldn't exceed 8% of

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revenue.

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Yet many companies overspend in this area,
particularly in IT applications,

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even without a clear return on investment.
Generative AI can be a game changer here,

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automating administrative processes,
optimizing workforce planning,

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and enhancing IT efficiency.

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Second, direct cost optimization.

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Since direct costs are high,
operators must optimize their networks,

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reducing service levels without impacting
customers, improving productivity,

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and reallocating resources.

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Asset utilization is a critical example.

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Many locomotives and wagons sit idle when
they could be deployed more efficiently.

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Optimizing fleet usage can cut 5 to 10%
of costs on average.

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Third, procurement efficiency.

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Procurement can account for more than
half of the cost base but is often under

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leveraged.

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Optimizing maintenance contracts and
smarter procurement strategies offer big savings.

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Here too,

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Generative AI can help in demand
forecasting,

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supplier negotiations and contract
management.

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Beyond company level optimizations,
the biggest industry wide cost-saving

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opportunities is a shared resource
platform combined with other digital

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solutions like transport management
systems supporting order-to-cash and

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procur-to-pay processes end-to-end.

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Imagine a digital marketplace where
operators and carriers can share

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locomotives, wagons, drivers,
shunters and wagon inspectors,

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matching supply and demand dynamically.

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Another game changer could be a capacity
broker platform,

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where clients can book into networks with
free capacity on trains,

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which leads to lower unit costs.

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This kind of transformation could
redefine real freight efficiency across

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the industry.

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Cost management isn't just about cutting
costs,

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it's about making freight rail more
competitive and sustainable.

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With the right levers, asset utilization,
procurement optimization,

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SG&A efficiency digitization,
carriers and operators can unlock

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significant value.