Mike ParticaNovember 13th, 2008Orlando, Florida

The Future of Car Hire

Agenda

•Car Hire Fundamentals

•Opportunities for Change

•Important Points with Change

•CN View and Process Tree

•Shaping the Future

Basic Car Hire Fundamentals

3. Ensure fair Distribution of work required.

•Three purposes of Car Hire and Car Hire Rules

2. Encourage Asset Utilization

1. Compensate Equipment Owner

Car Hire Rules

All current and future car hire rules should respect these basic fundamentals.

3. Ensure fair Distribution of work required.

2. Encourage Asset Utilization

1. Compensate Equipment Owner

Car Hire Rules

Change methodologies for compensating equipment owner.

Example: Move to/from mileage compensation methodology.

Opportunities for Change

3. Ensure fair Distribution of work required.

2. Encourage Asset Utilization

1. Compensate Equipment Owner

Car Hire Rules

Develop new processes that would improve asset utilization.

Example: Change the process to highlight situations of poor asset utilization to allow for improvement.

Opportunities for Change

3. Ensure fair Distribution of work required.

2. Encourage Asset Utilization

1. Compensate Equipment Owner

Car Hire Rules

Each and everyday, Challenge the work required.

Example: Eliminate a manual process through the use of automation.

Opportunities for Change

Opportunities for Change

•Take a step back and look for opportunities.

•The right opportunities can be anywhere in the process.

•Changes may be required in more than 1 area.

•Keep in mind that Car Hire is a downstream process from other industry processes.

•A key change may be in another area.

•Don’t limit yourself to processes in Car Accounting to improve the Car Accounting process.

Challenge the status quo. Ask questions.

Towers of Hanoi

1. Move blocks from the peg on the left to the peg on the right.

2. You may not move more than 1 block at a time.

3. You may not place a larger block on a smaller block.

Towers of Hanoi

15 moves later…

Towers of Hanoi

1. Move blocks from the peg on the left to the peg on the right.

2. You may not move more than 1 block at a time.

3. You may not place a larger block on a smaller block.

Towers of Hanoi

• Known as a recursive problem.

The solution to move 1 block to another tower requires the solution to move a smaller tower to another tower.

• Solution requires 2N-1 moves.

4 blocks = 15 moves

5 blocks = 31 moves

30 Blocks = 1,073,741,823 moves

• Extremely important to know why you are moving each block.

• You don’t want to be guessing or trying to memorize.

Each additional block is a added level of complexity. Similar to today’s business processes.

Towers of Hanoi

Let’s try the game again…

Towers of Hanoi

1. Move blocks from the peg on the left to the peg on the right.

2. You may move more than 1 block at a time.

3. You may place a larger block on a smaller block.

Towers of Hanoi

1 move later…

Towers of Hanoi

1. Move blocks from the peg on the left to the peg on the right.

2. You may move more than 1 block at a time.

3. You may place a larger block on a smaller block.

Towers of Hanoi

1. Move blocks from the peg on the left to the peg on the right.

2. You may move more than 1 block at a time.

3. You may place a larger block on a smaller block.

IMPORTANT:

• Be on the lookout for rule changes!

• They can have a significant impact to what you do (or need to do)

The key to the successfully changing Car Accounting today is to find a way to precisely cut into the process where there would be minimal car hire and systems impact.

Understanding the past is important…

•The Car Accounting process of pay and wait dates back to the late 1800’s when Railroads started interchanging cars in order to avoid trans-loading merchandise.

•1st draft of Per diem rules were accepted around 1887.

•Computer systems did not exist to communicate to an owner when one foreign railroad delivered their cars to another foreign railroad.

•Over the years many complex and integrated systems have been written with millions of lines of code to manage the Car Accounting aspect of railroading.

Car Accounting – A deeply embedded Railroad process.

ShortlinesCar

Accounting

Car Management

Intermodal

Demurrage

Marketing

Costing

Mechanical

Field Reporting

• Improved Asset Utilization

• Reduced Costs

• Improved Service

Today’s Challenges:

• Data and agreement interpretations

• System maintenance, design and tuning.

• Data Integrity Issues

• Exceptions

• Foreign Carrier and Owner Actions

Potential Benefits:

We need to look at the tree to cut costs and improve efficiency.

CN’s Simplified Car Accounting Process Tree

•The basic Car Accounting process is made up of several branches.

•Each branch contains several sub-branches for different areas or items:

•Payable

•Receivables

•Railcar, Intermodal Units

•Original Payment

•Adjustment Payments

•Original Reclaims

•Supplemental Reclaims

•Counter Reclaims

•Counter to Counter Reclaims

Private Mileage

Compensation

Time Payment Process

Claim Process

Car Hire Switching

(Rule 5)

Non-Automotive

Loading Delay

Reclaim (R

ule 22)

Automotive Loading

Delay Reclaim (Rule

22)

Interchange

Dispute Process

Revenue Empty

Reclaim (Rule 4)

Damaged &

Defective Reclaim

(Rule 7 & 8)

Cash Payments /

Collections

Reclaim Validation

& Special Reclaims

Mileage Payments

Switch Bill Process

A lot of opportunities exist within the Car Accounting tree.

Industry working on implementing the DDCTS system

AAR Technical Advisory group investigating possibility of automating using an existing AAR process.

A CN View - Branch by Branch approach…

Automating reclaims will eliminate need for reclaim validation. Specials will never go away.

Implementing a centralized time process would eliminate all time claims.

Is it possible to link existing switch bill process to the TOL rule 5 at the industry level?

Industry has implemented RCH for Car Hire in September

Need to develop a process to dispute interchanges to point out operation problems.

Private Mileage

Compensation

Time Payment Process

Claim Process

Car Hire Switching

(Rule 5)

Non-Automotive

Loading Delay

Reclaim (R

ule 22)

Automotive Loading

Delay Reclaim (Rule

22)

Interchange

Dispute Process

Revenue Empty

Reclaim (Rule 4)

Damaged &

Defective Reclaim

(Rule 7 & 8)

Cash Payments /

Collections

Reclaim Validation

& Special Reclaims

Mileage Payments

Switch Bill Process

Industry will eventually adopt a centralized time process.

Railroad Proposal

Shaping the Future

•Don’t rely on others to fix things.

•Make proposals, follow-up and drive change.

•We all play a role in shaping the future.

EAMWC TAG

SOMC

Subscriber Vote

Rule Changed!

Key Contacts for Rule Change Proposals

Equipment Assets Management Working Committee (EAMWC)

Secretary:

Jim Pinson (James.Pinson@Railinc.com)

919-651-5047

Chairperson:

Deby Murphy (djmurphy@up.com)

402-544-1809

Conclusion

•Changing an old process is not easy

•Many pitfalls

•Must understand where we are and how we got here to help map out where we want/need to go.

•Expecting significant change in the Car Accounting process within the next 5 years

•Everybody should be involved in improving the current process.

Questions?