The effect of yield management on railroads

Abstract

Although on-time delivery is critical in todays competitive marketplace, railroads are not usually able to provide consistently reliable freight service. Railroads attempt to offer a low-price product by minimizing their costs, and maximizing their asset utilitzation; strategies which do not support on-time performance. This paper explores the use of yield management to segment the railroad market into high-priority, premium priced freight or low-priority, low priced freight. Through market segmentation, railroads can move from pure cost-minimization to a more service focused strategy. Using yield management to smooth demand will decrease the need for excess capacity (reduce costs) and at the same time improve service.