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Managed services for the freight rail industry
Where to start? Consider your leasing and purchasing
Top-performing companies are increasingly turning to managed services providers (MSPs) for benefits beyond cost savings.
PwC’s survey of more than 2,000 business leaders indicates how organizations that adopt an effective MSP approach are developing a competitive edge that could be hard to beat. Companies that use MSPs for strategic advantage are 1.6 times more likely to be faster to market and 2.4 times to be more innovative than those focused solely on cost savings. MSPs can help companies move beyond familiar notions of managed services — and beyond the back office — to drive performance.
The time is right for process innovation
Those working in North American freight rail understand the distinctive challenges confronting the industry today:
- Sector-specific supply chain issues
- Intense competition that demands cost control
- An aging workforce
- Intense and complex regulatory oversight
- Pressure to rapidly adopt costly technology such as autonomous track inspection
- Ongoing disruption that can impact purchase order timelines
The silver lining: None of these sector-specific issues affect the ease of adoption of our solutions. Wondering where to start? It could be time to consider (or reconsider) how you think about your leasing and purchasing.
Leasing as a managed service for freight rail
The rules governing lease accounting adopted in the US as of January 1, 2019, have had far-reaching and well-known effects. But you may not have realized how the new regime also makes the adoption of leasing as a managed service more attractive and easier than it was before.
In recent decades, many companies have experimented with setting up internal procurement entities to handle their leasing. But for some, the back-office labor involved has proved too onerous to sustain. Huge volumes of manual journal entries and the complexities of intracompany accounting are just some of the challenges that have led many to allow their procurement subsidiaries to atrophy. The concept remains well established but underused.
With PwC’s turnkey, end-to-end approach, your internal procurement company can seamlessly function as your bespoke vendor. We handle third-party and intracompany leasing, without interrupting your daily operations. Our proprietary software processes are designed to handle large volumes of leases and purchase orders, providing top-level controls and data security and allowing you to focus on what you do best.
Consider purchasing as an MSP
Rail companies are familiar with the advantages of leasing heavy equipment, since virtually all of them lease rolling stock (with significant tax advantages). They tend to see 10 to 30% savings when outsourcing just their lease accounting to an MSP.
Savings opportunities expand beyond items you lease and can be gained on any non-tax-exempt item you buy. That includes signaling equipment, cranes, office equipment, computers and more. For consumables, realizing enhanced short-term time value for your money can multiply with the adoption of an embedded use trigger for purchases. With our model, companies can also enjoy access to discounts and rebates, as well as greater traction in trade-in negotiations. The result: big savings.
Tax advantages that add up
For equipment and other purchased and internally leased assets, our solution in effect amortizes sales tax over the lease term. The deferred value on the tax side can be significant — especially for Class I and II freight rail companies dealing with tax regimes in multiple states — as companies can benefit enormously from confining all their purchases to a single low-sales-tax jurisdiction.
All the data and documentation, including intracompany invoices, needed in case of an audit is maintained continuously and automatically, flowing seamlessly from PwC back to your accounts payable department. The savings in transactional costs and sales tax costs combined can help your leasing function drive enterprise-wide impact.
Beyond leasing: MSP maturity as a lever for growth
Whether you're just starting to explore managed services support or ready to fully outsource, PwC is here to help. Our solution is based on the same approach used by our own internal procurement company, using our extensive experience to help you achieve your goals.
Today, we are pushing the boundaries, using AI deep learning technology to achieve 95% accuracy in revenue, cost and cashflow forecasts that takes just days to generate. Our model can drive new efficiencies, operational improvements and sustainability in ways that help hedge against economic slowdown. To make the most of MSPs, look to the ways a provider can help you address capability gaps to achieve strategic advantage.
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