When moving a private empty freight railcar (non-tank car), there are several options. If that private railcar moves off a loaded “revenue move” (paid, loaded move) then the return trip for the empty railcar on the exact same route (or equal distance/mileage on some railroads) is typically free of charge (“non-revenue move”). It’s a cycle that works pretty well for all involved parties. It’s an advantage to the shipper as the empty railcars are returned to the loading location and ready for their next load. This also helps the railroad since it means that once the railcars are loaded, they’re ready for their next revenue move.
Unless you have a contract in place that explicitly states otherwise, when moving an empty railcar that has been sitting in storage or otherwise is not moving off a revenue move, the story looks and feels completely different since the railroad charges for this move (revenue move – empty). In fact, while it’s certainly not the intent of the railroad, empty railcar repositioning can discourage a rail shipper from acquiring (leasing, buying, etc.) and repositioning private railcars. When moving empty railcars to a new railcar lessee, new railcar user or when newly built railcars are repositioned, the railroad will charge for this empty move. And that cost can be expensive. Generally speaking, the empty railcar transportation rate billed by the handling line (railroad) currently ranges from $3.59 per mile for longer hauls all the way up to $7.78 per mile for shorter hauls. In the mid-range length of haul the range is more in the $4.50 to $4.75 per empty mile. *Note: if you’re looking for a specific empty freight rate estimate, let us know and we’ll look into it for you as part of our consulting services.
This empty freight charge can be a substantial part of the onboarding cost of bringing a new (or used) railcar into service for lessee’s, buyers and private shippers of railcars. Years back the service of repositioning an empty freight car was free to those shippers leasing or buying railcars so long as the railcars were predominately used in future revenue moves on the originating rail line. Railroads were assured they’d get the line haul revenue and actually incentivized the shipper to supply their own railcars in lieu of the railroads supplying the railcar. This was on top of a freight rate differential between private and railroad supplied railcars for the shippers’ business. Unfortunately, all of that incentive has gone away and the charges are significant.
A little fact checking regarding railcar supply. Beginning years ago, and especially now with Precision Scheduled Railroading (PSR), railroads have made it clear that they are only willing to invest in owning and/or leasing railcars that can haul a broad base of commodities or that support a very broad transportation industry. Typically speaking, the more products a single railcar type can carry or the lower risk the commodity is, the more likely it is that the railroad will engage in buying/leasing those railcars to support the shipper’s business. From a railroad’s perspective, it makes really good business sense. This business requirement has really shifted the number of railcars a railroad buys/leases and offers to its customers (system supplied railcars). In fact, about 25 years ago the railroads supplied about ~60% of all railcars to their customers. Now over 80% of all freight railcars are privately owned and controlled today. As an example, one primary industry railroads invest in is railcars for the grain industry. This is an area where the utilization of the railcars is high and can be supported without much extra effort by private industry railcars. The railroads have pooling or usage agreements that allow the interchangeability of private and railroad supplied railcars, using the private railcar bid structure to manage high railcar demand times. This allows the railroads to have a smaller fleet and a mechanism to meet peak demands while not having to invest in railroad owned railcars for these peak shipment times.
Mad About Costs…
The first move of a railcar empty to a new loading location is expensive and makes no initial economic return for the new shipper of the railcar. Sometimes railcars are physically so far from where they are to be used that it’s a stretch to make the economics of buying or leasing a railcar work for a shipper. Imagine having to reposition 20 mill gondolas from the eastern U.S. to the rocky mountain states or an average rail distance of 800 miles. At $4.60 per empty mile those 20 mill gondolas would cost $3,680 per railcar or $73,600 for all 20 railcars. This is before the shipper makes a single cent of return on their investment in the railcars.
Although it can be easy and understandable to do, one can’t blame the railroad for instituting charges for billing for empty revenue moves or, put differently, providing their services. Afterall, the railroad still incurs costs for what is would be a free empty move to the shipper. When we acknowledge that, it is hard to blame the railroad for billing for their service where they incur expenses. At the same time though there is an opportunity to drive more efficient loads and reduce empty railcar mileage by expanding the loading opportunities for each empty railcar. A win-win for the lessee, shipper and railroad as the number of loads would increase incrementally and the cost of transportation would remain the same on a gross basis and would go down on a per unit basis as more empty railcars were loaded.
A Change Is in Order – Get Involved!
Here at Tealinc, we have sympathized with our customers for years. We’ve helped our customers identify the empty freight costs and worked creatively with many of our customers to identify ways to offset those empty freight costs. Unfortunately, we’ve felt our customers pain directly when many determined they could not make a fair business case for rail given the excessive initial onboarding costs. We know it’s time for a change. As a true entrepreneurial company, we’ve been thinking for years outside of the box. We know in order to positively impact our customers business and in order to get more railcars repositioned to our customers where they need them, we’ve got to think differently. We haven’t yet changed the railroads minds but we are thinking maybe we need to start somewhere else. We know that companies compete in transportation costs, savings, location as much or more than the actual commodity. Tealinc has explored and continues to explore the single use trade-off for negating some or all of the empty mileage repositioning charges. The plan is to have the railcar move to a closer geographic loading place minimizing the empty miles that need to be paid for by the shipper. This loading place may or may not be in the same industry in which the railcar is going to be used but would be compatible with the product being shipped. The single use loaded movement would directionally support the ongoing empty movement of the railcar to the intended shippers’ location. There are a few methods to make this work and we’re looking for a few adventurous souls involved in the bulk commodity shipment arena to test the hypothesis. This will take some time to put together but the idea is that we’ll gather a database to house single shipment or short-term shipment needs categorized by industry/commodity, railcar type and general geography. If we have a railcar in California and you need that railcar in Utah short term and we have an end user in Florida needing the car, we’ll link up the entire move and work to apply true cost savings and shared resources to all parties.
Ready to Capitalize on Empty Railcar Movements
This is where you get involved and this is how we start a change. To discuss more in depth and/or identify ways we can work together, give us a call. Darell Luther, Tealinc-CEO, will be fielding all calls specific to capitalizing on empty railcar movements. All other railcar needs and project requirements can be addressed directly to our staff through our website at www.tealinc.com, email at email@example.com or phone at (708) 854-6307.
Contact Darell Luther
Let’s Create Value Together.
Tealinc is a railcar lessor, railcar management and consulting firm. Contact us for an evaluation of your rail transportation situation. We’re always engaged and care about generating positive results be it a railcar lease, management of your rail assets or providing exemplary consulting results. We’re looking forward to creating true value with you.