Hello again,
I though I would start this or restart it (if it has been done) to discuss what the railroads find the most profitable commodities to haul and why.
I would be interested in knowing how much the railroads charge / can make on the haul too.
Thankyou very much.
Coal, grain, chemicals, consumer and paper goods. Intermodal…unsure of that.
I don’t work for any railroad company, just a railfan, but I would say Automobiles
What about passengers and mail? [:o)]
My guess for chemicals is plastics and plastic making chemicals like vinyl chloride, ethalene oxide and styrene monomer.
Also I would think anhydrous ammonia, molten sulfur, liquified petroleum gas, sulfuric acid, hydrochloric acid, chlorine, and sodium hydroxide solution. I would say thease chemical because the of the amount of tankers for thease chemicals.
As far as hoppers-soda ash, plastic pellet or resins (PVC and Polyethalene mainly), abrasives (aluminum oxide, silicon carbide), and sodium chlorate.
There is also quite a bit of tankers for calcium chloride and hydrogen peroxide so they might be included in the list.
3 major things will effect the profitability outright…How compettive the move is, what is the value of the material and how hazardous. As a general rule Cheicals are the highest in overall profitability. Molton Sulfur and Sulfuric acid would surprise you, they are moderate to low margin in the chemical world as they are basically a waste stream product rom other industries to the commodittee value is quite low. LPG would surprise you too as it is a commodittes available from multiple sources so the profiatbility is not huge…price it too high and the business goes elsewhere (Source competition)
Soda ash moves in huge volumes but is mostly captive to one originating carrier. Before transloads were set up in the mid 1980’s it was extremely profitable, afterwards one major rate cam down $20 a net ton !
Borax was another super high profitability until a second manufacturer and a transload happened.
One of the highest profitabilties anywhere …Phosphorus.
Plastics are not bad, but require storage yards and added logistics costs, again lots of source competiton keeps rates reasonable. Exotic liquid and dry products especcially hazardous can be very profitable.
Such as methyl methacylate nonomer, hydrocyanic acid, arsenic acid solution, hexamethyldiamine (dupx), methyl chloride etc?
What about gases like liquid oxygen, argon and carbon dioxide?
regarding,
“Roughly, the profit margins, from highest to lowest:
chemicals
coal
intermodal
forest products
automobiles
grain
metals, metallic ores, sand and gravel”
judging from the service given and the strong pu***o bigger unit trains over strong objections from customers, putting grain toward the bottom of the list is logical.
I recall chemicals were extremely profitable…
As usual, Mark seems to have it, so far as gross numbers go. I would be inclined to wonder (and, since the actual figures are, as he points out, internal company information I will probably never know!) whether the net profit or operating ratio for chemicals is as high as it might seem to be. The reason I have this wonder is that there are additional costs involving hazardous materials precautions which are probably spread across all operations, but which are incurred largely because of haz-mat concerns for some chemicals (as someone pointed out a while back, you see a white tank car with a red band and smell burnt almonds, you have about 15 seconds to get your affairs in order!).
Just a speculation; I haven’t a clue. Any thoughts?
Can’ answer about Agron or Liq Oxygen. Liquid CO2 moves cheap as it is available from many sources all over the MAP so there is source competiton and short haul local trucks to compete against in many instances. Liq CO2 is generally a waste stream off many other forms of manufacure to the product value is pretty low.
Chem for the most part moves as a mized manifest type business (There are unit trains and Plastics has some special logistics) but most moves like other manifest businesss through yards and a network of M or Q trains. The profitablilty of chemicals helps offset super low margin traffic, like many mineral and aggrigate traffics (Sand, cullet, rock etc)
Grain is not teh lowest profit margin traffic but it is being more and more looked at and managed like unit coal. The train stays with the power, and better rates are negotiated with shippers who can load unit trains in short time frames. The trains are designed to load and leave, make destiantion quickly and unload quickly, then return, thus ringing the cash register more frequently and keepingthe cost of the move super low.
Mark - Your list is right on the button. Within the chemicals profit margins are driven by the amount of competition between carriers and modes. It is not driven by the hazard. This is why there is so much interest in competive access at the major origins. The hazard does not dirve the price level. Although rather hazordous some VCM and styrene moves from the Gulf Coast into the East have fairly low margins due to water competition into the East Central and Mid Atlantic States.
Slotracer-I would be a little more optimistic about the margins on PE/PP/PVC and soda ash.
Would that mean that CP’s 200+ grain car trains through B.C would be their highest profitable venture?
I thought coal and chemicals. From what I understand intermodal isn’t as profitable due to the weight of the cars themselves hauling the trailers. Something about tare weight and all that?
Also depends on if a shipper is captive or not. It wouldn’t be too suprising if a captive grain shipper can provide higher profit margins for a railroad than a lumber shipper with access to competitive rail rates.
Futuremodal - You are correct about the
importance of competition to rate levels. When competition goes up rates go down. However, a verly small portion of traffic is captive. The Fed did a study at the time of Staggers and said 5% of the tonnage shipped in the US was captive. They looked at competition between railroads, competition between modes of transportation, competition between locations and competition between products. My gut guess is that 5% was too low and the portion of captive situations has dropped in the last 25 years as many customers have gained more access or threatend a build out to another railroad.
However, even if a small portion of traffic is captive that is still a lot of carloads. As examples, grain from the High Plains, loose car chemical shipments from the Baton Rouge/Newor corridor or WV and coal from the Northern Powder River Basin.
I would say any commodity that can turn around the cars with as little empty time between loads as possible
I’d say this order:
Coal (although this may eb declining)
Extrememly volitale hazardous materials (railroads charge greatly to move them and for all the safety mesaures required)
Grain (obviously it’s our #1 agricultural export)
Chemicals are by far and away the most profitable traffic the RR’s carry. For years the bromides kept the L&NW profitable. I am not sure about where intermodal stands on profit/load, but if you look at the reports from the RR’s intermodal has passed coal for total dollars to the bottom line.
Captive shipper are a high percentage of shippers. And they do get screwed by the RR’s. I have studies in my files concerning UP/BNSF rate comparisions for captive and non-captive shippers. I can only speak for coal as that is our concern, I work for utitlity that uses PRB coal. We could use the other RR but the current RR refuses to quote a price from an interchange about 15 miles from the plant. The partners in the plant have looked at a build out to reach the other RR, but it is still in the “we would like” to catagory. Our net savings would be in the +$6/ton catagory. And that over a years time is a lot of money. NOTE: we usually get 3 to 5 trains a week and own our cars. The other RR will not do the building as they are afraid that after the contract expires, usually a 5 year deal, that the first RR will come back with a competitive bid and take the contract back. While we can recover the costs in a 5 year period, the other RR cannot.
If you’re talking a single material, and not a whole industry, I would guess it has to be coal.
Dave
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