I don’t see how putting locomotives and cars into storage saves any significant amount of money. Granted, the variable costs are eliminated, but unless there is something to haul, there are no variable costs (fuel, maintenance, etc.) anyway. The fixed costs (depreciation, amortization or leases continue in place).
What am I overlooking here?
John Timm
From Trains New Wire
Published: Wednesday, March 25, 2009
CALGARY, Alta. - Canadian Pacific Railway may make further cuts in capital expenditures if freight volumes continue to fall, the Wall Street Journal has reported. Chief Operating Officer Kathryn McQuade said CP could cut its capital spending beyond what it’s already done; planned expenditures dropped from $1 billion to $800 million already for 2009.
McQuade said weekly volume on the railroad is down 16 percent this year due to the economy. To make up for the shortfall, “nothing is off the table,” she said.
CP has already cut costs by putting 350 locomotives and 15,000 freight cars into storage, and by furloughing 1,600 employees.
Equipment that is ‘In Service’ must be maintained, no matter if it is used or not. In service locomotive must have their quarterly inspections performed to remain in service. Maintenance is expensive, especially if the equipment is not needed to handle the volume of traffic. Putting cars in storage, on little used -out of the way tracks, frees the ‘operating’ portion of the railroad from having to dodge assets that are not earning a return on investment. Locomotives in storage frees the company from having to perform the required inspections, and in some cases on some lease agreements may free the company from the obligation to pay lease payments (a lot of ‘company owned’ locomotive are actually owned through lease agreements with various financial institutions).
The aim of the carriers during the times that we are currently experiencing is to make the company as ‘lean and mean’ as possible from an operating perspective. The carriers aims are always to move the most traffic with the least investment in equipment, manpower and facilities. Placing locomotives and equipment in storage is one way of doing this.
Almost all “in-service” locomotives that are not on a train are nevertheless idling* for “24 x 7”, all the while using fuel, cosuming oil, time on their air filters until changing, and to their next inspection, etc. Putting them in storage halts all of that as “variable expenses”.
Paul North.
For engine and “can’t-use antifreeze” reasons that have been better explained elsewhere.
The Class I carriers have been implementing APU (Automatic Protective Units) on their locomotives. These units utilize small diesel engines to keep the coolant warm and the batteries charged when the locomotives are not active in trains. The units are computer controlled and measure the ambient temperature as well as various locomotive conditions in order to make the decision if the small diesel needs to be operated at all. The small engines measure their fuel consumption in hours per gallon, rather than in gallons per hour of the locomotives prime mover.
It has to do with servicing, maintaining, inspections, compliances, etc. Plus, I have a feeling there is an accounting maneuver which helps with the books plus insurance, taxes, etc.
I asked the question in the first place because it seemed like window dressing for the shareholders, i.e. a big saving when there is not that much in reality. The points raised make sense. Thanks. John Timm
I’m wondering what percentage of the units have the APUs - nationwide, and specific to CPR in this instance ? If it is high, then BaltACD has a good point - there wouldn’t be much direct fuel savings resulting from storing the units.
Another consideration is that the stored units are most likely the older, least fuel-efficient, and less reliable ones - the ones still in service are likely the best in the fleet - newer, more fuel-economical, and less prone to failure. For a given quantity of work to do, the fuel-efficient loco would result in some direct savings. If it is more reliable, then there’s less frequent road breakdowns and resulting costs for extra crews, train delays, etc.
It would be interesting for someone “in the know” from a cost accounting and finance standpoint to tell us - for stored units - just where thos
The savings for storing locomotives is predominently FRA inspection avoidance as stored locomotives’ days don’t count toward the time between the required, periodic Federal inspections, and fuel - even though APU and Autostart equipped locomotives mitigate some of this. It’s not huge, but it’s not nothing, either, and it’s almost free.