On the thread about Iowa lines to Chicago, Bob-Fryml mentioned the railroads running several types of trains over the same track at the same time, noting their differing prestiege,power,speed, and profitability. It made me start to wonder…
I work for a lumberyard. We have a pretty good idea of which customers, and what kind of business makes us money, and which really don’t.
Which trains make money for the railroad? Which ones are run for the prestiege? Which ones are run to help pay the light bill?
On the BNSF the UPS trains, TFC, Double stacks, Coal, Ethanol, Chemical and Lumber are the biggest producers of revenue. General freight it depends on the actual commodity. Those boxcars loaded by a freight forwarder don’t make the kind of money they used to and are in steady decline.
Prestige doesn’t count – there’s no one to impress. You’re also asking about profit, not revenue, correct?
It’s not feasible to break down profit on a “train” basis but only on a by-shipper basis because many shippers of identical commodities have a very different profit basis and distance, geography, and competition of source, material, and mode all affect the profit margin.
In extremely rough terms, commodities ranked in terms of profit, high to low, are:
That’s interesting. I would have never guessed autos to be toward the bottom.
Anyway, since people sometimes use words to mean similar but slightly different things, in this case how is “profit” being used. Is it the R/VC ratio, the total commodity contribution, or ?.
I suspect we will soon get a stern lecture on how international containers ought to be slotted somewhere down about 9.5, or how R/VC is the only way to measure profitability.
My interest in profit measures was always based on how it impacted my paycheck. I was hired to manage a market at the C&NW, SP and UP. I was measured on four numbers : units per year, revenue per year, revenue per unit and contribution to overheard per year or “profit”. Please notice I was measured on all four measures with a shift in emphasis at different parts of the business cycle.
Also, my experience was from 1969-2003 or before the plant filled up with traffic. We would take all business that had any profit margin if that was the best we could get from the customer. I beleve that world, like the Shasta Daylight at 9:30 am, is long gone.
This is a great topic. Profitability has always been an interesting discussion. A few years ago Trains had an excellent article (going to have to look it up) comparing intermodal vs carload traffic and how the margins on carloads was high and paid considerable amount of overhead.
The Trains map a few months ago outlining the movement of four cars was also very interesting, perhaps the most interesting map ever in that series. I was intrigued by the time it took to move individual cars from Tx to the Northeast.
Have the railroads begun to move pricing higher on the container business? Talk a couple years ago was that when the contracts with the container lines were up, the pricing was moving up.
Had an interesting talk with a fellow this past weekend who owns four grain elevators in East Central Illinois. We discussed the wild commodity price swings and how it affects him and his business (his take is it based on hedge funds moving away from equities and into commodities, thus artificially moving those prices). Anyway, he is currently paying $3200 a car in 65 car lots to move grain from his elevator to the Gulf of Mexico for export. At $208,000 per train, I would think that is extremely profitable.
CSX seems to move grain in 65 car unit trains. Anyone know why?
The answer to that might be “not neccesarily”. MichaelSol recommended a book about Chicago, from the economic point of view. In it, a good case was made, for running some trains at what you and I migh consider below cost. The justification was, that while maybe the train didn’t make a profit in the accounting sense, it did add some dollars to the bottom line, to cover some fixed costs that would be there whether a train was run or not.
…I really haven’t noted recently just what shipping costs are on the sticker of a new car…but I’d expect it to be somewhere in the range of $600 to $800 or so, and with a full auto carrier I’d certainly think it would be a decent “profit” to carry them to their destination. Kind of surprising to see it as 9th on the list.
I have “ringside” if you will, seat along the BNSF here, and I have always wondered which trains make the most, and which ones cost the most.
I see everything from grain, to autos, to coal, and containers pass by my house. Also included are empty coal trains headed west, do those trains cost the railroad money, or is the cost of bringing the empties back included in the cost of shipping a loaded train? Also, what about empties of other types? I have heard many a manifest freight as they prepare to leave Clyde Yard, announce to the dispatcher the number of loads and empties they are pulling, is the shipper charged a fee to move the empty car, or is that cost absorbed by the railroad? One last note: I occasionally see trains of empty containter, or intermodal cars, both inbound and outbound, and one was all BNSF container cars, is that train costing money, or is money made somehow on the movement of those empty container cars.
Increasing over-the-road speed increases cost for fuel and locomotives – that’s an absolute. Increasing over-the-road speed may reduce cost for equipment, may&nb
The costing side of the equation is the most difficult part. Even in Europe where costing is much simpler, SBB Cargo with relatively experienced managers managed to get it all wrong. Revenues went up about 12 percent, tonne-kilometers up almost 8 percent, losses up 400 percent. Needless to say the CEO, CFO, and Chief Marketing Officer were asked to resign. And this where train path costs, and electricity consumption are quite easily calculated, The vast majority of the movements are unit trains, even the intermodals. The railway operator bears none of the risks of empty space on the intermodal train. There is a lot of competion however, so the margins are quite limited compared to the US.
The cost to move the empty car is captured in the rate charged to the shipper for the loaded move. It is not broken out separately. For unit coal trains cycling repetitively between the same mine and the same power plant, the empty 1/2 of the cycle is fairly simple to cost. It’s similar for loose-car freight using assigned cars, though not nearly as simple. For loose-car freight using system cars, the empty costs are not so easy to calculate, as they are never the same for each loaded car, as the empty car is not captive. An average number for empty handling for that car type and lane is built into the rate for the loaded car.
To hear it from the folks in Omaha the money is made with the intermodal traffic and nothing else But for those of us in the operationg departmemts we know that the real money is made with the coal and grain and manifest traffic that out numbers the intermaodal traffic almost two to one CNW FOREVER Larry
Same here. I remember reading an issue a while back (I think the Fast Freight issue) that said loaded autos are enormously profitable for UP. With the wording the author used, I would think that even with the empties figured, they still had to be quite profitable. I guess I was misled.
Destination charges are not necessarily what the railroad receives in revenue, much less profit. Assuming an $800 destination charge per vehicle, and 15 vehicles per trilevel, the gross revenue to the automaker is $12,000. From that must be paid ramping costs at the factory, the railroad’s line-haul charge, deramping costs at the destination ramp, trucking costs from the ramp to the dealer, storage charges at the destination ramp, and mixing center costs. Each multilevel will account for two truckloads, and the truck even on a short haul to the dealer is going to have trouble doing better than one turn per day, which at $125-$150/hour for the truck means that trucking costs alone are $2,000 of the $12,000 gross. I have no idea how much profit the automaker makes on destination charges, either … for all I know it’s a significant profit center for the automaker.
The automakers are very big gorillas and use their market power to extract highly favorable rates from the Class Is in competitive bidding, and tend to award all-or-nothing contracts to ensure they get low rates even in high-demand lanes. The service committment is high meaning that the cost of operation is high. Not all railroads chase the business too hard in all lanes, especially the lanes that have higher value freight using up the capacity.