…I would imagine much of the costs you cite above {Railway Man}, must apply to other hauled commodities as well.
All I am pointing out is that we can’t assume that the destination charge assessed by the auto manufacturer to the auto buyer has 1:1 correspondence with the revenue to the railroad.
RWM
I would imagine, that the railroads would have to keep pretty good statistics on the total costs per year, in order to get some sort of average to build in. What can railroads do to try to lower those average costs, in order to improve efficiency?
- Reduce crew starts
- Reduce empty miles
- Reduce dwell time in yards
- Reduce number of sorts per car
- Reduce locomotive miles per train mile
- Demarket unprofitable or underprofitable shippers
All of those run into diminishing returns and negative returns at some point, of course. It’s pretty hard to zero in on the perfect plan, especially because traffic fluctuates and it’s always a moving target.
RWM
Railway Man: That looks like the general list for improving the general efficiency on the entire railroad system? I was thinking more along the line of: How do you reduce theoverhead cost of dealing with empty, non-captive freight cars? It would seem like there would be alot of variables beyond the railroads control?
Ah!
The easiest way is simply get rid of cars. This may sound appalling, but it’s exactly what any supplier does to control costs: eliminate services that don’t earn their keep.
That does mean that shippers may not have as many empties to load as they like, so this incentives the shipper to provide his own cars or pay a higher rate to get assigned cars. This also has a point at which returns become negative. Certain shippers of certain commodities never have enough empties. Case in point is westbound empty 40’ containers, which are being allocated to bulk shippers. The bulk shipper can always pay a “manufactured good” rate for the container and by so doing get access to all the containers he deigns to fill, but then his delivered cost to the chicken feed supplier in Vietnam or wherever is too high.
RWM
Getting back to what I believe is the crux of Murphy Siding’s original question, I think he was making inquiry in the context of the casual railfan observer watching a train rolling by. I completely agree with Railway Man’s categories by commodity segment, but the rough answer, by train type, may be (in descending order of profitability) as shown below.
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Loose freight car chemical trains, especially those that carry liquids and compressed gasses. The liability exposure to the railroad is high and for that the shippers pay a premium. Each car delivered without incident really pumps up the bottom line.
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Manifest traffic or what we call “loose freight car” railroading. Of special mention here might be the soda ash business from southwestern Wyoming to eastern markets. For 500-miles or so (Green River, Wyo. to North Platte, Nebr.) its all unit train economics. For the nearly 800+ miles from North Platte to the Chicago, Saint Louis, and Memphis gateways it’s largely loose freight car economics. But I bet the whole movement for each car is priced as something close to loose freight car rates.
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Higher value unit trains hauling grain.
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Lower value unit trains hauling coal and rocks.
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Piggyback and container traffic because it is railroad vs. truck competitive or BNSF vs. UP competitive / CSXT vs. NS competive.
On the subject of load to empty miles for free runners, at least as early as the 1960’s railroads were compiling computerized records of car movements including load/empty status. From that it was fairly easy to mine the data to develop the load to empty mileage ratios for any given type or subtype of car. Because of the large numbers, random sampling could be used to find the answer with a high level of confidence.
Which has me wondering…how bad is “worst by far”? What kind of numbers is a RR looking at when an Amtrak train is taking up a time slot that would otherwise be used for freight? I know this varies widely (wildly?) with different routes or segments but does anyone have some examples? RWM, where do you think Amtrak would need to be in this pecking order to get better O.T. performance (say, 85-95%) out of its host railroads?
An average freight train pays twice as much in net income as an Amtrak train does in
gross revenue.
As to what Amtrak would have to pay to get better priority, I’d be guessing about the strategy of the Class Is.
RWM
I laughed out loud at that one!
True corporate-speak for not answering the telephone when they call, scheduling the switching movement for sometime next month and such. I’ll bet there are a whole lot of interesting demarketing tactics out there!
[;)]
For those that want to know, take a look either in printed form or on web based at the annual reports and other information about the railroads. These can be accessed by calling the hq and asking for investor relations or by poking around on the website.
Either source will have a breakdown on the categories of traffic. These breakdowns will usually have 4-6 categories which will list the number of shipments (car or container loads) for the year (and previous year) and the revenue per unit.
BNSF sent out a investor pack last year which included breakdown in the costs, similar to those used by the old ICC reports.
By looking at these numbers and the average length of haul one can sort of get an idea of revenue per unit mile…but profitability per unit is not disclosed. That would be extremely sensitive information.
It would not be that difficult to assemble the costs involved for all types of traffic and then determine the profitability…that is what cost accountants are for.
ed
An apparently little-known booklet - which I don’t recall having seen mentioned or referenced on here before - on the cost accounting aspects of this subject in railroad applications is Profit Management Systems: Key to Stronger Railroads by E. C. Christ, Simmons-Boardman Publishing Corp., 1976 (about 80 pgs. or so, paperbound). For a little more info on this book, see the Transportation Research Board’s National Transportation Library “TRIS Online” bibliographic database at: http://ntlsearch.bts.gov/tris/record/tris/00147700.html It was written in the context of the prevalent mainframe-type computers at the time, and clearly contemplated mining the database as you mention. I tried to purchase a copy a few years ago, but found that it was out-of-print, and basically unavailable from any of the used RR bookstores, E-Bay or Amazon, etc. However, I was able to borrow a copy for a couple weeks - from Northwestern University’s (Chicago) Transportation Library through an inter-library loan [“ILL” - a truly wonderful tool for this and many other research quests, by the way - not everything valuable is on the Internet (yet).] Before I returned it, let’s just say that it paused briefly at a copying machine . . .
Also, retrieve any of John G. Kneiling’s multi-part articles on this subject, as published in Trains in the 1960’s and 1970’s. The one I remember best was entitled “The Rolling Stock Riddle”, if I recall correctly, but I’m sure there are sveral others as well as some of his monthly columns that touched on this subject, too.
Finally, I recall seeing statistics someplace one time a few (maybe quite a few) years ago that indicated that empty car mileage was 56 % of total car mileage. That surprised me - you&
“Profit” and “profitability” are not the same, and often represent different scenarios entirely.
And the answer for either question depends on which train and which commodity/product represents the captive shipper, not on the generic product class.
Archer Daniels Midland must have taken that to heart. I used to see blocks of ADM ethanol cars. Now I see unit trains of ADM grain hoppers.
The big RR corps. probably make money off all modes of freight traffic, excepting perhaps manifests that seem to be carrying little or nothing.
I for one can’t gauge which modes of freight bring the most. Is there perhaps an eighty/twenty rule that so many American businesses have acknowledged: twenty percent of the customers bring eighty percent of the revenues???
My guess would be intermodal but I really don’t know. With fuel escalators and all, I would think the bigs aren’t doing all that badly. Even in these recessionist times. - a. s.
I would estimate the BNSF, CN, CPR, CSXT, NS and UP each have about 3,000 regular customers. I suspect 250-300 customers bring in about 80% of the revenue.
I have always heard that bulk quantities in unit trains,(coal, wheat etc…) make a good deal of money for the railroads. Surprisingly, and I have a Trains tape that says this, intermodal is not a big money maker. I don’t know for sure how true this is but it supposedly has to do with how much weight the actual cars are as opposed to the trailers and the fact that they are not aerodynamic in any way. Please correct me if I am at fault.
That strikes me as a good ballpark number, Bob. In round numbers each of the four majors has:
- 12-15 ocean shipping lines
- 4-5 major forwarders
- 10-15 major LTL and TL shippers
- 20-30 large utilities
- 5-8 automakers
- 20-30 large minerals/metals extractors/refiners
- 20-30 major grain marketers/cooperatives
- 20-30 major chemicals companies/refiners
- 10-20 major forest products companies
Adds up to … 200-300 big customers.
RWM
Historically intermodal was indeed a very marginal business. Beginning about 1985 that began to change, and the profit and revenue growth has been dramatic in the last ten years. But the conventional wisdom outside the industry has been slow to change.
The lack of profitability had nothing to do with tare weight of the equipment or aerodynamic qualities (or lack thereof), but with low rates and high costs. The low rates stemmed from stiff truck competition and the high costs due to low volumes and the resulting inefficiency. Costs have declined dramatically as volume growth created efficiency, along with a lot of streamlining of the business and elimination of boutique services and unprofitable lanes. Rates have held firm or have been able to increase because truck rates have had to rise to cover fuel, labor, toll, tax, and equipment cost increases, all of which have much more effect on the truck than on the train.
RWM