Table of Contents

• Conventional Methods of Managing Rail Logistics
• Rail Software – Efficient Technology and Interconnection
• Key Benefits of a Rail Transportation Management System
  • Integrated Logistics Network
  • Comprehensive Automation
  • Empowered Data Insights

Conventional Methods of Managing Rail Logistics

The traditional approach to rail logistics long relied on manual processes that are inefficient and overly complicated. Rail shippers are all too familiar with the rote work of carefully monitoring railcar locations, combing through data to find insights, and managing databases based out of disconnected systems. As you can imagine, this usually results in significant time and financial investments. In an era where every second and penny counts, these manual methods are not just a challenge – they’re slowing down your ability to optimize and grow your business.

Inefficiencies appear in various forms: delays in communication lead to slower response times, human errors can find their way into processes, the inability to adapt swiftly to changing scenarios can mean missed opportunities, and an incorrect conclusion pulled from manual data can have drastic reproductions. This leaves you struggling to keep up with the demanding responsibilities of managing rail logistics while trying to find what went wrong and where. Often this means sacrificing the time you could be spending optimizing operations, finding opportunities to save, or disputing charges.

Rail Software – What is a Rail TMS?

Enter the Rail TMS, system solutions that offer a seamless integration of logistics operations through sophisticated technology. A Rail TMS isn’t only about replacing paperwork with digital records (though that is an aspect); it’s a comprehensive management tool designed to interconnect every element of the rail shipping process.

This technology offers a more intelligent approach to rail shipping logistics. With a Rail TMS, you can access an integrated platform that provides visibility over your entire rail shipment lifecycle. From automating routine tasks and optimizing tracking to generating comprehensive data visualizations, a Rail TMS streamlines the complexities of rail logistics into manageable components, allowing you to focus on what you do best – moving your business forward.

In our forthcoming exploration, we’ll delve into the benefits that Rail TMS offers and talk about why these systems are having such a significant impact on the rail shipping world. For our examples we’ll use Rail Command^®, our Rail TMS that our rail shipping team built specifically for anyone who ships by rail.

Key Benefits of the Rail Software Rail TMS

Though the benefits of a Rail TMS like Rail Command are many, we’ll break them down into roughly three pillars: Integrated, Automated, and Empowered.

Integrated refers to the comprehensive nature of a tool like Rail Command. All the information you need for your rail supply chain is in one place and talks to each other. That’s where Automated comes in; when the system talks to itself, or other systems, it does so in a way that reduces the amount of manual work you have to do on your end, saving time and money while reducing the likelihood of errors. And Rail Command Empowers you to optimize your rail shipping with automated data visualizations that help you, at a glance, manage your logistics while also finding areas for improvement.

Integrated Logistics Network

At the heart of a Rail TMS lies its ability to create an integrated logistics network. For example, Rail Command contains features for managing your rail rates, demurrage, railcar tracking, patterns and execution, railcar maintenance, and more. Having all of these capabilities in one place provides more opportunities for you to focus on managing your logistics rather than traveling from system to system manually.

However, it’s not enough just to have everything in one place; it also needs to talk to itself. Rail Command achieves this integration by weaving together data that is relevant to one another within the system. For example, as long as you’ve uploaded your equipment into the Rail Command equipment feature, that information will be used when you are developing shipments. If you input a capacity above a saved railcar’s maximum capacity, Rail Command will flag that for you. Or if you want to ship a hazardous commodity, Rail Command alerts you if the equipment you’ve selected is not able to handle the commodity.

This level of integration ensures that data—historically siloed and prone to discrepancies—is now a cohesive, reliable foundation for decision-making.

The real power of this integrated network becomes apparent when we think about data and information being presented in near real-time. Accessibility to up-to-the-minute information empowers you to move from reactive to proactive. Whether it’s finding out about an unexpected delay so you can reach out to a client or work with the rail carrier to facilitate movement, the immediacy of data at your fingertips means decisions are timely and informed.

Comprehensive Automation

Next, we’ll take a look at the power of automation in a Rail TMS. As we’ve discussed, manual methods bring with them the danger of human error and significant time spent. Automation capabilities minimize human error while boosting the overall operational efficiency of your rail logistics. By automating critical activities, a Rail TMS like Rail Command ensures your logistics stay on track and reserves the need for manual attentions for critical interventions.

For instance, Rail Command is built so that exception logs are automated and automatically identify potentially delayed or problematic railcars. This allows for more immediate corrective measures than if you were monitoring that rail car manually. Rail Command’s automation provides a dual benefit: they reduce the scope for errors that can happen with manual operations and enable a more agile response to potential logistic challenges. This means that you can maintain a smooth, efficient flow of goods, ultimately leading to enhanced service reliability and customer satisfaction.

Empowered Data Insights

With rail software like a Rail TMS, the power of comprehensive integration and automation come together to provide powerful data insights. Solutions like Rail Command are equipped with sophisticated data visualization tools, giving you the ability to more easily interpret complex data sets, which leads to faster and more informed decisions. Rail Command comes standard with a plethora of data visualization Key Performance Indicator reporting and a grid view customer report builder.

By automating processes and reducing the necessity for manual analysis, these tools in Rail Command contribute to the ability to find areas of your supply chain you can optimize. Rail Command includes data visualizations for dwell, fleet turns, historical shipment volumes, lane performance, and more. These actionable insights take data that you would have had to interpret manually and give you a quick glance to judge your rail logistics performance.

For instance, in Rail Command’s equipment feature, you can input the expiration dates of your leased equipment. Once inputted, a lease expiration data visualization is created; this timetable warns you of upcoming lease expirations so you can be proactive with your equipment. Another example is the demurrage dashboard, which uses reports from your logistics to power a filterable data visualization that shows cars in actual placement, cars accruing demurrage or charges, and more.

A Rail TMS like Rail Command is designed to bring you Integrated Automation that Empowers your rail logistics. By adopting a Rail TMS, you can save time and money on your rail shipping operations, all while finding new areas that you can optimize. And as the industry continues to move more towards efficiency and optimization, it’s time to consider a comprehensive Rail TMS.
Interested in learning more about our Rail TMS, Rail Command? Explore more now and command your rail shipping.

The post Rail Transportation Management Systems (Rail TMS) – The Rail Software that Empowers Your Rail Logistics appeared first on RSI Logistics.

This blog delves into how understanding and applying these critical data points can transform your rail shipping logistics, providing an advantage in planning, negotiating, and optimizing freight movements. With the right analysis, rail data opens doors to smarter decisions, enhanced service quality, and ultimately, more robust supply chain solutions.

Table of Contents

1. Quarterly Commodity Statistics
   1. Tips for Leveraging Quarterly Commodity Statistics
2. Peak Season Surcharges
   1. Tips for Effectively Utilizing Peak Season Surcharges
3. Carrier Market Shares
   1. Strategic Insights on Carrier Market Shares
4. Track and Equipment Investments
   1. Strategies for Leveraging Track and Equipment Investments Metrics

Rail Data: Quarterly Commodity Statistics

The Surface Transportation Board (STB), a government entity, releases a Quarterly Commodity Statistics report that showcases volume and revenue trends broken down by Class 1 railroads. This report is an invaluable indicator of the health of the rail freight industry. It breaks down volume and revenue trends by commodity group, offering granular visibility into which sectors are experiencing growth or decline. By analyzing these patterns, you can forecast demand cycles and manage your rail freight schedules and capacities.

If a quarter, for example, shows certain commodities having a marked volume increase, this may signal heightened activity in those markets. These trends can inform strategic rate structures and potential infrastructure investments for handling capacity surges. Conversely, commodities with contracting volumes might reveal emerging market challenges or competitive pressures.

This information is available in our rail rate management tool, Rail Impact^®.

Tips for Leveraging Quarterly Commodity Statistics:

• Commodity-Specific Analysis: Break down data to understand the nuances of each commodity class and adapt your logistical strategies accordingly.
• Revenue Versus Volume Insights: Balance the analysis of volume with revenue trends to spot the profitability of different commodity groups.
• Benchmark Against Industry Averages: Compare individual railroad performance against industry statistics for benchmarking and competitive analysis.

Rail Data: Peak Season Surcharges

Peak season surcharges are tools rail carriers use to manage increased demand and optimize revenue during high-volume periods. These surcharges are typically implemented during seasonal spikes, such as agricultural harvests or holiday merchandise shipping, when railroads face capacity constraints and heightened operational demands.

For shipping managers and supply chain directors, understanding the timing and magnitude of these surcharges can inform budgeting and logistical planning. By anticipating these additional costs, you can implement strategies to minimize expenses—for instance, by scheduling non-urgent shipments before or after peak periods.

Tips for Effectively Utilizing Peak Season Surcharges:

• Forecast Demand: Use historical data to predict possible surcharge periods and plan accordingly.
• Communicate Early: Engage stakeholders early to align expectations and shipment schedules.
• Evaluate Shipment Priorities: Strategically decide which shipments can justify the additional cost of peak season timing versus those that can be delayed.

Rail Data: Carrier Market Shares

Understanding carrier market shares is important if you’re aiming to secure the most favorable rail rates and reliable service. Market share distribution among Class 1 railroads and regional carriers can significantly influence pricing strategies, service availability, and route optimization. A carrier with a dominant market share in a specific corridor might leverage its position to command higher rates, while those with smaller shares could offer competitive rates to attract more business.

Strategic Insights on Carrier Market Shares:

• Negotiation Leverage: Knowledge of market shares can strengthen your position during rate negotiations, allowing for more competitive pricing.
• Diversification: Consider distributing shipments among several carriers to avoid dependency on a single provider and to leverage different strengths.
• Service Evaluation: Carrier market share can be an indicator of reliability and capacity; a larger share might suggest more comprehensive network coverage and investment in infrastructure.

Rail Data: Track and Equipment Investments

According to the Association of American Railroads, each year, freight rail companies invest an average of $23 billion to bolster and modernize their networks. Investments in track and equipment can be indicators of a rail carrier’s commitment to service quality, reliability, and future capacity. Observing where and how much carriers invest can provide deep insights into future rail rates and logistical efficiency. Enhanced tracks and modern equipment contribute to faster, more reliable deliveries and can signal a carrier’s ability to handle increased freight volumes without proportionate rate hikes. In contrast, insufficient investment could hint at potential service degradation or future rate increases to cover upgrading costs.

Strategies for Leveraging Track and Equipment Investments:

• Long-term Partnerships: Look for carriers investing heavily in infrastructure and equipment, as they are more likely to provide reliable and cost-effective services over time.
• Capacity Planning: Use investment data to anticipate which corridors or services might see improvements in capacity or speed, aiding in more effective supply chain planning.
• Negotiation Insights: Understanding a carrier’s investment trajectory can be a powerful tool in rate negotiations, empowering you to discuss future service levels and stability.

The post Strategic Rail Data Metrics for Enhancing Logistics and Reducing Costs appeared first on RSI Logistics.

1. Current Trends Influencing Rail Freight Costs
   1. Growth of Intermodal Transportation
   2. Precision Scheduled Railroading and Costs
   3. Seasonal Trend Effects
   4. Fuel Cost Dynamics as a Part of Rail Freight Costs
2. Historical Influences on Rail Shipping and Rail Shipping Rates
   1. The Staggers Rail Act of 1980
3. Rail Shipping Outlook and Emerging Trends
   1. Rail Freight Technology and Efficiency
   2. Rail Sustainability Initiatives
   3. Modal Shift Towards Truck Freight

From the impact of intermodal transportation growth and precision scheduled railroading to the effects of fuel cost dynamics and sustainability initiatives, join us as we delve into the factors dictating today’s and tomorrow’s rail shipping rates.

Current Trends Influencing Rail Freight Costs

Growth of Intermodal Transportation

Though seemingly remarkable, the rapid expansion of intermodal transportation is unsurprising. Since intermodal integrates different modes of transportation (e.g., rail, truck, and ship) for the movement of freight goods, it has become a powerful tool for shippers, and one that can impact rail pricing strategies. As of the last couple of years, intermodal volumes have seen a consistent increase, and now account for a vast portion of rail shipping. According to the Association of American Railroads, “in 2022, U.S. rail intermodal volume was 13.5 million units, and intermodal accounted for approximately 27% of revenue for major U.S. railroads, more than any other single rail traffic segment”.

By leveraging the efficiency and environmental benefits of rail for long hauls combined with the flexibility of trucks for last-mile connectivity, railroads are adjusting their pricing strategies. Generally, truck rates tend to be the benchmark for pricing if a railroad wants to compete for the business. As a result, since intermodal has expanded over the last several years, the railroads not only have to substantially invest in their intermodal facilities, but they must also manage their rates accordingly.

Precision Scheduled Railroading

Precision Scheduled Railroading (PSR) is the term for the railroad’s efforts to move to a system of streamlined operations to facilitate improved service. When PSR was introduced in the 1990’s, it represented a transformative approach to optimizing railroad operations and reducing operational costs. PSR focuses on maximizing asset utilization, improving service reliability, and streamlining operational processes.

However, PSR has been criticized as being incapable of keeping up with surges in demand during critical moments. Using PSR, railroad management’s job is to drive down the “operating ratio,” or operating expenses as a percentage of revenue. But in times of crisis, running without excess capacity can cause issues, which then can be placed onto the shipper in the form of higher costs. All of that extra effort, cost, and delay from PSR means higher prices for businesses or consumers that rely on rail for transportation. Shippers or shipper trade groups interviewed said that PSR and rail service resulted in higher costs.

Seasonal Trend Effects

Seasonal trends have the potential to significantly affect rail shipping costs by influencing supply and demand patterns, thereby causing shipping rates to fluctuate at certain periods. During peak agricultural seasons, for instance, rail demand often surges due to high volumes of crop shipments. Another example is when the retail sector influences rail traffic, particularly in preparation for holiday seasons during winter months; during these periods, carriers will charge more due to high demand and inclement weather. Conversely, the first quarter of a year often sees a lull in demand, leading to lower rates.

Fuel Cost Dynamics as a Part of Rail Freight Costs

The volatility of fuel prices has a direct and significant impact on rail operational expenses and, consequently, shipping rates. As fuel represents one of the largest variable costs for railroads, accounting for approximately 15-20% of total operating expenses, fluctuations in fuel prices can alter cost structures markedly. In order to recover their expenses, the railroads use a tool called Fuel Surcharge, which passes on some of the costs of fuel to the shipper. This surcharge is published monthly and is important to understand when dealing with rail shipping costs.

Historical Influences on Rail Shipping Rail Shipping Rates

The Staggers Rail Act of 1980

The Staggers Rail Act of 1980 revolutionized the rail industry by significantly deregulating it, providing railroads with the freedom to set prices, streamline their operations, and compete with other transportation modes. According to the Federal Railroad Administration, “by 2011, freight rates adjusted for inflation had declined 0.5 percent a year since the passage of the Staggers Act, compared to an increase of nearly 3 percent per year in the 5 years prior to 1980”. It also spurred market competition and service improvements. The Staggers Act laid the vital groundwork for today’s flexible pricing strategies, which has allowed shippers to negotiate contracts directly with railroads.

Market-based pricing has led to some railroads shifting back to tariff rates for some of their commodities. The intent is to simplify their rate negotiations and ensure an even playing field for all shippers. Despite these public tariffs, private contract rates remain prevalent.

Rail Shipping Outlook and Emerging Trends

Rail Freight Technology and Efficiency

The future of rail shipping is being shaped by investments in technology, digitalization, and automation. Railroads, providers, and shippers alike are beginning to leverage a host of advanced services, including automated analytics, GPS and sensor monitoring, smart management services, and more. Technology-driven initiatives not only promise to elevate service levels but also present opportunities for more dynamic and potentially lower pricing strategies.

For instance, at RSI Logistics, our rail shipping experts have found that implementing a solution to track daily railcar movements at a facility could save up to 30% on their annual rail shipping costs. Technological advances are often directly tied to improved efficiency, and as the industry trends towards further optimization, technology becomes increasingly important.

Rail Sustainability Initiatives

Sustainability initiatives are becoming increasingly emphasized throughout all modes of transportation, with the adoption of green technologies poised to reshape long-term cost structures and pricing strategies. For rail transportation, railroads are investing in eco-friendly locomotives, such as those powered by battery-electric and hydrogen fuel-cell technologies. And for shippers, considering rail over truck for long distance movements can improve their carbon footprint. In North America, freight trains can move one ton of goods nearly 500 miles on a single gallon of fuel, compared to trucking’s 130 miles per gallon.

Implementation of energy-efficient practices not only supports environmental goals but also helps in controlling operational costs, potentially translating into more stable and competitive pricing for shippers. Consider monitoring these developments, as the industry’s push for sustainability is expected to potentially influence rail costing strategies in the future.

Modal Shift Towards Truck Freight

With the increasing consumer demand for rapid delivery and the railroad’s struggles with on time delivery, the rail industry’s competitiveness in the freight shipping landscape has been challenged. This shift towards trucking encourages anyone involved in shipping with rail to reassess their pricing strategies, service offerings, and negotiation power. With total revenue derived from primary freight shipments expected to reach over 1.5 billion dollars in the US by 2032 (an increase from 1 billion in 2021), rail providers are prompted to innovate and potentially adjust pricing to remain attractive options. This can be an opportunity to negotiate with more leverage.

While all the above industry trends affect rail pricing, one of the most important factors is the leverage that shippers have. For instance, if your facility that ships rail is dual served (more than one railroad is available to drop off and pick up your railcars), there is the opportunity to negotiate with each railroad. Or, if you can perform an analysis on alternate routes and lower rates from other rail carriers, you can negotiate with your current carrier. By presenting these competitive factors to the railroad, they tend to price to get the business.

However, even if you are captive to one railroad, you can influence your rail rates by developing more leveraged negotiation strategies, as well as considering other modal options, transloading, or alternative sourcing.

The post What Influences Rail Shipping Costs? appeared first on RSI Logistics.

Welcome to our comprehensive guide on demurrage, the often overlooked yet significant cost associated with shipping freight. Whether you’re new to logistics or a seasoned professional, understanding demurrage is crucial for optimizing your operations and keeping costs under control. This blog serves as an ultimate resource, diving deep into every aspect of demurrage – from its fundamental principles to advanced management strategies.

In this blog, we’ll start by demystifying what demurrage actually is and why it matters to your business. We’ll explore the key factors that contribute to detention charges and provide a detailed breakdown of how these fees are calculated. Recognizing the common pitfalls is only the beginning; the core of our guide focuses on effective strategies and tools for managing, disputing, and reducing detention costs.

You’ll also find insights into leveraging rail logistics management technology, including a look at specialized services. Furthermore, we’ll share expert advice on negotiating terms with rail carriers and practical tips to improve your operation’s efficiency and minimize demurrage fees.

Table of Contents

1. 1. Section 1: Definition of Demurrage and Related Terms
      1. Demurrage versus Detention versus Storage
      2. Rail Owned versus Private Cars
      3. The Demurrage Clock
      4. Key Measurements and Events
   2. Section 2: Demurrage Operational Context
      1. Open versus Closed Gate Customers
      2. Understanding Specific Railroad’s Demurrage Rules
      3. Events That Impact Demurrage
   3. Section 3: Financial Aspects of Demurrage
      1. Understanding Credit/Debit Days
      2. Financial Strategies to Minimize Charges
   4. Section 4: Managing Demurrage Charges
      1. Submitting a Demurrage Dispute
      2. Identification of Bunching and Its Impact
      3. Proactive Measures to Avoid Charges
      4. Tips and Tricks for Efficient Demurrage Management
   5. Section 5: Leveraging RSI’s Experts for Demurrage Management
      1. Comprehensive Reporting Tools
      2. Demurrage and Storage Charge Audit
      3. Enhanced Visibility
      4. Regular Performance Reviews
      5. Proactive Consulting

Section 1: Definition of Demurrage and Related Terms

The terms used in demurrage can be confusing and not easily comprehensible. Furthermore, sometimes terms are used interchangeably; for instance, we often hear ‘demurrage’ and ‘detention’ used to describe charges that are one or the other, and vice versa.

However, it is important to have an understanding of how each term is used, why, and when. When it comes to disputing charges and lowering costs, a necessary foundation is the knowledge of how demurrage works and what goes into producing your charges.

Demurrage vs. Detention vs. Storage

Demurrage is sometimes used as a catch all term for storage, detention, and demurrage, but there are differences depending on who is holding onto cars, and who owns the cars.

Demurrage in Shipping

The definition of demurrage is a charge that compensates rail carriers when railroad owned railcars are detained by rail shippers. It serves as a penalty for undue railcar detention to encourage the efficient use of railcars in the rail network.

Private Car Storage

A private car storage fee is for privately owned railcars that have excessive use of railroad owned tracks.

Customer Detention Fees

Also known as customer holding, detention charges occur when a customer detains a shipper’s cars for a longer period than agreed.

Rail Owned vs. Private Cars

No matter your product or cargo, if you are shipping via a rail mode of transportation, you will require rail cars. There are a wide range of rail cars utilized in North America for a diverse range of materials, but all of them are either rail owned, or privately owned.

Rail Owned Cars

Rail owned cars are the property of the railroad companies. The railroads are responsible for the maintenance, insurance, and regulatory compliance of these cars.

• Usage: These cars are used to provide service to shippers who do not own their own cars. Railroads maintain a variety of cars to cater to different types of cargo and shipping requirements.
• Demurrage: Shippers using rail-owned cars are subject to the railroad’s standard rules and rates. Railroads typically enforce these rules to ensure the efficient use of their fleet and to incentivize the quick turnover of cars.
• Flexibility: Using rail-owned cars offers flexibility in that shippers do not need to invest in a fleet, manage logistics, or handle maintenance. However, they have less control over the specific cars they get and may face availability issues during peak times.
• Cost: Shippers do not need to make a direct investment in equipment, but they may face higher charges and less favorable terms compared to those with private rail cars, especially if they frequently ship goods that require specific types of cars.

Private Cars

Private rail cars are owned by corporations, leasing companies, or individuals rather than by the railroad companies. Owners typically bear the responsibility for the maintenance and insurance of these cars.

• Usage: These cars are often specialized to meet the specific needs of their owners, such as custom configurations for transporting particular types of freight or enhanced features for sensitive cargo.
• Demurrage: The demurrage rules for private cars can vary, sometimes offering more favorable terms or reduced rates because the railroads do not have to provide, maintain, or insure the equipment.
• Flexibility: Owners have more control over their rail cars’ movements and usage, potentially optimizing logistics and reducing operational costs. However, they also need to manage the logistics, maintenance, and any regulatory compliance of these cars.
• Cost: While owning or leasing a private car requires upfront investment and ongoing maintenance costs, it can offer cost savings and operational advantages for frequent shippers with specialized needs.

The Demurrage Clock

The “demurrage clock” refers to the period during which charges accumulate. Understanding how the demurrage clock operates is essential for shipping and receiving entities to minimize additional charges. The mechanism of the clock involves several key components and processes:

1. Free Time: This is the allotted period given to load, unload, or store a railcar without incurring any charges. Free time is defined by the rail carrier’s tariff or the contractual agreement and can vary depending on the type of cargo, destination, and specific rail carrier policies.
2. Start of the Clock: The clock starts ticking immediately after the free time expires. The initiation of the clock is usually triggered by specific events such as the arrival of a railcar at a designated interchange, placement of the railcar at the customer’s facility for loading or unloading, or notification to the customer that the car is available.
3. Accrual of Demurrage Charges: Once the free time is exceeded, demurrage charges begin to accrue. These fees are generally calculated on a per car, per day basis. The rates and calculation methods are specified by the railroad’s tariff and can significantly affect the overall cost of rail logistics.
4. Stopping the Clock: The clock stops when the condition causing the charge is resolved. For loading or unloading scenarios, this is typically when the railcar is fully loaded or emptied and is released back to the railroad. For storage scenarios, it stops when the railcar is moved out of the storage area.
5. Exceptions and Adjustments: Certain conditions, such as weekends, holidays, force majeure events, or railroad-caused delays, may influence how the demurrage clock is calculated. Railroads may offer specific exemptions or adjustments in these cases, detailed in their tariff or service terms.

Key Measurements and Events

To manage and potentially minimize charges, it is important to understand several key measurements and events, along with the terminology used in rail transportation and, more specifically, demurrage. Here’s an overview of some of these terms:

Free Time

As we just saw with the clock, free time is the period during which a railcar can be used for loading, unloading, or storage without incurring any demurrage charges. This period is predefined by the rail carrier’s policies or contractual agreements.

Importance: Free time is used to provide a buffer period for shippers and receivers to handle railcars without accruing additional costs. Pay attention to your allotted free time with your carrier, as they do vary.

Notification Time

Notification time refers to when the railroad notifies you that your railcar has arrived and is ready for pick-up or unloading.

Importance: The accuracy and timeliness of this notification can significantly impact your ability to manage your railcar’s movement efficiently. If the carrier’s notification is not timely, that will make it more difficult to avoid charges.

Placement

Placement occurs when a railcar is moved to a specific spot designated by the receiver or shipper for loading or unloading.

Importance: The clock for free time often starts when your car is placed, not when it arrives, making the timing of placement critical.

Actual Placement vs. Constructive Placement

Actual Placement is what happens when your railcar is physically placed in a spot where it can be loaded or unloaded directly. Constructive Placement is used if your railcar cannot be placed because of reasons such as lack of space or preparedness on the part of the receiver. Even though it’s not in its final spot, for demurrage purposes, the clock may start.

Importance: Because constructive placement can still start the demurrage clock despite not being capable of being unloaded, it is important to pay attention to what placement your car is received.

Release

Release marks the end of the demurrage clock for a specific railcar. It occurs when your car is fully loaded or unloaded and the organization with the car notifies the railroad that the car is ready for pickup or has vacated the spot.

Importance: The time of release is critical; delays in notification can extend the demurrage period unnecessarily.

Credits and Billing

In some cases, railroads may offer credits for demurrage, and these can be applied to offset charges under certain conditions. Demurrage charges are typically billed after the event occurs.

Importance: Understanding if you’re receiving credits, and what conditions they can be used for, can help you overcome expensive charges.

Section 2: Demurrage Operational Context

The operational context of demurrage is critical since effective handling of demurrage charges can significantly influence cost management. Since demurrages charges can rapidly escalate, managing these requires understanding the intricacies of logistical operations that affect demurrage.

Open versus Closed Gate Customers

In the context of rail demurrage, the terms ‘Open Gate’ and ‘Closed Gate’ customers refer to the type of facility that is receiving or shipping railcars and the procedures these facilities use to manage rail traffic. The choice between Open or Closed Gate can have significant implications for how your demurrage charges are incurred and managed.

In both scenarios, the key to managing charges is efficient management of railcar movement and turnover. And though both types of facilities have unique methods of improving rail logistics, for both it is helpful to have clear communication channel with the rail carriers and to understand all terms of your service agreements.

Open Gate Customers

An Open Gate customer operates a facility where railcars can come and go without the need for an appointment. There are no gate restrictions, and railcars are typically moved in and out of the facility as they arrive.

Implications:

• Pros: The facility may handle railcars more quickly because there’s no waiting time for appointments, potentially reducing the likelihood of demurrage charges.
• Cons: Without a structured system for managing incoming and outgoing railcars, there might be less control over railcar movement, which could lead to congestion or delays if not managed properly, potentially increasing demurrage exposure.

For Open Gate customers, having a robust system for monitoring railcar traffic and quickly processing cars as they arrive, and leave can help to minimize charges. Since cars can be processed on arrival without waiting, quick turns are advantageous but require coordination.

Closed Gate Customers

A Closed Gate customer operates a facility that requires an appointment for a railcar to enter or exit. There are specific gate procedures, and railcars are often scheduled and managed more tightly in terms of their movement in and out of the facility.

Implications:

• Pros: The appointment system provides a more controlled environment, potentially leading to better planning and management of railcars, which can decrease the likelihood of incurring demurrage charges.
• Cons: If appointments are not scheduled efficiently or if there are delays outside the customer’s control, there could be higher risk of demurrage if cars are sitting idle waiting for their appointment slot.

For Closed Gate customers, advanced scheduling software and strong logistic planning are essential. They need to align railcar arrivals with available unloading/loading slots to avoid railcars sitting idle waiting for an available slot, which leads to demurrage.

Understanding Specific Railroad’s Demurrage Rules

The nuances of demurrage rules can significantly impact the charges you receive, and each railroad’s rules may differ. Here’s a deeper look into the components that govern demurrage rules:

The Length of ‘Free Time’

The duration of this period can vary significantly from one carrier to another and may also depend on the type of cargo or specific agreements. Shorter free times require faster turnaround, which can challenge operational capacities, especially during peak times or unexpected delays.

The Rate of Demurrage Charges

After the free time expires, charges begin to accrue at a rate specified by the carrier. These rates can be fixed or variable, and sometimes escalate the longer a railcar remains unutilized. Understanding these rates is essential for forecasting potential costs and for making informed decisions about the timing of cargo movements. It influences not just budget planning but also operational strategies for avoiding or minimizing demurrage fees.

Tiered Charging Structures

Many carriers implement a tiered system where the daily rate increases after certain thresholds are reached. This is designed to discourage prolonged use of railcars as storage and encourages more efficient cargo handling. This system makes it crucial for you to prioritize the movement of railcars within or shortly after the free time to avoid escalating charges that can significantly inflate costs.

Exemptions

Carriers may offer exemptions or waivers for demurrage charges under specific conditions, such as natural disasters, operational disruptions not within the control of the shipper, or when railcars are misrouted by the railroad. Awareness of potential exemptions allows you to negotiate waivers or reductions in charges when unforeseen circumstances affect your ability to load or unload in a timely manner.

Dispute Process

Rail carriers have established procedures for disputing demurrage charges. This might involve submitting evidence of timely loading/unloading, proof of extenuating circumstances, or errors in billing. Knowing how to navigate the dispute process is crucial for rectifying unjust charges and can help maintain financial planning integrity. It requires meticulous record-keeping and an understanding of the carrier’s documentation requirements.

Events That Impact Demurrage

Rail demurrage charges are triggered when railcars are not loaded, unloaded, or moved from the railroad’s property within the allowed free time. Various events and scenarios can lead to the accumulation of these charges. Understanding these common situations can help shippers and receivers plan better and take preventive measures to avoid or minimize demurrage costs. Here are several events that frequently impact rail demurrage:

Delays in Loading or Unloading

Insufficient staffing, equipment failures, or inadequate preparation for the railcar’s arrival can delay the loading or unloading process. Once the free time expires, demurrage charges start accruing until the railcar is freed up for movement.

Congestion at Facilities

Overcapacity at loading, unloading, or storage facilities can lead to congestion, preventing timely access to railcars. Railcars remaining stationary due to inability to proceed with loading or unloading procedures due to congestion start accumulating charges after free time.

Inaccurate Scheduling or Planning

Miscommunication or poor scheduling could result in rail cars arriving when the receiver is not ready or when space is not available. Misalignment in scheduling leads to railcars sitting idle, thereby incurring demurrage.

Documentation or Customs Delays

Incorrect, incomplete, or delayed paperwork can halt the movement of goods, particularly for international shipments undergoing customs clearance. Any hold-up related to paperwork can cause your rail car to be detained beyond the free time.

Equipment Availability

Lack of necessary equipment to load or unload cargo, such as cranes for heavy lifts, can delay operations. The absence or failure of essential loading/unloading equipment precipitates demurrage charges.

Weather or Natural Disasters

Extreme weather conditions or natural disasters (floods, earthquakes, severe storms) can disrupt rail operations and facilities. Although these are uncontrollable events, they can still lead to railcars being detained beyond their free time, initiating demurrage charges, though some railroads might offer waivers in these situations.

Operational Inefficiencies

Inefficient internal processes, poor yard management, or lack of coordination with the railroad can cause delays. Inefficiencies within the shipper’s or receiver’s operations that result in railcar detention beyond allocated free time lead to demurrage.

Section 3: Financial Aspects of Demurrage

Understanding Credit/Debit Days

Credit/Debit Days is the time frame that railcars are utilized for loading and unloading versus the time they are allowed to be used as per the rail carrier’s policy. Credit days refer to the days when demurrage credits (non-chargeable days) are applied to your account with the carrier, versus debits (chargeable days).

The concept of credit days refers to the days for which no demurrage charges are applied if the loading/unloading of a railcar is completed within the specified free time. This free period varies by carrier but typically ranges from 24 to 48 hours after the railcar’s arrival. If the loading/unloading exceeds the free time, each additional day (or part of a day) that the railcar is held is counted as a debit day.

Demurrage fees are then calculated based on the number of debit days—the days when the railcar is occupying space beyond the free allowance—multiplied by the applicable demurrage rate set by the carrier.

The basic calculation for demurrage charges can be expressed as follows:

Demurrage Charge = Number of Debit Days * Daily Demurrage Rate

To apply this with a practical example, if you hold onto a railcar for three days beyond the free time, and the daily demurrage rate is $100, then the demurrage charges would be:

Demurrage Charge = 3 Debit Days * $100/Day = $300

Credit Days would simply be the days within the free period where no demurrage was incurred and would not usually need to be calculated unless they are part of a more complex credit accrual system with the rail carrier.

Financial Strategies to Minimize Charges

Here are some financial practices that can help you reduce both the likelihood and the magnitude of demurrage charges:

• Accrue Strategically: Set aside a budget for potential demurrage charges based on historical data and future estimates. This helps in managing cash flow effectively and avoids surprises.
• Regular Review: Conduct regular reviews of demurrage invoices to ensure charges are accurate and justified. Identify any patterns or recurrent issues that could be addressed to prevent future charges.
• Detailed Record-Keeping: Maintain meticulous records and documentation for all shipments, including times of arrival, loading, unloading, and departure. This data is crucial for disputing unwarranted charges.
• Negotiate Terms: When entering contracts with rail carriers, negotiate demurrage terms that are favorable or that reflect realistic turnaround times based on your operations.
• Volume Discounts: Leverage your shipping volume to negotiate better rates or terms regarding demurrage charges.
• Demurrage Insurance: Consider purchasing demurrage insurance to cover unexpected demurrage costs that exceed normal occurrences, especially for high-value shipments or during periods of increased risk.
• Escrow Accounts: Some companies set up escrow accounts specifically for demurrage fees, helping to manage the financial impact separately from regular operating expenses.

To see if you could be saving on your demurrage costs, use our Demurrage Savings Calculator, designed by RSI Logistics’ rail logistics experts.

Section 4: Managing Demurrage Charges

Submitting a Demurrage Dispute

To effectively submit a demurrage dispute and potentially have the charges waived or adjusted, follow these typical steps:

1. Review the Invoice and Terms

Before filing a dispute, thoroughly review the demurrage invoice and the terms of service regarding demurrage as laid out by the rail carrier. Understand the charges and why they were incurred.

2. Gather Supporting Documentation

Collect all relevant documents that you believe support your case. This might include timesheets, railcar tracking data, communications with the railroad, or evidence of force majeure scenarios like adverse weather conditions.

3. Submit the Dispute Form

Railroads usually have specific forms and processes for submitting demurrage disputes. You often need to fill out a dispute form which requires details such as:

• Your company’s contact information
• Details of the disputed charge (such as invoice numbers, railcar numbers, dates of service)
• A clear explanation of why you believe the charges are incorrect
• Any supporting documentation

4. Send the Dispute Within the Deadline

It’s crucial to submit the dispute before the deadline, which is typically within a set number of days after the invoice date (e.g., 30 days). Late submissions may not be considered.

5. Follow-Up

After submitting the dispute, keep track of the process. Rail carriers have their timelines within which they aim to resolve disputes (e.g., 30 days).

6. Review the Decision

Once the railroad reviews the dispute, it will make a decision to either adjust the invoice, waive the fees, or uphold the charges. Review the decision carefully to understand the outcome and the reasoning provided.

Reasons to Submit a Demurrage Report

You might choose to dispute demurrage charges for several reasons. These generally align with situations where you believe the charges are either unwarranted or incorrect.

• Carrier-Caused Delays: If the delay in unloading or moving the railcar is due to the carrier’s own operational issues, such as equipment failures, misrouting, or crew shortages.
• Force Majeure Events: Events beyond the control of either party, such as severe weather, natural disasters, or other extraordinary events, might justify waiving demurrage charges.
• Incorrect Billing: Discrepancies in the bill, such as incorrect calculation of charges, misidentified railcars, or charges applied outside the agreed free time.
• Inaccurate Time Tracking: If the carrier inaccurately recorded the arrival or departure times of the railcar, resulting in unfair demurrage charges.
• Lack of Notification: If you were not properly notified about the railcar’s arrival, thus preventing you from making timely arrangements for unloading.
• Facility Issues: If the receiver’s facility was not accessible due to carrier’s operations, such as track maintenance or congestion caused by the carrier, then demurrage charges may be disputed.
• Disputes Over Free Time: You might be able to contest demurrage charges if there’s a disagreement over the amount of free time allotted or if there was a misunderstanding about the terms and conditions surrounding free time.
• Exceptional Circumstances: Sometimes, there may be unique or exceptional circumstances that could be considered as a basis for waiving demurrage charges.

Identification of Bunching and Its Impact

In the rail transportation context, “bunching” refers to the occurrence when several railcars destined for a particular location arrive at the same time or within a very short timeframe. This can happen due to various scheduling reasons or inefficiencies in a rail network, causing multiple trains or shipments to converge simultaneously. Bunching conflicts with the expectation of evenly spaced arrivals, which allows for smoother unloading processes and better resource management at the receiving end.

Bunching can have a significant adverse impact on demurrage:

• Overwhelms Facilities: Facilities may not have the capacity or manpower to handle a large influx of railcars simultaneously, leading to delays in unloading.
• Exceeds Free Time: Due to the unanticipated accumulation of railcars, the time required to unload can exceed the free time allowed by the carrier, resulting in demurrage charges.
• Strains Resources: Limited rail tracks, loading docks, or storage areas may become saturated, causing additional railcars to be held up on the rail network, which also can result in more demurrage costs.

Mitigating Bunching Effects

• Improved Communication and Coordination: Regularly communicate with the rail carrier to be informed about the expected arrival of cars. Coordinate with other shippers and the rail carrier to spread out the delivery of cars.
• Scheduling and Tracking: Schedule unloading resources efficiently and use railcar tracking technology to monitor the movements and anticipated arrival times closely.
• Buffer Stocks and Storage: Maintain buffer stock or additional storage capacity to handle unexpected surges in railcar arrivals.
• Contractual Terms: Negotiate terms with rail carriers that account for the possibility of bunching, such as extended free time or flexible demurrage policies.
• Efficient Resource Management: Optimize resource allocation, such as workforce and equipment, to handle peak unloading times.
• Operational Improvements: Implement process improvements to increase the speed of unloading when bunching is imminent or occurring.
• Strategic Planning: Develop a comprehensive logistics plan that anticipates potential bunching scenarios and includes contingency strategies.
• Diversifying Supply Chain: Consider using alternative transport modes or different routing options to reduce reliance on a single rail carrier or route that may be prone to bunching.

Proactive Measures to Avoid Charges

Proactively avoiding or minimizing demurrage charges before they occur requires strategic planning and efficient operation management.

1. Efficient Loading and Unloading Operations: Streamline operations at your facility to ensure quick loading and unloading of railcars. This may involve investing in better equipment, optimizing labor shifts, or redesigning storage for easier access.
2. Regular Communication with the Railroad: Maintain open lines of communication with the rail carrier. Inform them of any potential delays or operational issues at your facility that might impact railcar movement. Similarly, get real-time notifications from the carrier about railcar statuses.
3. Utilize Tracking Tools for Railcars: Invest in railcar tracking technology or use carrier-provided tracking systems to have real-time information on the whereabouts and estimated arrival times of your shipments. This allows for better preparation and resource allocation.
4. Review and Understand Tariffs and Policies: Be well-versed with the carrier’s demurrage policies, free time allowances, and applicable tariffs. Understanding these details can help you strategize to maximize free time and minimize additional charges.
5. Consolidate Shipments: Whenever possible, consolidate your shipments to reduce the number of railcars used and minimize the risk of demurrage. Larger, less frequent shipments may be easier to manage than numerous smaller ones.
6. Implement a Just-in-Time Inventory System: Adopting a just-in-time system can reduce the time goods spend in your inventory, synchronizing your supply chain to the arrival of railcars and thus minimizing idle time.
7. Engage in Partnership and Collaboration with Carriers: Work towards building a collaborative relationship with your carriers. Negotiating terms that are mutually beneficial can sometimes lead to more favorable demurrage terms or increased flexibility during unforeseen circumstances.

Tips and Tricks for Efficient Demurrage Management

These tips and tricks are offered by our team of demurrage experts, who specialize in assisting our clients in minimizing their demurrage charges.

1. Maintain Open Spots: Leave some open spots available so that railcars can be immediately ordered in upon reaching constructive placement. Rail carriers charge from the date of arrival to the date the car was ordered in for unloading by plants.
2. Plan Ahead: Anticipate the arrival of incoming railcars and ensure an equivalent number of railcars are unloaded/loaded and released upon their arrival. For instance, if you have five railcars arriving over the next three days, plan to have five railcars unloaded/loaded and released before then.
   1. Coordinate with Shipping Partners: Work closely with partners, especially in plants unloading various commodities, to streamline operations.
   2. Leverage Transit Time Insights: Take time to understand your lanes’ typical transit time. If you’re not certain how to do so, at RSI we offer a Transit Times data visualization report.
   3. Monitor Load/Unload Times: Compare load/unload times with transit times when developing logistical plans.
   4. Expand Storage Options: If possible, consider additional storage methods (e.g., silos, bins, containers) to build a reserve of products, reducing reliance on railcars for storage and minimizing demurrage costs.
3. Optimize Internal Processes: Regularly evaluate your load/unload times and improve these processes for maximum efficiency.
4. Negotiate Terms: If you’re a shipper who has a considerably large amount of rail freight, negotiate terms with railroads, who are often willing to provide favorable conditions to large partners.
5. Incorporate Buffer Time: Establish a cushion for unexpected delays to avoid the domino effect.
6. Educate Your Team: Ensure your staff understands the carrier’s specific tariff rules to avoid preventable charges.
7. Audit Demurrage Invoices Regularly: Implement a routine review of demurrage invoices to catch any discrepancies or opportunities for dispute.
8. Create a Contingency Plan: Develop backup plans for unforeseen logistical challenges.
9. Utilize Demurrage Management Technology: Take advantage of technology like Rail Command to plan, track, and maintain a historical record of your demurrage activities.

Section 5: Leveraging RSI’s Experts for Demurrage Management

Our Demurrage Management Service combines Rail Command, our rail shipping management technology, with our rail demurrage experts to minimize unnecessary demurrage costs. By offering tailored solutions, we empower you to not only track but also actively manage and optimize your demurrage. By improving the accuracy of tracking, enhancing the visibility of railcar movements, and fostering proactive management practices, you can not only dispute demurrage charges but also preemptively address issues that typically result in charges.

Our Demurrage Management Service includes:

Comprehensive Reporting Tools

Demurrage Reports:

• Summary and Detailed Reports: Offer an overarching view and granular data about rail car movements and standing times.
• Site Report and 5 Days Out Report: Enable proactive management by forecasting potential demurrage scenarios before they occur.
• CP Report, Transit Time Report, and Lane Performance Report: These specific reports target performance metrics that influence demurrage costs directly.
• On-Time Report and Pipeline Report: Help in understanding schedule adherence and the sequencing of cargo loading/unloading operations.

Manual Reports:

• Invoice Tracker: Records demurrage charges and disputes, effectively associating costs with plants and providing a history of disputes.
• Total Demurrage: Visual comparisons across different periods showcase the financial impact of demurrage and the effectiveness of dispute management.
• Switch Performance Report: Focuses on operational failures like missed switches, aiding in accountability and improvements in scheduling efficiency.

Demurrage and Storage Charge Audit

Our process involves a thorough audit of demurrage charges:

• Dispute Submission: Engaging with railroads to contest unjust or erroneous charges with documented evidence.
• Relationship Management: Maintaining strong connections with railroad demurrage contacts to facilitate negotiations and dispute resolutions.

Enhanced Visibility

Included is a dedicated email for our demurrage management experts that serves as a direct line for inquiries, providing you with a straightforward method for communication.

Regular Performance Reviews

If needed, our demurrage management experts can hold strategic sessions with your railroad representatives to ensure continuous improvement and accountability, as well as address systemic issues that are causing charges.

Proactive Consulting

We advise you on best practices and strategies to avoid demurrage:

• Preventative Planning: Understanding railroad-specific nuances which can be leveraged to avoid charges.
• Historic Data Analysis: Identifying patterns and preparing for predictable fluctuations in railcar usage and demurrage accrual.

Ready to take control of your demurrage costs? Discover how RSI’s Rail Command technology, paired with our expert Demurrage Management Service, can transform your approach to demurrage. Get started with RSI today and elevate your rail management strategy.

Effectively managing demurrage is crucial for maintaining cost-efficiency and operational smoothness in rail freight shipping. Throughout this guide, we’ve explored what demurrage is, the key factors influencing these charges, and detailed strategies to manage, reduce, and dispute them effectively. By implementing the insights and tools discussed, particularly RSI’s Rail Command coupled with our expert Demurrage Management Service, you can proactively handle demurrage, leading to significant cost savings and enhanced operational efficiency.

Remember, demurrage doesn’t have to be a cost of doing business; with the right approach, it’s a controllable factor that can dramatically improve your bottom line. Take charge of your demurrage management today and drive your business towards greater profitability and efficiency.

The post The Ultimate Guide to Demurrage: Understanding, Managing, and Reducing Your Costs appeared first on RSI Logistics.

In this blog, our rail logistics experts take a look at nine vital elements of freight costing, what they mean, and how you can use them to improve your rail shipping costs.

How Freight Rate Costs Affect Rail Freight Costs

Understanding freight rate costs is pivotal if you rely on rail carriers for your shipping needs. Grasping the nuances of these costs not only enables you to effectively budget and plan but also uncovers opportunities for negotiation and cost reductions.

Rule 11 versus Through Rates

If your rail freight must be shipped on more than one railroad, this is known as a multi-railroad shipment. There are two different methods of charging rates with a multi-railroad shipment: Through Rates or Rule 11.

Rule 11 refers to the billing practice where each carrier involved in transporting shipments invoices you separately. Understanding Rule 11 is crucial because it can influence the total cost of shipping, because costs like handling fees and rates can vary between carriers. Through rates refers to when one rate is charged from the origin carrier; then that carrier is responsible for paying any other carrier(s) in the movement.

If you ship via more than one carrier, consider switching to Rule 11 for your rates. Although Through Rates reduce administrative burdens, you don’t receive as much information about how much you’re really paying. Furthermore, you lose the ability to negotiate individually with each railroad.

Fuel Surcharge and Rail Shipping Costs

Fuel surcharges are additional fees rail carriers impose to cover fluctuating fuel costs. These surcharges can significantly affect your freight costs as they are tied to variable fuel price indexes. RSI Logistics offers a data visualization of those fuel surcharges here, or you can find them in tools such as Rail Impact®.

To lessen the sting of fuel surcharges, you can:

1. Opt for longer-term contracts to lock in rates.
2. Consolidate shipments to maximize fuel efficiency.
3. Stay informed about fuel price trends to better anticipate surcharge changes.

The Railroad’s Costs

Railroads expenses range from fuel, labor, and maintenance of tracks and trains to regulatory compliance and technology upgrades. These costs directly influence the pricing of rail freight services, as they pass along costs to freight shippers on their network.

Understanding these operational costs can help you better understand your freight costs, and even empower you during negotiations. For example, knowing when railroads might be more eager to fill capacity could lead to lower rates. Or you can leverage periods of lower demand to commit to long-term contracts, which might be more appealing for railroads looking to secure steady revenue streams.

Revenue-to-Variable-Cost Ratio (RVC)

The RVC is a key metric that the railroads use to measure how much revenue the railroad generates compared to its variable costs, which include fuel, labor, and maintenance directly associated with each journey. An RVC above 1 indicates that the revenue covers the variable costs, generating a profit margin, while an RVC below 1 suggests that the service isn’t covering its variable expenses.

A railroad typically sets its profit targets based on what it currently earns from similar traffic. For instance, if existing rates for a specific commodity yield an RVC of 2.0, the railroad will likely aim for the same return with any new rate proposals, particularly if the new traffic could replace current business. Railroads often aim to surpass this ratio through a strategy known as margin-plus pricing, where they seek higher than normal profit margins.

While you don’t want to discuss RVCs with the railroad, by understanding them, you can identify opportunities to negotiate better rates, especially if you know a rail service is operating efficiently with a healthy RVC. This knowledge can be leveraged during off-peak seasons or for routes where railroads are keen to increase volume.

Optimizing Transit Time

Optimizing transit times entails a strategic approach to routing, scheduling, and environmental concerns, all of which contribute to minimizing delays and ensuring goods arrive at their destination swiftly and reliably.

Transit Days

Transit days refer to the amount of time taken for goods to be transported from the point of origin to the destination. This measurement can heavily influence total freight costs, with longer transit times generally increasing costs due to storage, handling, and capital tied up in goods in transit.

To reduce transit days, opt for direct routes when possible and leverage expedited shipping options for time-sensitive cargo. Effective planning and off-peak scheduling can also avoid delays. For instance, choosing a slightly more expensive direct route can lower overall costs compared to a cheaper, longer route with multiple interchanges.

Carbon Footprint

Carbon footprint measures the amount of greenhouse gas emissions produced by rail operations, particularly the route your rail shipment takes. Longer transit times and less direct routes often result in a larger carbon footprint due to increased fuel consumption.

To reduce your carbon footprint, consider using the most direct routes and combining shipments to maximize load efficiency. For example, shipping full rail cars instead of multiple less than full rail shipments can cut fuel use.

Routing Options and Minimizing Rail Freight Costs

In rail freight shipping, a route refers to the specific rail tracks and connections selected for transporting goods from their origin to their destination, with each route varying in distance, transit time, and potential obstacles or considerations. Selecting the right route is crucial for minimizing freight costs. An optimal route balances shorter transit times with lower operational costs.

Utilize tools like Rail Impact to evaluate potential routes effectively. Rail Impact offers insights into multiple routing options from origin to destination, allowing for a comprehensive comparison of times, distances, and associated costs. By analyzing these options, you can choose routes that offer the best mix of efficiency and cost savings.

Market and Carrier Information

Leveraging market and carrier information is important to securing competitive advantages in rail freight logistics. By staying informed about market trends, rate fluctuations, and carrier capabilities, you can make data-driven decisions that optimize cost, efficiency, and service quality.

Serving Carriers and SCRS

A serving carrier is a railroad company that provides freight service to your shipping and/or receiving facilities. The SCRS (Serving Carrier/Reciprocal Switch) database, accessible through tools like Rail Impact or Rail Info, lists these carriers, offering critical data for strategic planning.

Utilizing the SCRS database enables you to identify all possible serving carriers to facilities, which provides leverage in cost negotiations. For example, if two or more carriers can serve your shipping needs, this competition can be used to negotiate better rates or service terms.

Market Analysis Impact on Rail Freight Costs

A market analysis involves examining the trends and patterns of commodities being shipped—such as grains from the Midwest or automobiles from manufacturing hubs—the volumes typically transported, and the railcar types most used. This information, available through platforms like Rail Impact or Rail Info, provides valuable insights for strategic shipping decisions.

Leverage market data to understand demand cycles and average rates for your commodities. This knowledge assists in forecasting costs and identifying the most economical rail cars for your shipments.

Navigating the intricacies of rail freight costs involves a keen understanding of the myriad factors that go into building these costs. By utilizing resources like the SCRS database for carrier options and leveraging market data to inform shipping strategies, you can significantly enhance your negotiation stance. Remember, every element from route selection to the type of railcar impacts your bottom line.

We encourage you to apply these insights and strategies to your rail freight operations; and if you need to talk to our rail logistics experts about how to apply the strategies explored in this blog, reach out to us, or come join our free webinar where we take a look at how to negotiate with the rail carriers. Empower your rail logistics and reach out now.

The post Decoding the Data and Metrics Behind Rail Freight Costs appeared first on RSI Logistics.

• Managing Delayed Railcars with the Railroad Shutdown Request
• 10 Rail Shipping Cost Saving Strategies
• 3 Reasons Your Rail Freight Logistics Isn’t Working – And How to Fix it
• What is Rail Shipping Demurrage and How to Dispute It

But what happens when an element in your rail logistics takes an unexpected turn in a way you could have never planned for? How do you overcome these sorts of challenges?

Unfortunately, just like every mode of transportation, rail freight is not guaranteed to arrive on time. One month a car you ship may take five days to arrive at the destination, then the next month it could take fifteen days to arrive at the same destination. One of the main functions of our Client Success team is to utilize Rail Command® or our shipment monitoring services to find when our client’s shipments are hung up in transit – and over our forty years of improving rail logistics, we have seen a myriad of unexpected challenges.

Our solution? Ensure you have visibility on your fleet of railcars and can obtain accurate reporting data. Keep track of your records and use them to open discussions with the carriers. And establish open lines of communication and accountability.

The results we’ve seen from these methods are improved transit times and cost savings.

Preparing for the Unexpected with Rail Tracking – Reporting and Visibility

Reporting and visibility are the foundation of managing your in-transit fleet and responding to unexpected challenges.

Visibility is essential for knowing where your fleet is. Though this is vitally important in the day to day of managing rail freight logistics, it takes even more of a spotlight during moments of crisis. Trying to manage your disrupted shipping through manual methods can be a massive time sink.

Reports that are generated from your rail logistics offer valuable information that can assist you in making informed decisions based on data, rather than biased conjecture. Reports can provide insight into such questions as:

• Where is the railcar in question?
• When will my car arrive at its destination?
• How long has my railcar been delayed?
• And, in some cases, why has my car been delayed?

For receivers, you can run inbound trace reports manually; however, you can only obtain reports for specific locations. If you have multiple locations, you will have to manually check each individual location. For shippers, you can only have visibility manually by going to your specific rail carrier’s website, and manually inputting information on each railcar to check its location and progress. If there are any challenges that arise, by using these methods, you will be manually running reports.

However, there are smart solutions, railcar management software, that can modify the above manual methods and make them automated. For instance, in Rail Command, a current sightings report can be used to automatically pull those reports to provide visibility and answer those key questions. From there you can even apply filters and add additional columns that will give you a much more complete picture than manual methods.

Post-Challenge Follow Up

Record Keeping

Keeping a record of your railcars that have been delayed in transit is a primary method of overcoming unexpected challenges. These records can help you build a story of why your railcar was delayed.

To manually obtain reports post-delay, you can pull reports for each individual, specific cars in your fleet. Again, you must go to each rail carrier’s site to do so. For automated methods, once more rail management solutions can turn this process into a few clicks instead of a lengthy process. For instance, the Service Logs feature in Rail Command can collate this information from the current sightings report. From there, you can apply filters and add additional columns that will provide a more complete picture. You can also make a note within the service log to keep your records all in one comprehensive database.

From there, you can create cases with the rail carriers or use a service provider such as our team at RSI Logistics. Once the carriers have the records, they can use this historical information to assist them in concentrating on problem areas and working to find solutions to improve traffic efficiency.

The carriers accomplish this by running reports of your open cases to find where problems are occurring. From there, they determine a course of action. Be cautious and proactive – often in the rail carrier’s website, when the shipment is complete, the attached case notes and delayed car notes will disappear.

However, automated rail shipping solutions like Rail Command can accomplish reports of records in the service logs, and these records cannot be deleted by the system unless you choose. Below are examples of how Rail Command creates cases with the rail carriers.

Accountability

Often a simple phone call to the carrier about a shipment that has been delayed in transit will trigger an action with the carrier that results in getting your railcar moving again.

With all the challenges shippers have been facing over the last few years, the last thing you want to do is let the railcar sit, as occasionally, railcars have been known to sit for a month or longer. Maintaining open lines of communication with your carrier(s) and escalating when necessary is important to keeping your fleet fluid.

Improved Rail Shipping Logistics through Rail Tracking

In our experience, we have seen that actively tracking your fleet or using a tracking management tool can improve transit times and provide cost savings. Staying on top of your railcars in transit and working with your carrier(s) will help bring the delay to the attention of the appropriate parties in a timelier fashion, and keeping your fleet moving means you are utilizing your railcars to their maximum capacity. The more railcars sit, the more it will cost. Having the proper tools for visibility is proven to possibly save administrative and management efforts by 25%.

To further enhance the management of your rail fleet and ensure you’re not incurring unnecessary costs because of idle or delayed railcars, access our comprehensive Getting Started with Railcar Tracking and Tracing Checklist for free. This resource was written by RSI Logistics’ shipment management service experts and is tailored specifically for rail professionals like you. The goal of our shipment management service is to streamline your operations while saving your company significant time and effort – and we put that knowledge to work in this checklist.

Equip yourself with the rail tracking knowledge to keep your shipments moving efficiently.

The post Rail Tracking: The Answer to Your Unexpected Rail Freight Shipping Challenges appeared first on RSI Logistics.

Recently, we’ve seen an increase in businesses interested in exploring the potential of shipping by rail. As the trucking industry deals with unpredictable highs and lows, many companies are considering rail as a more cost-effective alternative to trucking. Rail is an excellent mode of transportation presenting numerous advantages, like cost-savings, stability, less environmental impact, and safety. We put together this blog post to provide some instructions and tips about how to ship by rail for beginners. We’ve updated this blog post in 2024 to give you more information and additional tips.

What Commodities Are You Shipping?

The first thing to consider for beginners when shipping by rail is the type of commodity that you are thinking about moving via rail. The products that you will move are a major factor in determining which modes of shipping are appropriate! The commodity being moved is the foundation and basis for your rail shipment, and as a result, this is the starting point. So, let’s talk about the details of the commodity you will be shipping and the important questions to ask.

Time-Sensitive Commodities

Is your commodity time sensitive?

Although rail is an excellent way of moving bulk commodities over great distances, it is also considered one of the slower modes. The rail network is rigid and delays resulting from weather events, derailments, embargoes, and more, can have a ripple effect on the entire North American rail network. For example, weather issues in the New Orleans area can result in delays to rail traffic in the Chicago area.

Though it also depends on the distance, rail loads often take two weeks or more to make it to their destination. For this reason, time-sensitive loads may not be ideal for rail.

Commodity Type

Most commodities can move via rail. However, your specific commodity may affect which type of rail transportation you should trust to move your goods. For example, if you are shipping dry bulk goods, you can certainly take advantage of shipping on standard manifest trains, as that will be your most cost-effective rail option.

Conversely, if you are shipping finished goods, you are more likely to use an intermodal shipping option. With this option, your goods will be containerized and moved in the same container on truck, rail, and if shipping internationally, on a vessel.

Distance and Costs

Rail transportation has been shown to be cost effective over long distances, thanks to fuel-efficient trains. In fact, on a single gallon of gas a train can move one ton of freight 492 miles!

This makes rail the obvious choice for both your wallet and our environment for movements longer than 400 miles! However, the savings of shipping by rail decline when the distance from the origin to the destination is short and involves multiple railroads. Even with short moves, the railroads still have a base cost to move the goods and their overall ability to mitigate costs over many miles becomes hindered. It’s important to factor in distance when comparing the costs of rail vs trucks.

Origin and Destination

Another important detail to consider when looking at the distance of your move is where your move begins and where it ends.

Because rail shipping relies on tracks that have already been placed, and cannot easily be removed or changed, rail transportation is limited to certain routes. If where your supply chain begins and ends is not rail served, you will have to figure out how to get your commodities to and from railcars.

One method to accomplish this is transloading. Transloading is when goods are transferred from one mode of transportation to another. For rail, that normally means taking something from a railcar and placing it into a truck, or vice versa. For example, let’s say your origin location is rail served but your destination is not. In this scenario you can load directly to railcars at your origin, but you will need to use a transload facility near your destination, so the product can be transloaded to truck for the final move to your destination.

Railcars and Volume

In addition to your routes and commodities, it’s also critical to consider the volume of goods you’re moving. One railcar can carry about four truckloads worth of goods. If you have a high volume of goods over long distances, rail will generally be ideal. A high volume of goods will also spread out the costs of railcar ownership or leasing costs.

How to Get Railcars

If you are interested in starting in rail shipping, you may still be wondering where to obtain the railcars you need. what about a railcar?

This answer depends on multiple variables. Railcars can be purchased, leased from railcar manufacturers and owners, or supplied by the railroad. If you anticipate consistent rail volume, you may prefer to lease or purchase your own railcars, instead of using railroad provided railcars. The type of commodity you’re shipping will also influence this decision, which we’ll discuss in a later section.

If you anticipate infrequent movements via rail, your better option may be to use railroad-provided railcars, also known as system cars. These are one-time use railcars that you pay for as part of the freight rate.

An Example: Shipping From Houston to Cleveland

Let’s take a look at an example. Let’s consider the movement of a bulk commodity from Houston, TX to Cleveland, OH. To ship by truck in this example lane, the costs would amount to approximately $5,159 per load, whereas rail would be $6,676 per car. However, you also have to consider the volume of goods you’re shipping. Since one railcar equals four truckloads, you must apply the ratio of 1:4. This amounts to a truck cost of about $215 per ton, and a rail cost of only about $70 per ton. This will vary somewhat depending on whether you are leasing railcars, using railcars you own, or using system cars.

Railcars and Commodities

Another variable to help beginners ship by rail is to consider your commodity type. Some commodities cannot be shipped in system cars. Instead, you must lease or purchase railcars. Generally speaking, the only type of system cars available are flat cars, box cars, hopper cars, and automotive cars. If your commodity is bulk liquid, sensitive to getting wet, or has other special considerations, you will need to procure your own railcars. In this process, you will also determine the type of railcar that best suits your needs. Here are some common examples:

• If you are moving any type of free-flowing liquid, you will want to ship it in a tank car.
• If you are moving free-flowing dry bulk, you may want a hopper car. However, if you are moving dry bulk that cannot be exposed to the elements, you may want a covered hopper car.
• If you are moving palleted palletized goods, you will want to use a box car.

The railcar owner that you are working with can help you determine the best option for your specific requirements.

Take Advantage of Rail Shipping

Should you take advantage of shipping by rail?

Rail is an incredible mode of transportation due to its ability to transport a massive amount of goods at one time. In fact, when comparing railcars vs trucks, one railcar is typically able to handle 3-4 truck loads worth of goods! However, due to trains moving massive amounts of goods for many companies at one time, trains are forced to stop though during transit to both add and remove cars. This contributes to rail shipments being slower than truck shipments.

One aspect of rail that is similar to trucks is the freight rate process. In rail, your volume may impact the overall rate you are given by the railroads. If you have significant volume, you may have the leverage to negotiate freight rates with the railroads. Or, if you are not able to negotiate private freight rates, you will be required to ship on a railroad’s public rate, also known as tariff rates.

If you are contemplating a new rail-served location, you should consider selecting a location with access to more than one railroad. This will give you leverage in negotiating rates because your location is now competitive, meaning you have more than one rail carrier you can ship with.

Final Thoughts

If you’re one of the many shippers who is considering rail for the first time, welcome! Although there is a learning curve to rail shipping, your cost savings can be significant. Before you jump in, consider the product, distance of the move, rail access, and railcar requirements.

If you find yourself unsure of where to start, don’t worry. Here at RSI Logistics, we can help you get started in rail shipping! Our experienced staff is able to guide you through the process. Reach out to find out more.

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What is a Railroad Shutdown Request?

A Shutdown Request is submitted to the Railroad if production at your facilities is at risk of being stopped due to necessary product in railcars being delayed on the rail’s network. The request informs the railroad of the severity of your logistics challenge and how close you are to being forced to shut down your operations

Why File a Shutdown Request?

The significance of a Shutdown Request is to alert the railroad that you are at risk of a shut down. A facility will be considered at risk when the number of cars at your facility and/or in your pipeline will not sustain production past a given date.

Rail shutdowns carry substantial financial risks for both shippers and railroads, as halted production lines mean delayed operations and increased expenditures without the necessary inbound materials to continue. You file a Shutdown Request to communicate to your railroad the challenge you are facing if your shipments are not inbounded soon.

When to File a Shutdown Request?

Each railroad handles the timing of a Shutdown Request differently. Ensuring you know the specifics of your railroad before submitting a request is important.

For example, the CPKC railroad requires forms for a Shutdown to be submitted a minimum of 72 hours prior to the effective date and time of the shutdown. On the other hand, both the NS and BNSF railroads require you to first open a case with them, and they will advise if you the cars in question qualify for a Shutdown Case.

It is important to note that Shutdown Requests should not be opened simply to expedite transit of railcars. Cases should only be opened when cars are needed to keep operations running or be forced to shut down. According to the NS, you can discern if a shutdown request is valid based on order history, transit time and current inventory on-hand. There are a limited number of rail cars the railroad can prioritize moving more quickly than the rest of the network and overpopulating the network with non-shutdown-related cars exacerbates the challenge.

Steps to File a Railroad Shutdown Request

However, if you have checked and found that a Shutdown Request is needed, you can follow the below steps to prepare and submit your request.

Step One: Preparation

First gather all necessary documentation and information related to the shutdown. The railroads will need to know the following required information:

• Provide the name and phone number of a 24/7 point of contact at the plant.
• Provide the date and time your plant will shut down/run out of stock if not serviced.
• Provide the number of cars you need to continue production and the car numbers that are needed.

Step Two: Notification

Contact the railroad your needed railcars are being shipped on and inform them that you are at risk of a shutdown. From here, initiate the formal request process by opening a case. Provide the railroad with the information you gathered in step one.

In this step, ensure you are paying attention to any differences between the railroads. For instance, the CPKC and CN require specific forms on their websites to be filled out along with opening a case.

Step Three: Review

The railroad will review your shutdown request and you will wait for their result. All Shutdown Requests are vetted by the railroad before escalating to a Shutdown Case.

Step Four: Implementation

If your request is approved, the Railroad will work with your plant contact to establish when you will be serviced.

Railroad Shutdown Request Considerations

Most railroads will not approve a Shutdown Request if the delay was not caused by that railroad. For instance, if your facility is serviced by the BNSF, but the NS caused the delay for the railcars you need expedited, the BNSF will not approve your request.

However, if a railroad denies your Shutdown Request, you can still request escalate the cars internally via methods beyond the Shutdown Request. Remember each railroad handles their Shutdown Requests somewhat differently, and there are sometimes solutions if the request is denied.

Some Railroads, like the CN for example, will not approve a Shutdown Request if the delay was caused by another Railroad; however, they will add the cars to a “HOT LIST” to protect the service moving them.

BNSF does not have a “HOT LIST”, however, if they deny your Shutdown Request, you can request that they escalate the case to a Network Manager. From there, the Network Manager will monitor your cars until delivery.

Additional Railroad Shutdown Request Resources:

• BNSF Case: https://customer2.bnsf.com/s/messageus
• CN Shutdown Form: https://ecprod.cn.ca/cis/#/tools/shutdown-notice
• CPKC Shutdown Form: https://www8.cpr.ca/cpcustomerstation/document/getPlantShutdownForm
• CSX Case: https://next.shipcsx.com/#/spr/home
• NS Case: customerservice@nscorp.com or https://accessns.nscorp.com/home/case-management/manager
• UP Case: https://support.myuprr.com/s/

No one wants to be placed into a situation where your only choice is to shut down if you do not get the shipments you need. Unfortunately, if your business operates within the logistics industry, there is a chance it might happen, and being prepared for that eventuality is far better than being underprepared. We at RSI Logistics know the power of being ready for challenges when they arise, and we want you to be as prepared as possible.

If you’re struggling with receiving your shipments on time, visibility on your rail logistics, or excessive fees and complicated rail shipping networks, we can help! Reach out with your challenge, and let’s find a solution together.

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Reducing logistics spending can be an uphill battle, especially in the railroad industry. Many areas are served by a small number of carriers, or even just a single carrier. Rail logistics cost reduction strategies become even more challenging with limited negotiating power. However, there are ways to negotiate and reduce rail transportation costs. As you take a closer look at your logistics, consider the following railway cost cutting strategies. We’ve updated this blog post in 2024 to give you additional strategies and information.

10 Rail Logistics Cost Reduction Strategies

1. Strengthen Relationships

Developing a cooperative approach is important in dealing with the railroads’ sales, marketing, and operations departments. You may also be able to utilize the relationships that a 3rd party rail logistics provider may have. Strengthening these relationships is an important rail logistics cost reduction strategy. Though it can take some time, engaging in open dialogue with railroad operators allows you to work together towards identifying mutually beneficial solutions. Every railroad has a customer service department for shippers that are dedicated to improving your experience on their network. The better your experience with their company, and the more you can find success on their network, the more you will ship with that railroad. As a result, they want to help you overcome challenges as well. Furthermore, having that dialogue established can also provide flexibility and faster responsiveness when faced with emergencies.

2. Streamline Rail Operations

Disjointed rail operations and improper fleet management within your facility can hurt your credibility as a preferred rail shipper. Things such as plant switching difficulties, excessive demurrage, or storage charges can be viewed as negatives. However, implementing a rail management solution will help you streamline your rail operations, improve fleet management, and provide you with negotiating power when discussing rail rates. With the help of RSI Logistics’ rail management solutions, it is also possible to cut back on costly demurrage or storage charges. Careful data analysis and railcar tracking can also give you a stronger position to form more equal footed relationships with rail carriers. We’ll discuss data-driven rail logistics cost reduction strategies in more detail later in the post.

3. Strategic Alternatives

According to the Surface Transportation Board (STB), many rail freight customers are considered “captive” or only served by a single railroad. Options to work with alternative carriers or modes could also be considered, especially when developing new production or distribution sites. Can your product be transloaded? Is pipeline or marine transport a possibility? Oftentimes, supply chain and logistics are not part of the up-front evaluation for new locations, but investment in these types of strategic alternatives can pay off by reducing rail transportation costs. We’ll discuss our transloading services in more detail later in the post.

When we have assisted clients in evaluating the rail transportation for new locations we start by looking at:

• Which carriers can be accessed
• Condition and operational limitations of the tracks
• The railroad’s service plan
• In-plant track considerations including staging, loading, unloading, inspection, cleaning, and maintenance
• Potential rail origins, destinations, routing alternatives, and cost estimates from/to intracompany facilities, suppliers, and customers.

4. Rail Transloading

Transload terminals provide a way to ship by rail when a location doesn’t have direct rail services. Transloading can also be used to gain access to a competing carrier when there are no switching or interchange agreements in place. Depending on the commodity, transfer locations can range from a simple team track with space for self-transfer to a fully-staffed terminal with specialized equipment and facilities for your commodity. A transloading plan can help you identify the right facilities and routes. Developing strategies to take advantage of and optimize transloading and intermodal freight can help reduce rail logistics costs significantly.

5. Control Your Inbound

Rail logistics cost reduction strategies aren’t limited to negotiations with rail carriers alone. Suppliers also play an important role in the overall cost of rail transport, while maintaining a focus on providing products. If you receive them on a delivered basis, the supplier may not aggressively negotiate the most competitive rate. Or, the embedded transportation rate they pass on to you may not be what they pay. Benchmarking rail rates against cost indexes can help you identify when costs may be out of proportion. When possible, take responsibility for optimizing your inbound deliveries yourself, or find a savvy third party that can do it for you. Controlling your inbound over time can help you reduce rail transportation costs in a big way.

6. Optimize Rail Equipment

Fleet assets often compose a significant portion of a rail shipper’s logistical budget. Optimizing lease and ownership decisions, fleet sizing, and railcar configurations are an important part of reducing rail transportation costs. Make sure your railcar management solution is set up to capture appropriate data and has native reporting functions to support optimization.

When you first begin working on rail logistics cost reduction strategies you’ll want to re-examine your fleet size. Many shippers oversize their railcar fleets in an effort to avoid delaying shipments. However, an oversized fleet can easily result in empty railcars sitting outside the gate or accumulating outside customers’ facilities. This not only means excessive demurrage charges, but it also means more maintenance and monitoring costs. Our rail shipping solution, Rail Command(r), offers a Fleet Sizing Model to help you determine how many railcars you need based on actual transit times and shipping volume. With this software, you can see exactly how many railcars you need, and adjust variables, such as transit times, distances, seasonality, and maintenance, to make optimal changes.

If you frequently encounter any of these scenarios, it may be a sign that your fleet is too large, and empty or inactive rail cars are costing you money:

• Your plant is frequently occupied by empty cars
• Empty railcars stack up outside your gate waiting for free space
• You’ve experienced service issues caused by congestion in local yards
• You have to store empty railcars at off-site locations

7. Shipping in Blocks or Units

When the railroad moves groups of railcars, whether as “blocks” or “trainloads” on the same bill of lading, there are economies of scale that can translate into cost savings for you. With multiple car shipments, the railroad switches the cars as a group rather than individually, lowering their costs and improving railcar turnaround. That equates to reduced per- diem costs for shipments in system cars. If private equipment is used, the improved car utilization could lower total lease costs when fewer railcars are required.

8. Evaluate Administrative Costs & Centralize Transportation Procurement

We see some shippers manage 10,000 railcar shipments per year with a rail logistics staff of 1 or 2 people, while other firms with similar volume employ as many as 8. One of the factors affecting staff size is the use of automated tools in combination with efficient processes. In client surveys, our customers report about a 25% reduction in administrative effort when converting away from a manual process.

Besides making railcar management as efficient as possible, shippers should also maximize their control and leverage by centralizing rail logistics functions. Some companies allow their plants or subsidiaries to negotiate their rail contracts independently. They may be missing some of the analytical, strategic, and relational advantages that a centralized approach can provide.

9. Stay Proactive, Analyze and Constantly Improve

Logistics departments are fast-paced environments. Throughout the day, staff are busy fielding a constant stream of requests, executing shipments, tracking railcars, and resolving problems. This leaves little time left to proactively identify root causes, and put long term fixes in place. This is another reason firms use a 3rd party to handle the clerical work. New insights and significant savings can often be achieved by taking a step back and analyzing current processes. Techniques including the use of predictive analytics, skillful rail rate negotiation from an informed position, and decision making backed by data-driven insights can identify significant opportunities for reducing your rail transportation costs.

Decrease Demurrage

Demurrage costs occur when railcars sit on the track longer than they’re supposed to. Over the past decade, demurrage costs have increased substantially, amounting to a significant portion of rail transportation costs. Analyzing, understanding and decreasing demurrage is an important rail logistics cost reduction strategy.

Demurrage costs have increased while volume remained mostly steady, or decreased. These costs have increased so much, it caused the Surface Transportation Board to schedule a hearing. Yet, many shippers don’t take a close look at their demurrage charges. Many who do find that their demurrage costs have increased notably, while other operations haven’t changed.

There are several ways to decrease demurrage charges. Consider the following:

• Reporting tools: Accurate data can tell you if your demurrage charges are in line, or not. This can also give you a way forward. Use trace reports to track charges, delays, arrivals, transit times, railcar issue logs, and more. It’s even easier if all of your reporting tools are in one solution, such as Rail Command ®.
• Optimize your fleet: As previously mentioned, too many railcars sitting on the track results in excessive demurrage charges. Take a closer look at your fleet and make cuts where necessary.
• Report undue charges: If a delay was caused by the rail carrier’s mistake, you should not be charged for it. However, these costs are often transferred to the shipper without a second glance. Take a look at these charges, and use your movement data to see if they make sense or not. Reporting errors, maintaining missed switch records, and discussing yard bunching with your railroad representative can help you identify and dispute demurrage charges that you didn’t cause.
• Review instructions: Are your railcars designated as open or closed gate, spot-on-arrival, or keep me full? Knowing these designations and how rail carriers treat cars with each designation can help you move the cars more efficiently.

10. Utilize Data Strategically

Forging strong relationships with your rail carrier is one of the best rail logistics cost reduction strategies. However, strong relationships are difficult to create if the two parties are unequal. If you have little negotiating power against a single rail carrier, you’ll end up in a subordinate position and, likely, paying higher rail transit costs. Data and visibility can help to equalize this relationship and give you more negotiating power.

Consider the following data sets and how they can be used in railway cost cutting negotiations. Rail Impact® can give you access to these data sets and many others to help your rail logistics cost cutting and negotiations.

• Data on rail rates in your industry, and where your rates rank
• Rate and volume trends in your industry and for your shipping materials
• Railroads’ operating and fuel surcharge miles between stations
• Alternative routing options and transload facilities
• Rail carriers available along your route, or alternative, comparable routes

First, take a closer look at your rail shipping costs. If your costs seem out of line, use these rail logistics cost reduction strategies to reduce your rates. Get the right data, streamline your operations, strengthen your negotiations, and keep your operations on track into the future.

The post 10 Rail Logistics Cost Reduction Strategies appeared first on RSI Logistics.

The Association of American Railroads (AAR) and the Surface Transportation Board (STB) calculate several indexes to measure inflation, cost increases, and productivity across rail lines. These indexes can be used to measure the health and status of the rail industry.  Some rail contract rates are subject to a railroad cost index, and many contracts state that there will be a minimum increase imposed regardless of what the cost index indicates.  This can result in the rail rates increasing even when the index does not. When shippers enter contracts subjected to railroad cost indexes, it is important to be aware of any minimum increase being imposed.

There are two main railroad cost indexes that are outlined below:

1. The Rail Cost Adjustment Factor – RCAF (unadjusted and adjusted)
2. The All-Inclusive Index Less Fuel – AII-LF

What Are Railroad Cost Indexes?

Railroad cost indexes are historic benchmarks using contemporary data to assess costs like fuel, inflation, labor, supplies, overhead, and more. Railroads and rail regulators use these indexes to determine how to price their services, and whether or not these prices make sense with the current economic conditions. The main indexes used are the Rail Cost Adjustment Factor (RCAF) and All-Inclusive Index Less Fuel (All-LF), which we will explain in more detail.

The Rail Cost Adjustment Factor (RCAF)

The Rail Cost Adjustment Factor (RCAF) was established in response to the Staggers Act of 1980 and is no longer the predominant railroad cost index used in contracts. The RCAF is published quarterly by the STB, as required by law under 49 U.S.C. § 10708, and measures the rate of inflation in railroad inputs, like labor, fuels, equipment, supplies, etc. The Association of American Railroads (AAR) calculates this number, and it is then reviewed, approved, and published by the STB. The major issue with the RCAF is that it includes fuel costs, which are addressed by the fuel surcharge rates imposed by the railroads.

There are five indexes associated with the RCAF:

• The Forecasted All-Inclusive Index – The forecasted price index that underlies the RCAF, including labor, fuel, materials and supplies, equipment rents, depreciation, interest, and other expenses. These are first presented as a forecast, and do not reflect the actual numbers.
• The Actual All-Inclusive Index – Two quarters after the Forecasted All-Inclusive Index is calculated, the actual index is calculated in order to determine forecast error. Generally, only the amounts for labor, materials and supplies, and interest differ between the actual index and forecasted index.
• The RCAF (unadjusted) – This index reflects cost changes experienced by the railroad industry, without reference to changes in rail productivity, and is derived by adjusting the Forecasted All-Inclusive Index by the “forecast error” from the second prior quarter.
• The RCAF (adjusted) – This index reflects national average productivity changes as originally developed and applied by the ICC, the calculation of which is currently based on a five-year moving average. It is derived by modifying the RCAF (unadjusted) for moving five-year productivity gains as soon as the latest quarter of productivity is available.
• The RCAF-5 – Reflects the five-year moving average productivity adjustment factor which is incorporated into the index during the first quarter of the year. This index also reflects national average productivity changes; however, those productivity changes are calculated as if a five-year moving average had been applied consistently from the productivity adjustment’s inception in 1989.

RCAF Unadjusted vs RCAF Adjusted

There are two versions of the RCAF: the RCAF-Unadjusted and the RCAF-Adjusted.   The difference is the consideration of productivity improvements. The RCAF-Unadjusted Index is based on several components, including labor, fuel, materials and supplies, equipment rents, depreciation, interest, and other expenses, but does not take productivity improvements into account.  The RCAF-Adjusted Index adjusts the RCAF-Unadjusted for productivity gains and allows regulators to assess future rates relative to performance.

All-Inclusive Index – Less Fuel

The All-Inclusive Index – Less Fuel (All-LF) is the more widely used index in rail rate contracts today.  It provides a parallel measure of the RCAF-Unadjusted without the influence of the fuel cost component, which can shift dramatically at different times. All other components (labor, materials, and supplies, etc.) match those used to calculate the RCAF, but productivity improvements are not factored into this index.

The following rail cost index definitions are quoted or paraphrased from STB documents and AAR descriptions. To view the most recent railroad cost indexes, visit this page.

How are Railroad Cost Indexes Used?

Railroad costing indexes may be used in contracts to apply rate increases.  When negotiating rail rates, it is important to consider both the current rate, as well as the increase that may be applied.  Many contracts that are subject to a railroad cost index also contain a minimum, which will allow the railroad to apply an increase even when their costs have not increased.  Shippers can negotiate these contract terms; however, analyzing cost and rate trends and determining what they mean for your business can be a challenge.  We’ve created useful tools, like Rail Impact, and guides, like the Shipper’s Guide to Rail Freight Rates, to make this data easier to use. If you’re uncertain about your rail rates or how to proceed, we’re happy to help.

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