Most profitable commodities.

[Junctionfan]

Hello again,

I though I would start this or restart it (if it has been done) to discuss what the railroads find the most profitable commodities to haul and why.

I would be interested in knowing how much the railroads charge / can make on the haul too.

Thankyou very much.

[Anonymous]

Coal, grain, chemicals, consumer and paper goods. Intermodal......unsure of that.

[Anonymous]

I don't work for any railroad company, just a railfan, but I would say Automobiles

[Anonymous]

What about passengers and mail? [:o)]

[Junctionfan]

My guess for chemicals is plastics and plastic making chemicals like vinyl chloride, ethalene oxide and styrene monomer.

Also I would think anhydrous ammonia, molten sulfur, liquified petroleum gas, sulfuric acid, hydrochloric acid, chlorine, and sodium hydroxide solution. I would say thease chemical because the of the amount of tankers for thease chemicals.

As far as hoppers-soda ash, plastic pellet or resins (PVC and Polyethalene mainly), abrasives (aluminum oxide, silicon carbide), and sodium chlorate.

There is also quite a bit of tankers for calcium chloride and hydrogen peroxide so they might be included in the list.

[slotracer]

3 major things will effect the profitability outright......How compettive the move is, what is the value of the material and how hazardous. As a general rule Cheicals are the highest in overall profitability. Molton Sulfur and Sulfuric acid would surprise you, they are moderate to low margin in the chemical world as they are basically a waste stream product rom other industries to the commodittee value is quite low. LPG would surprise you too as it is a commodittes available from multiple sources so the profiatbility is not huge....price it too high and the business goes elsewhere (Source competition)

Soda ash moves in huge volumes but is mostly captive to one originating carrier. Before transloads were set up in the mid 1980's it was extremely profitable, afterwards one major rate cam down $20 a net ton !

Borax was another super high profitability until a second manufacturer and a transload happened.

One of the highest profitabilties anywhere ......Phosphorus.

Plastics are not bad, but require storage yards and added logistics costs, again lots of source competiton keeps rates reasonable. Exotic liquid and dry products especcially hazardous can be very profitable.

[Junctionfan]

Such as methyl methacylate nonomer, hydrocyanic acid, arsenic acid solution, hexamethyldiamine (dupx), methyl chloride etc?

What about gases like liquid oxygen, argon and carbon dioxide?

[Anonymous]

regarding,
"Roughly, the profit margins, from highest to lowest:
chemicals
coal
intermodal
forest products
automobiles
grain
metals, metallic ores, sand and gravel"

judging from the service given and the strong pu***o bigger unit trains over strong objections from customers, putting grain toward the bottom of the list is logical.

[railman]

I recall chemicals were extremely profitable...

[jchnhtfd]

As usual, Mark seems to have it, so far as gross numbers go. I would be inclined to wonder (and, since the actual figures are, as he points out, internal company information I will probably never know!) whether the net profit or operating ratio for chemicals is as high as it might seem to be. The reason I have this wonder is that there are additional costs involving hazardous materials precautions which are probably spread across all operations, but which are incurred largely because of haz-mat concerns for some chemicals (as someone pointed out a while back, you see a white tank car with a red band and smell burnt almonds, you have about 15 seconds to get your affairs in order!).

Just a speculation; I haven't a clue. Any thoughts?

[slotracer]

Can' answer about Agron or Liq Oxygen. Liquid CO2 moves cheap as it is available from many sources all over the MAP so there is source competiton and short haul local trucks to compete against in many instances. Liq CO2 is generally a waste stream off many other forms of manufacure to the product value is pretty low.

Chem for the most part moves as a mized manifest type business (There are unit trains and Plastics has some special logistics) but most moves like other manifest businesss through yards and a network of M or Q trains. The profitablilty of chemicals helps offset super low margin traffic, like many mineral and aggrigate traffics (Sand, cullet, rock etc)

Grain is not teh lowest profit margin traffic but it is being more and more looked at and managed like unit coal. The train stays with the power, and better rates are negotiated with shippers who can load unit trains in short time frames. The trains are designed to load and leave, make destiantion quickly and unload quickly, then return, thus ringing the cash register more frequently and keepingthe cost of the move super low.

[bobwilcox]

Mark - Your list is right on the button. Within the chemicals profit margins are driven by the amount of competition between carriers and modes. It is not driven by the hazard. This is why there is so much interest in competive access at the major origins. The hazard does not dirve the price level. Although rather hazordous some VCM and styrene moves from the Gulf Coast into the East have fairly low margins due to water competition into the East Central and Mid Atlantic States.

Slotracer-I would be a little more optimistic about the margins on PE/PP/PVC and soda ash.

[Junctionfan]

QUOTE: Originally posted by M.W. Hemphill

Slotracer: I could really use your insight for an article I'm writing. Would you e-mail me, please?

I'd agree on grain -- thus my hesitance to rank the list in the first place. Some grain moves are clearly quite profitable, such as the shuttle train moves. Other moves that are limited to 263K cars and in markets with heavy truck-barge competition aren't attractive.

Would that mean that CP's 200+ grain car trains through B.C would be their highest profitable venture?

[trainfan1221]

I thought coal and chemicals. From what I understand intermodal isn't as profitable due to the weight of the cars themselves hauling the trailers. Something about tare weight and all that?

[Anonymous]

Also depends on if a shipper is captive or not. It wouldn't be too suprising if a captive grain shipper can provide higher profit margins for a railroad than a lumber shipper with access to competitive rail rates.

[bobwilcox]

QUOTE: Originally posted by futuremodal

Also depends on if a shipper is captive or not. It wouldn't be too suprising if a captive grain shipper can provide higher profit margins for a railroad than a lumber shipper with access to competitive rail rates.

Futuremodal - You are correct about the
importance of competition to rate levels. When competition goes up rates go down. However, a verly small portion of traffic is captive. The Fed did a study at the time of Staggers and said 5% of the tonnage shipped in the US was captive. They looked at competition between railroads, competition between modes of transportation, competition between locations and competition between products. My gut guess is that 5% was too low and the portion of captive situations has dropped in the last 25 years as many customers have gained more access or threatend a build out to another railroad.

However, even if a small portion of traffic is captive that is still a lot of carloads. As examples, grain from the High Plains, loose car chemical shipments from the Baton Rouge/Newor corridor or WV and coal from the Northern Powder River Basin.

[Anonymous]

I would say any commodity that can turn around the cars with as little empty time between loads as possible

[Anonymous]

I'd say this order:

Coal (although this may eb declining)
Extrememly volitale hazardous materials (railroads charge greatly to move them and for all the safety mesaures required)
Grain (obviously it's our #1 agricultural export)

[kevarc]

1. Chemicals are by far and away the most profitable traffic the RR's carry. For years the bromides kept the L&NW profitable. I am not sure about where intermodal stands on profit/load, but if you look at the reports from the RR's intermodal has passed coal for total dollars to the bottom line.

2. Captive shipper are a high percentage of shippers. And they do get screwed by the RR's. I have studies in my files concerning UP/BNSF rate comparisions for captive and non-captive shippers. I can only speak for coal as that is our concern, I work for utitlity that uses PRB coal. We could use the other RR but the current RR refuses to quote a price from an interchange about 15 miles from the plant. The partners in the plant have looked at a build out to reach the other RR, but it is still in the "we would like" to catagory. Our net savings would be in the +$6/ton catagory. And that over a years time is a lot of money. NOTE: we usually get 3 to 5 trains a week and own our cars. The other RR will not do the building as they are afraid that after the contract expires, usually a 5 year deal, that the first RR will come back with a competitive bid and take the contract back. While we can recover the costs in a 5 year period, the other RR cannot.

[DPD1]

If you're talking a single material, and not a whole industry, I would guess it has to be coal.

Dave
-Rail Radio Online-Home of the "TrainTenna" RR Monitoring Antenna-
http://eje.railfan.net/railradioonline

[greyhounds]

The way I uderstand things is that:

profit = margin x volume. (The term used at this firm for the sales price of an item - the cost of the item is "Gross Margin". No such thing as "Profit Margin")

So to determine the "profitablity" of any line of business two things must be considered. 1) The markup, or margin and 2) the volume.

Intermodal has lower markups than some other commodity groups, becuase it is in a more competiive situation, but it also has larger volumes. Which is why it is "profitable".

Long haul bulk chemicals, which are less vulnerable to motor competition, can be marked up more, but they don't move in the volumes that IM does.

And remember profitablity does not equal the "margin" or markup. Profitability is margin times volume.

[Anonymous]

Does the PC game Railroad Tycoon have anything to do with this?

I hated to say that but I find looking for rates to move widgets from A to B by train in any volume similar to state secrets.

[Junctionfan]

I make a tremendous amount of money on unit mail trains from New York to Chicago (Railroad Tycoon). I also make quite a bit on unit uranium trains too.

[bobwilcox]

Mark - I agree about captive being very subjective. That is one of the reasons it becomes political very quickly. As an example Tom DeLay announced at a candidates gathering in his district that the San Jacinto Rail build in would be reolved by the parties or he would take
legislative action to end "monopoly pricing". Tom is not exactly William Jennings Bryan but if he says the Bayport shippers are captive then beleve me they are captive.

kevarc Maybee you could convince Tom he is a Cajun and should run for Congress from LA.

[bobwilcox]

Mark - I never saw profitablility comparisons between commodities using internal rates of return. The comparisons would be annual contribution to overhead (revenue less long run varible cost) or a profit margin (revenue/long run varible cost). The equipment people wanted to talk about contribution per car day. If we wanted to build a plastic storage yard or some other capital item then we would get a rate of return.

This was in a world of presumed excess capcity. That world is gone with the wind. If UPS comes calling with some new transcon traffic you had better be careful about your marginal cost!

[kevarc]

Bob, I don't know, why any politician would want to claim to be from LA.

Chemicals was one the reasons the UP fought so hard to get the MP and the SP. Between the 2 of them, they are the sole shipper for most of the chem plants in LA and TX. In LA, west of the Mississippi River they are the ONLY RR, except for some areas in Lake Charles, that serve most of the plants. In Lake Charles they have the KCS and some limited BNSF. BNSF got the old SP Sunset route from UP after the takeover, but I not sure of thier service rights in Lake Charles. They are already a player in the Beaumont, TX, Chemical plants from the old ATSF days..

[dldance]

some may question my definition of a commodity but I think the most profitable commodity for railroads is reliability -- that's what customers are most likely to pay for.

dd

[BaltACD]

QUOTE: Originally posted by talbanese

What about passengers and mail? [:o)]

Can you spell AMTRAK! AMTRAK Profits = oxymoron.

[greyhounds]

The only point I was trying to make was that the profitability of a line of business such as Intermodal, Chemicals, Grain, etc. is determined by more than the mark up, or margin. Volume is in the equation.

If you can sell one tank car load, and mark it up by $1,000, and 10 trailer loads, each marked up by $100 - at the end of the day each line of business has the same profitability.

People sometimes bad rap intermodal because its margins aren't as high as commodities such as chemicals. But margins are only part of the equation - that's all I was trying to say.

[Junctionfan]

What about military hauls?