Which trains make money for the railroad?

[Murphy Siding]

     On the thread about Iowa lines to Chicago,  Bob-Fryml mentioned the railroads running several types of trains over the same track at the same time, noting their differing prestiege,power,speed, and profitability.  It made me start to wonder...

     I work for a lumberyard.  We have a pretty good idea of which customers, and what kind of business makes us money, and which really don't.

     Which trains make money for the railroad?  Which ones are run for the prestiege?  Which ones are run to help pay the light bill?

   

[passengerfan]

On the BNSF the UPS trains, TFC, Double stacks, Coal, Ethanol, Chemical and Lumber are the biggest producers of revenue. General freight it depends on the actual commodity. Those boxcars loaded by a freight forwarder don't make the kind of money they used to and are in steady decline.

[Railway Man]

     On the thread about Iowa lines to Chicago,  Bob-Fryml mentioned the railroads running several types of trains over the same track at the same time, noting their differing prestiege,power,speed, and profitability.  It made me start to wonder...

     I work for a lumberyard.  We have a pretty good idea of which customers, and what kind of business makes us money, and which really don't.

     Which trains make money for the railroad?  Which ones are run for the prestiege?  Which ones are run to help pay the light bill?

   

Prestige doesn't count -- there's no one to impress.  You're also asking about profit, not revenue, correct?

It's not feasible to break down profit on a "train" basis but only on a by-shipper basis because many shippers of identical commodities have a very different profit basis and distance, geography, and competition of source, material, and mode all affect the profit margin.

In extremely rough terms, commodities ranked in terms of profit, high to low, are:

1. chemicals
   
2. international containers
3. high-value bulk commodities, e.g., fertilizer, concentrates
   
4. grain
5. coal
6. domestic containers and LTL
7. highly truck-competitive commodities such as lumber and hard perishables
   
8. low-value bulk commodities, e.g. scrap metal, cottonseed, waste paper
9. autos
10. Amtrak -- the worst by far.

RWM

[greyhounds]

Prestige doesn't count -- there's no one to impress.  You're also asking about profit, not revenue, correct?

It's not feasible to break down profit on a "train" basis but only on a by-shipper basis because many shippers of identical commodities have a very different profit basis and distance, geography, and competition of source, material, and mode all affect the profit margin.

In extremely rough terms, commodities ranked in terms of profit, high to low, are:

1. chemicals
   
2. international containers
3. high-value bulk commodities, e.g., fertilizer, concentrates
   
4. grain
5. coal
6. domestic containers and LTL
7. highly truck-competitive commodities such as lumber and hard perishables
   
8. low-value bulk commodities, e.g. scrap metal, cottonseed, waste paper
9. autos
10. Amtrak -- the worst by far.

RWM

That's interesting.  I would have never guessed autos to be toward the bottom.

Anyway, since people sometimes use words to mean similar but slightly different things, in this case how is "profit" being used.  Is it the R/VC ratio, the total commodity contribution, or ?.

[Soo 6604]

This is out of my league but I'm going to guess that any train that moves makes money for the railroad

[jeaton]

     On the thread about Iowa lines to Chicago,  Bob-Fryml mentioned the railroads running several types of trains over the same track at the same time, noting their differing prestiege,power,speed, and profitability.  It made me start to wonder...

     I work for a lumberyard.  We have a pretty good idea of which customers, and what kind of business makes us money, and which really don't.

     Which trains make money for the railroad?  Which ones are run for the prestiege?  Which ones are run to help pay the light bill?

   

Prestige doesn't count -- there's no one to impress.  You're also asking about profit, not revenue, correct?

It's not feasible to break down profit on a "train" basis but only on a by-shipper basis because many shippers of identical commodities have a very different profit basis and distance, geography, and competition of source, material, and mode all affect the profit margin.

In extremely rough terms, commodities ranked in terms of profit, high to low, are:

1. chemicals
   
2. international containers
3. high-value bulk commodities, e.g., fertilizer, concentrates
   
4. grain
5. coal
6. domestic containers and LTL
7. highly truck-competitive commodities such as lumber and hard perishables
   
8. low-value bulk commodities, e.g. scrap metal, cottonseed, waste paper
9. autos
10. Amtrak -- the worst by far.

RWM

There you go again, picking on Amtrak! .

I suspect we will soon get a stern lecture on how international containers ought to be slotted somewhere down about 9.5, or how R/VC is the only way to measure profitability. 

Perhaps more than profitability, it might be a question of the need for speed.  COFC/TOFC trains run at higher speeds in part because of need to provide transit times that will be somewhat competitive with truck, but there is also the fact that speed over the road for those trains can make a real difference in the productivity of the railroad equipment used for that service. 

That is not so with trains of "loose car" freight.  Suppose you have about 100 cars a day from various shippers in and around point "A" going to shippers around point "B" which is 1000 miles from point "A".  You run the train to get an average of say 40 MPH and it takes about 25 hours to get from "A" to "B", however, assuming great planning, it will take at least a day to get each car from the shipper put on the train ready to go and another day to get the car off the train and spotted on the consignee's track.  Call it three day service. 

Now suppose you up the power so that you can get 60MPH average between "A" and "B".  You have now increased the power requirement (locomotives) and fuel, but you are only going to reduce the over the road time by about 8 hours.  Given that most industry switches are a once a day event, even with the reduction in the over the road time, you still are only getting three day service, but now the cars are just setting in the yard for 8 hours waiting for the industry jobs to make the delivery.

Granted, I have described a very unrealistic scenerio-carload service a thousand miles in three days??? but the point is that there is nothing to be gained by increasing train speeds for that service.

I think such matters as I have mentioned have more to do with establishing what's hot and what's not than profitability.

[bobwilcox]

    My interest in profit measures was always based on how it impacted my paycheck. I was hired to manage a market at the C&NW, SP and UP. I was measured on four numbers : units per year, revenue per year, revenue per unit and contribution to overheard per year or "profit". Please notice I was measured on all four measures with a shift in emphasis at different parts of the business cycle. 

      Also, my experience was from 1969-2003 or before the plant filled up with traffic.  We would take all business that had any profit margin if that was the best we could get from the customer.  I beleve that world, like the Shasta Daylight at 9:30 am, is long gone.

[MP173]

This is a great topic.  Profitability has always been an interesting discussion.  A few years ago Trains had an excellent article (going to have to look it up) comparing intermodal vs carload traffic and how the margins on carloads was high and paid considerable amount of overhead.

The Trains map a few months ago outlining the movement of four cars was also very interesting, perhaps the most interesting map ever in that series.  I was intrigued by the time it took to move individual cars from Tx to the Northeast. 

Have the railroads begun to move pricing higher on the container business?  Talk a couple years ago was that when the contracts with the container lines were up, the pricing was moving up.

Had an interesting talk with a fellow this past weekend who owns four grain elevators in East Central Illinois.  We discussed the wild commodity price swings and how it affects him and his business (his take is it based on hedge funds moving away from equities and into commodities, thus artificially moving those prices).  Anyway, he is currently paying $3200 a car in 65 car lots to move grain from his elevator to the Gulf of Mexico for export.   At $208,000 per train, I would think that is extremely profitable. 

CSX seems to move grain in 65 car unit trains.  Anyone know why?

ed

[Murphy Siding]

This is out of my league but I'm going to guess that any train that moves makes money for the railroad

     The answer to that might be "not neccesarily".  MichaelSol recommended a book about Chicago, from the economic point of view.  In it, a good case was made, for running some trains at what you and I migh consider *below cost*.  The justification was, that while maybe the train didn't make a profit in the accounting sense, it did add some dollars to the bottom line, to cover some fixed costs that would be there whether a train was run or not.

[Modelcar]

....I really haven't noted recently just what shipping costs are on the sticker of a new car....but I'd expect it to be somewhere in the range of $600 to $800 or so, and with a full auto carrier I'd certainly think it would be a decent "profit" to carry them to their destination.  Kind of surprising to see it as 9th on the list.

[TimChgo9]

I have "ringside" if you will, seat along the BNSF here, and I have always wondered which trains make the most, and which ones cost the most. 

I see everything from grain, to autos, to coal, and containers pass by my house.  Also included are empty coal trains headed west, do those trains cost the railroad money, or is the cost of bringing the empties back included in the cost of shipping a loaded train?  Also, what about empties of other types?  I have heard many a manifest freight as they prepare to leave Clyde Yard, announce to the dispatcher the number of loads and empties they are pulling, is the shipper charged a fee to move the empty car, or is that cost absorbed by the railroad?  One last note: I occasionally see trains of empty containter, or intermodal cars, both inbound and outbound, and one was all BNSF container cars, is that train costing money, or is money made somehow on the movement of those empty container cars.

[trainboyH16-44]

This is out of my league but I'm going to guess that any train that moves makes money for the railroad

Hmmmm...not quite  

[Anonymous]

This is out of my league but I'm going to guess that any train that moves makes money for the railroad

Hmmmm...not quite  

If that were the case, the Penn Central might still be alive today.

[legsbluetrain]

I thought intermodal makes the most money because of the priority they have over everything else.

[Railway Man]

Perhaps more than profitability, it might be a question of the need for speed.  COFC/TOFC trains run at higher speeds in part because of need to provide transit times that will be somewhat competitive with truck, but there is also the fact that speed over the road for those trains can make a real difference in the productivity of the railroad equipment used for that service. 

That is not so with trains of "loose car" freight.  Suppose you have about 100 cars a day from various shippers in and around point "A" going to shippers around point "B" which is 1000 miles from point "A".  You run the train to get an average of say 40 MPH and it takes about 25 hours to get from "A" to "B", however, assuming great planning, it will take at least a day to get each car from the shipper put on the train ready to go and another day to get the car off the train and spotted on the consignee's track.  Call it three day service. 

Now suppose you up the power so that you can get 60MPH average between "A" and "B".  You have now increased the power requirement (locomotives) and fuel, but you are only going to reduce the over the road time by about 8 hours.  Given that most industry switches are a once a day event, even with the reduction in the over the road time, you still are only getting three day service, but now the cars are just setting in the yard for 8 hours waiting for the industry jobs to make the delivery.

I think such matters as I have mentioned have more to do with establishing what's hot and what's not than profitability.

Increasing over-the-road speed increases cost for fuel and locomotives -- that's an absolute.  Increasing over-the-road speed may reduce cost for equipment, may increase main line capacity, may increase turns for crews -- maybe.  Or, as you suggest, it just might "get you to the red light faster."

Intermodal trains have higher speeds because the shippers are willing to pay extra to get it.  If the intermodal train is moving a long distance -- and few don't -- the higher speed has a real effect on their inventory carrying costs, customer restock intervals, and equipment costs.  The fact that intermodal trains are largely point-to-point without intermediate sorts, or at most have one or two block swaps en route, instead of consolidated, networked trains like loose-car manifest means they stay out of classification yards and higher over-the-road speeds aren't swallowed up by yard dwell.

RWM

   

[beaulieu]

The costing side of the equation is the most difficult part. Even in Europe where costing is much simpler, SBB Cargo with relatively experienced managers managed to get it all wrong. Revenues went up about 12 percent, tonne-kilometers up almost 8 percent, losses up 400 percent. Needless to say the CEO, CFO, and Chief Marketing Officer were asked to resign. And this where train path costs, and electricity consumption are quite easily calculated, The vast majority of the movements are unit trains, even the intermodals. The railway operator bears none of the risks of empty space on the intermodal train. There is a lot of competion however, so the margins are quite limited compared to the US.

[Railway Man]

I have "ringside" if you will, seat along the BNSF here, and I have always wondered which trains make the most, and which ones cost the most. 

I see everything from grain, to autos, to coal, and containers pass by my house.  Also included are empty coal trains headed west, do those trains cost the railroad money, or is the cost of bringing the empties back included in the cost of shipping a loaded train?  Also, what about empties of other types?  I have heard many a manifest freight as they prepare to leave Clyde Yard, announce to the dispatcher the number of loads and empties they are pulling, is the shipper charged a fee to move the empty car, or is that cost absorbed by the railroad?  One last note: I occasionally see trains of empty containter, or intermodal cars, both inbound and outbound, and one was all BNSF container cars, is that train costing money, or is money made somehow on the movement of those empty container cars.

The cost to move the empty car is captured in the rate charged to the shipper for the loaded move.  It is not broken out separately.  For unit coal trains cycling repetitively between the same mine and the same power plant, the empty 1/2 of the cycle is fairly simple to cost.  It's similar for loose-car freight using assigned cars, though not nearly as simple.  For loose-car freight using system cars, the empty costs are not so easy to calculate, as they are never the same for each loaded car, as the empty car is not captive.  An average number for empty handling for that car type and lane is built into the rate for the loaded car.

RWM

[cnwfan51]

    To hear it from the folks in Omaha the money is made with the intermodal traffic and nothing else  But for those of us in the operationg departmemts we know that the real money is made with the coal and grain and manifest traffic that out numbers the intermaodal traffic almost two to one   CNW FOREVER   Larry

[t.winx]

....I really haven't noted recently just what shipping costs are on the sticker of a new car....but I'd expect it to be somewhere in the range of $600 to $800 or so, and with a full auto carrier I'd certainly think it would be a decent "profit" to carry them to their destination.  Kind of surprising to see it as 9th on the list.

Same here. I remember reading an issue a while back (I think the Fast Freight issue) that said loaded autos are enormously profitable for UP. With the wording the author used, I would think that even with the empties figured, they still had to be quite profitable. I guess I was misled.

[Railway Man]

....I really haven't noted recently just what shipping costs are on the sticker of a new car....but I'd expect it to be somewhere in the range of $600 to $800 or so, and with a full auto carrier I'd certainly think it would be a decent "profit" to carry them to their destination.  Kind of surprising to see it as 9th on the list.

Destination charges are not necessarily what the railroad receives in revenue, much less profit.  Assuming an $800 destination charge per vehicle, and 15 vehicles per trilevel, the gross revenue to the automaker is $12,000.  From that must be paid ramping costs at the factory, the railroad's line-haul charge, deramping costs at the destination ramp, trucking costs from the ramp to the dealer, storage charges at the destination ramp, and mixing center costs.  Each multilevel will account for two truckloads, and the truck even on a short haul to the dealer is going to have trouble doing better than one turn per day, which at $125-$150/hour for the truck means that trucking costs alone are $2,000 of the $12,000 gross.  I have no idea how much profit the automaker makes on destination charges, either ... for all I know it's a significant profit center for the automaker.

The automakers are very big gorillas and use their market power to extract highly favorable rates from the Class Is in competitive bidding, and tend to award all-or-nothing contracts to ensure they get low rates even in high-demand lanes.  The service committment is high meaning that the cost of operation is high.  Not all railroads chase the business too hard in all lanes, especially the lanes that have higher value freight using up the capacity.

RWM

[Modelcar]

...I would imagine much of the costs you cite above {Railway Man}, must apply to other hauled commodities as well.

[Railway Man]

All I am pointing out is that we can't assume that the destination charge assessed by the auto manufacturer to the auto buyer has 1:1 correspondence with the revenue to the railroad.

RWM 

[Murphy Siding]

........................The cost to move the empty car is captured in the rate charged to the shipper for the loaded move.  ...................................  For loose-car freight using system cars, the empty costs are not so easy to calculate, as they are never the same for each loaded car, as the empty car is not captive.  An average number for empty handling for that car type and lane is built into the rate for the loaded car.

RWM

I would imagine, that the railroads would have to keep pretty good statistics on the total costs per year, in order to get some sort of average to build in.  What can railroads do to try to lower those average costs, in order to improve efficiency?

[Railway Man]

1. Reduce crew starts
2. Reduce empty miles
3. Reduce dwell time in yards
4. Reduce number of sorts per car
5. Reduce locomotive miles per train mile
6. Demarket unprofitable or underprofitable shippers
   

All of those run into diminishing returns and negative returns at some point, of course.  It's pretty hard to zero in on the perfect plan, especially because traffic fluctuates and it's always a moving target.

RWM 

[Murphy Siding]

    Railway Man:  That looks like the general list for improving the general efficiency on the entire railroad system?  I was thinking more along the line of: How do you reduce the*overhead* cost of dealing with empty, non-captive freight cars?  It would seem like there would be alot of variables beyond the railroads control?

[Railway Man]

Ah!

The easiest way is simply get rid of cars.  This may sound appalling, but it's exactly what any supplier does to control costs: eliminate services that don't earn their keep.

That does mean that shippers may not have as many empties to load as they like, so this incentives the shipper to provide his own cars or pay a higher rate to get assigned cars.  This also has a point at which returns become negative.  Certain shippers of certain commodities never have enough empties.  Case in point is westbound empty 40' containers, which are being allocated to bulk shippers.  The bulk shipper can always pay a "manufactured good" rate for the container and by so doing get access to all the containers he deigns to fill, but then his delivered cost to the chicken feed supplier in Vietnam or wherever is too high.

RWM 

 

[Bob-Fryml]

     Which trains make money for the railroad?  Which ones are run for the prestiege?  Which ones are run to help pay the light bill?  

Getting back to what I believe is the crux of Murphy Siding's original question, I think he was making inquiry in the context of the casual railfan observer watching a train rolling by.  I completely agree with Railway Man's categories by commodity segment, but the rough answer, by train type, may be (in descending order of profitability) as shown below.

1. Loose freight car chemical trains, especially those that carry liquids and compressed gasses.  The liability exposure to the railroad is high and for that the shippers pay a premium.  Each car delivered without incident really pumps up the bottom line.

2. Manifest traffic or what we call "loose freight car" railroading.  Of special mention here might be the soda ash business from southwestern Wyoming to eastern markets.  For 500-miles or so (Green River, Wyo. to North Platte, Nebr.) its all unit train economics.  For the nearly 800+ miles from North Platte to the Chicago, Saint Louis, and Memphis gateways it's largely loose freight car economics.  But I bet the whole movement for each car is priced as something close to loose freight car rates.

3. Higher value unit trains hauling grain.

4. Lower value unit trains hauling coal and rocks.

5. Piggyback and container traffic because it is railroad vs. truck competitive or BNSF vs. UP competitive / CSXT vs. NS competive.

Among categories 3, 4, and 5, I'm not sure where unit auto trains fit in.  

Purchasing diesel fuel for $4+/gallon at a truck stop is driving more truck competitive business to the railroads.  As a result, I'm sure the industry is capitalizing on this trend by charging something extra these days beyond mere fuel surcharges.  If so, the number 5 item appearing on the list above may start to climb higher in the rankings.

In the meantime I'd love to get some idea of the profitability of Triple Crown/Roadrailer type trains and the ZWASKP/ZSKWAP reefer shuttles operating between Wallula, Wash. (UP) and Rotterdam, NY (CSXT).     

[jeaton]

On the subject of load to empty miles for free runners, at least as early as the 1960's railroads were compiling computerized records of car movements including load/empty status.  From that it was fairly easy to mine the data to develop the load to empty mileage ratios for any given type or subtype of car.  Because of the large numbers, random sampling could be used to find the answer with a high level of confidence.

[Kevin C. Smith]

In extremely rough terms, commodities ranked in terms of profit, high to low, are:

1. chemicals
2. international containers
3. high-value bulk commodities, e.g., fertilizer, concentrates
4. grain
5. coal
6. domestic containers and LTL
7. highly truck-competitive commodities such as lumber and hard perishables
8. low-value bulk commodities, e.g. scrap metal, cottonseed, waste paper
9. autos
10. Amtrak -- the worst by far.

RWM

Which has me wondering...how bad is "worst by far"? What kind of numbers is a RR looking at when an Amtrak train is taking up a time slot that would otherwise be used for freight? I know this varies widely (wildly?) with different routes or segments but does anyone have some examples? RWM, where do you think Amtrak would need to be in this pecking order to get better O.T. performance (say, 85-95%) out of its host railroads?

[Railway Man]

An average freight train pays twice as much in net income as an Amtrak train does in
gross revenue.

As to what Amtrak would have to pay to get better priority, I'd be guessing about the strategy of the Class Is. 

RWM