ndbprrI was under the impression that a railroad tried to keep a car on line as long as possible. So a car from say city a to city b that could be handed off 10 miles from a or ten miles from b. With a thousand in between would be handed off at b to gain the lions share of the shipping $.
ChuckAllen, TX
Mac:I really appreciate your time and effort to explain in detail how the industry handles this behind the scenes issues.
Your situation was very similar to the one I was involved in with the LTL trucker. Very similar. I have always compared carload railroading to LTL trucking...even tho a carload of freight is more similar in size to truckloads. The concepts are similar...gathering loose cars and building line haul to run between terminals.
Ed
Ed,
In answer to your noonish (central) questions.
The shortline I worked for was got a flat per car "switch fee" regardless of how far we moved the car regardless of how far BN moved the car, BN revenue, and hazardous material or not. It was very simple and settlement was easy. We ran a report of loads interchanged, couted the cars, and sent BN a bill with the report. In fact I think the report was the bill. BN paid promptly and we did not have to have a collection apparatus. The point you need to ber clear on is that BN controlled the rate. All we could do was beg for an increase in our switch fee.
The traditional method is that the short line is an interline carrier. The advantage of this is that the short line has more control of the rate and generally gets a much higher division, which is typically expressed as a percentage of the through rate or of the Class I division over whatever the interchange point is. The short line incurs substantial accounting costs just to know what its revenue is on each car.
In this arrangement the short line is responsible for supplying cars to protect the traffic that originates on line. This can grow to hundreds of cars and many millions of investment dollars pretty quickly. Associated with the cars is keeping track of where they are on the national network and more importantly making sure you get paid the car hire due you. More accounting, more clerks. In our arrangement with BN they supplied cars for loading on our line. No investment for us a good thing. If they were short of cars we were too, a bad thing. We were explicitly prohibited from supplying cars to protect our traffic. Our car hire deal was an average average style agreement. The car hire rate was 50 cents per car per hour, regardless of type and excluding private cars. That was the first average, the rate itself since each car had its own rate to the BN. I always thought that the rate was fair, perhaps even a bit favorable to us. We had a standard time, 144 hours IIRC, or six days. Time was calculated from interchange to interchange in hours for each car. The average hours for all cars was calculated and we paid or collected based on the results. We paid close attention to car hire which was why BN set it up that way.
As I mentioned the traditional line haul short line participates in the interline settlement system. This means more accounting. Cash flow impact depends on where the freight gets paid, on the short line or elsewhere. It also exploses the other participants to loss of funds the shortline owes them if the shortline fails. Recall the Seattle & North Coast story in my previous post.
Today the interline settlement short lines strongly tend to be those in business before 1980. The Class I carriers figured our pretty quickly that they wanted to control the rate making, divisions, and car supply items themselves. It also made it easier for newbies to enter the business. They did not have to be or hire Ph Ds in accounting.
BN controlled the rates. They started out to be what the BN rate was and when BN marketers costed out new rates they were supposed to be on the basis of BN costs to destination, not BN to the interchange plus our portion. How well BN's marketers lived up to that I do not know, but I think they did unless the BN portion of the move was very short.
Yes I was involved in rates and marketing. If we had a new move that needed rate authority I got it from BN. They published it and I advised the customer what it was are where to find it. I called on customers and sometimes did so with a BN marketing guy. Those calls were very educational.
Per diem applies to railroad owned cars as between railroads. I have described our simplified system. A couple of years later the STB deregulated per diem which created a rate system that I could never even understand the printed rules for, let alone how it worked. Fortunately under our agreement I did not have to.
As I recall our Agent just discovered demurrage about the time I arrived. The company had been in business for 2-3 years at that time. This was both a revenue opportunity lost AND demurrage was and still is regulated by the ICC/STB. Fortunately their budget had been slashed and we never had any legal issue. I had to publish a tariff with a demurrage item so we could charge for it. As I recall the standard was one day to load and two to unload. I clearly recall that the demurrage day started at 7:00 AM, and we spotted everything after that which meant we were giving away most of another day. I wanted a more reasonable time, like 5:00 PM but our new Agent who knew what she was doing went ballistic on me because the software was set for 7:00 AM and could not be adjusted. I lost that one.
Demurrage is always a bur under the saddle item. It is just damnably unfair that customers can not use expensive rail cars as free storage, or that if they want to see a week's worth of cars on hand they should pay for the privledge.
I should be clear that when a line is spun off, the reveune accounting system, and car supply, and car hire are items of negotiation, sort of, in theory. In practice the seller says "This is how we are going to do it." and the buyer says "Yes, sir!" The general trend, I believe is toward deals like we had with the BN, simple enough for the novice to understand and limit the employment of clerks. Yes, most of this is compterized, but why spend money on both sides to make life complicated.
Mac
Johnny,
I am not a lawyer so I hate to address legal issues, but the answer to your question depends in part on when, and what segment of the trucking industry you were dealing with. Haz mat is a whole different thing and I will not go there, but I could.
The railroads were partially deregulated with the Staggers Act of 1980. Before that all rates had to be published in an open (public) tariff. This requirement went all the way back to the original Interstate Commerce Act of 1887, and was intended to prohibit discrimination as between shippers.
Motor carriers were never fully regulated, and most of what there was went away about the same time as Staggers. That means that the answer to your question is that in the regulated world, charging less than the published, or tarrif, rate was illegal. IIRC both parties could be prosecuted according to the statutory text.
With deregulation both previously regulated, that is mostly LCL truckers, and the railroads had to figure out how to behave in an openly competitive market when they got the freedom to do so. This was a situation no one in the respective industries had never encountered before.
I understand that LCL truckers began to offer discounts off the tariff. This was usually stated in percentage terms, like 10%. I think some went as low as 40% and there were probably private deals that went lower. This system was very easy to administer and allowed a measure of discrimination by varying the discount among customers.
The railroads either lowered tarrif rates or entered into contracts. Tariff rates remained the standard in the sense that there was virtually always a tariff rate that would apply.
Contracts were particularly favored for coal where service could be tailored to the need and absolute volume committments could be made. Contracts locked the traffic to the carrier and some were quite long term. Contracts were used in other commodities as well, but it took some experience to figure out where contracts worked well and where they did not.
Letter quotes were handy for small volume or new business or a test case not covered by the tariff and where one or both parties wanted to deal privately as opposed to publically.
What you are calling intraline railroads call local. Both involve a single carrier. When you get into interline traffic then the usual case is a single through rate, a single bill of lading, waybill and freight bill. This can happen only because "behind the curtain" there is an agreement among the carriers as to how the interline revenues will be split among the carriers, and who will collect the funds and distribute them. Fortunately for the customers through billing is the norm in both rail and truck.
The practical answer to the implied question of which rate authority will apply as between tariff, contract, and letter quote is whatever is the lowest cost to the customer. If the tariff rate on coal from here to Norlolk is $1 per ton and the buyer has a contract at $.80, the 80 cent rate will apply. The wise creator of the bill of lading will show the rate authority i.e,. 'NS Contract 12345" to remind the carrier to bill him at the contract rate rather than at the tariff rate.
The big advantage of letter quotes is that they are easy to issue, modify or cancel. One that I did on the short line was for a local move of empty plastic bottles in boxcars from the bottle manufacturer to the juice company that filled them. It was much easier to write a letter, and copy my accounting people than to publish an item in the tariff. There was no need to make it public knowledge by putting it in a tariff since no one else moved bottles between that origin-destinatiion pair. There was also no point to being stupid and publishing the rate to give the truckers notice.
In my opinion the whole issue of secrecy vs. notice was often overblown. You can count on the trucker who lost the business knowing exaclty why, and probably what the rate was even before we moved a car. I found customers to be very free about the cost of their competitive alternatives and soon figured that even if I swore them to secrecy they would be blabbing about what a great deal they snookered me into before I got off their property.
Mac:That was one heck of an explanation. I have enough memory of the LTL days to understand your explanation.
I often wondered about how the shortline/linehaul carrier settlement was handled. It makes sense for the linehaul (class1) to handle billing. Cash flow could be a crunch for the shortlines.
So, did most of your revenue come off of a "per car" settlement with the Class 1? My guess is that it did. Were you involved in rate making/marketing? Or was that handled directly with the Class 1 and shipper (with your per car rate included in)? Was your per car rate based on commodity or a simple "per car" rate, regardless of the commodity handled? More revenue on longer hauls for the short line?
How about demurrage charges or per diem charges? Was that an issue for the short line?
Sometimes, when bored, I will take a look at railroad tariffs...pretty dry stuff except for us former "traffic guys".
After a decade of working in LTL, I moved into sales in the graphics industry and never looked back. My trucking background allowed me to "talk the language" with trucking companies and I have always enjoyed being around terminals and facilities.
Mac, do letter quotation and contract have the same force legally? I never worked with shipments by rail (my plant was somewhat removed from the nearest track), but, even though I was not in our traffic department, I was somewhat familiar with the regulations--and I understood that if a carrier gave you a reduced rate without a contract the carrier, and perhaps you also, was in trouble legally.
Most of my outgoing shipments were intraline, but a few were interline, to the east coast--and I needed to write only one bill of lading for the originating carrier had an agreement with the receiving carrier. After Fed X Freight came into being, all of my shipments were intraline. What I needed to be careful about was the description of what I was shipping, for I was shipping empty hazmat containers (though the gas cylinders were not really empty). From time to time, I shipped non-hazmat (vacuum pumps going out for repair), and then I made certain that I had the right classification on the bill.
Johnny
Thank you for the background, it helps frame the response. I too am very interested in the economic aspects of railroading and transportation. My backround is barely able to answer your questions. I retired from the railroad industry with better than 30 years service and part of that was as VP Marketing for a shortline in Washington State that was a BN spinoff, so some of this answer is from reading, some from experience.
Your first question is about interline vs. combination rates. From your own experience you know that the historical standard is interline rates. That is still the usual case in the railroad industry, even where the rate is a combination of revenue requirements, it will be published as an interline, or through, rate.
I think your trucking experience has caused a bit of confusion over class vs. commodity rates. The class rates you encountered had about 140 years of development by the time you saw them. Shortly after the railroads started to haul freight they could see that making rates by item would get unwieldly very quickly so they invented the notion of classification. Classification grouped a universe of things into five or six classes. Class 100 became the "basic" rate level, with others above and below ie 70 and 200, for example. Rates were then published for class 100 between all origin-destination pairs. Rates for items is classes other than 100 were on a ratio basis to 100, that is class 70 took a rate 70% of class 100, while class 200 paid double.
Commodity rates skipped the classification step and were based on the commodity and specific origin destination pairs. Commodity rates were/are always cheaper than class rates. As more origin/destination pairs were added, there was a tendency to group origins and/or distinations for convenience in administering the system.
Today in the railroad industry virtually all rates are commodity rates. LCL trucking, to the best of my knowledge still uses the class rate structure because they handle virtually everything. I suspect the railroads still publish class rates but only as a stop-gap and a starting point for negotiation.
The other item you need to know about is "rate authority" that is, where does the rate come from. How does the carrier know what rate to charge and how does the customer know what his rate will be? In the class rate case the authority is a combination of the Classification Tariff, and the Class Rate Tariff. The Classification tariff tells both parties what the class of the item is. The rate tarrif publishes the class 100 rate between the origin and destination points.
There are three sources of rate authority in modern railroading; tariff, contract, and letter quote.
Tariffs are a public price list available to all. The only committment by the railroad is that this is the rate and the customer makes no committment as to absolute or percentage of relevant traffic. It is a list price, take it or leave it arrangement. The rate level is entirely at the carrier's discretion, subject to a notification period for changes. It is easy to administer. It applies equally to all customers. Most grain moves on tariff rates. (lets not confuse ourselves with BNSF's Certificate of Transportation which allows rates to move up or down due to demand. UP has a similar program)
An other rate authority is a contract. Here both the carrier and the shipper agree not only on the rate but upon a whole host of factors. The railroad may agree to provide or assign specific equipment, may agree to specific performance items. The shipper generally agrees to commit specific traffic, either in absolute or percentage basis. There are generally penalties for non-performance by either party. Contracts represent a significant effort by both parties and can take considerable time to develop. If the contract covers an interline move, the carriers will agree among themselves what the revenue division will be.
The final rate authority is a Letter Quote. This is simply a letter from the carrier to the customer that establishes a rate for something from here to there. Issuing a letter quote can be very quick. I used them for a couple of local moves in my shortline days.
Now for the activities behind the curtain, revenue divisions. As you know if two or more carriers touch a bit of traffic all of them want to be paid. This is the aspect I know least about and it is private as between the carriers involved. Again there are two lines of inquiry, theory and practice.
The first theory is mileage prorate. It is simple to figure but disadvantages the origin and/or destination carrier who has few miles. By the 1880's it was clear that there was a bucket of costs around originating a shipment, anorher for terminating a shipment, and another for line haul. The logic is the same for carload and less than carload, but lets use LCL which usually moved on class rates as does modern LTL. The originating carrier must recieve the shipment, inspect the shipment, sign the bill of lading, create a freight bill, and load the package in a car. For costing purposes these may be considered fixed costs that have nothing to do with mileage. The receiving carrier has to unload the package from the car, hold it, notify the customer, and dig it out of the freight house to present it. Lets assume the shipment was collect, the destination carrier must collect the entire freight, and remit all other carriers their division of the revenue. Again these are fixed costs not related to mileage. The costs of the line haul are more or less uniform on a per mile basis, they are variable costs for purposes of this analysis. That is why freight rates are always taper on a mileage basis as the longer haul has more miles to absorb the terminal costs.
The practical solution was a series of agreements providing for the division of the revenue that recognized the terminal costs on each end. Most rail traffic moves on a "through bill of lading" where the customer issuses one bill of lading and sees one freight bill per shipment. The railroads divide the revenue based on their private agreement. That is what you described in a LCL truck context.
Rates can also be constructed on a combination basis. Railroad A has some new potential traffic it wants to offer railroad B at a specific junction. A calls B, describes the traffic and says "What is your revenue requirement?" Sooner or later B says $X. Usually the origin railroad will quote the customer a through rate by contract or letter quote, and the railroads split the revenue as agreed, that is B gets $x, A gets the remainder which must be at least his revenue requirement.
The customer will see a combination rate most often in a "Rule 11" situation. This most often comes up in the short line world where the class I does not trust the short line. If the shortline participates in interline settlement then it collects all of the revenue for prepaid shipments that it originates and for collect shipments that terminate on its line. It is obligated to pay all other carriers in such moves from the revenue it collects from its customers. Even for a low traffic shortline these balances can grow into the millions of dollars. When the Seattle and North Coast in the State of Washington went bankrupt it stiffed the Class I carriers for a few million dollars.
Most modern shortlines are treated as switch carriers or Rule 11 by their class I connections. The switch carriers are paid x$ per car by the class I. The class I publishes a joint through rate, does all the billing and pays the shortline. This is a very convenient arrangement for all concerned. If the class I wants to distance itself from the short line it refuses to publish joint rates which creates a Rule 11 situation. Under Rule 11 the shortline makes and communicates its rate to the junction, and the class I makes and communicates its rate from the junction to destination. Customers must now issue two bills of lading, and pay two freight bills, one to the shortline and one to the class I. Fortunately these situations are relatively rare.
As to preblocking affecting rate divisions, I do not know. I very strongly suspect it does not for two reasons.
First the division system is complicated enough as it is. Do the carriers really want to adjust divisions by a tiny amount on a car by car basis? Another reason is that to the best of my knowledge these deals are reciprocal, that is I will preblock for you here if you preblock for me there. The final reason is that preblocking is only done when it reduces operating cost. I think the carriers' thought is to capture the cost reduction without employing an army of programers and accountants to squable over the modest spoils.
Ed, I hope I answered your questions without too much confustion. If something is unclear I will be happy to try again.
Mac:Thanks for your insite on this. I am a former "traffic man" although it was in LTL trucking and not railroads. Part of my responsibilities was interline agreements with other trucking companies. The company I worked for was a very small, local company which covered about 1/2 of the state of Indiana plus Chicago Metropolitan area.
Interline agreements were established based on concurrence (agreement) of revenue splits. We used an old "factor" book which was based on railroad "rate basis"...which were first class railroad rates from years ago. These worked out pretty well for the shorthaul carrier.
I moved on to another career 25 years ago, but always have been curious about railroads revenue splits and agreements. Today, I consider myself more of an economic railfan more than anything else. The economics and business environment of the industry is intriguing.
Thus, while watching trains, my interest is more with the cars and lading rather than the locomotives...a 180 degree switch over 40 years. Today I see these trains which often run thru Chicago directly from say...CN to NS (which interchanges considerable traffic).
So, a few more questions...are most of these rates single line rates with revenue split or are these movements combination of rates...say a CN rate from Western Canada to Chicago and NS rate from Chicago to destination? If these are single rates, then are these specific commodity or contract rates or does the freight move more typically on tariff rates?
So, if these are specific point to point rates, then does each specific movement have specific split of revenue based on per carload for each carrier instead of the percentage based on mileage?
Is special revenue consideration given to blocking the cars? Let's say NS has a westbound from Elkhart to CN. Will their agreement on a train be based on specific blocking of that train (in other words block the train for specific destinations on the CN) or are the cars floated? If there is specific blocking, would NS receive a higher per car agreement?
I hope this isnt too disjointed of questions.
Thanks,
Our dog certainly makes every effort to route our two cats, particularly the larger kitty who tries to sneak up and eat her dog food.
The smaller, feistier cat will scratch if she feels threatened enough so the dog usually lets her find her own route;I guess she counts as a "hazardous commodity" in the dogs estimation...
"I Often Dream of Trains"-From the Album of the Same Name by Robyn Hitchcock
Deggesty daveklepper unless they are a funicular car, the one with the flanges outside the rails. A misdirected post? Should be in Transit, to the cable car thread?
daveklepper unless they are a funicular car, the one with the flanges outside the rails.
unless they are a funicular car, the one with the flanges outside the rails.
A misdirected post? Should be in Transit, to the cable car thread?
She who has no signature! cinscocom-tmw
caldreamer I have 2 questions about the routing of a shipment. 1. If a shipper buys from a seller, is the car routed by the most direct route (i.e. least number of railroads to interchange with) or is it by the most convient route at the time of shipment? 2. If the route is by the most direct route, is this a permenent routing for all shipments between the shipper and the seller? Thanks In Advance Ira
I have 2 questions about the routing of a shipment.
1. If a shipper buys from a seller, is the car routed by the most direct route (i.e. least number of railroads to interchange with) or is it by the most convient route at the time of shipment?
2. If the route is by the most direct route, is this a permenent routing for all shipments between the shipper and the seller?
Thanks In Advance
Ira
Ira, typically the Shipper IS the seller, the Seller ships to the CUSTOMER.
Doug
May your flanges always stay BETWEEN the rails
BaltACD Is routing cats similar to herding cats?
Is routing cats similar to herding cats?
Semper Vaporo
Pkgs.
Paul of Covington Speaking of a kettle of fish... Back in the '60's, a distant cousin who had retired from the RR made a little extra money by checking shipping charges. As I recall, he said the railroads were required by regulations to charge the cost of the least expensive route, no matter what the actual route was. Apparently, the shippers considered it worthwhile to employ him.
Back in the '60's, a distant cousin who had retired from the RR made a little extra money by checking shipping charges. As I recall, he said the railroads were required by regulations to charge the cost of the least expensive route, no matter what the actual route was. Apparently, the shippers considered it worthwhile to employ him.
- Paul North.
I routing cats similar to herding cats?
Never too old to have a happy childhood!
If you put the new kettle of fish in a strategic place, it might be easier to route the cats.
Carl
Railroader Emeritus (practiced railroading for 46 years--and in 2010 I finally got it right!)
CAACSCOCOM--I don't want to behave improperly, so I just won't behave at all. (SM)
You are correct. Everybody wants the long haul because that generates the most revenue. That is why today the lowest rate may apply only by a particular route.
The other side of this is the division of the revenue that each carrier gets. The division is set by agreement, which may be very broad, such as to or from WA, OR & CA to New York state via Chicago or St Louis, or Memphis, or very narrow such as Yak Fat from Omaha NE to Binghampton NY via a specific route. Divisions are NOT generally on a mileage prorate basis.
In regulated days most rates applied by many routes. Today most rates are via one or a few routes.
Yes, the "Alphabet Route" routing looked like a nightmare to many who were unfamiliar with the cooperation that went into its performance. However, the Nickel Plate, Wheeling & Lake Erie, Pittsburgh & West Virginia, Western Maryland, Reading, Jersey Central, Lehigh and Hudson, and New Haven worked together to keep the trains moving.
We discussed a similar topic here a while back, but I don't recall the context of the thread, so a search would be nearly impossible.
Back in the day, shippers could request routing as mentioned, and sometimes the railroads got together so as to compete with other lines. A shipment that could go via one line - NYC - from Chicago to Boston (B&A was NYC by another name) could instead travel an "alphabet route" that might include IC, NKP, Erie, and New Haven. And maybe more...
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
Ulrich My cat is tax deductible.
My cat is tax deductible.
Yep. We have two hangar cats at the shop to keep the mouse population down. Those little critters can wreak havoc on airplanes. They chew on wiring and their excrement is corrossive to aluminum.
Norm
Its been my experience that cats will just sit there and give you a bad look.......
Speaking of a kettle of fish...
mudchicken Deggesty Murphy Siding You might want to check your spelling. Meow! Yes, to rout cats, simply shout "Scat!" Each will then choose its own route. Naw, they will just sit there and hiss at'cha.... Routing cats = herding cats = whatever loose car routing plan in in effect at the time until somebody comes up with a new
Deggesty Murphy Siding You might want to check your spelling. Meow! Yes, to rout cats, simply shout "Scat!" Each will then choose its own route.
Murphy Siding You might want to check your spelling. Meow!
You might want to check your spelling. Meow!
Yes, to rout cats, simply shout "Scat!" Each will then choose its own route.
Naw, they will just sit there and hiss at'cha....
Routing cats = herding cats = whatever loose car routing plan in in effect at the time until somebody comes up with a new
_____________
"A stranger's just a friend you ain't met yet." --- Dave Gardner
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