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.
Ed
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
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: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.
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
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