I've see questions/answers all around the topic of payment (tariff vs. market pricing and all that), but never a clear-cut answer on who's actually doing the paying, so here goes... So, let's say for sake of discussion that I own Wacky Widgets in Walla Walla, Washington, and get an order totalling two boxcars' worth of product delivered to Irv's Inexplicables in Indianapolis, Indiana. I get a quote from BNSF (local/origin road) that it'll cost $5000 per boxcar. I know CSX and CN (connecting roads) will get a chunk as well. Who's ultimately paying for that - me or Irv, and is the connecting road chunk included or does that get added additionally?
(Side note, at the rates railroads charge, it's no wonder more companies are moving away from it - consider a typical autorack holding 15 cars and costing nearly $15,000 cross country - that $1000 or more per automobile really adds up quick...)
kevgosI've see questions/answers all around the topic of payment (tariff vs. market pricing and all that), but never a clear-cut answer on who's actually doing the paying, so here goes... So, let's say for sake of discussion that I own Wacky Widgets in Walla Walla, Washington, and get an order totalling two boxcars' worth of product delivered to Irv's Inexplicables in Indianapolis, Indiana. I get a quote from BNSF (local/origin road) that it'll cost $5000 per boxcar. I know CSX and CN (connecting roads) will get a chunk as well. Who's ultimately paying for that - me or Irv, and is the connecting road chunk included or does that get added additionally? (Side note, at the rates railroads charge, it's no wonder more companies are moving away from it - consider a typical autorack holding 15 cars and costing nearly $15,000 cross country - that $1000 or more per automobile really adds up quick...)
How many tons of widgets are being shipped in each car 100, 50, 25? How much per ton are you willing to pay to ship your widgets approximately 2500 miles? How many widgets per ton are there? How many widgets are in each car load, how much of the wholesale price will the $5000 per car add to the price of the widgets.
The shipment can be tendered in two ways. You as the shipper can pay for it when you ship it or you can ship it so the Irv's Inexplicables must pay the shipping charges before the cars will be placed at Irv's siding or team track. If you paid as the shipper, the cars will be released to Irv upon arrival (ie. you either believe or know that Irv will pay you for the widgets and their included shipping charges. Once upon a time railroads would deal with COD shipments, I haven't heard of that being done since the Staggers Act was done in 1980.
The settlement of the charges between the carriers involved in the shipment is between the carrier and is not your concern.
Concerning the shipping rate for cars in an autorack - remember those vehicles aren't the $5K-$10K cars of yesteryear. Vehicles in today's world are in the $30K-$50K neighborhood, so a $1K potential charge per car is not inordinate.
I just shipped a snowmobile engine 70 pounds 1200 miles for $82 or roughly 2340 per ton and that was not via rail. Shipping involves equipment, manpower and distribution systems - they don't grow and trees and they all cost real money to obtain and operate.
Shippers always think freight charges are too high.
Never too old to have a happy childhood!
The answer to the question of who pays the freight is simple. Either the shipper or the consignee. Who does on any specific shipment is specified on the bill of lading and waybill. If shipper will pay, the freight is "Prepaid", if consignee is "Collect". The shipper and the consignee will agree before the shipment is made. Terms of sale are typically FOB origin or FOB destination, FOB meaning free on board. If the seller quotes his price FOB origin, which is likely in many cases, then title to the goods transfers at origin. If buyer says you pay the freight and include it in my price, then shipper will prepay and title passes at destination. Either way the buyer has paid the freight regardless of who writes the check.
Commodity markets work a bit differently in that price is quoted delivered to some point, say wheat at Chicago. If the deivered price is $3 per bu at Chicago and the freight rate from my origin is 25 cents, then the value at origin is $2.75. The seller can pay the freight and sell at Chicago for $3, or the buyer can pay $2.75, have seller ship collect and pay the freight. In this case the seller is effectively paying the freight, again regardless of who writes the check.
Division of Revenue among the carriers is something that USUALLY happens "behind the curtain". This is done by agreements among the participating carrers who offer a "through" rate on a through bill of lading. There are a few combination rates, which involve a separate bill of lading to two or more carriers. These are (Accounting) Rule 11 shipments and apply where there is no through rate established. A rule 11 rate may mean that the big railroad does not trust the little one to settle its interline accounts promptly.
Mac McCulloch
Assuming the manufacturer of the widgets and the Indianapolis seller (wholesaler or retailer) are managed (owned) by competent business persons, the shipping charges are factored into the selling price of the widgets and paid by the end buyer.
The buyer of the widget does not care whether the goods were shipped FOB Shipping or FOB destination. However, the shipping parties’ accountants may care because of the timing impact on the shipper's and/or receiver's financials.
Rio Grande Valley, CFI,CFII
Often a third party (i.e. the "buyer") pays the freight. For example, I might buy the widgets and have them shipped from your factory (shipper) to a receiver who will process my widgets for resale to the end user. This often happens where product needs to be packaged to look right on Walmart's shelf or where product needs finishing or further processing prior to delivery to the end user.
As for who pays railroad A, B, and C on moves that involve more than one carrier, there are a number of options: Carrier A may offer a through rate and deal directly with B and C so that you don't have to. But more often than not, you the shipper have to make all the arrangements or hire a freight broker to do it for you. The advantage of using a freight broker is you pay one invoice and the freight broker makes all the arrangements with the various carriers. In my experience, the railroads don't work that closely with one another.. I've moved freight from the Southeast US to western Canada and have had to deal separately with NS and CP as the two acted as if neither was aware of the other's existence.
Ulrich In my experience, the railroads don't work that closely with one another.. I've moved freight from the Southeast US to western Canada and have had to deal separately with NS and CP as the two acted as if neither was aware of the other's existence.
Suspect that is a result of the 'international' nature of your shipment.
I think so.. that's a big part of it. When I mention payment in Canadian dollars I get a dial tone..
In my experience, the railroads don't work that closely with one another.. I've moved freight from the Southeast US to western Canada and have had to deal separately with NS and CP as the two acted as if neither was aware of the other's existence.
Ulrich,
I an 99% sure your experience is atypical in that the vast bulk of interline traffic moves on established joint rates and routes and through billing. You are describing a situation in which there is no established rate and route and I have no doubt about the veracity of your report.
Since most rail traffic is repetitive, and since the carriers have so few marketing people even in HQ to establish new rates and routes, the vast bulk must move on established rates and routes and generally these are through as a matter of mutual convenience. The railroads have lots of experience settling interline balances given a joint rate and route.
Mac
You're probably right as most of my stuff is off the beaten path, hence the reason my customers deal with me (a middleman in this scenario) verses directly with the carrier. Overall my experiences with the rails have been positive over the years... and the flip side of course: if it were real simple they (the customers) wouldn't need me and I wouldn't be able to mark it up 20%.
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