Rail Negotiation Wheel

Obtaining the Rail Cost Reductions that Shippers’ Management Needs

“If YOU don’t change what YOU do, it will be difficult to get railroads to change what THEY do.”

Escalation Consultants, Inc. is regularly involved in assisting shippers in reducing their cost of rail freight. Furthermore, we frequently receive inquiries from companies asking how they can best achieve the cost reductions that management is demanding. This article provides some direction for transportation and logistics departments looking to reduce rail costs for their rail movements.

To start out the process of reducing rail expenses, there are two basic issues to keep in mind in getting a better rate structure from railroads:

  • You must do something different than what you are currently doing with … you guessed it… railroads! This is a pretty logical rule that people frequently try to ignore because of a resistance to change. To change your rate structure, you must change how you negotiate with railroads. If you don’t change what YOU do, it will be difficult to get railroads to change what THEY do.
  • Every company has a unique situation. Therefore, the specific process for reducing rail expenses for one company, will be different from what is most effective at another. However, the analysis of fundamental issues to determine the best path to reducing and better controlling rail expenses, are similar.

A number of the fundament issues that need to be analyzed and incorporated as part of a negotiation strategy that will create different dynamics in a rail negotiation are included in the illustration below.

Rail Negotiation Wheel

**Please note that many of the action items on the outside of the Rail Negotiation Wheel have been left blank. A review of ALL actions would be too large a topic for one article.**

These issues in the Rail Negotiation Wheel form the building blocks for strategic planning, designed to obtain better rates for rail movements.

Many things need to be considered in an effective rail negotiation. Not all of the issues that are analyzed, have the same objective. The Rail Negotiating Wheel demonstrates this. The outside of the Rail Negotiation Wheel has analysis that can be performed and actions that can be taken, and the results achieved are on the inside. 

For example, when you benchmark your rates (Position 2 “P2” on the wheel), you determine reasonable rates for your movements. If this analysis shows that your rates are higher than competitors’ rates in a market (P3), then these rates must be reduced as they are putting you at a competitive disadvantage in the marketplace. The results in the middle of the wheel demonstrate why rates must be reduced.

When multiple issues on the outside of the wheel support the same result, this increases your leverage for obtaining better rates for your traffic.

For example, if your rates are higher than your competitors’ (P3), your negotiation position gets even stronger if your rates impact your business in the following ways:

  • Loss of business to competitors’ (P5)
  • Loss of business to imports (P6)
  • Where you invest capital to maintain and increase capacity, and where you don’t invest capital (P7)

All of these types of issues demonstrate why rates must be reduced and increase a shippers’ leverage in negotiations with railroads. The more action items you can use to support your negotiation, the greater your chance of success in obtaining the rates you need for your traffic.

As a shipper, you have the strongest position when you can bring all of the items on the inside of the Rail Negotiation Wheel into your negotiation position with railroads. Those who have attended Escalation Consultants’: Rail Negotiation Seminar know that we are big on shippers developing their rail negotiation “Story.” The story contains a shippers’ position for why it needs rates at a specific level. It also needs to provide the reasons why a railroad should agree to those rates. The Rail Negotiation Wheel provides the roadmap for developing that story.

Effective negotiation positions address issues that support each of the results on the inside of the Rail Negotiation Wheel.

When shippers can demonstrate some or all of the following issues, they will have more effective negotiations with railroads.

  • The rates you need
  • Why you need these rates
  • Why the railroads should give these rates to you

Make your moves more important to railroads.

When your moves become more important to railroads your chances of success increase dramatically (P15 & P16) . If you have the ear of people that are important to railroads, you become more important to railroads. This makes it imperative for a railroad to act promptly on your problems.

These are the types of issues that are analyzed and acted upon in strategic planning. When the Rail Negotiation Wheel is used effectively, a shipper has more productive negotiations with railroads. As a result, a shipper increases its potential for obtaining a rate structure that will keep it competitive in its markets.

Addressing the actions and results included in the Rail Negotiating Wheel is an important concept for every shipper to understand.

The success of a rail negotiation hinges on shippers obtaining the results on the inside of the Rail Negotiation Wheel. Using the leverage you obtain from the Rail Negotiation Wheel is especially important, due to the drop in bulk rail volumes and employment. These changes are providing shippers with significant leverage. Moreover, the Rail Negotiation Wheel helps shippers utilize this leverage in a proactive process for establishing reasonable rates for their movements.


Rail Cost Control (“RCC”) is a program developed by Escalation Consultants, Inc. to help shippers reduce rail expenses by managing costs and empowering negotiations. For more information about RCC and other related articles, visit the RCC Blog.”

Database Management System

close up view of railroad tracks at dusk

Decrease Your Rail Rates by Increasing Your Pricing Options

Rail shippers all agree that it is better to have multiple rate options for a movement instead of just one.

The easiest way to increase your rate options is to have railroads provide Rule 11 rates through multiple gateways. 

The following bar chart provides an example of the potential reduction in rail expenses a shipper can obtain from using a Multiple Rail Gateway Request for Proposal (RFP) on Rule 11 moves.  Each bar represents the percent change from existing rates using a Multiple Gateway RFP and a RFP based on existing rail routes for captive and competitive moves.



The bars reflect an analysis of actual results from bid evaluations. The chart shows a reduction occurs in both captive and competitive rail expenses when Multiple Gateway RFP’s are used, but rate decreases are much larger on competitive movements.

Results normally vary based upon a shipper’s volume of captive and competitive traffic. However, having three rate options instead of one creates downward pressure on rates for both captive and competitive moves that simply doesn’t exist without this functionality.

The problem with Multiple Gateway RFP’s is: they have been very difficult to create and evaluate.

Fortunately, that has changed! Multiple Gateway RFP’s are being used by more shippers as improved technology now makes it easier to create and evaluate them.

In the past, to create a Multiple Gateway RFP you needed to know the following for each movement:

  • The railroads serving your origin
  • The railroads serving your destination
  • The major gateways where the origin and destination railroads interchange traffic to the destination area

The flow chart below is for the creation of a Multiple Gateway RFP for an NS move. This move is originating in Knoxville, TN and terminating on either the UP or BNSF railroads in Los Angeles, CA.


Multiple Gateway Railroad RFP


The flow chart shows that the shipper’s RFP’s for NS, UP and BNSF must include a request for nine (9) rates from the three railroads for this one movement:

  • NS RFP needs four (4) rates from Knoxville, TN to major gateways with UP and BNSF
  • BNSF RFP needs three (3) rates from the gateways on BNSF to the Los Angeles destination
  • UP RFP needs two (2) rates from the gateways on UP to the Los Angeles destination

If a shipper has hundreds of moves, in the past, the RFP could take months to assemble for all railroads.

The bid evaluation was also more complex. This slowed down the bid evaluation process at a time when contracts were ending and time was critical.

Significant cost reductions normally result from a Multiple Gateway RFP, but this process was always significantly more time consuming. This has changed!

The Rail Cost Control (RCC) program represents a significant improvement in technology that makes it easy to create and evaluate Multiple Gateway RFP’s. To do this, shipper’s moves are loaded into the program’s Database Management System. Then, the program’s Cost Optimizer automatically generates Multiple Gateway RFP’s for all movements on each railroad through commonly used gateways. The RCC creates the RFP so it automatically reads railroad responses to the RFP.

The Rail Cost Optimizer then automatically:

  • Evaluates all railroad’s responses and determines your least cost routing option and awards traffic to that option;
  • Creates win/win optimizing opportunities that decrease your cost, while increasing railroads profits; and,
  • Creates cost effective counter proposals for your railroads.

The Rail Cost Control program is an Escalation Consultants product that represents a significant improvement in technology. The RCC has a material impact on a shipper’s rail expenses.


Rail Cost Control (“RCC”) is a program developed by Escalation Consultants to help shippers reduce rail expenses by managing costs and empowering negotiations. For more information about RCC and other related articles, visit the RCC Blog.

Rail Rate Checker Banner

rail yard at night under lights

Railroads Cost Decrease Significantly in 2020

Railroads Cost Decrease Significantly in 2020 – Far Reaching Affects

Freight expenses of the four major U.S. Class 1 railroads decreased an average of 9% over the first three quarters of 2020.

This drop in the cost per car for railroads moving traffic is impacting many shippers’ rail negotiations and the rates for their movements.

Fuel costs are the primary driver for the decrease in railroad expenses. The following graph shows that the average cost of fuel per car decreased 43% on the major U.S. railroads since the fourth quarter of 2019. This has been a major contributor to the 9% decrease in overall freight expense.

Railroad Costs Decrease Significantly in 2020

Costs Need to Take Center Stage in Negotiations with Railroads

When a railroad’s cost is decreasing, it is harder to justify an increase in rates. As a result, railroad’s cost of moving traffic is taking on more importance in many shippers’ preparations for negotiations. This issue is helping many shippers reduce the level of their rate increases. Thus improving their ability to obtain rate reductions on more traffic.

Rail Rate Checker (RRC) users are encouraged to use the SEC section of the program to see how your railroad’s cost of moving traffic is changing. This will quickly keep you up to date on the macro changes in cost, revenue and carloads on your railroads. Companies that do not have RRC should research the railroad’s filings to the Security and Exchange Commission (SEC) to keep current on this issue.

Rail Rates That Are Unreasonable Can Look Reasonable Without Taking Action

Most rail shippers calculate the railroad’s cost and Revenue to Variable Cost Ratio’s (RVCs) for their movements to help determine reasonable rates for their traffic. In doing this, shipper’s need to be aware that they must escalate the railroad’s cost to make them more current. If this is not done, the railroad’s cost for movements will be overstated and the RVC for movements will be understated. This will lead to faulty conclusions and improper rates for a shipper’s movements.

The most current costs submitted by railroads to the Surface Transportation Board are for the year 2019. The graph below tracks the average change in the four major U.S. railroads operating expense and fuel expense per car from the 1st Quarter of 2019. The graph shows that most of the cost decrease did not occur until 2020. This means that railroad’s 2019 costs will need to be escalated (actually de-escalated) in order to generate accurate results.

Railroad Fuel Expenses Decrease Significantly in 2020

To generate accurate railroad costs for movements, Rail Rate Checker users need to make sure they use the “Escalate Cost” button when costing movements.

This will automatically escalate the railroad’s cost of your moves to the current quarter. Companies that do not have Rail Rate Checker will need to establish a process for adjusting their cost results.


Rail Rate Checker is part of the Rail Cost Control (“RCC”) system developed by Escalation Consultants to help shippers reduce rail expenses by managing costs and empowering negotiations. For more information about RCC and other related articles, visit the RCC Blog.”

Database Management System