Improve Negotiating Leverage on Captive Rail Movements

February 13, 2023

Shippers Negotiating Leverage Has Just Improved on Captive Rail Movements.

The amount of revenue that railroads receive from rates with Revenue to Variable Cost Ratios (RVC’s) greater than 180% has increased dramatically since 2004.

Non-Competitive Rail Revenue (RVC’s >180%) has increased by 244% since 2004.
This has resulted in a very large increase in railroad profitability.
Shippers need to understand that very large rail profit can increase negotiating leverage with a railroad on captive movements.

To provide context to point 3, the new Revenue Shortfall Allocation Method (RSAM) data just released by the STB has improved shipper’s negotiation leverage on captive rail movements. The high level of railroad profit is factored into the RSAM data, and this improves a shipper’s ability to win a 3-Benchmark Rate Challenge at the STB.

Based upon the new RSAM data a rail shipper’s captive rates could be similar to competitors but be considered more than 25% above these rates in a 3-Benchmark Rate Challenge. This is a big deal!

To be clear, shippers don’t necessarily need to initiate a 3-Benchmark Rate Challenge at the STB. However, shippers do need to understand that a railroad now has more to lose by not listening to a shipper’s concerns about rates and service on moves where there is a lack of rail competition.

Being smarter about your options improves a shipper’s ability to negotiate better rail rates for its movements. This is what the Rail Negotiation Seminar is about, and it is the reason this seminar is so highly recommended by rail shippers for rail shippers.

The Rail Negotiation Seminar is effective as it provides policies, strategies and negotiation practices that help reduce and better control your rail expenses. In addition, it keeps you current on changes in the marketplace as well as regulatory issues that can have a big impact on your rail expenses.

For information on the Rail Negotiation Seminar and why this program is so important to shippers in the 2023 rail market, click the link below to obtain a brochure for the seminar.

Percent Change in ALL-LF Index Before and After Error Adjustment

AII-LF: Check Your Index

February 9, 2023

Check the Index You Use to Escalate Multi-Year Rail Contracts

The All-Inclusive Index- Without Fuel (AII-LF) is the primary index used to escalate rail rates in contracts. However, there are two versions of this index that are used to escalate rates and during rapid inflation. One index tends to increase more than the other. The graph shows:

Since 1Q2021 the AII-LF index Before Error Adjustment has consistently increased more than the AII-LF index After Error Adjustment.
The cumulative difference over the last eight quarters is 2.2% (17.4%-15.2%).
The difference over just the last quarter is 1.3% (4Q2022 to 1Q2023)
Shippers need to verify which version of the AII-LF index is being used to increase their rates.

**This graph was generated using the Rail Cost Control program**

The Rail Negotiation Seminar is the most highly recommended program by rail shippers for rail shippers. The seminar is effective as it provides policies, strategies and negotiation practices that help reduce and better control your rail expenses. In addition, it keeps you current on changes in the marketplace that can impact your rail expenses, such as the changes referenced above in the ALL-LF indexes.

Thousands of rail shippers, from every industry that ships by rail, have attended the seminar over the years. Below are some of the observations they have made:

If you plan to attend the seminar, make sure to reserve your hotel room before EOD, Friday 2/10, to ensure your discounted room rate. Click the following link to lock in your discounted room rate: Rail Negotiation Seminar Hotel Reservations ****

For more information on the Rail Negotiation Seminar, click banner below to download the brochure.

302% Increase In Rail Premiums Above Expenses

January 24, 2023

The premium railroads make above their operating expenses, in inflation adjusted terms (Real Terms), has dramatically increased in recent years, but not in the more distant past.

Change in RR's Inflation Premium Above Expenses

The chart shows:

Railroad profit, as measured by the difference between railroad’s Real operating revenue and expenses, increased 302% since 2004.
Over the prior 19 years (1985 – 2004) Real rail profits fluctuated in some years, but cumulatively did not change.
In Real Terms railroad profits simply kept up with inflation between 1985 and 2004.

The goal of effective rail negotiations is for a shipper to minimize rates that generate the type of results obtained by railroads in recent years by developing leverage to maximize the type of results obtained by shippers in prior years.

How shippers structure their rail negotiations has a big impact on their ability to control the cost of rail freight. The Rail Negotiation Seminar is a program that is structured to improve rail negotiations and stop shippers’ cost of rail freight from always increasing. Don’t just take our word, check out the recommendations of past attendees to this program.

Some important topics covered in the seminar that increase negotiation leverage:

Negotiation leverage not related to the competition for a movement
The benefits of being proactive and not reactive with railroads
Structuring the RFP to reduce cost by creating more pricing options
Optimizing your rail spend to increase negotiation leverage with railroads

Don’t wait to register – Early Bird pricing is available through January 31st! For more information about the Rail Negotiation Seminar, click banner below to download the brochure.

STB’s Annual Rail Rate Index Study: A Deeper Dive

January 23, 2023

As of January 27, 2022, the newly released STB Annual Rail Rate Index Study (Study) summarizes trends in freight rail rates between 1985 and 2019. The Study shows that inflation-adjusted Real Rail Rates have decreased 27% over the past 34 years. Because Real rail rates are lower now than in 1985, the STB Study may be read by some to imply that current rail rates are reasonable in relation to what they have been historically. Unfortunately, this is not an accurate conclusion, because the historical trend in rates provides an incomplete picture of the change in cost of shipping freight by rail.

To read the full article, click below:

Staggering Rail Rate Increases Across Commodities

January 19, 2023

The cost of shipping by rail has increased more in 2022 than any year in the working life of most transportation people!

[Percent Increase Measures the Average Revenue Per Car Including Fuel Surcharge Revenue]

Results from analysis of 2022 rail rates:

Double digit rate increases, including fuel surcharge revenue, have become the norm and are no longer the exception.
Of the 36 two-digit Standard Transportation Commodity Codes, 69% have had double digit rate increases in 2022.
The rate increases railroads are obtaining from different commodities varies dramatically.

Understanding railroads revenue goals for your moves and how you can impact those goals can have a significant impact on your cost of moving rail freight.

The 2023 Rail Negotiation Seminar contains essential information and strategies you need to control rail freight expenses in the current rail market.

Rail rates have increased to the point where the cost of not exploring all your best avenues for better controlling rail expenses is just too costly.

The Rail Negotiation Seminar is an annual event that has changed how many shippers interact with their railroads and this is the most highly recommended program for helping shippers reduce expenses. View the seminar recommendations to find out why.

For information on the Rail Negotiation Seminar and why this program is so important to shippers in the 2023 rail market, click the link below to obtain a brochure for the seminar.

Big Changes in Cost of Rail Freight

January 13, 2023

The 2023 Rail Negotiation Seminar Countdown Has Begun!

January 12, 2023

**Register for the 2023 Rail Negotiation Seminar before January 31st, 2023, for special Early-Bird Pricing.**

Thousands of rail shippers have attended this event over the 25+ years it has been held. The Rail Negotiation Seminar focuses on proven practices, tactics, and strategies that have directly led to improved negotiation leverage and significant reductions in rail expenses for many shippers. Click here to read what past attendees have to say. In addition, the working session at the seminar helps you learn from the experience of others. The Rail Negotiation Seminar is a great learning experience and that is why it is the #1 recommended negotiation seminar, designed specifically for rail shippers.

This is a MUST attend event for shippers looking to reduce rail rates and gain better control of their rail expenses. The following are a few important topics covered in the seminar that help put downward pressure on shippers’ rail expenses:

1. Making your moves more important to railroads
2. Structuring RFPs to increase your competitive traffic, pricing options, and optimize opportunities
3. Determining how your rates stack up to competitors in your markets
4. Dealing more effectively with railroads in less time

The March seminar is the only rail negotiation program scheduled for 2023 and you are encouraged to sign up early. With the many changes happening in the economy and rail markets this program is expected to sell out.

For more information or to see recommendations from past attendees, click the banner below to download the Rail Negotiation Seminar Brochure.

The Rail Negotiation Seminar is presented by Escalation Consultants, Inc.

Making Rail Negotiations More Productive

December 7, 2022

A Message from Escalation Consultants’ President & Founder, Jay Roman:

Rail negotiations are frequently unproductive because the shipper and railroad work against their own best interest. This leads to frustration, especially for the shipper, as railroads frequently have monopoly or duopoly power over shippers’ traffic.

A good rule for shippers to follow in order to accomplish more in rail negotiations is to make negotiations more educational and much, much less confrontational.

As an example, banging on the table or getting mad in negotiations is unproductive as it can be a sign of weakness. If you could do anything other than get mad you would already be doing it and there would be no need to get mad. It is simply a sign that you believe you have no options, and this is the wrong signal to send to a railroad.

To reduce rail expenses, shippers need to educate railroads on how both parties can accomplish more by working together than against each other’s best interest. It does not matter if you have $10 million or $500 million in rail spend. A shipper will accomplish more with railroads if it is able to articulate a path forward that will be better for both parties than the status quo. This process is not always easy, but it is very effective.

Making rail negotiations educational is very successful as a shipper is being proactive in helping establish a rate structure that creates value for both parties. However, this process is more time consuming for a shipper than just sending out a Request for Proposal (RFP) to railroads. As a result, this process is not used by a large number of shippers. The results of a speech I gave at a rail shipper’s association meeting several years back demonstrates the position of some shippers and railroads on this negotiation process.

My speech was titled: “Ten Things You Need to Show a Railroad to Get Better Rates.” Two questions asked about what was covered in the presentation were informative:

A railroad person asked, “HOW CAN WE GET MORE SHIPPERS TO DO THIS”.
- The railroad could not guarantee that it would agree to everything that the shipper wanted. However, the shipper had a much better chance of getting agreement if the railroad knew:
  - Rates the shipper needed,
  - Why the shipper needed them, and
  - Impact this would have on the railroads business.
Another question (“statement”) came from a shipper. The shipper’s position was, “THIS COULD TAKE A LOT OF TIME”.
- The transportation department has a tight budget and the shipper felt it could be difficult to find the time and resources to implement this process.

In my experience, millions of dollars in savings are obtained by the shipper and millions of dollars in additional profit are obtained by the railroad through proactive, educational rail negotiations. Some of the best options for accomplishing these types of results are something every rail shipper needs to explore.

I urge shippers to attend Escalation Consultants’ Rail Negotiation Seminar in Tampa, Florida on March 8 – 9, 2023. The focus of the seminar is on how to make your rail negotiations more productive. Click the image below for information on the seminar, as well as some of the hundreds of recommendations the Rail Negotiation Seminar has received from shippers. We look forward to seeing you in Tampa.

Register before January 31st for special early bird pricing!

—

Sincerely,

Jay Roman

President of Escalation Consultants, Inc.

(o) 301-977-7459

RCC Blog: Acknowledging Railroad Service Issues

Are Railroads Turning the Corner on Bad Service?

June 1, 2022

Much has been written about current problems with the United States supply chain. The problems are far ranging, but the primary focus has been on:

The backlog of ships at ports;
The breakdown of rail service at major ports, which is making it more difficult to clear docks; and,
Poor rail service for important Agricultural commodities like Grain and Fertilizer

To assess the current situation with service, this article takes a closer look at railroad’s overall performance of Intermodal, Unit Train, and Manifest traffic. Railroad operating results indicate that service problems are stabilizing on a large segment of rail traffic and the hope is that this is the start of an overall improvement in rail service.

Change in Carloads

Illustration 1 tracks the percent change in monthly Intermodal carloads versus Manifest carloads on the four major U.S. railroads between January 2019 (beginning of pandemic) and May 2022.

Illustration 1 shows that Intermodal carloads recovered more quickly than Manifest carloads from the height of the Covid pandemic in May 2020. Unlike Manifest traffic, Intermodal carloads exceeded pre-Covid levels in much of 2020 and 2021. However, by March 2022 Intermodal and Manifest carloads were both above pre-Covid levels.

The percent change in carloads for Coal and Grain unit train movements are tracked against Intermodal carloads in Illustration 2. This shows that Grain carloads fluctuate more than Intermodal, but the cumulative percent change is approximately the same as carloads for Grain and Intermodal are both at pre-Covid levels. Coal carloads are down 20% to 30% for reasons that are not related to the Covid pandemic.

The cumulative change in carloads for other major rail commodities between January 2019 and May 2022 are in Illustration 3. The carload data indicates that service problems are unrelated to an increase in carloads on the rail system, as carloads currently reflect levels similar or below pre-Covid volumes.

Change in Train Speed and Dwell Time

Most rail traffic is moving slower now than before Covid had an impact on the U.S. economy. Intermodal traffic is doing significantly better than Manifest traffic as well as Coal and Grain Unit Train traffic as it is only slightly down from where it was in January 2019.

Illustration 4 shows that the average speed of all types of traffic, other than Intermodal, on the four major U.S. railroads has been in a steady decline since the second quarter of 2020.

Intermodal Train Speed stopped decreasing in the second quarter of 2021, while the speed of Manifest traffic continued to decline.

Overall, the speed of Intermodal traffic is only down 1% since the first quarter of 2019, while the speed of Manifest traffic is down 7% due to a consistent drop in 2021 and 2022. Illustration 4 shows that the decrease in Train Speed is a more significant problem with Coal and Grain Unit Train movements.

Illustration 5 shows that as Manifest traffic Train Speed started to continually decrease in the second quarter of 2020, the Dwell Time of rail trains at rail terminals continued to increase. This is bad news for rail shippers as trains are spending more time delayed at rail terminals and when leaving the terminal, trains are moving at a slower speed. Illustration 5 shows that this problem has gotten continually worse since the second quarter of 2020. This problem is causing big delays in rail shipper’s deliveries to customers, and it is a significant contributor to the slowdown in the U.S. supply chain.

The one bright spot from this data is that service for Intermodal movements appears to be improving. The Train Speed for Intermodal has been relatively stable since the second quarter of 2021, while Intermodal carloads have had big up and down fluctuations. Intermodal represents a very large percent of all rail traffic, and the hope is that improvements in this area will have a ripple effect on the entire rail system.

Railroad submittals to the Surface Transportation Board (STB) are the source for the data in this report. Current and historical data on rail service, rates, and volumes by commodity and market area are available in the Rail Cost Control program.

The STB Study Saga Continues

February 28, 2022

The STB Study Saga Continues

An article was recently published by Railway Age. This article contains an exchange between Jay Roman, Founder and President of Escalation Consultants, Inc., and Dr. William Huneke, former Director and Chief Economist at the STB, on the STB’s Annual Rail Rate Index Study (STB Study).

The dialog that the article contains is of significant importance to all rail shippers as it highlights a need for a change in how the STB operates and the lens in which interested parties would utilize its data.

It is important to raise questions about the STB Study, because it will likely be used by lobbyists, politicians, and railroads to show that there are no major problems with rail rates. This may not be the STB’s purpose for the Study, but this is likely how companies that benefit from railroads ability to continually increase rates will use the findings in the Study. In other words, if rates are “reasonable” there is no need to change STB regulations to have a more effective process for shippers to challenge rates.

Shippers Negotiating Leverage Has Just Improved on Captive Rail Movements.

Non-Competitive Rail Revenue (RVC’s >180%) has increased by 244% since 2004.

This has resulted in a very large increase in railroad profitability.

Shippers need to understand that very large rail profit can increase negotiating leverage with a railroad on captive movements.

For information on the Rail Negotiation Seminar and why this program is so important to shippers in the 2023 rail market, click the link below to obtain a brochure for the seminar.

Check the Index You Use to Escalate Multi-Year Rail Contracts

** If you plan to attend the seminar, make sure to reserve your hotel room before EOD, Friday 2/10, to ensure your discounted room rate. Click the following link to lock in your discounted room rate: Rail Negotiation Seminar Hotel Reservations **

The premium railroads make above their operating expenses, in inflation adjusted terms (Real Terms), has dramatically increased in recent years, but not in the more distant past.

The goal of effective rail negotiations is for a shipper to minimize rates that generate the type of results obtained by railroads in recent years by developing leverage to maximize the type of results obtained by shippers in prior years.

The cost of shipping by rail has increased more in 2022 than any year in the working life of most transportation people!

Results from analysis of 2022 rail rates:

Double digit rate increases, including fuel surcharge revenue, have become the norm and are no longer the exception.

Of the 36 two-digit Standard Transportation Commodity Codes, 69% have had double digit rate increases in 2022.

The rate increases railroads are obtaining from different commodities varies dramatically.

Register for the 2023 Rail Negotiation Seminar before January 31st, 2023, for special Early-Bird Pricing.

1. Making your moves more important to railroads 2. Structuring RFPs to increase your competitive traffic, pricing options, and optimize opportunities 3. Determining how your rates stack up to competitors in your markets 4. Dealing more effectively with railroads in less time

A Message from Escalation Consultants’ President & Founder, Jay Roman:

A good rule for shippers to follow in order to accomplish more in rail negotiations is to make negotiations more educational and much, much less confrontational.

A railroad person asked, “HOW CAN WE GET MORE SHIPPERS TO DO THIS”.

Another question (“statement”) came from a shipper. The shipper’s position was, “THIS COULD TAKE A LOT OF TIME”.

Much has been written about current problems with the United States supply chain. The problems are far ranging, but the primary focus has been on:

The backlog of ships at ports;

The breakdown of rail service at major ports, which is making it more difficult to clear docks; and,

Poor rail service for important Agricultural commodities like Grain and Fertilizer

Change in Carloads

Change in Train Speed and Dwell Time

Intermodal Train Speed stopped decreasing in the second quarter of 2021, while the speed of Manifest traffic continued to decline.

The STB Study Saga Continues

The dialog that the article contains is of significant importance to all rail shippers as it highlights a need for a change in how the STB operates and the lens in which interested parties would utilize its data.

The following link will take you to the Railway Age article.

We encourage you to forward this email, or share the article, with your teams and fellow rail shippers.

Please contact us directly if you have questions or would like more information on the article: Info@RailCostControl.com

Quick Links

Contact Info

If you plan to attend the seminar, make sure to reserve your hotel room before EOD, Friday 2/10, to ensure your discounted room rate. Click the following link to lock in your discounted room rate: Rail Negotiation Seminar Hotel Reservations ****

**Register for the 2023 Rail Negotiation Seminar before January 31st, 2023, for special Early-Bird Pricing.**

1. Making your moves more important to railroads
2. Structuring RFPs to increase your competitive traffic, pricing options, and optimize opportunities
3. Determining how your rates stack up to competitors in your markets
4. Dealing more effectively with railroads in less time