Track Rail Rate Increased Over Time

Use Past Rail Rate Increases to Reduce Current Rates

Would your position on a proposed rate increase of 3% for a rail move be different if that rate had already increased by 40% in prior time periods?

Many shippers answer this question with a resounding YES! The reason – Your railroad knows how its rates have changed.  If your past rate problems are not addressed in current rate negotiations this either indicates that:

  • You have forgotten about the large rate increases of the past; or,
  • Large rate increases are not causing you a problem.

Either situation can be detrimental to a shipper’s rates, as silence does not send the proper message to a railroad.

If rates increased 20% over two bid cycles, it doesn’t matter whether the 2021 or 2019 rate increases caused the problem. The 20% rate increase is the problem!

Past performance can be a powerful source of leverage for obtaining lower rates from railroads. Unfortunately, it’s difficult to keep track of the impact past rate increases have had on current rates and volumes for specific moves. This is especially true when you have employee turnover as you lose the knowledge of people previously involved with your moves.

Large rail rate increases make an effective Database Management System (DMS) an essential tool for shippers. This is the reason for the DMS in the Rail Cost Control Program (RCC).  The DMS automatically identifies and quantifies past rate problems and establishes an effective source of leverage for shippers. The RCC makes rail negotiations more productive and helps better control the cost of rail freight.


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

Railroad Strategic Alliances

Creating Effective Alliances with Railroads

Develop Strategic Alliances to Create Greater Value for You and Your Railroads

The term partnering is overused. Many rail shippers refer to any contractual agreement with a railroad as a partnership. The term partnering is even used in agreements with high rail rates for moving shippers’ commodities with thin profit margins. To obtain a better rate structure from railroads, shippers should focus on creating strategic alliances with railroads.

Strategic Alliances establish a process with defined goals for improving revenue and profits for both shippers and railroads.

The alliance needs to detail what is expected from each party and the outcome (goals) each party will receive from the process. Strategic alliances that impact rail rates normally have little to do with the captive or competitive nature of movements. A strategic alliance starts by first identifying common goals between shippers and railroads. An effective alliance then works to better accomplish these goals.

Some alliances are simple while others are complex. A prime example of a complex alliance involves foreign imports. Greater value can frequently be obtained by working together than apart on import issues. This makes imports a prime candidate for a strategic alliance between shippers and railroads.

When imported products become a threat to a company’s domestic production, the shipper and railroad have the same goal – STOP THE BLEEDING.

Imports cause both shippers and railroads to lose volumes and revenue when they impact a company’s domestic production. Railroads have a lot to lose with imported products, as they:

  • Lose all inbound movements needed for domestic production
  • Miss out on outbound movements to customers
  • May not move imported products from the port

Consider the impact of each additional container of imported paper. The railroad loses inbound moves of wood chips, slurry, chemicals, and potentially, coal to the paper mill. This loss of business has a big impact on railroads, suppliers to paper companies, and of course the paper company on outbound moves. This scenario demands a strategic alliance amongst impacted companies, because everyone loses if the paper company can’t compete with imports. All impacted companies need to reduce their costs to stop the bleeding. It doesn’t matter whether a railroads moves are captive when high rates only lead to a loss of revenue. To protect the vested interest in the output of the paper company, rates are determined through the alliance, and not the competitive status of rail movements.

Dealing more effectively with imports is an example of a complex strategic alliance. There are, however, many less-complex types of basic agreements struck between shippers and railroads that accomplish a common objective. A shipper’s capital investment to maintain or improve plant output frequently results in an alliance with its railroad. Capital Investment that also benefits a railroad, should not be made without first receiving an incentive from the railroad to make the investment. This is best accomplished through a strategic alliance which details what is needed from each party.

Not all leverage with railroads stems from the operational parameters of a movement.

With smart people on both sides of an opportunity creating value, great things can be accomplished. Rail shippers need to identify these opportunities because they will determine the best rates and contract terms for moving rail traffic.

The path to a more reasonable rate structure frequently starts by understanding common goals you have with railroads. This process leads to more productive rail negotiations and the creation of greater value for shippers and their railroads.


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.”

Rail Cost Optimizer

railroad car on sunny day at industrial plant

8 Ways to Improve Your Captive Rail Rates

Many rail shippers believe that if they are captive to a railroad at a location, they have little leverage to negotiate better rates.

The graph below shows why this isn’t a good way to look at your rail traffic. The graph contains rail rates for Iron or Steel Strip (STCC 33123) going into the captive rail market of Nashville, TN.

The question to answer with this graph is:

Why Are Rates So Different At a Destination Market Like Nashville, TN that Is Completely Captive To CSXT?

Improving captive rail rates graph


The graph shows that some rates are below $2,800, while other rates going the same distance, are above $7,000. The question is: If Nashville is a captive market, then why aren’t all rail rates above $7,000?

There are many reasons why rates for specific movements vary, but the big picture answer is very simple, Effective Strategic Planning. Shippers that make railroads look at their traffic differently get better rates from their railroads.

Strategic Planning causes captive moves to have different rate levels. Significant downward pressure on rail rates can be generated when the following issues are addressed by shippers in strategic planning.

Eight Ways to Get Better Rail Rates at Captive Locations

  1. Railroads need to compete for your business when you have multiple plants that produce the same product.
    • Even when a location is captive to a railroad, a shipper can use geographic competition to obtain lower rates from railroads.
  2. Large shippers that bundle all their rail traffic in an RFP can get better rates at captive locations.
    • In order for a railroad to get more of a shipper’s competitive traffic it must reduce its rates on captive traffic. More traffic is always better than less traffic in rail rate negotiations. RFP’s that take advantage of a shippers entire book of potential business increase negotiation leverage.
  3. Forward storage of products at captive locations.
    • To avoid bottle necks at captive locations, explore forward storage options at sites with rail competition, then truck to captive locations. You don’t have to bypass railroads at captive locations forever. Railroads get the message.
  4. Take freight costs out of the system with commodity swaps.
    • Commodity swaps work best when you have a competitor serve your customer when it’s facility is closer to the customer and you serve a competitor’s customer that is closer to your plant. The greater your rail expenses, the greater the benefit from commodity swaps. Commodity swaps can be a short-term action as a railroad gets the message pretty quickly.
  5. High rates create the economic incentive to invest capital to increase your logistics options.
    • The railroad needs to make it uneconomical for a shipper to take traffic off its system. If its rates are too high then other logistic and capital investment options become more attractive. A railroad must reduce cost to make these options less attractive.
  6. Railroads need to compete against trucking on short and mid distance moves.
    • Large rail rate increases allow trucks to compete with rail for longer distance moves. The cost of trucking and transloading needs to become the ceiling price for short and mid distance moves.
  7. Political pressure!
    • One of the best and easiest sources of leverage to create is political pressure. Politicians want to talk to you as your company is a great source for tax revenue, political contributions, and you employ many voters. Politicians can be a great benefit because if you have the ear of someone that is important to the railroad, then you become more important to the railroad. There is a right way and a wrong way to address politicians and all politicians are not equal which should be considered in your strategic planning.
  8. Foreign Imports: 
    • It doesn’t matter if a railroads moves are captive, if imports are reducing your domestic production. The shipper and railroads have the same goal with imports – STOP THE BLEEDING. Additional information on this topic will be contained in an upcoming Blog Article, on 2/10/2021.


For the last forty years, Escalation Consultants, Inc. has conducted the most highly recommended Rail Negotiation Seminar for shippers, and we have seen the results of changing how railroads view a shipper’s traffic.

Our Rail Cost Control program and consulting services are used extensively by shippers to reduce the rate structure 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.

Rail Cost Optimizer

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

analytical data chart and graph

Most Rail Rates Increase Less Than 2% Annually

Longer term rail contracts are now the norm. The question is:

What level of rate increase should a shipper agree to in a long-term rail contract?

The graph below ultimately answers this question.

This graph shows that over the last 5 years rail rates for bulk rail movements had a cumulative increase of 5.1% on Western U.S. railroads, and 4.7% on Eastern U.S. railroads. This represents an average annual increase of 1.0% on Western U.S. railroads, and 0.9% on Eastern U.S. railroads.

Average Revenue Per Car for Bulk Rail TrafficBased on historical changes, a contract escalation rate greater than 2% puts a shipper at a competitive disadvantage in its markets. 

The graph above shows that the average rate per carload for bulk rail traffic been increasing less than 2% annually. In addition, bulk rail freight rates have plummeted in 2020, causing more shippers to reconsider the proper term for their contracts. Shorter term agreements, which take advantage of weakness in rail markets are being considered. 

The graph below provides the 5 year trailing average rate of change for rail movements at the 2-digit STCC level for Eastern and Western railroads. Of the 14 rate changes in this graph, five (36%) increased more than 2% annually. While, only one (Farm Products) had an annual increase as high as 3%.

Annual Percent Change in Railroad's Average Revenue per Car

Due to the monopoly power that railroads have over many of their customer movements, they are required to submit a large amount of rate and volume information to the STB. Shippers need to access this data in order to be more proactive in rate negotiations with railroads.

Railroads rates and rate changes, down to the 5-digit STCC Code, are contained in Rail Rate Checker which is part of the Rail Cost Control system.


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 Cost Control