Railway Age: Short Line and Regional Marketing Advocate
November 1999


o says Ed Shouse, VP of Asset Management for Knoxville-based Gulf & Ohio Railways. Cars that are "free" from the class 1 can cost carloads if they’re not there for loading, and so, continues Ed, owning the cars is the surest way to maximize customer carload opportunities. In one case, lack of class 1 cars cost his shortline half the available business. No cars? Ship truck. Steady car supply? Ship rail. It was as simple as that.

Well, not really. Since the advent of deprescription, getting loans to finance cars is a little tougher. Pete Claussen, President of the G&O – and Chairman of the ASLRRA’s Car Supply Committee – has found that it’s one thing to negotiate a fair rate for cars with your primary connection. But when those cars go to a third carrier – one with whom you have no negotiated rate – the per diem rate defaults to the lowest negotiated rate for that particular car type. And that’s generally too low to make the banker smile.

Short lines must
reduce car-hire
expense by managing
it more aggressively.
Car-hire relief is
not the answer.

You can’t tell the bank your deprescribed cars will always earn the negotiated rate, and you can’t be sure the new cars won’t wind up at the default rate on one of the 500+ roads beyond your connection. "That," says Frank Turner, President of the ASLRRA, "is the real crisis in shortline car supply," and it’s a major item on Claussen’s committee’s To Do List.

So how’d we come to this sorry pass? Why is car supply such a challenge? What are the class 1s and shortlines doing to be sure there are enough cars to go ‘round? To get at some answers I sent a list of questions to 75 shortlines and all the class 1 shortline groups. The responses came in a roar, and it was deafening.

Shortlines pay anywhere from 2% to 15% of their revenues in car hire, some get car hire relief, some get none. Some class 1 commodity groups are most cooperative; other groups in the same class 1 are anything but. The good news however is that there is overall a sense of seeking solutions. At least everybody agrees there is one common thread to efficient car management.

That thread is insufficient velocity of the single car shipment between origin and destination. Speaking with Roger Nelson and Bill Glavin of the North America Rail Group, I learned that 40% of a car’s life is spent in the customer’s account and 13% in actual transit. That means a whopping 47% of the time the average car is not moving under load. That’s 5,000 hours a year -- $2,500 in car hire for the average boxcar – that is never recovered.

That’s an insidious cost, too, because the so-called Generally Accepted Accounting Principles (GAAP) can’t recover it. Where it does show up however is in Ed Shouses’ dilemma: No cars, no business, and can I afford to add more cars to the system? And that is its own vicious circle: system congestion cuts carload velocity, more cars in the system cause more congestion. Where will it end?

Paul Vilter, formerly in forest products marketing for Conrail, has one solution. He writes that the Local Area Management (LAM) system, which he helped devise, "contains a key ingredient: local responsibility to keep the service levels the same or better while managing costs down. Acknowledging car-hire as an operating expense was a step in the right direction because it helps operating management make better trade-off decisions versus managing only crew costs."

Shortlines can do as well. Says Mark Bennett, Mr. Shortlines at CSX, "Often the class 1 frequency of service to the interchange with the shortline is much greater than that offered by the shortline. Cars need to move through an interchange on a seven day a week basis." That’s not an unreasonable request. A 20-car cut on a shortline interchange between 2300 Friday and 0800 Monday takes 46 car-days out of the system. At a nominal $20 per car-day per diem cost to the shortline that’s $920, enough to field two crew starts.

Shortlines can and must reduce car hire expense by managing it more aggressively. Car hire relief is not the answer as it shifts the car hire bill responsibility between pockets without speeding up the fleet. Neither is demurrage the answer for the same reason – costs are shifted with no effect on the true culprit. Besides, where railroads and customers are truly talking no demurrage is ever accrued. And velocity is enhanced in the process.

Perhaps the best example of what’s possible with a free-moving car fleet comes from Amtrak’s Ed Ellis. He allows as how "mail cars in Chicago-LA service average over 30,000 miles per MONTH and our overall average for the fleet is around 180,000 miles per year. Some of the express cars built in 1997 now have more miles than 40-year-old boxcars in rail freight service."

Obviously velocity is not the problem here. But run cars at something approaching that and it won’t be on your railroad, either.

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