Railway Age, November 1992

Demurrage as a Marketing Tool

A friend writes:
"Demurrage charges are unpleasant. Nobody wants to pay them and you've got to charge them. We've kept the old 6004 tariff to give as much leeway as possible. But demurrage bills always make customers cranky.

"It's a proven fact you can't make any money on demurrage (a $15 car needs to sit placed for eight days before net car hire turns positive). And on the branch we only serve three times a week, customers couldn't see why they had to release a car if we weren't going to be there to pull it.

"But some truckers are now charging up to $30 an hour detention, which makes our two days free time seem like manna from heaven."

This friend thought it was time to send out a friendly note on minimizing demurrage charges. It's so good I want to share it through this column.
A Model Demurrage Letter

Dear Customer:

As you know, your business has helped this railroad quadruple its traffic level in just four years. I'd like to take a moment of your time to bring you up to date on what's been accomplished, what we see down the pike, and how you can benefit from the next phase.

When we opened our doors in 1987, we had just acquired 37 miles of track in poor condition, one locomotive, a potential traffic base of only 2,000 carloads that first year, and only one trunk railroad connection.

The line has grown to more than 140 miles of track, vastly improved through a multi-million-dollar track rehabilitation program. Customers now have access to two major trunk lines, and our fleet of seven locomotives will handle some 9,000 cars in 1992. We've done this in the face of rising costs by squeezing extra productivity from all our assets, and now we'd like to help you do the same with yours.

Of course, you, as a business owner, know well the importance of productivity and cost control. One of your most important resources is your railroad siding, and I'd like to offer some suggestions for enhancing the productivity of that asset.

  1. Keep the track in good repair. The more efficiently our crews can serve you, the quicker they get over the road and back with the next car.
  2. Let us know by phone or fax as soon as you have finished loading or unloading the car. To speed up service to all customers, crews will not stop unless they have a car for you or they know you have a car for them. Even if they've already begun their trip, we can still call the crew's mobile phone on the engine. Just let us know you have a car for them before they hit town.
  3. Load or unload the car as soon as you can after placement at your siding. We're working with the other railroads to accelerate car movement to be more truck competitive. As is, the typical box car makes fewer than 20 loaded trips a year. That's a pretty sorry return for a $40,000 asset with a 20-year life, and by improving usage we hope to lower rates.

    Rates are partially a function of car replacement cost, so more turns per year means less replacement cost in the rate. But much can be done. On some of our west coast moves, we've worked with the western lines to cut transit times to ten days or less from 20 days or more. Repeatedly. And dependably.

  4. Use the siding more often. Or ask about extending it if you're running out of room. Release cars as fast as you finish with them and we'll set it up so you never see another demurrage bill [averaging agreements can work wonders]. Even on lines with three-time-a-week service, we can lessen the effects of bunching and space placement times so you can finish with cars within the two-day free-time.
  5. Be ready for the crew to pull a car or spot another. Our schedule calls for a complete round trip in just eight hours. Down in the morning and back in the afternoon. The faster they get down, the faster they get back.
Please don't release cars until they're ready to go, and ask your people not to park cars or forklifts too close to the track. We lost an hour the other day because a plant manager parked his pickup across the siding and then went off with the foreman to the back lot.

Also, having cars spotted Monday morning ready to go Wednesday morning helps us both out. As does pulling Friday's cars no later than Tuesday morning.

We're working on a number of projects which could double our carloadings once again by the end of 1994. But it will take every ounce of productivity of every asset we have to get there. Help us turn our trains faster and we'll help you keep your costs down, keep your margins up, and build the financial flexibility to win new markets.

My short line friend didn't just send out a "Dear Customer" letter; he addressed the person who pays the bills by name wherever possible. And his letter has helped his shippers cut demurrage costs and won new respect for his railroad.

It shows how some friendly communication on the ways shippers can cut demurrage charges by making simple operational changes can benefit both you and your customers.

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Created July 31, 1995. Send comments to lblanchard@aol.com