Railway Age, January 1994

Buy Two, Get One Free

Buy two, get one free. It's used to sell everything from canned soup to airline tickets.

Retailers use it because it works; and there's no reason rail freight marketers can't use it, too. After all, our buyers' response to the price/value equation doesn't change when they put on suits and go to the office. Price is the first thing they talk about, that that's something short line marketers can use to their own advantage. The trick is in translating incompatible units of measure so that the savings are obvious. Here's how.

Putting Your Cost Advantage into the Shipper's Language
Let's say you have a shipper in Chicago. He buys raw materials from Mississippi and sends finished product to east Texas. His trucker has agreed to handle both runs for $1,400 per round trip.

You know all this because you went to the shipper and asked. In the process of doing your homework you found you could get three truckloads in a boxcar. Your shipper says you can win the business if you can lop 20% off his present freight costs.

To show him you can, you'll have to talk in his unit of measurement. He thinks in cost per unit (bundle) of particle board (STCC 24 996 xx). Cents-per-hundredweight, or cost per car, will not make the meaningful comparison that will win the business. You'll have to do the translating (and the arithmetic) for him. The truck loads 45,000 lbs and carries 15 units. A boxcar can take up to about 140,000 lbs, depending on the car, so 45 units at 135,000 lbs is a safe bet.

The truck rate is $700 one way, or about $47 per unit. To make rail work, you have to get below $38, or $1,700 per car. (That's $38 per unit for 45 units). Now you go to your connecting lines and they help to make that $1,700 rate work. But don't talk $1,700 to your shipper: talk $47 versus $38 per unit, and how he gets every sixth truckload free. Will his trucker do that?

Turning Oranges into Apples Lumber shippers think in terms of cost per thousand board feet, grain shippers in cost per bushel, pulpwood moves in cost per cord or unit, and propane shippers use cents per gallon. Know your conversion factors, and you can speak to these potential rail shippers in terms of freight savings they can understand, by letting them compare apples to apples when they compare rail to truck rates.

Here are some of the conversions you're most likely to need:

There's an easy way to keep track of all this and do rate equivalents in no time. Set up your spreadsheet model to show the unit used, the weight per unit, number of units per railcar, number of units per truck, and the truck rate. These values will allow you to calculate the truck-railcar ratio, the target rail rate, and the rate for unit for both modes. You can even set up the rail portion of your model to show individual road revenue requirements (mine has room for four carriers) in terms of dol- lars per car, per ton, and per hundred to use when you're working with the other roads in the route.

More Examples
An east coast grocery products maker uses California grape juice as an alternative to corn syrup for sweetening. He pays a tank truck line $3,000 for each 4,000 gallon load brought cross- country, uses two trucks a week, and can store 8,000 gallons in the plant. The serving short line showed how to get one truck free for every three paid. A 16,000 gallon tank car makes the move for $9,000, or four truckload-equivalents for the price of three. Here the sale was made in part by talking in terms of gallons, even though the freight rate was quoted in cents per hundred-weight (grape juice weighs 11 lbs/gallon).

This move worked; light-loading products won't, no matter how hard you try. For example, plastic jars of peanut butter weigh about 1,250 lbs a pallet. You can get 35 pallets in a truck before you weigh out, but 56 pallets cubes you out in a 50-foot boxcar. The truck gets about $1 a mile, or $750 per 750 mile haul. The rail/truck ratio is 1.6/1, so the railroads would have to charge $1,200 just to be even. There's just no way this move would support the short line's $300 MIFFR and the Class I's cut at a price the shipper could stand.

Cat litter, on the other hand, weighs about a ton a pallet. The trucker still gets $750 in this lane but can only handle 22 pallets before he weights out. You can put the same 56 pallets in a boxcar. Now, though, the rail/truck ratio is more like 2.55/1 with a truck-equivalent rate of $1,909. Take off ten or fifteen percent, give $300 to the short line and you probably have a sale. As a refreshing change of pace from buy five, get one free, how about save up to XX percent? -- another popular retailing ploy.

So the next time the talk turns to rates, show your shipper how many free truckloads he can get every time he uses your railroad, or the percentage savings he can enjoy. And show him how he can take the train -- without being taken for a ride.

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