Railway Age, March 1995

How to earn more money per train-start

Aden Adams, Vice President/Merchandise Sales & Marketing, CSXT, talks about contribution per carload (carload revenue minus the avoidable cost of moving a car). John Sammon, senior vice president-Core Services Group, Conrail, expresses concern about the number of carloads per train-start.

For short line operators, combining and reworking these concepts to determine yield per train-start can help fine-tune operations and develop more profitable lines of business. Contribution per carload can show you the real value of moving a piece of business, but yield per train-start goes one step further. It looks at revenue for an entire train while taking into account all of its operational costs: crew, fuel, car-hire and locomotive depreciation lease, and maintenance.

There are three important advantages to using yield per train-start as a measure of financial and marketing health. First, the numbers are relatively easy to capture and compute, so it's not a difficult exercise.

Next, it gives a meaningful measure of how close you come to maximizing your return on the key railroad assets of crew and motive power. And, third, it measures, in one easily understandable number, the effectiveness of your marketing and operations. This last aspect may be the most important, because it hammers home the message that a railroad is a synergistic environment, and because it measures the degree to which your entire railroad is making its synergies work to your advantage.

When computing yield per train-start, it's sometimes necessary to apportion a single carload's revenues and expenses among two or more trains. A two-move car, for example, needs to have its revenue split between the two trains handling it. Intervals between online moves mean more days of car-hire, and this expense must also be assigned to the appropriate train-starts.

Calculations of the other expenses, however, isn't very difficult: Crew costs can come directly form time sheets, and calculations for locomotive expense are equally straightforward.

To see the concept in action, let's look at the hypothetical Fallen Flag & Eastern, which operates a 200-mile railroad cobbled together from bits of all the lines on the Monopoly Board. Annual revenues come to about $6 million for its 25,000 carloads. The FF&E starts eight crews a day using a fleet of 12 locomotives. For the last two years, it has barely broken even, and its managers now want to know whether rates are where they ought to be, whether they're running too much railroad, and whether they're running too many crews. Determining yield per train-start will quickly point them in the right direction.

When the FF&E's managers started calculating costs for each train-start, they quickly noticed that they were measuring the cost of not doing things as well as the cost of doing things. For example, carload movements for several shippers required three crews from interchange point to delivery. The cars sat for a day at the interchange a day each between crews, and two days at the customer, eating up a total of seven days of car-hire alone without turning a wheel.

As managers struggled with assigning car-hire to three train-starts, they quickly realized that eight days of car-hire, no matter how they divvied it up, was going to decrease yield per train-start. They would have to either build additional car-hire into revenue requirements or change train schedules to move cars faster.

At the same time, our managers found a way to reroute one of their unit trains to speed up turn times. They found that they could save three days per cycle simply by using a different interchange. Believing that their Class I partner would be more receptive if the request came from the shipper (a multi-plant operator whose total business made it one of the Class I's largest customers), they had their shipper make the request. The Class I agreed, and the FF&E cemented a key shipper relationship--an extra bonus from its costing exercise.

The FF&E's people also found that the shortest distance between two points wasn't necessarily the most cost-effective. The railroad interchanged with the same Class I at both ends of 150 miles of track, and got most of its cars at the western end, a highly congested metropolitan area with many grade crossings--including several with other railroads.

Although a principal shipper is only 50 miles from the western end, and the FF&E gets $200 for the move, it takes all day for the crew to get out of the city, do the work, and return.

Looking for a way to increase yield for this train, the FF&E's managers huddled with their Class I and found that the Class I could deliver the cars to the eastern end far more cost-effectively--enough to increase the FF&E's share to $300. It turned out that, because the run from the eastern end was so much less congested, it took about the same tim as the original routing. Everything else being equal, the contribution from this piece of business is now 50% higher.

Looking at two other pieces of business from the yield per carload perspective, the FF&E's managers found that two apparently equal rates weren't equal because there was no built-in differential for the car-hire on system cars. Creating a two-tier pricing level, one for private cars and another for system cars, built enough days of average car-hire in to keep them both net-net.

In the course of working through this exercise train by train and shipper by shipper, our managers found a variety of ways to increase yield per train-start. Still, on many f their regular trains, they found they weren't running at full capacity--their crews and locomotive could still accommodate additional cars.

To maximize yield, they went looking for additional carloads from existing customers, and found a shipper who was willing to switch certain inbound commodities from truck to rail for a lower rate than the FF&E would ordinarily charge. On both sides, there was the clear understanding that the rate would be available only as long as the FF&E did not need to commit new resources to handle the business.

As my friends on the FF&E found, looking at yield per carload and yield per train-start gave a fresh new perspective on both the economics and the synergies of running a railroad. They changed trains, trimmed rates, made new friends, and built new lines of business--all of which boosted yield and improved the bottom line.

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Created December 6, 1995. Send comments to lblanchard@aol.com ??