Railway Age, May 1995

How to uncouple demurrage charges from car-hire

How come a trucker can get $30 an hour for demurrage, while we have trouble getting $30 a day?

Maybe it's because the trucker calls it detention. And the customer gets the idea that he's holding something up. It's a rare customer that can spell and pronounce demurrage without special training--even fewer can define it--and no customer seems to think he should pay it.

Frankly, I don't think we short liners understand it, either. We seem to think it's a way to recroup our car-hire costs, when it's actually an incentive for our customers to take the presence of the loaded railcars on their sidings a little more seriously. What if we uncouple demurrage from car hire and see where a new concept takes us?

A good part of the car shortage we hear about is driven by poor car cycle time. And dwell times at customers are a major factor. Moreover, rates are partially driven by car utilization, so there's a double whammy on customer who keeps cars too long.

Yet, the fact remains that demurrage makes customers cranky for any number of reasons. Also, some short lines find themselves trying to enforce demurrage on customers who never paid--never saw bills or ignored those they did--when their lines were owned by the predecessor roads. "I never paid the Fallen Flag & Eastern demurrage. Why should I pay you?" is typical.

Our goal is to show why demurrage is a legitimate charge, de-link it from car-hire, and administer it evenly and as humanely as possible. Here's how:

Customers will accept demurrage charges if you don't make them punitive, don't charge if you can't get the car (tri-weekly service, e.g.), and offer the customer who usually turns the cars promptly a way to eas the occasional hit. And you, Mr. Short Line Manager, can do this.

For the tariff, give Grant Ozburn at the ASLRA in Atlanta a call and tell him you need a demurrage tariff modeled on the one he did for the Michigan Southern. The charge is a flat $25 per day after three free days from the first midnight following actual or constructive placement. Charges apply Saturdays, Sundays, and holidays; so, for example, if you only run Monday-Wednesday-Friday the customer who releases Friday's car Monday afternoon is home free.

Add an averaging agreement and you decrease the likelihood of a charge for the odd car that's not released till day four. The net effect is that it gives the customer credit for early release. Administration is relatively easy. The IRCS worksheet can capture days between placement and release; subtracting three free days yields penalty days. Add up the number of cars released during free time, subtract that number from the penalty days, and the result is your chargeable demurrage days. Print this out and send it with you bill and you're done. And--to really drive home the point--be sure to send it when credits exceed debits. You customer will see, in black and white, how demurrage averaging really works.

Then there's the issue of constructive placement (CP for short; it's a noun and a verb)--those times you have to stash inbound loads some place on your line because the customer's track is full. Remember, constructive placement costs you double. Cars parked on railroad owned track awaiting placement deny you the use of that track whether those cars are system owned or privately owned. Since denial of this track is caused by a customer driven problem, you must be compensated for it.

What's more, you have to absorb the crew cost for the second car placement onto the customer's track. Under these circumstances, demurrage on privately owned cars constructively laced on railroad owned track is a bargain compared to switching charges for cars placed on the cusotmer's track and then moved within the customer's facilit. Demurrage has nothing to do with car-hire, and everything to do with use of railroad resources.

No matter how justified, though, demurrage on constructivley placed cars iwll still irritat ethe customer--so it's fortunate that it can also be used as an opportunity to refine service offerings. You can find out why you had to CP the cars, and work to eliminate the cause. If a plant slowdown and decrease in raw materials used is behind it, you can go bactk through the chain to slow the order process. Bunching--which is certainly outside you customer's control--means going back to the connecting carriers for car-hire relief, passing it along as demurrage relief, andpressuring the connections to correc tthe underlying problem. If a shortage of storage space to supply a growing process is at fault, you can work with your customer to extend the track or build more inventory handling capacity. Whatever their cause, use the event of constructivley placed cars to solidify the customer/carrier partnership.

Here's another reason not to couple casr-hire management ot an aggressive demurrage tariff. Stipulations such as 24-hour free time after placement are so constricting as to seem mean-spirited--especially to those customers who get cars at 4:00 p.m. Friday and whose employees expected the weekend off. (And how do you juggle 24-hour free time and triweekly service?) You'll never make these kinds of tariffs stick with your best customers, and trying to enforce themwith your second-best will eat at the stomach lining of your office staff and ultimately lose you the business.

The three-free-day averaging tariff takes care of wekeends, holidays, and less-than-daily service. You can build three days customer dwell time into your revenue requirement and you can manage train operations internally to increase the speed of car movement between interchange and customers. Because if you don't have enough car-hire in your revenue requirement, yo'll never make it up in demurrage.

Manage demurrage to enhance your customer's logistical process. Manage car-hire by keeping cars moving. And don't try to couple the two.

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