Question on Freight car revenue ??

I know this might not be the right forum , but I need help answering a question.

Myself and co-workers were dicussing how the freight car business works. I used to work for a shortline railroad here in NY state, and I remember as soon as a car was empty , we were to get it to interchange asap, so the railroad wouldn't have to pay for the "rent" of the car, or something close to that explination.

How does this work ? Is there a per ton / per mile charge ? And handling fees per railroad ? Say if the car passes over 3 different roads ?

I figure I would try to get some answers here , from some insiders if I could .

Thanks,
John

Hi John, welcome aboard. Just curious, what railroad did you work for?

-otto-

Hi otto !

First I must say i really like this forum site ! I used to work for the Battenkill railroad a bunch of years back , and it was only for a short time . A great bunch of guys up there and a wonderful area to work in too !


You wouldnt happen to have an anwser to our 64 dollar question , would you ?


- John

The charge is called demurrage. Here's a link to an explanation of how Canadian Pacific does things - I guess it's typical: http://www8.cpr.ca/cms/English/Customer ... +Works.htm

I think there is some confusion here between the payments rail carriers make to each other for equipment use and charges that a carrier (like CPR in the example above) may assess against a shipper.

Demurrage is a fee railroad customers pay if they hold on to a car beyond the period specified in a railroad's demurrage and detention tariff. In other words, it's a penalty for failing to return a car to the railroad in a timely manner.

Payments made by a railroad for the use of another railroad's equipment are known as "per diem" or "car hire". The rate paid is based on time of useage (in hours) and on mileage. The charges are designed to give the owning railroad a return on its investment and are based on the depreciated value of a piece of equipment.

While revenue from demurrage charges accrue to the railroad that delivered the car to the customer. Revenue from "car hire" goes to the railroad whose reporting marks are on the car.

Privately owned (i.e. non-railroad) leased cars - with reporting marks that end in "X" such as UTLX or GATX - are subject to different rules. The shipper pays a leasing company for the use of its car. The rail carriers handling shipper-owned or leased cars respond to the fact that they have no investment in equipment to handle a particular move by reducing the transportation rate. That is to say, the carrier will have one rate if a shipper uses railroad-supplied equipment and another, lower rate if the shipper is using his own equipment.

Mr. Blabey states that Car Hire goes to the railroad whose reporting marks are on the car. He is correct, although in these times there is an additional factor which is quite common.

Many short lines have a need for cars but lack the capital to buy them. There are leasing firms who will provide cars - to name a couple, GE Capital Railcar, and First Union, and there are others. They will reach a contract with the shortline and provide the cars bearing "XYZ RR" marks. But all the payments are sent directly to the owner. In some cases the shortline may get a cut of the pie, in others the only benefit to the railroad is the ability to provide cars when their customer needs them.

So you may see cars bearing the name of your favorite small railroad - but the cars and the earnings might belong to someone else. It's a win-win for all parties - the lessor, the railroad, and the customer.

BR&P is about 85% right. Back in ancient times, I worked for First Union Rail--before it was even in the motive power business. We owned every single NOKL car, and every single Upper Merion and Plymouth car save one that UMP owned, just as a few examples. Cars that carry railroad reporting marks fetch a higher car hire rate than private cars--this goes back to the 1970's Incentive Per Diem (IPD) rates.

Back then, the box car fleet in particular had many 50-ton and 70-ton vintage cars that were near the ends of their AAR interchange lives, so to get investors to take on the risk of building desperately-needed new box cars during that high inflation period, rules were created that allowed short lines to lease out cars at a higher rate (called IPD) than, say, a Class I-owned car.

During the 1980's, rules were changed and it became durn near impossible to get new cars pushed into the IPD program, so shortlines and other roads that had taken part in it became highly sought after for large railcar investors. Going all the way back to the days of Railbox, corporations like Chrysler and Ford bought lease fleets as an investment vehicle. The complexity of why is best discussed elsewhere.

Nonetheless, roads like NOKL, UMP, and others were contracted by First Union for rights to their reporting marks. That way, we leased out our cars under the higher IPD rates when we could. In trade, we managed fleet maintenance under AAR interchange rules for any cars actually owned by the carrier (like UMP's single car), and typically paid something like $5 per car per month to the carrier for the privelege of the reporting mark.

In actuality, the road owning the reporting mark had no interest in these cars and was simply serving as a paper intermediary. Take the ubiquitous CBRY centerbeam flat. Copper Basin Railway never loaded a single one, never cared that they were out there, as long as we sent the royalty check every month.

Meanwhile, GE Capital was such a dominant player in the industry that they wholesaled freight car leases to First Union so that we could essentially sublet them to carriers and shippers. This helped GE Capital stay in the government's good graces and avoid achieving monopoly or oligopoly status.

FURail also owned hundreds of CP/CPAA/BCIT/BCOL boxes, so it's not just short line cars that are part of a lease fleet.