Railroad Demurrage Liability Changes

On April 9, 2014 the Surface Transportation Board (STB) decided to revise the existing rules pertaining to 1) who may charge demurrage and 2) who is subject to demurrage. The new rules took effect on July 15, 2014. The complete decision and related statements to support the decision may be read on their website here. I have read through the document and would like to boil things down and to provide some summary and commentary that will hopefully be helpful to you.

Demurrage Defined

Demurrage is defined by the STB as, “…a charge incurred when rail cars are detained by the party receiving delivery of the cars beyond a specified period of time for loading or unloading.” This definition may be a little confusing as it appears to apply only to the time that the receiving party holds onto railroad-owned cars. Later in the document, paragraph C ii, it states that the rule applies to privately owned railcars held on railroad property as well. Typically this would be when the receiver could not accept a railcar for delivery, so the railroad keeps the railcar on their property and places the railcar in constructive placement status. For a deeper discussion of this type of demurrage and demurrage in general, please refer to this article.

Who may charge demurrage?

The party that may charge demurrage is the railroad providing a railcar to a shipper at origin or the railroad delivering a railcar to a receiver at destination. The decision clarifies that it construes 49 U.S.C. § 10743, which is a law that states who is liable for the payment of freight charges, to not apply to the assessment of demurrage charges. Why did they include this statement? I think it is because this law ties liability of freight charges closely to the bill of lading. Keep reading for more discussion about this.

Who is subject to demurrage?

The STB is moving away from defining liability of demurrage charges based on the bill of lading. Historically, the consignee (the party that is financially responsible for the receipt of a shipment) was subject to demurrage charges. The new rule places demurrage liability on the party that takes physical control of the railcar regardless of their presence on the bill of lading. This party is called the receiver. However, the rule requires that the assessing railroad, must have provided “actual notice” to the receiver before placement of the railcar. Actual notice is defined as providing a direct communication to the receiver through a mailed letter or email. This letter or email must include at least a summary of the demurrage tariff rule and then a link to the full rule is acceptable. This is opposed to just “notice”, which would be posting a tariff on the Internet somewhere. The letter or email only needs to be sent once. Then if there are significant changes to the demurrage tariff, another letter or email must be sent.

Does this rule override private agreements?

This rule only applies in the absence of other agreements. Nothing prevents any of the parties (i.e. delivering railroad, shipper, consignee, agent, transloader, third party, etc.) to come up with their own rules pertaining to demurrage.

The parties that will be most affected by this new rule change are the companies that provide loading, unloading, or transloading services on behalf of another company. In other words, the companies that provide the services as a third party where their company name doesn’t appear on the bill of lading or it shows as the “care of” party. These companies will most likely have a contract with either the shipper or consignee to load or unload railcars respectively. These agreements should be reviewed to ensure that liability for demurrage is well defined. If demurrage is not well defined in the agreement, then these new rules will take precedence in the case of a dispute and the company that handles the railcars will be paying the bill.

Can demurrage be disputed?

Disagreements relating to demurrage may still be disputed as before. Information regarding arbitration is available here.

Final take away

I like this change. It will improve the utilization of railcars by assessing the charge for non-movement on the party that has the greatest ability to expedite the movement of railcars.

I hope that you have found this article helpful. What do you think of the new rule? Please comment if you would like to add something or have a personal experience to share about how the rule is getting implemented.

 

All the best,

Jim

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How much does a railcar tracking software system cost (Part II)?

In February of last year, I wrote the first part of this series that focused on the cost of data, which is the core cost of any railcar tracking system. I promised that the first part would be followed up with more information about the total cost of this type of system. It has been a very busy year and I apologize for not following it up until now. So here goes…

To recap, in Part 1 we discussed the cost of Waybills (aka EDI 417, shipping instructions) and CLM (aka car location messages, sightings) data. The cost for CLM will range from $0.01 to $0.04 per record. The service that provides CLM at $0.06 per record that was mentioned in the prior article, should not be and rarely is used as a data source for a full featured tracking system. So for this article, I am going to revise the upper end to $0.04 and between $0.08 t0 $0.25 per waybill. A railcar can generate anywhere from 30 to 200 CLM and 1 to 4 waybills per month depending on how and where the traffic moves.

Data

Monthly Per Railcar – Data Fees (assumes and average of 2 waybills and 140 CLM)

Record Type

Low

High

Waybill

$0.16

$0.50

CLM

$1.40

$5.60

Total

$1.56

$6.10

 

Remember that some vendors may be able to provide a limited number of CLM records per railcar per day (1 to 3) thus lowering the data cost. However, this can also limit the benefits that you get from the system. It will lower the accuracy of transit and loading/unloading time measurements.

Software & Support

Railcar tracking software systems are difficult to write because there are many business rules that must be implemented. These business rules are known by relatively few people. Railroad data is not perfect, so it takes an
experienced person to know all of the possible exceptions in the data and how to handle them. Plus, the market for these systems is relatively small. These systems are going to be expensive. Along with the software, there must be staff available to support it. Whether the software is hosted and provided as Software as a Service (SaaS) or is installed on customer servers, both require people to handle issues with day to day usage and maintenance of the application.


Estimate: $1.00 to $2.00 per railcar per month

Data Quality

A certain amount of data will be missing or erroneous. Missing data due to system failures or glitches, erroneous data as a result of human error and more. Based on experience, 1 hour per 500 railcars per day should be enough time. Some vendors provide this service and some do not. Check with them to see if it is included or if there is an extra charge. If the service is included, check to see if you can pull it out to get a discount – if you already have people who can do this work, no sense in paying extra for it. If you are on a budget, eliminating this service can be one way to get a system in the door at a lower cost. The amount of data clean up can vary significantly by customer, so you could use the system for a while and see just how much is needed. Finally, no one knows how your traffic moves as well as you and there are arguments to not outsource data quality.


Estimate: $0.60 to $1.20 per railcar per month.

Other Considerations

- Are there per shipment charges or only per railcar / month charges?
- Are data fees charged separately from the system fee or included?
- Any set up fees?
- Is training included or charged separately?
- What features are included and which are and add-on with extra fees?
- Extra fees for additional user accounts? How many are included initially?


Conclusion

You may have more questions than before reading this article. That is a good thing. You should be asking a lot of questions for an investment like this. Basically you should be prepared to pay between $2.56 and $8.10 per railcar per month. If you have more questions, please feel free to comment your question on this article and I will reply quickly. Happy hunting!

All the best,

Jim


P.S. Your next question is probably, “How much money can a railcar tracking system save my company?” The answer to this question will help you justify the high expense and that is the topic of my next article, so stay tuned!


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How much does a railcar tracking system cost?

This is a very common question. The answer is a difficult one because it depends on a number of variables. This article will introduce some key questions that will help you determine how much a system will cost. If you like to be an informed buyer or are thinking about building a system of your own, please read on…

The major component of a rail shipment tracking system is data. Data is the life blood of a tracking system. There is much to consider, so this article will focus on data. The two main types of data are:

  • CLM (car location messages)
  • Waybills (EDI 417)

How much this data will cost is determined by several questions:

How fast do you need to be up and running?

Quickly (i.e. a few days)? The cost of this data will be higher because it will need to come from a Value Added Network (VAN) that is already getting CLM and waybills from most railroads in North America. They charge a premium for their services. Railcar tracking solution providers must get their data from this source to get you set up this quickly. The cost is going to range from $0.02 to $06 per CLM and $0.10 to $0.25 per waybill. There is a range because some resellers may do higher volume and it enables them to buy at lower wholesale prices and pass along the savings to you. In short, shop around even if you are in a hurry. Buying directly from a VAN is not recommended unless shipping high volume (i.e. more than 1,500 per month) because they typically have high monthly minimum fees ($1,500 to $2,000) and will require at least a one year commitment.

If you can wait several weeks, you may be able to significantly lower the cost of the data component. This is because the vendor will have time to get most of the data from the Class I railroads on your behalf. Most Class I railroads will provide CLM and waybill data for no charge to their customers or their agents. However, it can take from 2 to 8 weeks to get this set up with all the Class I railroads. If you only ship on one or two Class I’s, then it may not take this long. The vendor will probably build in some sort of charge for this service since they have to do significant work for account set up and maintenance. Plus, at least one Class I railroad charges to provide the data through vendors and more may follow – see this article for more information. You could see a 50% or more reduction in data costs: $0.014 to $0.03 per CLM and $0.08 to $0.16 per waybill.

How many CLMs do your shipments generate and do you need all of them?

Based on the type of business (i.e. railcars used for storage) and geographic location, the number of CLM records generated per railcar per month can vary greatly. The typical range is 30 up to 250. If the vendor is wholesaling from a VAN, they are paying either per CLM record or per kilobyte fees. Typically they will be able to limit the number of CLM records delivered per day per railcar to 1, 2, or 3 records. This can be a great way to reduce and control the cost of a solution, while at the same time enjoying the fast setup provided by VAN-sourced data.

What railroads and how many do you ship on?

If you ship on Mexican railroads, short lines and/or regional smaller railroads, this will increase the cost of data since this data must usually be gotten from a VAN at a premium. Very few Mexican railroads, short lines and regionals provide CLM and waybill data directly to their customers.

How many rail shipments will you be tracking?

If you are a large shipper of more than several thousand shipments per month, you may be able to get a volume discount on the data component. Don’t expect much though. If you ship 5,000 per month you may be able to get 10%. Vendors can discount their software more easily than data and I’ll touch upon that in a follow up article. Data is difficult to volume discount because with more data comes more support issues related to the data. This leads naturally into the next question to consider.

Is data quality important to you? If so, will you be ensuring data quality yourself or do you want the vendor to do it?

Railroad data is not perfect. The more you ship, the more data issues you will encounter. For some shippers 90% accuracy is fine, so they didn’t require data quality services or time to do it themselves. For others, absolute data quality is important. For example, if you are going to be feeding data from your tracking system into an ERP system to accrue freight or demurrage charges, you may want to consider data quality services or at least factor in the cost of the time to do it yourself. If the vendor provides data quality services, they are going to charge a premium for that. Their software will have some algorithms to handle and highlight data issues, but human intervention is required too. A very rough guide would be to figure on one hour per 500 active railcars. If the service is off-shored, then figure $15/hour. If not, $30/hour.

Hopefully these questions and answers have given you a greater understanding about how much a solution will cost. If you can think of others please comment. I will continue the series soon to talk about other major components of a solution and their cost.

All the best,

Jim

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Car Location Message (CLM) Event Sighting Codes

 

Code Classification Description
A Arrival Transit Location Equipment has arrived at an in-transit railroad location other than the destination.
B Bad Order Equipment has been reported or received defective at location shown. See this article for extended bad order information.
C Motor Carrier Arrival Motor carrier arrival at initial railroad facility.
D Arrival at Destination Arrival at rail destination.
E Motor Carrier Departure Motor carrier departure from final railroad facility en-route to non-railroad facility.
F Flatcar Bad Order Flatcar has been reported or received defective at location shown.
G Bad Order Release Equipment reported released from bad order status and returned to service.
H

Equipment Delayed
or Held

Equipment delayed or held. See this article for extended delay of hold information.
I

Equipment Offered in
Interchange

Equipment offered to another railroad without any movement from the receiving road.
J Interchange Delivery Delivery from one railroad to another railroad with no intervening highway move. (This code should be followed by an R sighting code).
K Intermodal Interchange Final railroad delivery to another carrier mode for delivery to next railroad in route. (This will be the last sighting code provided by current carrier.)
L Motor Carrier Arrival Railroad controlled arrival on motor carrier from intra-facility move.
M Motor Carrier Move Railroad controlled departure on motor carrier for intra-facility move.
N No Bill Equipment is No Bill at location shown.
P Departure Equipment has departed from an in-transit railroad location other than the destination.
Q

Flatcar Bad Order
Release

Flatcar has been reported released from Bad Order status and returned to service.
R Interchange Received Equipment received by one railroad from another with no intervening highway move. (This should be preceded by a J sighting code).
S Storage Equipment is being stored.
U Ramped Container/Trailer placed on flat car or roadrailer placed on rail.
V De-ramped Container/Trailer removed from flat car or roadrailer removed from rail.
W Released Equipment released by patron at date/time/location shown.
X Pull Car pulled from patron siding at date/time/location shown.
Y

Constructive
Placement/Notify

Railroad notifies customer that railcar equipment is available for placement or that trailer or container is available for highway departure.
Z Actual Placement Equipment has been placed on the patron’s siding.
3 ETA Estimated time-of-arrival of equipment at either an interchange point, rail destination, or customer industry.
6 Lading Transfer To Lading in the reported equipment has been transferred to another railcar, container or trailer.
7 Lading Transfer From Lading in the reported equipment has been transferred from another railcar, container or trailer.
9 Release from Hold or Miscellaneous Date and Time a unit is reported release from hold or storage (event code “H” or “S”).
     
     
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Demurrage charges – trust, but verify.

RailTracksPhotoCroppedRailroad systems – like systems in other industries, can be inaccurate. As one rail shipper realized, it was in their best interest to not only review railroad demurrage invoices, but to compare the calculations with a different system that estimates demurrage. The results were surprising to them: they found $14,000.00 of inaccuracies in one month.

Full disclosure: This shipper is one of our customers and they did solve their problem with our product. All the same, I think their experience will be a valuable one to you regardless of whether you are in the market for a system that estimates demurrage, already have a system or haven’t considered a system at all.

Situation

As one of the largest petroleum companies in the Northwest, the shipper does a lot of transloading. They get hundreds of railcar deliveries of ethanol and biodiesel from several major oil companies each month. Much of their transloading and service business is automated using state of the art systems. However, they lacked a system to manage inbound railcar shipments. As a result, they lacked visibility of what was happening to the railcars when they arrived at destination. As the consignee for many shipments, they are liable for delays where railcars sit on the railroad’s track beyond a given grace period (i.e. demurrage or private railcar storage). Much of the shipments are in supplier railcars, so they need to be vigilant in getting those railcars back to the supplier in a timely fashion or face detention charges.

Solution

In 2010, the company began searching for a tool to increase visibility and simplify management of their inbound rail shipments. They also wanted a record of when the railcars arrived at the transloading facility and when they were released back to the railroad after being unloaded to help them audit railroad demurrage and supplier railcar detention charges. Railcar Tracking Co.’s Railcar Management System (RMS)™ was enlisted to help.

Automated acquisition of tracking data and increased visibility

The first thing that RMS provided was an automatic way to acquire the rail shipment tracking data. RMS handles two types of data; CLM (car location messages) and waybills. RMS automatically captures and imports the waybills and CLMs. The system tracks each railcar, building a history and summary of each trip. After signing a one page authorization letter, the data stream was available the next business day. Some of the inbound shipment waybills didn’t list the company’s name as party to the waybill (PTW). Because of Railcar Tracking Co.’s RMS Data Services™, they were able to get visibility of these shipments while complying with the industry’s standard PTW security. By getting an additional letter of authorization from the supplier and through extensive waybill parameter filtering, RMS Data Services is able to provide very tailored data streams with high reliability. If you would like to read more about getting full visibility of rail shipments even if your company is not listed on the waybill, read this article.

Simplified management and significant cost reductions

RMS’ flexible report writer enabled the company to create reports that highlighted exceptions. These reports are automatically emailed to recipients on a scheduled basis as well. Since RMS stores all of the shipment data history including constructive placement date/time, actual placement date/time, order in date/time, and release date/time, reports are available for management to review the time the railcar sat on the railroad’s property at destination (constructive placement to actual placement) and the total time at destination (constructive placement to release empty). Through the creation and use of the reports from RMS, they were able to better identify demurrage calculation errors resulting in a $14,000.00 monthly reduction of demurrage costs. This is an amount that is well over what they are paying for RMS.

Another benefit to using a system that estimates demurrage is that it can help a company be more proactive; it can help identify railcars that are currently or about to incur demurrage.

Conclusion

So are you getting overcharged for demurrage and should you run out and purchase a system to audit the invoices right away? No. If you have large demurrage bills, perhaps consider doing a trial of a system that estimates demurrage and compare it to your demurrage bills and see for yourself if there is a problem. Most system vendors will allow you to trial their systems for at least a month for free or nominal fee.

Note: demurrage estimating systems may not always be able to accurately estimate all demurrage fees. For example, in a case with one of our other customers, they had a track leased with a short line railroad that serviced their facility. They were an “order in” customer, which meant that the short line didn’t try to deliver any of the arriving railcars until the customer requested them. Subsequently, all railcars were placed constructively (CP’ed or PCon’ed) immediately to record the beginning of the demurrage calculation, if a demurrage fee was levied. After the railcars reached the maximum grace period on the railroad track, they were moved to the lease track. From time to time, the lease track was too full. The short line was keeping a separate spreadsheet tally of which railcars would be included on a demurrage bill to the customer. Their operating system, the one used to record the CP/PCon, wasn’t sophisticated enough to handle this situation.

If you would like to learn more about how demurrage is calculated, take a look at this article. If have any comments or personal experience to share, please do so and start a conversation.

All the best,

Jim

 

Suzanne Massie, encouraged US President Ronald Reagan to learn the Russian phrase “doveryai, no proveryai” (trust, but verify). Apparently he used it often when discussing arms treaties with his Russian counterpart, Mikhail Gorbachev.

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Getting full visibility of railcar shipments in Steelroads

If you are getting incomplete CLM (aka sightings) data for some of your shipments and you use Steelroads*, here are some ideas that will help you increase your visibility.

1. All CLM data delivered out of Steelroads is now restricted to “Party to Waybill” (PTW) security. This means that your company must be listed on the waybill (shipper, consignee, care of, freight payer, etc.) in order for Steelroads to deliver the data. Otherwise, Steelroads returns “Not authorized to view shipment” for each railcar where your company is not listed on the waybill. It is common for company names to vary slightly on the waybill, which is enough to not match the security filter or “parameters” in Steelroads. If you are receiving a “Not authorized to view shipment” notification for a railcar, check the waybill/bill of lading. If the spelling of your company varies from other waybills for railcars where you are getting CLMs, send the spelling variation and your Steelroads user ID to csc@railinc.com. Request them to add the spelling variation to the “parameters” for your ID. Ideally, you and your trading partners should use CIF (Customer Information/Identification File) numbers to identify parties on the bill of lading. The CIF number is a unique identification code for each location of a transportation carrier customer. If the CIF number is used, the spelling of the company doesn’t matter.

2. This may sound obvious, but if you are using a Steelroads trace list for your “permanent” (leased or owned) railcars along with the New Event option, which I recommend, you need to be sure that when railcars are added to your permanent fleet they are also added to the Steelroads trace list. NOTE: if you are using the scripted access option, you may have a maximum of 1,000 railcars in the trace list.


A word from the sponsor

If you are using data from Steelroads and spreadsheets to track your railcars and provide reports to management and business growth is making it too time consuming, consider automating the collection and storage of data and delivery of reports. Railcar Tracking Company offers an affordable system to do this that you can download and try free for 30 days right now.


3. Make sure no one else is running the trace list that is using the New Event option. This will, in essence, empty the mailbox and you will not get complete history for your railcars. When you save the trace list, there is an option to set it to Private. This will make the trace list invisible to other user accounts within your company. Of course, if you share one user account, it will be visible even though it is marked private.

clip_image001The New Event option is a trace list setting that essentially turns the trace list into a mail box that accumulates up to 4 days of sighting events.

image

However, if you have an existing trace list and you add a railcar to it, you will not see any CLMs for this railcar until the next sighting event dated AFTER the date/time the trace list was last run. If you must get the last 4 days of history for the railcar, you can create a new trace list, add the railcar, select the New Event response option, save and run the trace list. By default, a new trace list returns the last 4 days of history when the New Event option is selected.

4. If a railcar has not moved in more than 6 months, Steelroads will return “No data”.

I hope that you have found this useful. If you have any other helpful hints to add regarding Steelroads, please comment!

All the best,

Jim

*Steelroads is a product and trademark of Railinc Corporation and is not affiliated with this blog or Railcar Tracking Company.

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Optimizing railcar fleets by reducing excess detention

RailcarsAtRefineryBy taking some time to manage the excess time customers take to unload your railcars (i.e. detention), you will be well on your way to optimizing your railcar fleet. In this article, I will share ideas about how to determine a reasonable grace period, the best way to measure detention time, and how much to charge for days beyond the grace period.

Detention is often used interchangeably with demurrage and vice versa. One definition of demurrage goes like this: “…the charge on detention of [railcars]…to encourage speedy unloading and return of empties to improve utilization of [railcars].” Demurrage is the result / cost of too much detention. So if you want to increase the utilization of railcars, reducing excess detention is a great place to start.

How can excess detention be reduced? If you have been shipping via rail for a while, you are familiar with railroad demurrage (aka private railcar storage) charges. These charges get your attention right? I’m not advocating that you just send an invoice to your customers or the parties that unload your railcars because raising the blood pressure of your customers and partners may not be the best way to preserve and win business. However, mimicking how the railroads manage detention of their railcars will work well for you too.

For an article that discusses the basics of railroad demurrage, go here.

One of the shippers I work with gives their customers a 14 day grace period to unload the railcar and get it back to the railroad empty or face a $75 charge for each day beyond the 14 day grace period. What I really like about how they manage detention is that they give the excess detention report to their sales people first. The sales people share the report with the customer and use it as a basis for a discussion about getting the railcars back in a more timely fashion. This gives the customer an opportunity express ideas about special circumstances that may have caused the extensive detention. It is then up to the sales person, who is the the manager of the account, to make the call on what specific charges to eliminate, reduce and maintain unchanged. This process also gives you and your customer a chance to learn more about working together harmoniously and ideally eliminating excess detention through a better understanding of each other’s processes.

How do you determine the grace period (i.e. the time allowed for unloading railcars) before charges are levied? It depends. Here are a few ways to determine it if you are drawing a blank:

  1. Look at past performance. How long on average is it taking your customers to unload? You may also want to consider using the median, which is the number where 50% of the detention measurements are above and 50% are below.
  2. Talk to your sales people and have them talk to your customers (or have your sales people talk to them) to see what they think is reasonable.
  3. Let your demand forecast, loaded transit time, empty transit time, loading time and fleet size constraints determine it. For example, you may not be able to add any railcars to your fleet until next year and this year your largest customer wants to increase their orders. Something has got to give and getting the railroads to reduce load and empty transit time may be difficult. To read more about how to use a simple formula to size your railcar fleet based on forecasted demand go here. Rearrange the formula a little to solve for the unloading (referred to as layover in the formula) time required with a static (non-changing) count of railcars. You can use the results as as leverage to get the customer to unload faster. Most companies respect management by data these days and they will appreciate the time you have taken to thoroughly analyze the situation before asking them for something.

If you are still not sure, draw the initial line somewhere based on your gut instinct. Then based on feedback from your customers, you can decide to adjust it later.


A word from the sponsor

Keeping track of and preparing reports showing how long it is taking railcars to get unloaded and the demurrage required for excess detention can be time consuming and tedious work as your railcar fleet grows. If you would like some help with a cost effective, easy to use and powerful system designed to do just this, contact Railcar Tracking Company.


How is the detention time measured? Typically from actual placement (when the railcar is delivered by the railroad to the spot requested by the unloading party / customer) of the load to release of the empty railcar back to the railroad. The exception to this is if the unloading party was not able to accept the railcar from the railroad when the railroad wanted to deliver it, so the railroad reports a constructive placement sighting event. In this case, the detention time should begin at constructive placement. Of course, if the railroad delivered a bunch of railcars a couple days late and then another bunch arrived on-time on the same day – you might decide to give the customer a break in this situation. To keep things simple, charge whole days only and start the measurement at 12:01am the day after the constructive or actual placement (whichever comes first). Most railroads measure this way as well, so it will be easier for your customer to understand. Demurrage is charged for the detention days beyond the grace period. 

How much should you charge for each day beyond the grace period? At least charge an amount that will cover your daily cost of a railcar. If you take into consideration railcar purchase, tax, lease, repair, test, and clean fees you should be able to get pretty close.

I hope this article has given you some ideas about how to optimize your railcar fleet by reducing excess detention through the assessment of demurrage. If you have other ideas that you would like to add, please comment and start the conversation!

All the best,

Jim

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