If you are currently tracking a significant number of rail shipments and/or managing more than a handful of railcars, you know the inconvenience of using railroad websites and spreadsheets to assemble a picture of your railcar shipments and/or fleet performance. Having a single system that can track the locations of your rail shipments and/or railcar fleet across railroads is definitely more convenient, but does it really save you money? You may be struggling to quantify the cost benefit of a system like this. If so, please read on.
Reduce Administrative Tasks
Railcar tracking systems not only consolidate all railcar movement data into a single system, they typically offer powerful reports that display only railcars with problems. This enables users to manage by exception. Another customer that I have worked with reduced their administrative tasks related to rail shipping activities in these specific ways:
- 1.5 hrs/day by running daily reports for railcar locations and managing by exception;
- 2 hrs/month managing contracts and leases;
- 2 hrs/week providing information to sales/marketing / corporate management on trends of trip times, customer ordering, and customer unloading times;
- 8 hrs/month demurrage records and billing reports
What if you only saved one worker 1 hour per day?
- $25 per day * 20 working days per month = $500 per month savings
Decrease Demurrage and Private Railcar Storage Charges
If you are not sure whether you are liable for demurrage and/or private railcar storage charges, check out this article that discusses the recent changes in liability for these fees. If you are new to railroading and want to know more about demurrage and private railcar storage, see this article. A customer of mine reported saving $14,000.00 per month by using a railcar tracking system report that estimated railroad demurrage / private railcar storage. They were able to compare this report with the invoices from a short line railroad. Because the report provided the key dates (constructive placement, actual placement, order in, and release), they had the ammunition they needed to dispute the inaccurate charges. Most railroads will not consider accessorial fee disputes unless you have data that proves the prior mentioned dates. Approximate demurrage / private railcar storage fees are $75 per day (it varies by railroad).
What if you only saved 5 demurrage / storage days per month?
- $75 demurrage charge per day * 5 = $375 per month savings
The financial benefits of reducing inventory are many: improved cash flow; lower interest, storage, handling, insurance, tax expenses; increased return on assets; increased return on invested capital; and higher company valuation. Railcar tracking systems can assist in decreasing rail transit time and rail transit variability. How? Identifying exceptions, such as delayed or misrouted railcars, more quickly. These systems can also provide more accurate ETAs to final destination, which in turn give companies more confidence to keep lower inventories.
What if you could reduce your inventory by only 2%?
- 10,500 tons of sand (about 100 railcars worth) * 2% reduction = 210 tons worth $25 per ton = $5,250 less capital tied up in inventory. There are several ways to monetize this savings, but just one way is to take the inventory reduction * your company’s annual cost of capital (i.e. 10%) = $525 per year savings
Better Fleet Sizing
Most railcar tracking systems will provide transit time and load/unload time measures. You can use these measures to determine an optimal fleet size. See this article for a simple, easy to use fleet sizing process that uses the transit time and load/unload time inputs. A shipper that I have worked with reported 10% better utilization of his 500, fairly expensive, tank railcars through the use of a railcar tracking system. Another shipper with a fleet of 2,000 railcars said that a railcar tracking system enabled them to “… utilize [their] railcar assets more efficiently.” And to “… determine how many [rail]cars to assign to various points in [their] distribution network.”
What if you only got 3% better utilization of a 30 railcar fleet?
- $400 monthly lease rate * 1 railcar = $400 per month savings
Collect Detention Fees
Detention occurs when the receiver of the railcar holds on to it longer than the allotted period. Rail shipment tracking systems will show you how long railcars have been at a customer location. Some will even group the report by customer and location and calculate the charges owed automatically. If you ship owned or leased railcars to customers, charging detention can bring you monetary benefits in two ways. You can charge $75 per day for each day that the customer holds onto the railcar beyond the acceptable days. This amount would cover the daily lease cost or depreciation of the railcar. More importantly, it will provide an incentive for your customers to unload and return the railcars in a timely manner. This increases utilization of your railcar fleet and allows a smaller fleet. This article expands on this concept.
What it you only collected 5 detention days per month?
- $75 detention charge per day * 5 = $375 per month revenue
What if you could reduce the time that your customers are holding on to your railcars by 1 day per shipment?
- 30 monthly shipments * 1 day detention reduction = 30 railcar days. 30 railcar days is the equivalent of 1 railcar, which is the equivalent of 1 railcar * $400 monthly lease = $400 per month savings
There are certainly more ways that rail shipment tracking systems can save you money and of course results may vary from customer to customer. Please share any experiences you have had. Thank you for reading.
All the best,