Securing the railcars you need for today and in the future will help your supply chain to thrive.
We’ve all heard it said before “Failing to plan is planning to fail.” As well understood as that is, life tends to get in the way. Things happen. Superstorm Sandy brought a larger supply of debris and waste into the market that most companies were not expecting. Undoubtedly the devastating tornado that hit Moore, Ok in May 2013 will make the same type of impact to local markets. Your business success is dependent, among other things, on your logistic chains ability to stay malleable.
Things to Consider When Planning Your Fleet
As you begin your search for rail equipment, take into consideration several key factors that impact your business. A good starting point is to forecast how much waste volume you expect to ship per month and from there calculate how many tons per car you’ll need to ship. This will greatly depend on the type of car you’re loading as well as the capacity—both cubic foot capacity for lighter products and the gross weight on rail per car that you can ship per car. It’s a good idea to check with your rail carriers to ensure that you do not have any weight restrictions (think bridges) or height restrictions (think tunnels) set in place within your route or you can expect to see some loaded cars rejected and returned. Plan to sit down with your rail carrier and calculate your turn time (how many days it will take to load a car or multiple cars, move the cars from their loading point to their unloading point, how long it will take to unload the cars and how long it will take to return the cars from their unloading point back to their loading point) so that you can determine how many cars you will need per month. Finding the balance of enough railcars to meet your day-to-day or month-to-month shipments is as fundamental as is understanding that rail service may encounter a few snags along the way. Planning for Mother Nature’s events such as hurricanes, tornadoes, earthquakes or flood is critical when considering your supply chain. Planning for the smaller things (schedule delays caused by 4th of July) are more predictable.
Identifying Desired Railcar Type
In our article “Railcar Design and Use” (Waste Advantage Magazine, June 2012), wefocused on which railcar is most suitable for you. To refresh your memory, the three most common equipment types to move waste-by-rail are steel built gondola railcars (mill gondolas or modified coal/C&D railcars), intermodal flatcars and articulated bulk commodity railcars.
Railcars used for moving waste are generally used to move other products too and higher earning products at that. Both mill gondolas and their higher capacity sisters are generally used in the steel scrap industry to move either steel scrap or finished products and they’re also used in the aggregate business to move rock, sand and gravel and in the railroad maintenance of way business moving railroad ties. Flatcars (intermodal and ABC railcars) can be used for most any containerized shipment and intermodal shipments remain leading growth carloads for the railroads. Finished steel products can also be moved on flatcars making their availability harder to rein in.
Long Term Railcar Supply
As most of the industry will agree, today’s railcar fleet is rapidly aging. The Association of American Railroads (AAR) mandates that a railcar built after July 1, 1974 has 50 years of interchange life before it must either be retired (used for in-plant service) or disposed of (scrapped.) When one studies the demographics of rail equipment used for moving waste (see Figures 1 to 3), the availability of suitable railcars can be a bit concerning. Figure 1 shows the age demographics of what Railinc considers the GT gondola fleet. This fleet is comprised of gondolas with the equipment type code (ETC1) of “J” typically built with an approximate 4000 cubic foot capacity and either flat bottom or tub bottom for use in the coal industry. Railinc reports that as of 2013, this fleet consists of 9 percent of the entire North American rail fleet. Notice that the majority of cars in this fleet have a gross rail load (GRL) of 286,000 lbs. and make up the majority of the newer (less than 20 year old) fleet. It’s safe to assume that most of these 286,000 lbs. cars are aluminum built and are not ideal for transporting waste products. One can expect that the railcars shown with a GRL of 268,000 lbs. or 263,000 lbs. are steel built and do work well in the secondary market to haul waste, C&D and scrap; however, the demographics show that this fleet is rapidly aging with majority of these steel cars ranging in age from 21 to 45 years old.
Figure 2 as reported by Railinc shows the breakdown of the Non-GT gondola fleet with the ETC of “E” and “G”. Data supports that these gondolas make up only seven percent of the entire North American rail fleet. You’ll notice that the majority of this fleet is between 31 and 48 years old with a gross rail load of 263,000 lbs. Figure 3 provides a breakdown of these car types reflecting that nearly half of this fleet (46%) consists of 52’ mill gondolas and the remainder of the fleet consists of 66’ mill gondolas (approximately 13%) and the larger capacity woodchip gondolas (approximately 6%). The remainder of the fleet consists of ore gondolas, covered gondolas and coil gondolas.
So How Do You Secure the Right Supply of Railcars for Your Needs?
Freight railcars are much like trucks in that you have several options—many of which attract investors. Understanding the demographics of today’s railcar fleet can help you understand the importance of planning to secure railcars for your supply chains future. For shorter term business (maybe a single trip or less than a six month move) negotiating with the railroad to order in railroad supplied equipment may be a possibility. If you need railcars for a longer time frame, you may want to consider leasing, purchasing or even ordering newly built railcars. Of course the economics must make sense so a comparison of the rate differential between privately marked and railroad supplied equipment should be evaluated. Start by requesting pricing options from your rail carrier. When ordering cars from the railroad, count on receiving less than requested number of cars as railroad supplied equipment will most likely be shared by multiple shippers and, depending on your particular region, other users in your pool may be your competitors. In order to secure private railcars, consider working with a railcar leasing company to lock in a monthly rate for a defined time frame. The commitment can be relatively short ranging from six to 12 months or it can stretch longer into the future with three, five, seven or even 10-year terms. In some cases, you may be able to lock in a purchase option which will allow your company the ability to purchase the railcars at a pre-agreed amount following termination of the lease. It is also possible to purchase your own fleet of private railcars.
Tips for Leasing and Buying Private Railcars
Once you’ve identified the quantity and type of railcar you require, before contacting a private railcar leasing company, railcar builder, supplier or broker, you’ll want to understand the condition of the railcar. As identified above, much of the existing railcar fleet is aging. Before accepting railcars into your service, it’s a good idea to inspect the railcars to identify any required repair or maintenance items that will be required before receiving your railcars for their first load. Hiring a qualified railcar inspector can ensure that you’re aware of any repair issues before signing the lease or purchase contract and can potentially save you from both surprise and unforeseen into service expenses. In the event you have a loading or unloading situation that warrants a modification program to the cars, you may also reach out to a railcar repair shop or engineer so that you can incorporate a modification plan that best fits your budget.
When leasing railcars, it’s essential that you understand what the lessors’ expectations are. A thorough lease document will provide you with guidance on your responsibilities as a lessee. The same can be said when you are purchasing railcars. Recognize that once you sign a lease or purchase contract, you assume all responsibilities for the railcars and leasing or owning railcars that you’re comfortable with both contractually, mechanical and structural is paramount.
As with any good plan, expect to see challenges and hurdles as the plan is executed and presume that your plans may need some tweaking along the way but securing the railcars you need for today and in the future will help your supply chain to thrive.
Julie Mink is vice president of Tealinc Ltd. (Forsyth, MI) and is located in Tealinc’s Elizabeth, CO office. Her career includes positions as manager value creation and prior experience as a department head in a regional retail store, part of a national retail company with a market capitalization of $8.5b. Julie’s tenor at Tealinc has spanned development of the ecommerce program, formulation and execution of market strategies, direct sales and development and refinement of the company extensive market database. She can be reached at (720) 733-9922 or [email protected].