Understanding how the railroads price your commodity is a starting point for determining your ability to negotiate rail freight rates. Railroad pricing has been cyclical over the years, fluctuating between public tariffs and private contracts. With the use of differential pricing, the railroads may provide different rates to different shippers in similar lanes. Regardless of the pricing methodology, the railroads’ goal is always to maximize profits.
In setting rail rates, the railroads mark up their costs by varying ratios, dependent on commodity. Insight into this pricing behavior provides the framework for analyzing rates – yours or your competitors’.
But what are the factors that would motivate the railroad to provide you with the most competitive rail rates? Advising of any alternative options provides leverage in your negotiations. This could be shifting to another railroad, truck, or transload, if possible. Even if you are captive to one railroad, higher rates may be preventing you from competing. Providing that information to the railroad may justify a rate reduction. Since lost volume cannot usually be compensated for by higher rates, railroads continually strive to maintain and grow their market share.
RSI’s USRail Impact software makes it easy to understand railroad pricing by commodity, to evaluate the “reasonable rates” in any given lane, as well as to determine your railroad’s market share. In addition, there is access to valuable information, training, and support to enable you to be more effective in your rate negotiations.