Have the Railroads Stopped Negotiating?

Are the railroads telling you that privately negotiated contract rates are reverting to public tariffs? This may become more prevalent, but that does not mean the railroads have stopped negotiating.

Public tariffs have long been in existence, providing easy access to rates with low administrative costs. But over the years, many shippers have been successful in negotiating reductions from those rates in the form of confidential contracts. Contracts are entered into for mutually beneficial reasons, providing a competitive advantage to shippers and, often a volume commitment to the railroads.

During this time of great uncertainty, the railroads are striving to maintain profitability, largely through streamlining operations with Precision Scheduled Railroading (PSR). Public tariffs can be viewed as another cost-cutting effort since they are easy to administer. The railroads claim that tariffs put everyone on an even playing field by providing market-driven rates.

But do they?

Since many tariff rates were established years ago, they may not take into account the current competitive environment. And your railroads’ tariff rate may not enable you to compete with a supplier on a competing railroad. If shippers can present compelling arguments, they may be able to influence published rates, or even secure contract rates.

While successful negotiations depend on many factors including the skill of the negotiators, some key points to consider include:

• Does the railroad value my business? How profitable is it to them?
• Can I provide a volume commitment to the railroad?
• Am I at risk of losing this business to my competitor?
• Do I have options to shift to another railroad or another source? Can I transload?

Pricing will continue to vary by railroad and by commodity. Having insight into how your business fits into the railroads’ overall business plan, though, may make you more successful. If you do have contracts and they are extended, lane-by-lane analysis helps you focus on the appropriate rate levels for renegotiation. And, if you are only provided with tariff rates, by presenting your case to the railroad, you may be able to influence those rates. Especially with new business opportunities, giving the railroad a needed target level can often influence what the final published rate will be.

RSI Logistics has been helping hundreds of shippers understand railroad pricing and reduce their rail spend. Being able to influence your rates, whether contract or tariff, can make you more competitive. Contact us to find out how our analysis software, coupled with our expertise in rail rate negotiations, can help you achieve substantial benefits.