The COVID-19 pandemic has changed workplaces and lifestyles across every industry around the globe. Railroad companies are no different. As many employees are working from home or laid off to ensure safe social distancing in the workplace, rail shipping quotes delays and rate increases are appearing more frequently across North America.
Are your shipping rate quotes taking longer than normal?
On average, rail shipping rate quotes are taking 3 to 5 days longer than normal, but many shippers have waited several weeks to get a response. This is likely a result of the railroads streamlining operations and adapting to work-from-home initiatives driven by COVID-19. Volatility in shipping may also play a role. Economic contraction combined with panic buying has created spikes and lulls across different shipping modes. These factors make predictable pricing more difficult and may also be to blame for recent rate increases.
Are you seeing rate increases during the pandemic?
Your current rates may be faced with increases that are difficult for you to absorb. Many businesses today are struggling and have had to adjust to remain viable. Railroads are adjusting as well and have been striving to maintain profitability by cutting costs and increasing revenue. In April 2020, U.S. carload volume fell 25% compared to 2019, and continued to fall in the following months. Though these declines seem to be leveling off, these dramatic losses in revenue are likely to continue affecting rail rates well into the future. Precision Scheduled Railroading (PSR) has reduced some of the railroads’ costs, though increasing rates is a likely measure to make up for lost revenue.
Considering Public Tariffs vs. Private Contracts
Some Class I’s have recently taken a more competitive approach to rate requests and are willing to offer private quotes instead of pushing all traffic to public tariffs. However, whether this will improve rail rate shipping quote delays or rail rate shipping increases is uncertain.
Whether your rates are in public tariffs or private contracts, you are likely seeing increases. In recent months, tariff rates have been experiencing an average increase of 3% to 6%, while many private contracts have been subjected to a 2.5% to 5% increase. How much your own rail rates have increased is largely dependent on your rail carrier’s willingness to negotiate, as well as your own negotiating leverage.
Are Delayed Shipping Rate Quotes Affecting Business Growth?
Transportation is often a major component of the total delivered cost of new business opportunities. The time spent evaluating opportunities and waiting for the railroads’ response can add up. If you are like many companies today, your staff may be reduced, and you are taking on more responsibilities. You may not have time to wait for delayed rail shipping rate quotes or find the information that you need to quickly negotiate away from rail shipping rate increases.
Using Information Strategically to Save Money and Time
Market share is important to all Class I railroads, and recent shipping volatility gives you some room to negotiate. With rail volume decreasing, keeping your business—and preventing you from working with a competitor—is important to rail carriers. If the railroads are at risk of losing existing carloads or are competing for new business, they have incentive to adjust their pricing to maintain or grow their market share.
The process of negotiating prices starts with a solid understanding of differential pricing strategies and how rail rates are set. With this knowledge, coupled with comparable tariff and private contract pricing across your industry and through comparable lanes, you have a solid negotiating framework. This gives you negotiating goals, price ceilings, and an acceptable price range to work with. In addition, evaluating strategic alternatives, such as transloading sites and intermodal transit options, can help you negotiate away from a captive position.
How to Find and Use Rail Shipping Rate Information
A quick rate estimate can help you to evaluate opportunities, get important information, and make informed decisions, even with reduced staff. Rail Impact provides commodity and lane-specific rate estimates based on our rail expertise and understanding of railroad data. Especially during these challenging times, taking efforts to improve your productivity and profitability is critical. In our free webinar, “Railroads Will Negotiate,” we show how you can use this information in rail rate negotiations, how rail rates are set, and where you can find the information that you need. Sign up for an upcoming free webinar to see how you can save time and money on your shipping negotiations.
COVID-19 has brought a number of uncertainties and challenges to every industry. If rail shipping quotes are delayed, rates are rising and shipping costs are causing you to abandon business opportunities, we can help. RSI Logistics has been helping hundreds of shippers understand railroad pricing and gain competitive advantages in the marketplace. Obtaining a quick rate estimate can help you determine which lanes to pursue and how you can improve your position. Contact us to find out how our analysis software, coupled with our expertise in rail rate negotiations, can help you save time and money in shipping.