Right size your fleet to help control demurrage charges!

Did you know that you could get control of your demurrage costs in two steps?

First step: Right-size your fleet

If you own or lease your equipment, it is important to understand how many railcars you need to ensure that you deliver your product to your customers on time.  Many rail shippers lean towards increasing the number of railcars in their fleets to feel a little more comfortable that they will always have enough – and end up overdoing it.

Consider the scenario that you have too many railcars in your fleet and what those railcars do when they are not in use.

  • Is your plant full of empty railcars?
  • Do you have empty railcars stacked up outside of your gate waiting for free space in your plant?

Bingo! These excess railcars are accruing demurrage if they are on railroad property.

Now imagine that to alleviate this overload of railcars, you start shipping to your customers earlier than planned.  The railcars are now out of your plant and no longer sitting empty outside of your plant, things are good, right?

Wrong!  You have now created a potential problem at your customer’s plant.

Your customers likely order material based on the known transit time that it takes to move the railcar from your plant to theirs. If you ship early, they may not be ready for the loaded railcar and are forced to accrue demurrage while holding cars outside of their plant. This does not make for great relations with your valued customers.

RSI’s Railcar Tracking & Management Software offers a Fleet Sizing Model to help you determine how many railcars you need based on actual transit times and shipping volume. This model also supports buffers for seasonality and railcar maintenance requirements.

We call it a model because it is an interactive tool that allows you to adjust variables to determine how they affect the number of railcars you actually need. For example, if you know you will experience an upswing in business, you can adjust the number of carloads in those shipping lanes.

You can also adjust the ideal time the railcars should spend at your plant on a throughput basis. If your fleet today has too many railcars, the number of days that each railcar sits at your plant is likely exaggerated – because the cars must sit somewhere, right?  If your actual transit data reflects that on average it takes your plant 10 days to throughput a car, but you know that your plant can do it in 4 days – you can make that adjustment in the Fleet Sizing Model.

The same concept works on the customer side. If your customers hold railcars for longer than you would like, you can push them to release the railcars back to you sooner. To determine the impact customer hold days has on your fleet size, you can also adjust the ‘what if’ scenario in the model. If your actual transit data show that the customer holds your car for an average of 20 days, you can adjust to see what impact releasing in 15 days will have.

Beyond RSI’s Fleet Sizing Model, additional Transit Summary and Transit Detail Reports are useful in determining the right fleet size.

Second step: Understand lead time to order material from suppliers

Consider the scenario that your supplier is causing you to incur demurrage charges. Do you know what the transit time from their plant to yours is? It is important that you understand the transit time to ensure your supplier is not shipping too early. If they are, cars are likely arriving at your plant before you are ready for the material, causing you to incur demurrage charges.

Regardless of private or system railcars, with visibility of inbound shipments in RSI’s Railcar Tracking & Management Software you can easily measure transit times between your suppliers and your plant, to help you understand what your lead time should be. Using that lead time knowledge, you can identify cases where your suppliers are shipping too soon, and work with them to ensure they are shipping at the right time. This will contribute to a better relationship with your suppliers while reducing demurrage at the same time.

The world we are living in today has resulted in fewer railcars moving on the rail network, and in most cases, reduced transit times. Now, more than ever, it is time to look at the impact reduced transit times are having on your fleet size!

For more than 30 years rail shippers have been relying on software and services from RSI Logistics to make their rail shipping simpler, more efficient and more cost-effective. Contact us for more information about right sizing your fleet, understanding your supplier lead times, and gaining control of your demurrage!