Open Menu RSI BLOG What’s happening at RSI Logistics & the latest industry news How to Increase Short Line Profitability and Negotiate with Class 1 Railroads October 25, 2021 Rail Rates Fair rates with Class 1 railroads are important for short line railroad profitability. But when these larger railroads keep revenue allocation stagnant for small rail lines, it can be difficult to negotiate. Understanding the pricing system behind Class I railroad rates, and gaining insight into the competitive landscape can bolster your negotiating strategy. With the right information you can increase short line profitability and negotiate with Class 1 railroads more efficiently. How to Increase Short Line Profitability and Negotiate with Class 1 Railroads It’s difficult to negotiate when it’s unclear how Class 1 railroads are pricing or determining revenue allocation to short lines. As the use of private contract rates have increased, pricing in general can quickly become a black box. Taking a closer look at Class 1 railroad revenues, expenses, tariffs, fuel costs and more can give you more information about profits, and show you where revenue allocation may be inordinately low. This can give you a roadmap for where to target your negotiations, and information about the competition can give you leverage. Class 1 Railroad Rates Many large railroads use contract rates with shippers, which makes it difficult to find a baseline, and even more difficult to know if your revenue allocation is fair. While some publicly published tariff rates can be helpful, many contract rates differ significantly from tariff rates. Without a clear picture of railroad rates, it’s difficult to know how much Class 1’s are actually making, and even more difficult to know if your revenue makes sense with the rates. See how data can improve negotiations, operations and future planning for short line railroads with our free guide › Operational Costs Understanding operational costs is another important aspect of rail rates. If operational costs have increased disproportionately across a particular route or commodity and profits have decreased, it will be more difficult to negotiate for higher revenue allocation. Take a look at fuel costs, overhead costs for specific commodities, and similar costs, and add these to your equation. Revenue Benchmarks With a better understanding of operational costs and rates, you can make revenue benchmarks. Take a close look at routes and commodities that are similar to those you primarily work with. Calculate revenue generated from these routes, and use them to benchmark against your own revenue allocation. This can help to show where revenue allocation is disproportionate and where to focus your negotiating efforts. Competitive Landscape To strengthen your negotiating position, it’s helpful to understand the competitive landscape, including your own competitors and their rates, and Class I competitors and their rates. Take a look at the average rates for different Class I railroads. This can give you more information about the railroads that you’re negotiating with, and show their position amongst competitors. In addition, taking a closer look at the rates of other short line railroads, as well as their expenses and revenues, can give you information to bring to the negotiating table. Traffic Volume Traffic volume data can also help to improve short line profitability and negotiate with Class 1 railroads. If data shows that traffic volume has increased in your area or across your most common commodities, your railroad may be more valuable to larger railroads than your revenue allocation reflects. However, if traffic volume has fallen or your most common commodities are not as lucrative as they once were, it may be harder to negotiate, or you may need to try a different approach. Bring volume data to the conversation and you can make your railroad’s value clear, and show that you know what your business is worth. Efficiency Improvements Efficiency improvements can also help to increase short line profitability and negotiate with Class 1 railroads more effectively. If your business has taken on more customers, improved operational speed, you’re shipping higher volumes, or you’ve made other efficiency improvements, it makes sense that your railroad will be more valuable, and therefore should earn higher rates. Bring hard numbers to the conversation; show how much you’ve improved, where, and the differences that these improvements have made. Data can be a very powerful tool when negotiating with Class 1 railroads. With a keen understanding of costs and rates, the competitive landscape, and your own operations, traffic, and improvements, you’ll have insight to aid in your discussions. To access this data in one place, take a look at Rail Impact, RSI’s data management system for short line railroads, shippers, and more. See how data can improve negotiations, operations and future planning for short line railroads with our free guide › Post navigation Canadian National Withdraws Merger Plans with the Kansas City Southern 5 Marketing Ideas for Short Line Railroads Categories Railcar Tracking Rail Rates Rail Transloading Industry News Get new posts delivered to your inbox! Email* Get blog updates:* Daily Weekly Monthly Recent Posts UP Petitions STB to Reject CP-KCS Merger Application RSI Logistics and R. J. 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