April 2005 | How-To | Ten Tips

Negotiating With Railroads

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How can you get the best bang for your buck when negotiating with railroads to ship your products? Following a systematic approach and developing a list of priorities helps ensure good rail service at a good price, according to Todd Hoyt, director of business development, supply chain services, BNSF Logistics.

1. Prepare a history. Before you begin the negotiations process, compile some information: your historical load volume and total freight spend; historical service levels; the best alternative mode, if any; local switching personel; and cut-off times.

2. Leverage your volume whenever possible. Package all your rail business at once rather than at different times, and consider converting your truck freight to rail. The more volume you can offer a railroad, the more likely that it will view your business favorably.

3. Know what individual railroads value most. Before you begin formal negotiations, take the time to learn what the railroad you are dealing with values. Is it density? Steady repeatable business? Maybe it is using a specific equipment type in a backhaul lane? Whatever the case, this knowledge will improve your negotiations with the railroad.

4. Offer to provide your own equipment. Generally, rail-controlled capacity is on the decline. If you can provide private rail cars, trailers, and/or containers, you can create a win-win for both parties, and improve your negotiation strength.

5. Understand your volume in terms of "directional value" for each railroad. Does the majority of your volume terminate in an area where equipment is needed? Or are you simply adding equipment to a surplus market?

6. Evaluate your service needs. Specify transit time expectations. Do you really need speed or is consistency more important? Explore different service options.

7. Keep storage and fuel charges in mind. With diesel fuel prices at record levels, be sure to understand how the railroads structure their fuel surcharge plan. Additionally, charges for storage can be significant if they are not managed appropriately.

8. Communicate any relevant price pressures.Every specific industry creates its own unique price pressures. When times are not so good, your rail provider may adjust your rate to compensate for the economic hardship.

9. Consider a year-round base rate in exchange for priority access to rail equipment. For highly volatile industries, this agreement can offset the lack of capacity during your peak season.

10. Get to know the individuals at the railroad. Make sure you understand the organizational structure in both sales and marketing. If you have established a prior relationship, your negotiation requests will be reviewed by people who already know your business.

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