Negotiating With Your Railroads
Rail mergers and acquisitions have shaken up the industry, leaving behind a tangled web for consignees and shippers to navigate. So how do you avoid getting snagged in the web of management hierarchy and get the best bang for your buck when negotiating a shipping deal?
It may take a little research and some homework, but these 10 tips from Paige Prendergast, director transportation and wholesale marketing, Pioneer Oil LLC, are sure to help you get the leverage you need when you negotiate your next rail contract or shipment.
1. Use the “big picture” approach to create leverage. Look at the big picture when managing your rail freight. Try to have all your rail contracts expiring at the same time so that you can “bundle” your origin/destination combinations. The more you put on the table at one time the better your deal looks to the railroads. This strategy will help create competition for some of your local traffic as well as increase leverage.
2. Be creative; offer the package deal. The railroads may not appear to be creative, but they love package deals. Use volume commitments when you can. Try negotiating rebates for traffic if certain commitments are met. Offer a longer-term contractual commitment for railroad concessions. Is there truck business that can be converted to rail if conditions are met? Is there rail business that can be converted to truck? Remember you can’t just take, take, take, in negotiations. You have to give a little, too.
3. Control the negotiations. Know what is important to you and your company. Don’t just let the railroads come to you when your contract is expiring. Be aggressive and go to them with your ideas.
4. Let them know what you spend. Make sure your rail carriers know how much money you have paid them. The railroads’ records on these issues are usually not very accurate. They may think you’re only a $500,000 customer but in reality you may have paid them several million.
5. Do your homework. Understand the rail situation at all your shipping locations. Are you open or closed to reciprocal switching? Due to all the mergers, do you now have additional rail service in your area? If you have less competition due to mergers do you know your recourse, if any? Is your product suitable for transloading?
6. Know the railroad hierarchy in the marketing and sales departments. You shouldn’t be calling railroad upper management on day-to- day operations, but you never know when a pricing or service issue will need to be escalated. Even if your railroad sales rep pushes the issue, upper management will at least know who you are and what your company does.
7. Attend rail industry conferences. This is a good way to get to know your peers and glean ideas from them. The conferences allow you to stay abreast of what is happening in the rail industry. Often times, railroad hierarchy attends these conferences. North American Rail Shippers and the National Industrial Transportation (NIT) League are just two of many good organizations to check out.
8. Know where your rail freight is at all times. Invest in a good fleet management system, which can more than pay for itself. Nobody cares about your rail freight like you do. Use the data that your tracking system can provide to better negotiate with railroads, communicate with customers, help size your fleet, and monitor carrier performance.
9. Keep trying to negotiate service agreements into your rail contracts. Most railroads are still extremely reluctant to put service agreements in writing. Never let up on this subject, especially if it is high on your agenda.
10. Get to know the local railroad operating personnel in your shipping areas. Know the railroad cutoff times for your switches. Make sure the local operating personnel know your service requirements. You can’t expect the railroads to know what you need unless you communicate with them.