To store, or not to store… how to answer that question!

Railroads make money by moving carloads… not by letting them sit. They proportionately staff to how many carloads they expect to move. Shippers who provide or commit to a certain number of carloads moved per month/quarter/year give Railroads confidence to staff up and take their own equipment (locomotives) out of storage when the carload demand exists.

When velocity and cycle times are down it usually is a result of carloads being down. A nuance to rail that seems inverse to logic occurs when shippers add more railcars into the supply chain in an effort to improve the reliability of service without increasing the output of carloads. This almost always has an adverse effect on velocity and cycle time. The reason for this is that railroads now have more inventory to move without their main source of revenue (to justify resources) to balance the cost of operation. The end result – railcars move slower.

This is exactly the intersection of where storage should come in. Having the right number of railcars in cycle is a crucial component of a healthy rail system. The correct method is to calculate the supply (railcars) to meet demand (product/tonnage) rather than instinctively securing the highest number of cars currently available. Having the right fleet size is just as important to the overall cycle time and velocity of railcar movements as it is to the railroad providing the crews and locomotive power to move the cars. When a commodity is seasonal or a new lane has been added to rail service, the extra railcars are warranted in order to keep supply aligned with demand. Let your railroad partners know this in advance (the more time the better) to set expectations ahead of time, resulting in a much higher performance in service as a result.

Shippers should always have a buffer of a few extra railcars whenever possible, to handle the outliers that do occur such as a bad order, miss-route, etc. Bad Orders can be better managed by having a local repair shop near wherever cars are loaded or unloaded. This allows the repair to take place when the railcar tends to be in a more stationary state – such as waiting to be loaded or unloaded. Railroads typically do not charge demurrage when a car is bad ordered – so think of it as free storage if it can be repaired in a more controlled way vs. the unexpected during transit. Railcar repairs cost the same whether they are at an endpoint or mid-cycle, but they exponentially hurt the receiver expecting the product to arrive at a certain time.

It may seem obvious, but shippers should always be in constant communication with their railroad providers – Class I’s and Short Lines alike – to understand service schedules and carload volumes and to ensure the expectations of cycle times are met. If they are not, shippers and railroads should hold each other accountable to get things back on track. Storage is a critically important lever to pull to maintain the balance of the supply chain and ultimately give it the best chance for success.