Transparent Fees

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Transparent Fees

 

Hopper cars used to transport carbon black are owned (or leased) by the carbon black producers rather than the railroad companies. In 2006, rail carriers unilaterally eliminated the mileage credit practice, and claimed they reduced rates accordingly. Freight is passed through to customers, so the result was the producers were suddenly getting no supplements toward their investments in hopper cars. The producers counted on the railroad mileage credit to supplement a portion of their investments in the railcars. This caused the carbon black industry to institute a hopper car mileage fee of their own to recover the lost mileage credits from the railroads

Unfortunately over time, the carbon black industry found that this mileage fee fell short of supplementing the costs of ownership of a hopper car fleet.

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Photo credit: SRCE Logistics

Servicing customers by rail requires continuous investments to maintain and update the fleet. In order to justify these investments, such as replacement of a rail car at $100,000, there must be a return on investment over time. Evaluating the ROI, Sid Richardson Carbon and Energy Company (SRCE) determined the costs did not vary directly with miles traveled and should be spread equally to each pound shipped by hopper car.  So in 2011 SRCE decided to move from a per mile traveled fee to a per pound upcharge. To be transparent about the fee, and keep material prices comparable regardless of the mode of transportation, SRCE chose to make the fee an upcharge and not include it in the price of the material.

When first instituting the fee in 2011 SRCE identified the following cost for consideration in the fee:

1)      Maintenance. Railroad repairs, shop repairs, plant repairs and supplies.

2)      Local Rail Costs. Track rental, weighing charges, and switching.

3)      Cost Recover. Straight-line over 40 years, no profit margin and no time value of money charge.

4)      Other. Property taxes, insurance, and fleet management.

They excluded costs of both the traffic and the shipping department’s labor and overhead. The fee was set at 1.5 cents per pound. All the costs initially identified have been rising over the years, yet SRCE has not passed these increases on to the customer, they have maintained the initial set fee.

SRCE recently made investments to both replace some of the hopper cars in its fleet and to increase the size of the fleet in order to better service their customers. The investments made along with the rising costs associated with hopper car fleet ownership, caused SRCE to announce an increase in their upcharge in 2016 of half a cent.  The new upcharge for rail delivery per pound is 2 cents.

SRCE takes pride in its fleet of both hopper cars and hopper trucks and strives to provide safe and efficient delivery of carbon black to their customers. To do this, just as with hopper cars, hopper trucks require investments to maintain and replace.

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Photo credit: SRCE Logistics

Even when using an outside carrier’s trailer, SRCE is still responsible for many items just to be able to use their equipment to haul carbon black. Some of the duties SRCE must perform are:

1)      Removing and replacing all hatch and spout seals.

2)      Lubing and cleaning out sample spouts.

3)      Inspecting, lubing, attaching cover plates and attaching seals on the bottom valve assemblies.

4)      Inspecting, removing and disposing of all residues present.

In addition, special equipment is needed for loading hopper trucks and because of this, SRCE recently instituted a hopper truck fee of 1 cent per pound. This fee will also be in the form of an upcharge so the material price will be comparable regardless of the mode of transportation chosen by the customer.