Laying tracks to profits? Yes, for large railroad firms – but for some of their shipping customers, profits are taking a hit.
As the financial news publication noted, large rail firms such as Union Pacific Corp. and Norfolk Southern are lengthening trains, while tightening schedules and reducing turnaround times. The shipping firms that rely on the rail operators to move goods are grappling with new timetables. As they have to bring railcars back on track, so to speak, they are missing deadlines for 24-hour turnarounds and accruing late fees in the process, which of course dings profits.
Those charges? Not pocket change, according to the Journal – the fees amounted to $1.4 billion last year, and the Surface Transportation Board, which regulates the industry, said the charges will be even more this year.
That 24-hour period is half the “grace period” that had previously been in place, and thus the shippers (the railroad customers) are being charged $150 daily. When the longer grace period had been in place, those firms that were in fact early in returning cars into services were able to accrue credits, which they could use to offset fees if they had to hold cars over, say, holidays.
The ripple effect continues down the chain. Consider the example of Barilla, the pasta maker – which processes wheat, among other activities, and upgraded a plant with the urging of Union Pacific – where turnaround times fit the previous 48-hour window, but where the new 24-hour window is a challenge, as Barilla is now mulling new changes to operations. The company, said the Journal, is challenging several thousand dollars in fees that were assessed earlier this year.
Separately, Kenny Rocker, Union Pacific’s executive vice president of marketing, said in reference to the fees (known, too as demurrage): “Our demurrage and accessorial program is designed to make sure we keep our network fluid, which benefits all of our customers and the entire supply chain.” The Journal said a company spokeswoman noted the railroad is evaluating customer feedback on the turnaround times and late fees.