Many times, in an effort obtain the cheapest lease rate in a particular market shippers overlook the other railcar related factors that contribute to the bottom line.
In most cases, the lease rate of a railcar is only a small factor in the overall rail shipping cost. Factors like car size, speed of delivery, and location can dramatically influence the economics of a transaction.
Consider the risk:
- A plant shutdown due to unavailable railcars
- Unexpected responsibility for a $6,000 per car freight movement
It becomes clear how what may seem like a good deal can quickly turn into a costly mistake.
Lease Rate vs. Total Cost
To show how much one these factors can sway a transaction let’s consider the following example:
A customer is shipping Semolina, a grain product that moves in a large cubic capacity pressure differential hopper. Their current fleet includes 5,000 cu.ft. railcars with a 263,000 lb. gross weight capacity, leased at $530 per car per month.
They are offered a larger 5,125 cu.ft. hopper at $635 per car per month. At first glance, the higher lease rate may seem too expensive. Many shippers would dismiss this option immediately.
That would be a mistake.
Why Railcar Capacity Matters
When you look closer, the larger cars can load 16,300 additional pounds of product per shipment compared to the current fleet.
Assuming they receive the same level of service, this creates two key advantages:
- Fewer shipments required, reducing total freight cost
- Smaller fleet needed, reducing the number of leased railcars
In this case, the customer is able to lease three few cars.
The Real Savings
What initially looks like an additional $105 per car per month actually results in a $243 per car per monthly savings.
On a 30+ car transaction that’s over $96,000 in annual savings. Even with higher initial “into service” costs, those savings would offset the expense within the first one to two years.
View the Full Analysis
Click Here to view the full cost analysis for the example above.
