Rail markets have changed dramatically in recent years.
Shippers must adapt to properly navigate these changes. The results of Escalation Consultants’ annual rail shipper surveys demonstrate how shippers are dealing with the changes being experienced in the rail industry. The survey results highlight critical issues that shippers need to be aware of.
The following results are taken from annual shipper surveys from 2018 through 2023. For reference: the results reflect responses from individuals from over 115 different companies. These companies span all industries that ship by rail. The updated 2024 rail shipper survey results will be released at the September Rail Negotiation Seminar in Washington DC.
Issue 1: Shippers Being Forced to use Tariff Rates
An increasing number of carriers are refusing to renegotiate contracts and forcing shippers to use tariffs or public pricing. 50% of participating shippers said they were experiencing this, and the primary railroads referenced as forcing shippers to tariffs were KCS, NS, and UP. Survey responses indicate a significant increase in the number of shippers being forced into tariffs between 2018 and 2023.
Issue 2: Rate Increases in new contracts
The average rate increase in new contracts in 2023 increased substantially from prior years. In 2023, increases of 5% became the norm for both captive and competitive shipper movements.
Issue 3: Railroads Level of Interest in Shipper’s Competitive Traffic
Almost all shippers (91%) responded that railroads were aggressively going after their competitive traffic. This was a big change from prior surveys, as back in 2018 less than 10% of shippers were experiencing an aggressive push from railroads to capture all their competitive movements.
Issue 4: Contract Escalation Issues
- In 2023 the number of shippers escalating contracts by the All-Inclusive Index Excluding Fuel (AII-LF) more than doubled from prior years. Past surveys showed that pre-established set rates of annual increase were the predominate method being used to escalate contracts. In 2023 the All-LF Index was being used just as much as pre-established set rates of increase.
- When the All-LF Index is Used more than 50% of the shippers negotiated an Escalation Collar (Minimum and Maximum rate of change).
- The set rate of increase primarily used to escalate contracts went from 3% in past years to 4% in 2023. With a lower rate of annual inflation in the economy this will likely change in the 2024 survey results.
Issue 6: Through Rates Versus Rule 11 Rates
Over time, there has been a steady increase in the number of shippers using Rule 11 rates when more than one Class I Carrier is used in a movement. In 2023, Rule 11 rates were used by 82% of the shippers in the survey. The surveys indicate that through movement rates for multi carrier movements are being used much less frequently.
Issue 7: Pre-Bid Meetings with Railroads
The percentage of shippers that always hold pre-bid meetings with railroads has increased steadily over time. This went from 8% of shippers in 2018 to 22% of shippers in 2022. Shippers that always hold pre-bid meetings then jumped to 62% in 2023. The only shippers that did not always have pre-bid meetings in 2023 answered that they sometimes hold pre-bid meetings. It appears that pre-bid meetings have become standard practice for rail shippers.
We anxiously await the results of the 2024 rail shipper survey, as the economy has changed dramatically between 2023 and 2024. The 2024 survey results will be released during Escalation Consultants’ Rail Negotiation Seminar.
For over 25 years, Escalation Consultants has hosted the Rail Negotiation Seminar. This seminar has become the most highly anticipated event of the year for rail shippers, as it focuses specifically on improving rail negotiations. Over the years, the seminar has been attended by thousands of people from hundreds of companies across all industries.
The seminar is being held in Washington DC, September 11th- 12th, at the Hyatt Regency, and registration is open!
For more information, or to register for the 2024 Rail Negotiation Seminar, click the image below.
