Lease Rate Isn’t Everything

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. Typically the lease rate of a railcar is only a small factor in the overall rail shipping cost picture. Factors like car size, speed of delivery, and location can influence a transaction dramatically. Imagine the profit lost from having to shut a plant down because railcars are not available to move product, or not understanding that you’re responsible for a $6,000 per car freight move. It’s becomes easy to see how what may seem like a good deal can change to a catastrophe quickly.

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) which moves in a large cubic capacity pressure differential hopper. The customer is currently leasing 5,000 cu.ft. railcars with a 263,000 gross weight capacity (maximum weight of product and car combined) at a lease rate of $530. A group of 5,125 cu.ft. hopper has been offered to them at a lease rate of $635 per car per month. While a difference in lease rate of $100+ may be easily dismissed as too expensive, this would be a mistake by the shipper.

When you look closer, the larger cars can load 16,300 more lbs. of product per shipment when compared to the cars the company is currently using. Assuming they receive the same level of service they will not only reduce the overall freight costs due to fewer individual shipments, they can actually lease 3 less railcars. So, instead of costing $105 per month the customer actually saves $243 per car per month in this scenario. On a 30+ car transaction that’s over $96,000 per year. Even if there are substantial into service costs the saving would easily pay for these costs within the first year or two of service.

Click Here to view the full cost analysis for the example above.

For more information on this topic or for Railcar Sales and Leasing please contact Everest Railcar Services.

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