The Railroad Consulting Network
Frequently Asked Questions
Below is a listing of frequently asked questions and definitions pertaining
to car hire and deprescription. The information below is only a summary
overview of each topic. For complete information, please refer to the official
publications of the Association of American Railroads (AAR) including
Circular OT-10 and the Deprescription Master Business Rules.
What is car
hire?
What is deprescription?
How does a car become
"deprescribed?"
How do I get market
rates on my freight cars?
How can car hire deals be
structured?
What are "default" rates?
What can happen if I do not respond to an offer my railroad received from
another railroad?
What is car hire arbitration?
Does this apply to my railroad?
Does
deprescription apply to TTX and Private-marked equipment?
What is a "grandfathered" boxcar?
Does this process apply to
appurtenances?
What is the significance
of January 1, 2003?
Is car hire and deprescription still regulated by the U.S. government?
How can I manage this
process?
What is Car Hire?
Car hire (sometimes referred to as "per diem") is
compensation paid by a user railroad to the owner railroad for the time and
mileage that the owning-railroad's freight car is on the user's railroad. Car
hire has four rate components:
- Loaded hourly rate
- Empty hourly rate
- Loaded mileage rate
- Empty mileage rate
Car hire rules of compensation, reporting, and
payment are documented in the Association of American Railroad's Circular
OT-10 Code of Car Hire Rules.
Example:
A shipment of widgets is shipped by rail from Los
Angeles, CA, to New York, NY. The movement will involve 2 railroads, Railroad
A who owns and supplies the boxcar to the shipper and Railroad B who receives
the boxcar from railroad A and linehaul delivers the boxcar to its destination.
After delivery, the car will be returned to the owning railroad empty using the
same route.
Boxcar A 123456 moves from origin (customer in
Los Angeles) to interchange with railroad B at St. Louis, Mo. Railroad B moves
the boxcar from St. Louis to the customer in New York. The delivery takes 48
hours and travels a distance of 1,350 miles. The return takes 50 hours and the
same distance.
Boxcar A 123456 has car hire rates of $0.50/hour
loaded, $0.05/mile loaded, $0.48/hour empty and $0.04/mile empty.
The car hire
liability of Railroad B to Railroad A is computed as follows:
Loaded Hour = $0.50
x 48 hours +
Loaded Mileage=
$0.05 x 1,350 +
Empty Hour= $0.48 x
50 hours +
Empty Mileage= $0.04
x 1,350
Liability = $169.50
[Note: this is an over-simplified example
of the process. The Code of Car Hire Rules should be reviewed for a clear
understanding of this process and its many exceptions]
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What is deprescription?
"Deprescription" was the
term used to describe the end of the era of ICC prescribed car hire rates.
Under the ICC's deprescription order, railroads have the ability to negotiate car hire rates
on railroad-marked freight cars. Negotiations are conducted between owning and using
railroads. Deprescription became effective on January 1,
1994 and replaced the
prescribed formulaic approach that computed car hire rates.
Under the deprescription order which
mandated a 10-year phase-in, railroads could deprescribe up 10% of their
existing fleets per year over 10 years. Full implementation of deprescription
occurred on January 1, 2003.
When a car has been properly
deprescribed through AAR requirements, owners or users may negotiate the loaded
and empty hourly and mileage rates of deprescribed freight cars.
Bilateral negotiations of car hire
rates are confidential and maintained by the AAR's CHARM file.
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How does a car become
"deprescribed?"
As
of January 1, 2003, all railroad-marked freight cars are deprescribed
except:
-
Grandfathered
Boxcars
-
Private/TTX Cars
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How do I get market rates
on my freight cars?
Market rates are negotiated through the AAR's central computer
system called RAIL-CARDS in the form of bids and offers. Either owners or users
of freight cars may initiate negotiations.
Bids/offers must be communicated to the AAR via:
- Mainframe to Mainframe via Electronic Data Interchange
(EDI), or
- AAR and third-party web-based applications
Offers are formulated with homogeneous car types or mechanical
designations. Up to 1,500 cars may be included in a single offer.
Recipients may either agree to or counter original offers.
While the RAIL-CARDS system is the official method of transacting rate
negotiations, most negotiations are conducted by phone by designated
deprescription agents.
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How can car hire deals be
structured?
MARKET OFFER
- An offer made on deprescribed equipment with no specified conditions or
qualifiers attached to the rate, except for the optional effective and
expiration dates.
SPOT MARKET
- An offer made for a specific period of time, usually of short duration on
equipment that has been deprescribed. Spot market offers must contain an
effective and expiration date and both parties must agree that the rate offer is
a spot rate offer. Upon expiration, the car hire rate reverts back to the rate
in effect before the spot was effective.
SPECIAL MARKET
- An offer made on deprescribed equipment that contains special considerations
that affect the amount paid for car hire. Adjustments to the car hire rates for
settlement purposes are accomplished through the reclaim process. Rate
agreements with special conditions must be structured as a special market
agreement to ensure proper reporting in the market data reports.
BILATERAL*-
An offer made on prescribed equipment with no specified conditions or qualifiers
attached to the rate, except for the optional effective and expiration dates.
SPOT BILATERAL*
- An offer made on prescribed equipment for a specific period of time, usually
of short duration. Spot Bilateral offers must contain an effective and
expiration date and both parties must agree that the rate offer is a spot rate
offer. Upon expiration, the car hire rate reverts back to the rate in effect
before the spot was effective.
SPECIAL BILATERAL*
- An offer made on prescribed equipment that contains special considerations
that affect the amount paid for car hire. Adjustments to the car hire rates for
settlement purposes are accomplished through the reclaim process.
*Applies only to grandfathered boxcars
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What are "default" rates?
The default rate (or base rate) is the
loaded/empty hourly and mileage rate applied to a deprescribed freight car in
the absence of a rate agreement between the owner and user of the car. Default
rates are determined in two ways:
Voluntarily Deprescribed (Cars
built prior to 1993). The default rate for voluntarily deprescribed cars is the
car's previous prescribed car hire rate.
Automatically Deprescribed (New
cars or cars built or rebuilt under OT37/Rule 88 requirements beginning January
1, 1993) The default rate is determined by the lowest negotiated positive
loaded hourly rate and the lowest negotiated positive empty hourly rate in
effect for that car type at the end of the previous quarter, and their
associated loaded or empty mileage rates. Default rates for automatically
deprescribed cars are published in a table by the AAR and can be found on their
web site.
Default rates are based on the four digit Car
Type Code. If no negotiated rates exist at the four digit Car Type Code, then on
three digit Car Type Code; if none, on two digit Car Type Code; if none, on one
digit Car Type Code.
When a newly built car or a pre-registered car is
added to UMLER, the default rate is assigned and will appear on the CHARM file
for the next month. For negotiating purposes, the default rate is available as
soon as the car is added to UMLER. Except for specific cases, the default rate
will remain with the car for its life.
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What can happen if I do not respond to an offer that my railroad received from
another railroad?
Failure to respond to bids or offers may
result in calls to best and final offer and possible requests for car hire
arbitration.
Offers remain active for 45 days. Unless
counteroffers are submitted by either party, offers expire after 45 days.
Calls to best and final offer may be requested by
either party at any time after an original offer is tendered. Best and Final
Offers (BFO) must be submitted within 28 days of the call.
If you do not respond to a call to best and final
offer, the RailCards system will automatically insert the current default rate
as your BFO. If arbitration is requested, you must defend your BFO, and in this
case it would be the default rate.
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What is car hire arbitration?
When negotiation fails, either party may request
binding arbitration after best and final offers have been submitted. (Refer to
Rule 25, Paragraph C, of the Code of Care Hire Rules for a detailed explanation
of the final and binding arbitration procedure.)
Arbitration is baseball style--rates of one party
or the other will prevail. Mediation by the arbitrator is not permitted. The
process is an "expedited docket" item and requires only 90 days from start to
finish.
- Initial arguments due in 30 days
- Replies to initial arguments within 60 days
- Final decision from arbitrator due within 90
days.
- Settlements between parties can be made any
time before the final decision is rendered by the arbitrator.
At the conclusion of an arbitration proceeding,
the American Arbitration Association will notify the AAR of the arbitrator's
decision. The AAR will update CHARM with the arbitrated rates effective the
first of the month after notification to the AAR. Rates are stored as
arbitrated rates for one year in CHARM, after which these same rate values will
convert to Market Rates and stay in place until renegotiated.
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Does this apply to my railroad?
If you
subscribe to the AAR's Code of Car Hire Rules, yes.
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Does
deprescription apply to TTX and Private-marked equipment?
No. Deprescription does not
apply to TTX or any other private-marked equipment.
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What is a "grandfathered" boxcar?
The term "grandfathered boxcars" refers to the
select fleet of boxcars owned by the Class III carriers as of December 31, 1983
that were exempt from the deprescription order. (ExParte 346 Sub. 19)
Car hire rates for Grandfather Boxcars are
"frozen" at the rate levels in effect on January 1, 1986.
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Does this process apply to
appurtenances?
Appurtenance (automotive rack) rates are not
regulated or prescribed by the STB. These rates may be found in Appendix S, Code
of Car Hire Rules, published in the Official Railway Equipment Register.
Since the owner of an appurtenance may not always be the owner of the underlying
flat car, unique rules apply.
In short, railroads may, but are not required to,
negotiate rates on appurtenances. Car hire rule 25 does not apply.
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What is the significance
of January 1, 2003?
January 1, 2003, marked the end of the 10-year phase-in period
of deprescription. On that date, all railroad-marked freight cars with the
exception of certain "grandfathered boxcars" were automatically and permanently
deprescribed and subject to car hire rate negotiations.
As of January 1, 2002, 45% of the North American
railroad-marked fleet remained prescribed. It is expected that both owners and
users of this equipment will exercise their ability to negotiate rates to ensure
car hire rates on all freight cars reflect market values.
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Is car hire and
deprescription still regulated by the U.S. government?
Yes. While car hire rates are no longer
"prescribed," the process of car hire compensation is still regulated by the
U.S. Surface Transportation Board.
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How can I manage this process?
Deprescription and Car Hire Compensation are manageable processes. By
developing a strategic plan to optimize the utilization of your rail assets, you
can stay ahead of the game. Feel free to contact us for a free and confidential
initial consultation.
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