Freight Costs

Discussion in 'UK Railway Discussion' started by Legolash2o, 7 Aug 2019.

  1. Legolash2o

    Legolash2o Member

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    When planning a freight route and pricing. What are taken into consideration when calculating a price?
    • Driver Hours
    • Rolling Stock Lease
    • Fuel/Electrical
    • Ground Crew?
    • Pick up and drop (or is that incorporated in the ground crew costs
    • Access Charges
    • Maintenance
    Thanks
     
    Last edited: 7 Aug 2019
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  3. Taunton

    Taunton Established Member

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    Outside the Direct Prime Costs are the Overheads & Profit items, commonly identified as a percentage of the Prime Costs. There are many, including insurance, head office salaries, sales & marketing costs, support road vehicles, staff training, heat & light for local offices, business rates on premises, computers and mobile phones, bad debts from customers, bank interest, etc etc …. even the staff Christmas party. 20% on your Prime Costs is a good starting point.

    Then there's the profit amount that you wish to recover from the whole operation. Because as an operating company, why would you go into business? If there's no profit margin, what's the point?
     
  4. Dr Hoo

    Dr Hoo Established Member

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    Whilst the operator’s own costs are obviously important the most important factor is usually the rate that the customer would otherwise be paying if the goods went by road (or in certain cases costal shipping or pipeline). ‘The market/competition sets the rate’.
    In many cases the freight operating company (FOC) will not be controlling many aspects of the movement. For example the customer may own or lease the wagons directly. The goods may be loaded or unloaded by a third party terminal operator or port. A ‘hook and haul’ quote is very different from a ‘full service’ offering.
     
  5. Rockhopper

    Rockhopper Member

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    The costs must be huge! On my local line the freight operators pay for signallers and crossing keepers to be on duty on sundays when no passenger services run just in case a freight service needs to run (according to a signaller I spoke to). In the two years I’ve lived here I’ve never seen that happen on a Sunday!
     
  6. Taunton

    Taunton Established Member

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    A bit boring doing transport accounting but a few of us wrote at length about it at university!!

    Most important is not to confuse costs with revenue. They are not necessarily connected. Simplistically, you try and get what you charge, your revenue, as high as possible, before the customer says No Thank You, and what you spend, your total costs, as low as possible, consistent with still providing a service which the customer still accepts. Hopefully the margin between the two gives a little bit for yourself!

    Transport is plagued with shared allocated costs, more than most industries. Most staff, locomotives, depot engineers, etc are shared between different flows and customers; how do you allocate their costs to each customer. It all depends on how the accountant does the figures. If you wish, I can put the figures together which show either the proposed service is profitable, or it would make a big loss. At the end of the day the key thing is how much money the overall business has left in its bank account, attributing that down to individual services is just an art.

    Mr Micawber had a good summary of it :) https://www.telegraph.co.uk/finance...ens-said-about-money-12-memorable-quotes.html
     
  7. edwin_m

    edwin_m Veteran Member

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    There are some flows where the unit cost is always going to be far lower by rail, or there are other reasons why road haulage can't be used. The fact the Mendips aggregates to London is virtually all on rail must be down to a combination of these factors. A monopoly rail provider could exploit this and make a big profit, which probably explains in part why the quarries there insisted on setting up their own private rail operation well before general privatisation.

    Ed Burckhardt's aim to take over the entire BR freight operation was most likely driven in part by getting his hands on others of these captive markets. Unfortunately for him, Freightliner escaped his clutches and other bits of the railway morphed into competitors for bulk freight, with the encouragement of Network Rail who wanted competitive procurement for their engineering trains. EWS/DB was also forced to divest many of the yards and sidings that were allocated to it on privatisation, and which they could then deny competitors access to. Similar things have also happened to Freightliner in the intermodal market, although it's easier to build competing terminals here as their location isn't so critical.

    When there is a competitor on rail with a similar cost base, pricing is much more likely to be the bare minimum above cost, with perhaps one operator getting the edge due to some local advantage such as having the right wagons spare or sharing resources with an existing operation.
     
  8. Legolash2o

    Legolash2o Member

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    Thanks for the answers.

    My aim to to try and figure out a cost per mile to then compare it with road in a scenario where a customer would ask a haulier/FOC for a quote to move X goods from A to B. I'm assuming they would have some sort of spreadsheet which will create an estimate price.
     
  9. Dr Hoo

    Dr Hoo Established Member

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    Whilst some costs, such as fuel and track access, obviously do vary with mileage many other costs, such as wagon leasing and terminal handling, don’t.

    Certainly for a trainload (as distinct from adding one more container to a train that is ‘running anyway’ and typically has some empty platform space) it takes a lot of bespoke work to put a quote together.
     
    Last edited: 9 Aug 2019
  10. Taunton

    Taunton Established Member

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    While there are still fixed costs on the network, a lot of them on the privatised railway have been restated to be usage dependent. Vehicle leasing is an example, where this was once upon a time on a fixed monthly charge, it is now commonly reduced to a charge per mile, with a guaranteed monthly minimum (which itself often gets close to the old fixed charge), which makes former "marginal cost" approaches somewhat redundant. This can be seen notably in some passenger vehicle contracts, where the TOC is keen to minimise the number of vehicle miles run (and thus minimise the formations).

    Of course, the big one has been track access charges, whose costs were once thought of as just a fixed amount, but were revised to use the number of ton-miles, again encouraging minimal use. For me this seems to have gone too far the other way, quite a proportion of track maintenance expenditure is still time-dependent rather than ton-mile driven.
     
  11. edwin_m

    edwin_m Veteran Member

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    Are wagon leases mileage dependent? I suspect they are still time-based.

    A large slice of Network Rail's costs are fixed, including most of signaller staff cost and most of the maintenance of stations and structures. This topic is a bit of a nightmare and I don't claim to understand it fully, but I believe there are both fixed and variable track access charges. The franchised passenger operators pay both charges but freight (and open access passenger operators - but that's another discussion entirely) only pay the variable ones. Hence freight is only paying its marginal cost for using the network, essentially wear and tear caused by freight trains. This may be a bit different on the few remaining freight only lines.
     
  12. Legolash2o

    Legolash2o Member

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    I'm actually trying to figure out how to use the access charge list at the moment.

    So far I have calculated a Class 66/6 (Other) having 22 x FEAB (Tare - Other) wagons at £5383.5 for 200 miles which seems excessive!

    200 * (2.8451 + (22 * 1.0942))

    https://cdn.networkrail.co.uk/wp-content/uploads/2019/03/Track-Usage-Price-List-1718-prices.xlsx
     
  13. Oxfordblues

    Oxfordblues Member

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    Yesterday I counted 66 boxes on an intermodal train passing through Oxford en-route from Trafford Park to Southampton Docks. With a transit time of five hours, I calculate that's 5 x 66 x £12 = £3,960 in equivalent truck drivers' wages alone saved by one train. Plus fuel, etc. it's probably nearer £6,000. Why then is the parallel A34 so busy with trucks, many of them heading to Southampton with deep-sea containers? I think it's largely because there are no tolls on the road and it's effectively free at the point of use. If hauliers had to pay the real cost of highway construction, maintenance and policing they couldn't compete over long-hauls.
     
  14. Dr Hoo

    Dr Hoo Established Member

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    I suspect that many of the HGVs carrying containers on the A34 are travelling to and from locations that are not particularly well-served by rail or over distances rather less than Southampton-Manchester.

    The logistics 'Golden Triangle' around Rugby and Lutterworth for example only has the Daventry rail terminal nearby and even that is difficult to serve from Southampton by rail (at least until East-West Rail is open through to Bletchley).

    Even for Manchester the containers will have to be loaded to and from HGVs at Trafford Park and have a further journey leg at material cost. Unlike Daventry, Trafford Park is not a 'strategic rail freight interchange' integral logistics hub with scope for 'internal' movement to and from the distribution centres.
     
  15. Legolash2o

    Legolash2o Member

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    Trucks can be more flexible and are better for shorter journeys. I do feel the same way in that where I live (Hull), there are many shipping containers (45ft High-Cube) that go on the A63 instead of the rail connection at the port. It would help with the congestion we get in the area.

    Anyways, 66 containers using the same calculation as above would cost £15,012 just in access charges per trip. I'm more sure I've calculated wrong now.
     
  16. Edders23

    Edders23 Member

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    don't forget to account for empty as well and I believe a different rate to loaded
     
  17. Legolash2o

    Legolash2o Member

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    I think that is the rate of it being empty (Tare).
     
    Last edited: 10 Aug 2019
  18. Metrailway

    Metrailway Member

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    Generally, a HGV has an annual mileage of 100,000 miles.
    Using figures from Motor Transport, a 44 tonne HGV would generally cost £1.63 + £0.08 per mile to operate including capital and staffing costs.

    Using your Southampton Docks - Trafford Park scenario, the road mileage is about 230 miles.
    So one HGV would cost £393.30 to operate and 66 HGVs would cost on average £25,957.80 to operate.

    So for railfreight to be competitive on costs, the costs would need to be less than £25,000. If Legolash2o is correct with the cost of the access charges, then railfreight will always struggle as there isn't much room left for rolling stock, staffing, fuel, handling costs etc.
     
  19. Legolash2o

    Legolash2o Member

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    I ended up putting in a FOI request asking for access charge documentation, formula and provided an example.
     

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