Shippers preparing for next year’s rail contracts will have more clout than ever before, says a Maryland-based transportation consultant.

Speaking at a two-day Rail Negotiations Conference in Toronto recently, Jay Roman of Escalation Consultants said the railroads are hurting enough these days to pay closer attention to the needs of shippers.

Though he predicts the railroads will ask for a 3 to 4% raise in rates next year, the savvy shipper should be able to make a convincing case for the status quo – if not a decrease in rates.

“Truck rates have dropped. Barge rates have dropped. Ocean vessel rates have dropped. The odd-man out is the railroads,” he said, “and the railroads continue – especially in the United States – to come out with big rate increases during this recession. That has had a very big impact on railroad volumes.”

He said the dramatic drop in rail volumes in recent months has left railroads desperate to preserve whatever business they can.

“They need to control their volumes, because a lot of it has left the railway.”

A recent survey of 170 shippers was “simply jaw dropping,” he said, with 81 companies reporting that they’re taking volume off the rails due to recent rate increases.

Part of the two-day conference focused on the nine rules for successfully negotiating with railroads.

Rule #1: Getting a decrease in rates takes a lot more effort than simply trying to minimize rate increases. You have to do your homework.

Rule #2: Have a story to tell about why you need a better rate structure for your movements – using data on similar movements.
“The rail negotiation needs to be focused on proper rates for your movements,” he said. “Your discussions need to revolve around what is a reasonable rate for your movement.”

Rule #3: Don’t just go in with a wish list. Explain the rate you need, why you need it and what’s in it for them.
“It’s all in the story you tell. Railroads have a very limited grasp of what drives your business. You need to be able to explain to them the short- and long-term disadvantages of the current rate structure, versus a more competitive rate structure for your movements.”

Rule #4: Quantify the impact of high rates. That includes things like the political and economic implications, the impact on tax revenue, local employment, capital investment allocation, plant capacity… the kind of things that might cause politicians to be concerned.
“Your plant might be very important to an influential politician,” he explained. “Suddenly you become much more important to the railroad because they don’t want unwanted attention from politicians.”

Rule #5: Negotiations should be educational, not confrontational.
“Arguing with railroad and shaking fists is not productive. You want railroads to want to be at the meeting. You want to talk about opportunities. It’s about educating them on your needs.”

Rule #6: Benchmarking is an important part of preparation for negotiations.
“You have to demonstrate how your business is being put at a disadvantage in the marketplace by unfair rates,” he said. “This is much more effective than simply telling the railroad that your rates are high. Everybody says they have high rates. You have to prove that you have high rates.”

Rule #7: Establish goals for your negotiation. The more you want to generate rate decreases, the more proactive you’re going to have to be.

Rule #8: Think like salespeople, not buyers.

Rule #9: Develop relationships with people in a position to help you. Court politicians, associations, consultants, and attorneys. The more connected you are, the more invested the railroad is in keeping you happy.
“Railroads are faced with the fact that they have to make profit through the rate structure for your movements and to do that they have to maintain your volumes,” said Roman. “That means they’re going to have to compete more for your business.