Demurrage charges – trust, but verify
The results were surprising to them: they found $14,000.00 of inaccuracies in one month.
Full disclosure: This shipper is one of our customers and they did solve their problem with our product. All the same, I think their experience will be a valuable one to you regardless of whether you are in the market for a system that estimates demurrage, already have a system or haven’t considered a system at all.
As one of the largest petroleum companies in the Northwest, the shipper does a lot of transloading. They get hundreds of railcar deliveries of ethanol and biodiesel from several major oil companies each month. Much of their transloading and service business is automated using state of the art systems. However, they lacked a system to manage inbound railcar shipments. As a result, they lacked visibility of what was happening to the railcars when they arrived at destination. As the consignee for many shipments, they are liable for delays where railcars sit on the railroad’s track beyond a given grace period (i.e. demurrage or private railcar storage). Much of the shipments are in supplier railcars, so they need to be vigilant in getting those railcars back to the supplier in a timely fashion or face detention charges.
In 2010, the company began searching for a tool to increase visibility and simplify management of their inbound rail shipments. They also wanted a record of when the railcars arrived at the transloading facility and when they were released back to the railroad after being unloaded to help them audit railroad demurrage and supplier railcar detention charges. Railcar Tracking Co.’s Railcar Management System (RMS)™ was enlisted to help.
Automated acquisition of tracking data and increased visibility
The first thing that RMS provided was an automatic way to acquire the rail shipment tracking data. RMS handles two types of data; CLM (car location messages) and waybills. RMS automatically captures and imports the waybills and CLMs. The system tracks each railcar, building a history and summary of each trip. After signing a one page authorization letter, the data stream was available the next business day. Some of the inbound shipment waybills didn’t list the company’s name as party to the waybill (PTW). Because of Railcar Tracking Co.’s RMS Data Services™, they were able to get visibility of these shipments while complying with the industry’s standard PTW security. By getting an additional letter of authorization from the supplier and through extensive waybill parameter filtering, RMS Data Services is able to provide very tailored data streams with high reliability. If you would like to read more about getting full visibility of rail shipments even if your company is not listed on the waybill, read this article.
Simplified management and significant cost reductions
RMS’ flexible report writer enabled the company to create reports that highlighted exceptions. These reports are automatically emailed to recipients on a scheduled basis as well. Since RMS stores all of the shipment data history including constructive placement date/time, actual placement date/time, order in date/time, and release date/time, reports are available for management to review the time the railcar sat on the railroad’s property at destination (constructive placement to actual placement) and the total time at destination (constructive placement to release empty). Through the creation and use of the reports from RMS, they were able to better identify demurrage calculation errors resulting in a $14,000.00 monthly reduction of demurrage costs. This is an amount that is well over what they are paying for RMS.
Another benefit to using a system that estimates demurrage is that it can help a company be more proactive; it can help identify railcars that are currently or about to incur demurrage.
So are you getting overcharged for demurrage and should you run out and purchase a system to audit the invoices right away? No. If you have large demurrage bills, perhaps consider doing a trial of a system that estimates demurrage and compare it to your demurrage bills and see for yourself if there is a problem. Most system vendors will allow you to trial their systems for at least a month for free or nominal fee.
Note: demurrage estimating systems may not always be able to accurately estimate all demurrage fees. For example, in a case with one of our other customers, they had a track leased with a short line railroad that serviced their facility. They were an “order in” customer, which meant that the short line didn’t try to deliver any of the arriving railcars until the customer requested them. Subsequently, all railcars were placed constructively (CP’ed or PCon’ed) immediately to record the beginning of the demurrage calculation, if a demurrage fee was levied. After the railcars reached the maximum grace period on the railroad track, they were moved to the lease track. From time to time, the lease track was too full. The short line was keeping a separate spreadsheet tally of which railcars would be included on a demurrage bill to the customer. Their operating system, the one used to record the CP/PCon, wasn’t sophisticated enough to handle this situation.
If you would like to learn more about how demurrage is calculated, take a look at this article. If have any comments or personal experience to share, please do so and start a conversation.
All the best,
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