Getting the Most Out of Your Railcars

Am I Getting the Maximum Return on My Railcar Investment?

“Maximum” return for a railcar investment will never be as simple as hours in the month times a standard rate. The rules that govern Car Hire, the economy, the railroads using the asset, official data distribution, payment distribution, collections and other factors that affect the payments you receive are constantly changing. Therefore, as an equipment owner, your assessment of your equipment management strategy must be ongoing.

Here are some questions you may want to ask yourself each month. The answers to these questions will help you decide if you are getting a maximum return on your investment.

Are my cars being fully utilized?

This is an easy step in determining your satisfaction with the return you are receiving. Add your paid hours and your reclaim hours to get the number of hours reported for the usage of your equipment. This number divided by the potential hours (hours in the month) multiplied by one hundred will yield your utilization percentage.

A utilization percentage greater than one hundred is rare but does occur. This is due to an error in reporting and corrections are usually made in the following months. Any payment received based on this erroneous data will be netted out of future payments.

You should expect a very high utilization percentage rate nearing one hundred percent although other factors will reduce your Car Hire Receivables payments.

Are the unreported hours valid?

You should see a number of unreported hours that is around one percent of the potential hour figure. These missing hours are usually due to minor differences in the reporting times among the paying roads. Any large difference is most often due to a road not reporting its usage or an error in the reported data. Large differences are unusual but missing or errant reporting means lost revenue therefore it is absolutely necessary to verify all reported equipment usage figures.

Are the reported rates correct for each road?

The largest concern here is the roads that are “paying” zero rates for your equipment. Since you control the agreements that govern the zero-rate allowance care should be taken that roads comply with the agreements.

Otherwise, care must be taken in the management of the data roads use to calculate the rate at which they pay for usage. Large revenue loss can be experienced if an incorrect rate is used in the calculation of car hire payments. It is the owner who is ultimately responsible for the correct rate being published.

Are the reclaims issued against my reported usage valid?

The reclaim hour amount should also be near the one percent range for well managed equipment. Although larger numbers may be valid the reclaim amounts should be closely monitored. This requires a thorough knowledge of the agreements in place for your equipment as well as the historical reclaims reported for the equipment. All unusual reporting should be fully investigated both for the loss of revenue as well as preventing a precedent being set.

Did I receive full payment for the use of my equipment for the current month?

This component is very easy to check. Simply compare amount due with amount paid. The complexity here comes with the paying roads themselves. If a paying road is a Railroad Clearinghouse participant, the payment should be made with the RCH settlement. Non-participant roads will submit payment directly.

It is impossible to give a guideline on this amount as all equipment usage cycles are different. Each paying road will establish a pattern of payment and knowledge of such patterns is required to decide if the current month’s payments are acceptable.

Did I receive payment for any previous month’s outstanding balance?

This amount is a direct indication of how well your account is being managed. It is quite common and acceptable for non-RCH roads to wait until the following month to pay the Car Hire amounts reported in the current month. Also any claims generated will fall outside the RCH area and will be handled through your AR billing. Accounts greater than thirty days past due are usually only paid after contact is made with the payee.

Zero or near-zero payment amounts for previous month’s outstanding balances could be an indication of the following problems:

° Insufficient management of unpaid balances
° Lack of claims being generated on your behalf
° Reclaims accepted without proper scrutiny

Careful review of your Car Hire Receivable process should be performed if this situation exists

Everyone’s comfort level for their Car Hire Receivables return on equipment investment is different. Hopefully the questions posed here will prompt a careful evaluation of your current Car Hire Receivables process.

If you have any questions please do not hesitate to call RailWatch at (404) 228-2915.