Mon, Jul 11, 2016 08:20 AM
Car Hire 101:
A crucial, but poorly understood, aspect of Greenbrier's railcar management capabilities is our car hire processing business. Car hire occurs when an equipment owner “rents” out a railcar to be used by railroads, and the railroads then compensate the equipment owner based on factors such as time and mileage. This is an old practice dating back to the beginning of the railroad industry and has allowed railroads to make the most efficient use of capital equipment as it travels around the continent.
However, despite being an established practice, it is hardly a straightforward one. The unique nature of the railroad industry, with its constant exchange of equipment between many different companies that have varying levels of ownership and liability adds layers of complexity to the car hire business.
Often times, identifying the company that is responsible for cars at a specific time is unclear. Car hire rates are difficult to pin down as well, with different rates depending on time, mileage, and even what is being carried by the car. On top of all this, many companies find themselves on both sides of car hire transactions, “renting” out railcars to others in one area, while “borrowing” railcars for themselves in another.
AAR & Railinc Help Maintain Order:
To provide some order to this chaos, the American Association of Railroads (AAR) has worked over the years to introduce industry-wide rules and programs designed to streamline the process for participant companies like Greenbrier. Much of what these rules and programs aim to do is increase transparency and decrease confusion. One component of this is the Liability Continuity System or LCS, which tracks who is responsible for a railcar’s car hire liability at any given point in time.
LCS helps ensure that owners are not short-changed by gaps in time records and also provides a dispute resolution process for when there are conflicts over the equipment “rent”. Another such component of the business is the Car Hire Accounting Rate Master file, or CHARM. The CHARM file serves as a comprehensive catalog of different rates charged for mileage, time, and appurtenances. With these two tools, railcar owners and operators are able to piece together a large component of cars for which they are responsible, and how much they will be paying or receiving in car hire for them.
At the center of all this is Railinc, a central clearing house owned by the AAR, which simplifies the payment process by tracking the net amount of what a company is owes or is owed through their car hire business. Prior to this clearing house, companies like Greenbrier would have to settle each of its car hire transactions separately, paying one firm to hire their cars, and then potentially collecting from that same firm when it hires Greenbrier’s cars. Railinc substitutes all this back and forth with a single account of how much is owed to Greenbrier, and how much Greenbrier owes other companies. Greenbrier is then able to settle the balance directly with Railinc, eliminating needless back and forth transactions.
Car Hire Market Size:
These industry-wide efforts to simplify the car hire process have enabled rail industry to grow and thrive. To give an idea of scale, there are roughly 2 million pieces of railroad equipment that are subject to car hire and upwards of $4 billion is spent each year by the industry as a whole on car hire costs. With the average car hire transaction around $42, an estimated 95 million car hire transactions are processed annually.
Greenbrier's Prominent Car Hire Role:
Greenbrier is the largest 3rd party provider of car hire processing services, serving customers ranging from the Class 1 railroad space to operating lessors and shortline holding companies. Our technology and processes have been continually developed for more than a decade and are patented. Greenbrier’s expertise, technology investment, and economies of scale in this area helps our customers save time and money on car hire so that their resources can be more efficiently deployed elsewhere.