Presentation on theme: "Car Hire The Hidden Expense ACACSO – Tempe, AZ November 12, 2010 Lynn Brown LB Rail Consultant, Inc."— Presentation transcript:
Car Hire The Hidden Expense ACACSO – Tempe, AZ November 12, 2010 Lynn Brown LB Rail Consultant, Inc.
2 Agenda Hidden Expense ?? What is Car Hire and how does it apply to my carrier Car Service Rules/Car Hire Rules Car Hire Payments and LCS Deprescription Time/Rate Claims Reclaim Process / Verification of Reclaim - Counters Counter to Counter Reclaim Process Transfer of Liability (TOL) Railroad Clearing House (RCH) and Car Hire Settlement Terms, Acronyms and Forms
3 The Hidden Expense Education and Understanding Rules Accounting Issues Process Delay in computing the expense on a monthly basis Operating Process Customer Interaction
4 What is Car Hire? Rent that an equipment user pays to the equipment owner for use of their equipment. Payment of car hire is intended to encourage efficient utilization of equipment when it is in the control of another Railroad. Depending on the type of equipment, car hire can include hourly (per diem), mileage and/or appurtenance components. Cost of equipment and Maintenance Car Hire is due and payable 24/7, 365 days a year. Payment records CHDX Hours and Rates LCS and CHARM Car Hire is not to be suppressed
5 Do I, as a carrier, have to pay car hire? Regulations and Rules OT-10 Circular Subscribing Railroad Car Service Rules Car Hire Rules The Official Railway Equipment Register Car Hire Definition Equipment user pays the equipment owner for the use of their equipment
6 Car Service Rules and Car Hire Rules Car Service Rules The Car Service Rules define how equipment is to be managed when on a railroad. As an example, the car service rules define interchange requirements, how to establish embargoes, when to reverse route cars, etc etc. Car Hire Rules Car Hire rules were established and published in the OT-10 to govern payments and receipt of monies exchanged for the use of Railroad equipment. The rules determine the obligation that an equipment user has for the payment for use of the equipment to the equipment owner.
7 Car Service Rules Rule 7 Interchange of Equipment Rule 16 Assigned Equipment
8 Car Hire Rules Rule 2 Calculation of Hours and Mileage Rule 3 Reporting Procedures and Record Retention Payment Requirements Rule 9 Liability Continuity System (LCS) Logic Rule 11 Time/Rate Claims Rule 13 and 14 Time Limits for Processing and Deduction of Reclaims
9 LCS and Car Hire Settlement Liability Continuity System (LCS) Was developed to create the official interchange record for car hire settlement. LCS analyzes event date to establish continuity, identifies illogical or missing interchange records and creates valid default records or corrects the erroneous records Based on Industry approved logic Liability for car hire payable is based on the logic of the LCS program Payments, reclaims, TOL based on LCS
11 LCS Logic Verified Interchange – Both carriers report interchange time within the same interchange hour Matched Interchange – Both carriers report interchange time but there is a difference in the interchange hour by at least one, but not more than 4 hours. Delivery hour is used. Matched Interchange – Both carriers report interchange time, however there is a difference of more than 4 hours. LCS interchange time is the result of dividing the time difference by two. Unmatched Interchange Delivery/Receipt – When only one interchange record is received, LCS interchange time is based on the interchange record received, either the delivery or the receipt record. One Road Interchange – Based on agreement between the carriers, one carrier’s interchange times are always used, either delivery or receipt.
12 LCS Logic – GAP Record Interchange record created by LCS because of missing interchange records No interchange records have been received by either carrier Continuity was established on both carriers but no interchange, ID or IR, was received by Railinc Continuity is established when three records, not interchange, are received by Railinc LCS creates interchange based on default logic Liability for car hire is transferred between the carriers based on the gap logic Correction of erroneous payments based on GAP records are handled manually between the two carriers
13 Car Hire Payment Interchange time of equipment sent to Railinc LCS Logic Process - official interchange or transfer of car hire liability Forward official interchange time to delivery and receiving carrier and equipment owner Respective Carriers determine car hire payable Based on the LCS interchange times Based on hourly and mileage rates from CHARM Submit data, through the use of CHDX to Railinc, for settlement with car owners
15 Deprescription Market-oriented approach to setting car hire rates Implementation was effective January 1, 2003 Relies on negotiations between owners and users to negotiate rates Past practice was a prescribed formula set by the STB Hourly and mileage rates are applicable on RR marked cars Different rates between different parties based on value of equipment RAIL-CARDS RAIL Car Accounting Rate Distribution System Central computer system to facilitate car hire negotiations and record rate agreements in the CHARM files. Must use RAIL-CARDS system in order to be recorded in the CHARM file. Prescribed Cars Grandfathered box cars, Private-marked cars, and appurtenances Market Rate Cars Any car other than prescribed cars
16 Deprescription Agreement Types – Rates Default rate Assigned to all market rate cars Established based on the previous quarter’s lowest negotiated rate for the type of equipment Market Rate Cars Market Rate Agreement with no specified conditions Spot Market Rate Agreement for a specific period of time Special Market Rate Agreement that contains special considerations or provisions Prescribed Cars Bilateral Agreement with no specified conditions Spot Bilateral Agreement for a specific period of time Special Bilateral Agreement that contains special considerations or provisions Effective dates and Expiration dates Date to be activated and added to the CHARM file Date is always the first day of the month of the activation Expiration is the last day of the month prior to the effective date if no date is noted If date is noted, it must be the last day of the month of expiration
17 Time/Rate Claims Claims are invoices issued by the car owner to the car user where the car owner has not been paid in full for the use of its equipment. Claims can be issued for a shortage in hours, miles and for payment of car hire at an improper rate. Claims can be issued after 3 months and within 5 months of the last day of the month the car hire was earned Issued for amounts over $25.00 No time limits on resolution Claims have no connection to any reclaim rule or provision
19 Reclaim Process Reclaims are specific conditions that allow the user of equipment to be reimbursed for car hire paid to the owner of the equipment Industry Rules Rule 4, 7, 8, & 22 Time limits apply Special Agreements Agreements between two carriers, a shipper and a carrier, or a car user and the car owner No time limits unless specified in the respective agreements Car hire must be recorded/paid to the car owner before any reclaim is valid Reclaim may net zero the payment if the reclaim is issued to the owner of the equipment Car hire amount paid would be reimbursed to carrier submitting the reclaim if the owner of the equipment is not the carrier receiving the reclaim
20 Reclaim Process Determine if equipment qualifies for a reclaim Industry Rule or Special Agreement Industry Rule – does not need any written agreement Special Agreement – written signed agreement is required Determine the amount of the reclaim to be submitted Limit on Hours Submit data, through the CHDX process, to the appropriate carrier or owner Payment of reclaims are electronic and paid upon remittance of the car hire report – Appendix H
22 Reclaim Validation A carrier receiving reclaims has the right to verify reclaims being submitted to them Includes all types of reclaims Reclaims that are not honored by the carrier receiving the reclaims are noted as a Counter Reclaim Payment of counter reclaims are electronic and paid upon remittance of the car hire report – Appendix H
24 Car Hire Payment vs. Reclaims Car Hire and Original Reclaims are related only for the purpose that car hire must be paid before a reclaim is valid Both car hire and original reclaim payments and deductions are handled electronically and are payable on demand Counter reclaims also are handled electronically and are payable on demand
25 Counter to Counter Reclaim When issuing carrier’s reclaim has been declined by receiving carrier, this is a counter to counter reclaim Resolution of a counter to counter reclaim is a manual process between the two parties Request for Payment – Appendix N Prepared by issuing carrier with documentation and details to support reclaim Forwarded to the receiving carrier for review Discussion between the two parties is done for resolution of the counter to the counter Payment, if determined, is made through the car hire process – Appendix H One line adjustment
27 Transfer of Liability - TOL Established to allow a delivering carrier to transfer responsibility of car hire to a receiving carrier Car Hire Rules 5 and 15 Rule 5 – Switching Car Hire Expense Recovery Maximum of 120 hours Reciprocal customers Reported electronically to Railinc/Time limits for reporting Within 30 days from the date that switching service is complete Failure to report within the time limits will forfeit any TOL Rule 15 – Cars Not Accepted When Offered When interchange can not be accomplished to the receiving road Reported electronically within a set procedure Procedure must be followed or no TOL will be made Rule is final
28 Car Hire Settlement and Railroad Clearing House (RCH) Car Hire Settlement Based on the Appendix H submitted by the carriers to the owners of equipment Includes both payment for equipment and any reclaims or adjustments Owners of equipment can also submit Appendix H to carriers Counter to Reclaims Reported within one (1) month and ten (10) days from the last day of the month in which it is earned Payments are due and payable upon the receipt of the car hire reports (Appendix H) When two Appendix H’s are received from both the carrier and the owner, the amounts will be handled in a netting position Amounts owed handled by various methods
29 Car Hire Settlement and Railroad Clearing House (RCH) What is the Railroad Clearing House (RCH)? Central agency to administer and transfer funds between participating carriers Administered by the Railinc Corporate Services Division Designed to handle fund transfers between carriers Interline Freight Settlement Car Hire Start July 2008 Earned Month Car Repair Billing Interline Switching Settlements (ISS) 137 roads participate Funds are immediately available Reduces the number of transactions Eliminate declined drafts Offsets allowed
30 Car Hire Settlement and Railroad Clearing House (RCH) How will RCH work for Car Hire settlement? Car Hire Data Exchange (CHDX) information will be used for settlement Appendix H data will not be used for settlement Single Sign On (SSO) Website Secure site to get information – CHDX and RCH Monthly Settlement Process RCH Determines Net/Net Positions Carriers notified on the 19 th of the month or first business day thereafter Carriers required to wire funds by 11:30am on the 21 st of the month Central Bank - Wachovia Bank, N.A. and Bank of Montreal If carriers can not pay, there is a short settlement Interest and penalties can be assessed Negative Payable Tolerance Table Established limits of exposure for negative net/net amounts Established between the respective carriers and car owners Counter to reclaims are one factor for a negative payable amount
31 Car Hire Settlement and Railroad Clearing House (RCH) Negative Payable Tolerance Table Initially set dollar limit to zero Increase dollar value to acceptable amount Based on experience, history of any negative activity and the carriers acceptable risk tolerance levels Allows negative car hire amounts to be included in the net/net process up to the limit set by the carrier Allows for the system to work Settlement arrangements can be made outside RCH with agreement of both parties If negative payable report to carriers exceeds the amount set, settlement will be handled manually Amounts are by individual carriers and can be modified or changed monthly Changes to be made before the 11 th of the month due for processing Why? Counter to a reclaim submitted Deductions on car hire previously deducted in error
33 RCH Benefits No differences between Appendix H reports and CHDX More timely and complete settlement of car hire Process simplification Eliminates the need to balance Appendix H with CHDX details Reduction of transaction and labor costs Settlement takes place on a set date with RCH sending money to companies in a receivable position Treasury functions benefits Shortens the settlement window and eliminates reported car hire going to a past due status Companies in a receivable position will get their payments quicker Participants in the CHDX that are not participating in RCH will be subject to a $5.00 per cycle processing fee.
34 Terms Appendix H – Summary of Amounts due for Car Hire of Freight Cars, Trailers and Related Costs – one page summary furnished by each car hire payable carrier Appendix N – Details of Amounts due for Car Hire. Also, Request For Payment Bi-lateral Agreements – Agreement between two parties that can be applied to specific cars, location with some type of terms Car Hire – Rent that an equipment users pays to the equipment owner for the use of their equipment. Car Hire Data Exchange (CHDX) – monthly exchange of time and mileage payment information. Data can be downloaded from the Internet, sent via electronic tape or on paper. Car Hire Rules – Rules determine the obligation that an equipment user has for the use of the equipment to the equipment owner. Car Owner – The owner of a car is considered to be the entity that has been assigned, by the AAR, the reporting mark that is stenciled on the car. Car Service Rules – Rules define how equipment is to managed when on a railroad. Car Hire Accounting Rate Master (CHARM) – Official source of car hire rates for all equipment registered in UMLER. Claims – Invoices issued by the car owner to the car user where the car owner has not been paid in full for the use of its equipment. Circular OT-10 – Operating Transportation (OT) circular 10 covers the rules surrounding the Code of Car Service Rule/Code of Car Hire Rules. Deprescription – Used to describe how car hire rates are set. Also used to refer to the entire body of rules that govern car hire, etc. Earned Month – Term used to identify which month car hire earning are associated with. Also, Service Month. Electronic Data Interchange (EDI) – The process of exchanging data electronically via a communications network in a pre-defined standardized format. Foreign Car – Any car not belonging to the particular railway on which it is running. Interchange – The exchange of equipment between two railroads at a specific junction point shared by both roads. Hourly Rate – Payments made to equipment owners for the use of the equipment based on a hourly rate or per diem. Interline – Moves of traffic involving more that one carrier.
35 Terms Interline Settlement System (ISS) – Computer software running at a central site, Railinc, to process settlements between interline carriers. Intermediate Line – A railroad handling a freight car from one railroad to another without loading or unloading the freight car and such road does not participate in the freight rate. Liability Continuity System (LCS) – System to analyze event data to establish continuity. Mileage Rate – Payments made to equipment owners for the use of the equipment based on a rate per mile. Official Railway Equipment Register (The Yellow Book) – Provides the most detailed information available regarding equipment, ownership, junction points, etc. Private Marked Equipment – Railroad equipment that is owned by an entity other that a railroad. Initials end in an ‘X’. (TTX Equipment is not considered a private marked equipment.) Railinc – For Profit wholly-owned subsidiary of the AAR. An Information technology company whose mission is to be the provider of communication services to the transportation industry. Reclaims – Specific conditions that allow you to be reimbursed car hire payment based on industry rules or special agreement. Reported Month – Term used to define as the month that the activity is reported in. Also, Allowed Month. Reporting Mark – Two to four alpha character assigned by Railinc to identify interchange equipment. Also identifies the entity which car hire receivable are report to. Railroad Marked Equipment – All equipment that bears a reporting mark assigned by the AAR to a railroad. System Car – A railroad freight car that is owned by the railroad that operates it. Tele Rail Automated Information Network (TRAIN II) – Database which contains movement events, waybills, car hire transfer liability records on all rail equipment. Data supplied by railroads and equipment owners to Railinc, which then processes the information. Transfer of Liability (TOL) – Established to allow a delivering carrier to transfer responsibility of car hire to a receiving carrier TTX – Company that operates a national pool of flatcars, boxcars and gondolas. Uniform Machine Language Equipment Register (UMLER) – Database of information, car specifications, about railroad and intermodal equipment. Zero Rated – Car Hire rate that is equal to zero.
36 Acronyms and Forms AAR – Association of American Railroads ACACSO – Association of Car Accountants and Car Service Officers BFO – Best and Final Offer CHARM – Car Hire Accounting Rate Master CHDX – Car Hire Data Exchange CMA – Commercial Marketing Agreement EDI – Electronic Data Interchange FSAC – Freight Standard Accounting Code I/C – InterChange ISS – Interline Settlement System LCS – Liability Continuity System ORER – Official Railway Equipment Register RCH – Railroad Clearing House TOL – Transfer of Liability TRAIN – TeleRail Automated Information Network UMLER – Universal Machine Language Equipment Register Forms Appendix H – Summary of Car Hire Appendix N – Summary of Reclaims Detail of Reclaims
37 Example of Appendix H – Car Hire Summary Report
38 Example of Appendix N – Statement of Reclaim Note: Separation of the various categories of Payments included On Appendix N is mandatory. However, the specific format illustrated Is not mandatory, but is subject to individual road manual and computer Preparation preferences.
39 Example of Appendix N – Detail of Reclaim
QUESTIONS ?? Lynn Brown – President LB Rail Consultant, Inc