How are freight revenue divisions currently agreed upon between interchanging railroads?

Is there a percentage/miles/formula, or are rates negotiated on a case by case basis?

Thanks in advance,

Matt Bumgarner

In the olden days, freight rates were strictly regulated and published. Interline, they were valid over specific routes.

If there were a published rate, it didn't matter which published route the shipper specified. My uncle sent some stuff via ...-WM-Durbin-C&O-... when the consignee wasn't ready to receive it right away.

The rate depended on the distance origin to destination usually via the shortest route. Rates were usually divided according to each road's mileage in the routing, with an extra share to the originating and terminating roads.

Phil Mulligan

Yes, I appreciate that. But how is it done in this day and age?

Thanks,

Matt

There is no set "standard" today for freight divisions on interchange movements. The only valid generalization today is that they are whatever the parties negotiate. In fact, many interline movements today don't involve "divisions" at all. Rather, each party to the movement sets and collects its own rate for its portion of the movement (called "Rule 11" rates, after the AAR rule that covers this arrangement).

Another common interline arrangement today (particularly with short lines) is a "handling carrier" arrangement. In this scenario, the short line doesn't make the rates the shipper pays, or divide interline revenues with its connecting line haul road (typically a Class I). Rather, the Class I makes the rates with the shipper for interline traffic to/from the short line points and collects the revenues from the shipper. The Class I pays the short line an agreed "handling carrier" charge (much like a switch charge) for the traffic the short line handles.

There are a couple of relatively recent threads on the Trains.com forum that address this subject in some detail. See "General Discussion" threads entitled "Revenue on rail shipments - interline" (2021) and "How is the line haul rate for interchange set?" (2018).

Thank you!

That is exactly what I am looking for.

Matt

I have a large collection of Division Sheets, actually books, detailing how rates were divided over certain routes, mainly routes with one end in the NorthEast of the U.S. of A. I also have a duplicate of about half the set.
Is there any responsible organization that would like them, so they can be available for answering this type of question in the future? Sometimes, they can answer the question about why traffic moved over certain junctions and not others.

Division sheets between railroads were private. The ICC had no oversight when it came to dividing up freight revenues. I was involved with Michigan Northern, one of the April Fool's Day startups in 1976 (Conrail was another). We inherited the rates, routes and divisions of our predecessor, the Penn Central, ex-PRR, nee-Grand Rapids & Indiana. Since we were an overhead carrier, connecting the Eastern and Western Territories via the car ferry Chief Wawatam at Mackinaw City, a gateway for rate purposes, we needed copies of the division sheets to confirm how much was our fair share. We made requests which the older railroads honored once they confirmed we were what we said we were. Some of the division sheets had a musty smell with the division percents written in a Spencerian hand.

Well, yes and no . . . I agree divisions were indeed a matter of negotiation between carriers and were not published for public use. But while the ICC was generally loath to get involved in division disputes, they could and did. Even with deregulation, that authority has carried over to their successor, the Surface Transportation Board. Section 10705 of the ICC Termination Act states specifically:

The Board may, and shall when it considers it desirable in the public interest, prescribe through routes, joint classifications, joint rates, the division of joint rates, and the conditions under which those routes must be operated, for a rail carrier providing transportation subject to the jurisdiction of the Board under this part.

Carriers have always had trouble dividing up the pie, one unfortunate result being the abandonment of through pricing and a proliferation of "Rule 11" rates where each railroad publishes their own price to and from junctions. We are seeing more and more of that.

Alan Maples
Everett Railroad

STB may technically have "authority" to prescribe divisions, and the ICC (its predecessor) used to have elaborate divisions "prescriptions". But all of these prescriptions were vacated long ago following enactment of deregulatory legislation (chiefly the 1980 Staggers Act). Divisions today are established by negotiation (or in the case, of Rule 11 rates or "handling carrier" arrangements, aren't even necessary).

The vast majority of smaller short lines and "newer" ones, generally are "handling" settlement operated. This way CSX /NS control the revenue directly.

I maybe be wrong, but doesn't it also depend on who originates the load? IE if you receiving loads that you will ship back empty, this shortline has less control vs if it is a load that you orignate.

If a true interline arrangement- "Originating carrier" is effectively controlling price+ being the point of marketing and customer service, and moving the load on their system, then effectively hiring out the rest of the move to UP then CSX etc. The shipper may or may not see a rate division or "actual costs" as they are all marked up.

Also different shippers will have different ways of handling routing. IE letting the RR decide or doing it themselves.

Don't forget thinking through how you will source freight cars

Rule-11 are typically reserved for the most powerful shippers who have the clout to negotiate with each carrier. Our software does this very well...and we de see a lot of it.

but there is a curious condition that has been seen with Canadian Lumber rates. There is the r-11 to the junction plus a surcharge depending on the other side of the junction. Each carrier knows the route and destination so this is possible to do.