If I Switch to Rail, Can I Make Money, or Do I Only Save Money?

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Abengoa_MautnerCompared to road or water transportation, a shipper might think that rail is a hard-to-control black box akin to dropping a letter in a mailbox and waiting—or a shipper might think that rail requires more hands-on management to keep the supply chain moving smoothly. But in either case, the shipper is left wondering whether rail is only a tool to save on freight expenses, or if it can actually generate increased revenues.

One of the Port Harbor Railroad’s customers found an answer to this question when it expanded shipping options to include rail as well as truck. Opened in 2009, Green Plains’ ethanol plant has become the Port Harbor Railroad’s largest customer, receiving corn and shipping both ethanol for use as motor fuel and dried distillers grains which are blended into animal feeds. Corn typically arrives by truck while DDGs and ethanol depart by rail. One more byproduct of the ethanol process is fuel-grade vegetable oil, and until 2012 Green Plains moved all of it by truck.

When Green Plains looked at the vegetable oil markets outside of the radius it could competitively reach by truck, it found that by switching to rail, the PHRR and its partner railroads could save enough over truck freight that Green Plains could sell a tank car of oil at a premium over the local market. It worked out to about $3000 in extra revenue per tank car compared to the old truck-direct options. On top of the extra revenue, since a tank car carries about 4 truckloads of oil, Green Plains is able to reduce the loading labor by 75%, saving an additional $300 per car—a total premium of $3,300 per car by switching to rail.

Green Plains found that rail opened up new market opportunities for its oil that it couldn’t otherwise reach with the traditional supply chain. In the future, Green Plains now has the flexibility to sell vegetable oil to whichever market presents the best price, whether by rail or truck—an option that was missing for the plant’s first four years. These new markets allowed for better product pricing in addition to cost savings. So that means the answer to our original question—can rail make me more money, or does it just save expenses—may actually be “Yes, switching to rail can help you increase revenue by opening up new markets.”