Contracting Rail Freight Services For Poultry Feed Ingredients Moving To The South

Southeastern integrated poultry firms consume large volumes of feed grains, at concentrated locations, continuously throughout the year. Recent legislation offers flexibility in contracting railroad freight rates and services which may be quite useful to improve the quality and price of feed grain delivery to southeastern poultry firms. However, southeastern poultry feeders have adjusted feed material storage and handling facilities to a railroad rate structure in which minimum possible freight and inventory cost is achieved by receiving 3-car shipments of corn and 1-car shipments of soybean meal. Consequently, for most poultry firms, larger delivery volumes necessary to achieve railroad rate savings with rail contracting are accompanied by increases in total handling and storage facility requirements and increased inventory costs. Increased inventory and facility upgrading costs must be compared with railroad rate savings anticipated with a contract. Before negotiating a contract, the user firm should determine the magnitude of facility upgrading and inventory expenses involved to establish the boundaries of rate concessions acceptable in a contract. This bulletin provides a method to evaluate the merits of railroad contracting for feed ingredient delivery to poultry feed mills, relative to existing delivery patterns and serves as an approach to prepare for rail contract negotiations.