The question came up to clarify a little bit about railroad revenue and billing, in particular with short lines. First, I should make it clear that by ‘revenue’ I mean how the railroad gets paid and by ‘billing’ that means how the railroad creates Bills of Lading (BOL)and/or Waybills.
There are basically five types of revenue payments, but to make it confusing I’ll describe six. Some railroads, like the Class 1s and 2s, can actually have all six depending on the movement. Most Class 3s (short lines) only have one or two, but there are exceptions, as always.
1. Interline. This is also called ‘waybill’, ‘full route’, ‘ISS’, and probably other terms that I can’t think of this early. This is where a railroad receives a division of the freight rate, and they can set their own rate. There are about 100 Class 3s which are interline, mostly older lines. In a prepaid move the first interline road is responsible for issuing the freight bill, in a collect move the last interline road does. The first interline road is also responsible for receiving the BOL and creating the waybill. The customer paying the freight bill
2. Junction Settlement. This is mostly common in the east, and CSXT likes to have their connecting short lines setup this way. Here the short line gets a percentage (or division) of the total freight rate, but that percentage is just between, for example, CSXT and the connecting short line. Usually the Class 1 sets the rate the short line gets, but not always. The Junction Settlement charge is included as a separate charge on the freight bill. Confusingly, jct. settlement is also sometimes called switching.
3. Switching. Here, the short line gets paid by the connecting Class 1, but the short line can set their rates. This is usually older and smaller short lines, but it can also be a Class 1 on behalf of another Class 1. There’s also what are called Reciprocal Switching Districts, where there’s one rate agreed on between Class 1s (sometimes Class 2s), these are usually in big cities.
4. Handling. This is the most common method, especially for post deregulation short line spin offs. Here the short line is paid by the connecting Class 1, and the Class 1 sets the rates. Handling line carriers are a type of switching, and are often called switching too, but I’ve differentiated between them because of the difference in who can set the rates.
5. Haulage. This is a bit complicated, but basically railroad A pays railroad B to move cars for them. These are negotiated rates between the two roads, but the shipper (or whomever pays the freight) doesn’t know that railroad B is actually moving the cars, or what the rate is. These rates can be ‘normal’ per car rates, or they can be ton mile, train mile, or almost anything else you can think of.
6. Rule 11. This is technically a variation of interline. It refers to RR accounting rule 11 (creative accountants) which allows for one or more interline roads in a route to keep their rate secret from another road or roads in a route. In this case the customer will get more than one freight bill. You often see this on lumber movements where there will be one freight bill for the western lines and then a second one for the eastern lines. If you see an older waybill that says, “Prepaid Chicago, collect beyond”, that’s what this means. The freight bills can all go to the same freight bill party, or they can go to different ones.
So, just to confuse you, I actually lied. There are really only TWO kinds of revenue – interline and switching. However, I think it is important to know of all the different kinds of ways that switching revenue can actually work.
Billing, by which I mean waybilling, is then very closely related to how the revenue works. There are four main documents when it comes to billing.
1. Bill of Lading – this is the document that the shipper prepares to give to the carriers to get them to move the shipment. It will specify route, price authority (tariff or contract), and all the obvious stuff like destination, weight, etc. Most shippers create these using the railroad’s websites, but some can send it via Electronic Data Interchange (EDI).
The EDI message type for a BOL is a 404. Sometimes, mainly on the eastern lines, especially CSXT, the short line will actually act on behalf of the shipper and send the BOL for them. It makes it look like they’re sending a waybill, but technically it would be a BOL since only interline carriers send waybills. The BOL is sent directly to the first interline carrier in the route.
2. Transportation Waybill – It used to be (about 10 years ago there was a major revision to the RR accounting rules) there was only one kind of waybill, which is why interline carriers were also called ‘waybilling’ carriers, since only interline carriers showed up in a waybill route and got a division, etc. Now, all carriers are supposed to be in a waybill route, and each carrier shows a role code which denotes what kind of revenue they get. The transportation waybill doesn’t show what the rates or divisions are, but it should show the price authority and other rate conditions like weight, count, etc.
The EDI message type for a waybill is a 417. This is sent by the first interline carrier to Forward & Store (called RRWS technically) which is a central waybill clearing house. Forward & Store will then send copies of the waybill (electronically, of course) to all the other interline roads in the route. The connecting road is responsible for sending the 417 message to any switch carriers.
3. Revenue Waybill. In the revenue waybill only the interline roads show in the route. The revenue waybill also has, of course, all the rates and divisions. Again, only interline carriers get to play with revenue waybills. The process of settling the through freight charges on a revenue bill is VERY complex and is called ISS.
The EDI message type for a revenue waybill is a 426. They’re all sent via a central system (ISS) and are not sent directly between carriers. On Rule 11 movements there is one through revenue waybill (called the parent), and then a separate revenue waybill for each of the separate divisions, or the child.
4. Freight Bill. This is the invoice sent by the carrier to the customer. It looks a lot like a waybill, which is why I include it. The EDI message type is a 410, although they still mainly use paper for freight bills.
Clear as mud, I’m sure, but this is taking about 200 pages of rules and putting down in a ‘short’ summary. Any questions? Bueller?