Deprescription - Frequently Asked Questions (FAQ)
Below is a listing of frequently asked questions and definitions pertaining to car hire and deprescription. The information below is only a summary overview of each topic. For complete information, please refer to the official publications of the Association of American Railroads (AAR) including Circular OT-10 and the Deprescription Master Business Rules.
Why should I hire an expert to represent my railroad in negotiation?
What if our railroad is adding cars to the fleet?
How does a car become "deprescribed?"
How do I get market rates on my freight cars?
How can car hire deals be structured?
What can happen if I do not respond to an offer my railroad received from another railroad?
Does this apply to my railroad?
Does deprescription apply to TTX and Private-marked equipment?
What is a "grandfathered" boxcar?
Does this process apply to appurtenances?
What is the significance of January 1, 2003?
Is car hire and deprescription still regulated by the U.S. government?
How can I manage this process?
"Deprescription" was the term used to describe the end of the era of ICC prescribed car hire rates. Historically, car hire rates were set by the ICC based on a mathematical formula. Proponents argued that the formulaic approach was not working.
Under the ICC's deprescription order, railroads have the ability to negotiate car hire rates on railroad-marked freight cars. Negotiations are conducted between owning (of a specific freight car) and using railroads. Deprescription became effective on January 1, 1994 and replaced the prescribed formulaic approach that computed car hire rates.
Under the deprescription order which mandated a 10-year phase-in, railroads could deprescribe up 10% of their existing fleets per year over 10 years. Full implementation of deprescription occurred on January 1, 2003.
When a car has been properly deprescribed through AAR requirements, owners or users may negotiate the loaded and empty hourly and mileage rates of deprescribed freight cars.
Bilateral negotiations of car hire rates are confidential and maintained by the AAR's CHARM file.
Why should I hire an expert to represent my railroad in negotiation?
Car hire rate valuation is a complex exercise. Knowing the appropriate car hire rates to offer requires in-depth knowledge of the specific freight cars at issue. This is critical to assess market rate value. There is no "blue book" values, nor should there be.
Most small railroads either receive to little or pay too much in the way of car hire rates. This mainly due to their lack of internal resources available to dedicate to this area, and accordingly, lack of experience.
As your agent, we thoroughly analyze and plan your car hire strategy. We represent your railroad in negotiation (which is typically person to person), and ensure you receive and pay optimal rates on freight cars.
In short, we have the experience to get a better rate than you can.
What if our railroad is adding cars to the fleet?
Car hire rates should be an immediate consideration if you are adding new or pre-owned freight cars to your fleet. Rates can be negotiated on pre-registered cars ensuring their earning potential on day one of service. Understanding car hire rates on the specific cars at issue should be one of the critical factors in your decision to purchase railcars.
How does a car become "deprescribed?"
As of January 1, 2003, all railroad-marked freight cars are deprescribed except Grandfathered Boxcars and Private/TTX Cars.
How do I get market rates on my freight cars?
Market rates are processed through the AAR's central computer system called RAIL-CARDS in the form of bids and offers. Either owners or users of freight cars may initiate negotiations.
Bids/offers must be communicated to the AAR via Mainframe to Mainframe, Electronic Data Interchange (EDI), or AAR and third-party web-based applications.
Offers are formulated with homogeneous car types or mechanical designations. Up to 1,500 cars may be included in a single offer.
Recipients may either agree to or counter original offers. While the RAIL-CARDS system is the official method of transacting rate negotiations, most negotiations are conducted by phone by designated deprescription agents.
How can car hire deals be structured?
MARKET OFFER - An offer made on deprescribed equipment with no specified conditions or qualifiers attached to the rate, except for the optional effective and expiration dates.
SPOT MARKET - An offer made for a specific period of time, usually of short duration on equipment that has been deprescribed. Spot market offers must contain an effective and expiration date and both parties must agree that the rate offer is a spot rate offer. Upon expiration, the car hire rate reverts back to the rate in effect before the spot was effective.
SPECIAL MARKET - An offer made on deprescribed equipment that contains special considerations that affect the amount paid for car hire. Adjustments to the car hire rates for settlement purposes are accomplished through the reclaim process. Rate agreements with special conditions must be structured as a special market agreement to ensure proper reporting in the market data reports.
BILATERAL*- An offer made on prescribed equipment with no specified conditions or qualifiers attached to the rate, except for the optional effective and expiration dates.
SPOT BILATERAL* - An offer made on prescribed equipment for a specific period of time, usually of short duration. Spot Bilateral offers must contain an effective and expiration date and both parties must agree that the rate offer is a spot rate offer. Upon expiration, the car hire rate reverts back to the rate in effect before the spot was effective.
SPECIAL BILATERAL* - An offer made on prescribed equipment that contains special considerations that affect the amount paid for car hire. Adjustments to the car hire rates for settlement purposes are accomplished through the reclaim process.
*Applies only to grandfathered boxcarsThe default rate (or base rate) is the loaded/empty hourly and mileage rate applied to a deprescribed freight car in the absence of a rate agreement between the owner and user of the car. Default rates are determined in two ways:
Voluntarily Deprescribed (Cars built prior to 1993). The default rate for voluntarily deprescribed cars is the car's previous prescribed car hire rate.
Automatically Deprescribed (New cars or cars built or rebuilt under OT37/Rule 88 requirements beginning January 1, 1993) The default rate is determined by the lowest negotiated positive loaded hourly rate and the lowest negotiated positive empty hourly rate in effect for that car type at the end of the previous quarter, and their associated loaded or empty mileage rates. Default rates for automatically deprescribed cars are published in a table by the AAR and can be found on their web site.
Default rates are based on the four digit Car Type Code. If no negotiated rates exist at the four digit Car Type Code, then on three digit Car Type Code; if none, on two digit Car Type Code; if none, on one digit Car Type Code.
When a newly built car or a pre-registered car is added to UMLER, the default rate is assigned and will appear on the CHARM file for the next month. For negotiating purposes, the default rate is available as soon as the car is added to UMLER. Except for specific cases, the default rate will remain with the car for its life.
What can happen if I do not respond to an offer that my railroad received from another railroad?
Failure to respond to bids or offers may result in calls to best and final offer and possible requests for car hire arbitration.
Offers remain active for 45 days. Unless counteroffers are submitted by either party, offers expire after 45 days.
Calls to best and final offer may be requested by either party at any time after an original offer is tendered. Best and Final Offers (BFO) must be submitted within 28 days of the call.
If you do not respond to a call to best and final offer, the RailCards system will automatically insert the current default rate as your BFO. If arbitration is requested, you must defend your BFO, and in this case it would be the default rate.
When negotiation fails, either party may request binding arbitration after best and final offers have been submitted. (Refer to Rule 25, Paragraph C, of the Code of Care Hire Rules for a detailed explanation of the final and binding arbitration procedure.)
Arbitration is baseball style--rates of one party or the other will prevail. Mediation by the arbitrator is not permitted. The process is an "expedited docket" item and requires only 90 days from start to finish.
Initial arguments due in 30 days
Replies to initial arguments within 60 days
Final decision from arbitrator due within 90 days.
Settlements between parties can be made any time before the final decision is rendered by the arbitrator.
At the conclusion of an arbitration proceeding, the American Arbitration Association will notify the AAR of the arbitrator's decision. The AAR will update CHARM with the arbitrated rates effective the first of the month after notification to the AAR. Rates are stored as arbitrated rates for one year in CHARM, after which these same rate values will convert to Market Rates and stay in place until renegotiated.
Does this apply to my railroad?
If you subscribe to the AAR's Code of Car Hire Rules, yes.
Does deprescription apply to TTX and Private-marked equipment?
No. Deprescription does not apply to TTX or any other private-marked equipment.
What is a "grandfathered" boxcar?
The term "grandfathered boxcars" refers to the select fleet of boxcars owned by the Class III carriers as of December 31, 1983 that were exempt from the deprescription order. (ExParte 346 Sub. 19)
Car hire rates for Grandfather Boxcars are "frozen" at the rate levels in effect on January 1, 1986.
Does this process apply to appurtenances?
Appurtenance (automotive rack) rates are not regulated or prescribed by the STB. These rates may be found in Appendix S, Code of Car Hire Rules, published in the Official Railway Equipment Register. Since the owner of an appurtenance may not always be the owner of the underlying flat car, unique rules apply.
In short, railroads may, but are not required to, negotiate rates on appurtenances. Car hire rule 25 does not apply.
What is the significance of January 1, 2003?
January 1, 2003, marked the end of the 10-year phase-in period of deprescription. On that date, all railroad-marked freight cars with the exception of certain "grandfathered boxcars" were automatically and permanently deprescribed and subject to car hire rate negotiations.
On January 1, 2002, 45% of the North American railroad-marked fleet remained prescribed.
Is car hire and deprescription still regulated by the U.S. government?
Yes. While car hire rates are no longer "prescribed," the process of car hire compensation is still regulated by the U.S. Surface Transportation Board.
How can I manage this process?
Deprescription and Car Hire Compensation are manageable processes. By developing a strategic plan to optimize the utilization of your rail assets, you can stay ahead of the game. Feel free to contact us for a free and confidential initial consultation.
Contact us today for a free and confidential initial consultation.