CBN Railway Company
Case Study #61
CBN Railway Co.
Stephanie Murphy
SCML 3101
1. What are potential advantages and disadvantages of entering into these “powerby themile” arrangements?
There are several advantages and very few disadvantages to powerbythemile arrangements; the largest advantage being improved service to customers. The improved financial status of the railroad has allowed the rail industry to provide a more tailored service to its customers. It has also allowed for better equipment and more ease when negotiating contract rates for volume movements.
Also, with this arrangement, CBN would likely be using more up to date equipment. Since the company they would be leasing from would be maintaining the repairs on the locomotives used, they would more than likely be using smart locomotives that come equipped with onboard computers that can identify any mechanical problems as they arise. This would also help to provide progressively higher levels of customer service.
The lease arrangement would consistently be a lower cost option for CBN than purchasing new locomotives. This would help with some of the fixed cost associated with the railways. A variable cost that would be affected by the leasing of the equipment would be labor.
Labor cost is the largest single element of variable cost for railroads. Although, CBN would be leasing the locomotives they would still be providing their own labor to operate them, which means they would already have the appropriate number of personnel required for the trains. There would be no added cost of operations in this regards.
One of the disadvantages to leasing the locomotives would be the lack of ownership. As CBN would only be leasing the equipment that it needed, the could not make any modifications to the equipment. Any repairs that are needed would have to be done by the company the locomotive was leased from.
This could lead to
CBN Railway Co.
Stephanie Murphy
SCML 3101
1. What are potential advantages and disadvantages of entering into these “powerby themile” arrangements?
There are several advantages and very few disadvantages to powerbythemile arrangements; the largest advantage being improved service to customers. The improved financial status of the railroad has allowed the rail industry to provide a more tailored service to its customers. It has also allowed for better equipment and more ease when negotiating contract rates for volume movements.
Also, with this arrangement, CBN would likely be using more up to date equipment. Since the company they would be leasing from would be maintaining the repairs on the locomotives used, they would more than likely be using smart locomotives that come equipped with onboard computers that can identify any mechanical problems as they arise. This would also help to provide progressively higher levels of customer service.
The lease arrangement would consistently be a lower cost option for CBN than purchasing new locomotives. This would help with some of the fixed cost associated with the railways. A variable cost that would be affected by the leasing of the equipment would be labor.
Labor cost is the largest single element of variable cost for railroads. Although, CBN would be leasing the locomotives they would still be providing their own labor to operate them, which means they would already have the appropriate number of personnel required for the trains. There would be no added cost of operations in this regards.
One of the disadvantages to leasing the locomotives would be the lack of ownership. As CBN would only be leasing the equipment that it needed, the could not make any modifications to the equipment. Any repairs that are needed would have to be done by the company the locomotive was leased from.
This could lead to