Railroad Tie Cost and Pricing

      In a slow market, can you make money sawing railroad ties? September 17, 2008

Question
Does anybody have the current price for green softwood railroad ties (hem-fir) on the west coast? 7" x 9" x 8', 8'6" and 9'? I was just asked to provide my prices. I thought they told you what they would pay?

Forum Responses
(Sawing and Drying Forum)
From contributor R:
Just give them a high price and see what they say.



From the original questioner:
How high is high? I don't want to blow the contact I've got.


From contributor D:
For what it's worth, 7 x 9 ties here in Missouri (mostly hardwood) were bringing $21.50 each last time I cut 'em. I sold them to Koppers.


From contributor R:
I didn't know it was a contract deal. Most RR tie buyers will give you the going rate when you haul them in to their yard.


From the original questioner:
Not contract, contact. This is the first response I've gotten from a major user and I don't want to blow myself out by being too high on price and getting put in the ignore file.


From contributor R:
I guess you will have to figure out what you have to have out of them and go from there. In West Virginia a while back oak ties were bringing about $21 at the tie yard.


From contributor D:
Contributor R has a good point. Hauling them by the bundle to the nearest yard is no small detail. I had to quit cutting ties when they moved the yard from 8 miles away to 40 miles.


From contributor R:
Here the tie buyers want a 9' tie that will end up being trimmed to 8'.


From contributor U:
The Railroadties.com website says they handle 3 million ties a year including softwood ties. Maybe try them and see what they are paying?


From Professor Gene Wengert, forum technical advisor:
Because hem-fir has to be treated with incising to get good penetration (in most cases), your ties will likely bring a lower price than hardwood ties, especially hardwoods that are dense like oak. Remember that they will want solid ends and no rotten centers. Some companies reject hemlock due to shake risks. Also, sinker hemlock does not dry easily, so that means lower value for them.

It is unusual for anyone to ask for your prices, as they tell you what the going price is. Prices can fluctuate weekly too. Will they grade them at their facility? That is where you find out how little the ties actually are worth; that is, their quality factors are often not what you were looking at from a sawmill perspective.

I would be careful to make sure you will get paid promptly... come back in 24 hours for your check. Also, mark all your ties with a marker crayon in case there is a question about which ones are yours (until you establish a working relationship).



From contributor S:
I wouldn't sell them. The small tie is 42 bf. If you go by cut charge of $.35-.45/bf you would have $14.70-18.90. Then there is the logs charge of $600 mbf = $14.28. Add the two together and you have a price they will smile at, $29 for $.35/bf cut rate, and $33 for the .45/bf.

I believe folks here would say not to lower your cut charge, whatever it is. If you cut for $.17/bf, the tie cost would be $22 each. Or supply only hemlock and the log charge will go down too, putting you in the $18 ranges.

You will find that beams of this size will require larger and longer logs (cut 16-18' logs to make two at a time). Loggers around here would not supply me if I told them I only wanted a certain size log, so I would end up purchasing some logs I would not get a very good yield on, hence the cost per beam goes up or my profit goes down.



From Professor Gene Wengert, forum technical advisor:
Contributor S, you have the right idea about how to figure a good price, but I think $600 for western hemlock is high. What about the lumber you would get from the log as well? Also, a sawing rate of $150 per mbf (or $.15) is a price I have seen quoted in this forum; $450 seems very high. Am I missing something?


From contributor S:
Let's say you are a single operator, and you want to recover $100/hr. At $.15/bf you would need to cut nearly 700 bf/hr. I think half of that is more likely, which would put it at $.30/bf.

As I view what I need to do, the sawing is the fun part. There are lots of other things that take up my time, such as bidding jobs, maintaining the four machines I have, setting blades up for sharpening, receiving materials, shipping materials, sight cleanup, moving to and from jobs. I wouldn't be surprised if half my time is doing other things, hence the need to double cut charges or use incremental charges. It all comes down to the same thing, and that is the true charge for cutting a board foot is much higher or needs to be higher or you must do less or accept lower pay. Hence moving from the $.30/bf to $.35 probably is not enough to recover those hours. $.45 would be better.

I know of several operations on this coast and the lowest I am aware of is $0.25/bf. In my immediate area the lowest is $.35/bf. With the rise in fuel prices cost/bf will be going up more.

I communicate with another sawmill across town. His operation is not portable - all of his work comes to him, so he is doing a lot less work to cut a board foot than I am. He has been keeping track of his costs to see how much he is making. Using $.25/bf he tells me he is making $12/hr wages. Yes, he has a smaller machine, which results in lower output.

I know there are lots of ways folks account for their prices. I think it is often best to boil it down to how much you were paid to cut how many board feet. My last job is a good example. I cut 2700 bf for $1000 (customer paid $.27/bf).



From Professor Gene Wengert, forum technical advisor:
You have convinced me. Thanks.


From the original questioner:
Here's where I'm at. Currently the log market in the Pacific Northwest is depressed and on top of that, we had a wind storm last December that put a billion+ bdf of timber on the ground. That timber needs to be harvested within 18 months or it's only good for pulp. Over half of that wood is Western hemlock.

Traditionally in this same area hem-fir is a secondary species with low stumpage values ranging from $50 to $150, $300/m delivered to the mill or $100 to $200 less that D. fir. A mobile saw that can go to a landing or closer to the logging site should have to pay less because of reduced shipping cost.

The ties should pay for the logs and the side boards are where the profit will be. As a last resort the sides can be chipped as the chip market is very good right now. I don't think pallet cants are an option out here. As far as I know the pallet people want sawn boards dirt cheap but could be a good place for shorts if the chip market falls.

Gene, thanks for jumping in. I don't think that Western Hemlock has the shake problem that the Eastern does, but I may be wrong. I do know that some people can't handle it because of allergic reactions from the green wood on the skin. Nasty stuff for some.

My base numbers say a 13" X 27' has 160bdf scale and with a cost of $300/m or a cost of $48 (less closer to the stump), three ties @ $20/tie = $60. That pays for the log. Approximately 19 ties per m of logs or $380 in ties with around 540 bdf of side lumber. Guesstimate 25% of side lumber will be clear or 135bdf. Value of that wood is around $110. The remaining wood, 400 bdf, can go out as chips or pallet stock with a value of another $100+, thus $300 worth of logs (worst case) can generate $380 + $110 + $100 or $590 or $290/m above material cost.

Cut 5m per day = $1450/day x 5 days = $7250/week. Larger logs give more sideboards until 17" logs, which doubles the tie count. It's a step functions on ties. Two man operation with a forklift/bobcat for support and one saw, band or swinger, to maintain portability.

If you wanted to go crazy, a scragg mill could be bought, but that limits the size log you can use and requires more people. Is that enough margin to make this work? Am I way off track somewhere in my calculation? Heart center is not a requirement for softwood ties in this area. Lots of FOHC softwood ties are sold.

Oh, and thanks everybody - what a world of information and knowledge I'm getting. So many ways to see where/how profit is made. It will take me awhile to digest what I've gotten so far.



From contributor S:
There is a method that you can use to test your idea. It is called sensitivity analysis. The idea is that you vary certain parameters between their expected minimum and maximum while calculating your outcome. Then you look at the results to help identify what parameters have the largest affect on your outcome (or profit/cost). The larger the outcome vary, the more risk you are assuming. If the outcomes look fairly constant, it is a low risk venture. It should also show what parameters are important in regard to cost.


From the original questioner:
Thanks - that's makes sense. Sounds like I need to build a spread sheet. And get more solid data on yield from logs. Back to the drawing board.


From contributor U:
I don't think you can do 5000 bd/ft a day with two people. With hardwood ties, you pay about $12 for a log. The tie is worth about $20. The sideboards may be $3-4 per log if it's junky, maybe more if they are red oak #1 com or better. So if you can do 100 ties a day you can earn maybe $1100 a day before expenses. Three halfway decent sawmill workers will run you maybe $400 a day. The owner will have to work as well to make a total of 4 people. The problem around here is many small tie mills run on diesel. Fuel for either a genset or individual motors on the headsaw and chipper, plus fuel for the loader or forklift really adds up. Many small mills are not operating or simply throwing in the towel altogether. Overall, it's a pretty crappy time to try to get started in the lumber business.


From contributor S:
Sorry, I made a math error (inverted my numbers). The cost per bf should read $.37/bf.

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