More on the negative consequences of monopolistic pricing

[Anonymous]

Let's keep a couple of real-world perspectives in mind: BN was created 35 years ago ... Montana farmers were growing wheat in 1970 and they are growing wheat now. BN was hauling the wheat in 1970 and BNSF is hauling it now. The value of wheat production per acre in Montana in 1970 was $33. In 2003 it was $101. Source:

http://www.nass.usda.gov/mt/

Some very savvy grain marketers are investing big bucks in highly efficient grain handling/loading facilities in Montana, and BNSF continues to invest in high-efficiency hoppers, locomotives, and mainline track. If Montana wheat doesn't move to market because of monopolistic pricing, those grain marketers, BNSF, and Montana wheat growers will be high, dry, and broke in Big Sky country. What are the odds? Thirty years of history says the future looks bright for all three parties. Let the contest for economic rent continue in the world grain market.

[arbfbe]

cbt141

Well, certainly if there is only one railroad there may be other competition. As MWH points out the amount of competition is market specific. The truck lines are extremely competitive with railroads in intermodal traffic and nearly noncompetitive with bulk commodities like grain and coal.

Try to get your grain out of Montana and BNSF is about the only game in town. Try to get and intermodal shipment out of Montana and you will find BNSF is barely in the game. They would prefer you truck your trailer or container to Shelby but I think they still accept them at Billings. For most Montana shippers this involves a rubber haul of several hundred miles. Likely you will opt to use the highway for the entire distance to the customer. Neither UP nor MRL provide intermodal loading in the state. MRL would but is prohibited by contract with BNSF.

[daveklepper]

If certain other parts of the world only had the problems the Montana farmers have with the BNSF, they would consider it heaven on earth. Just to put things in perspective!

[Anonymous]

QUOTE: Originally posted by Dick_Lewis

Let's keep a couple of real-world perspectives in mind: BN was created 35 years ago ... Montana farmers were growing wheat in 1970 and they are growing wheat now. BN was hauling the wheat in 1970 and BNSF is hauling it now. The value of wheat production per acre in Montana in 1970 was $33. In 2003 it was $101. Source:

http://www.nass.usda.gov/mt/

Some very savvy grain marketers are investing big bucks in highly efficient grain handling/loading facilities in Montana, and BNSF continues to invest in high-efficiency hoppers, locomotives, and mainline track. If Montana wheat doesn't move to market because of monopolistic pricing, those grain marketers, BNSF, and Montana wheat growers will be high, dry, and broke in Big Sky country. What are the odds? Thirty years of history says the future looks bright for all three parties. Let the contest for economic rent continue in the world grain market.

***,

I work for the NASS, so I know a little something about issues that affect grain farmers. Productivity gains are responsible for the increase in per acre crop values. What we've discussed here is the fact that a greater percentage of the farmers' profits are being eaten up by transportation costs today than in years past, because of the terminal consolidations that have forced the average farmer to truck his grain a far longer distance to access the nearest railhead. You should also note that farm bankruptcies are higher in Montana than in areas of the country with access to two or more bulk haulers (rail, barge). The future hasn't been to bright for these guys, but it can brighten with a little legistlative pre-emption to ameliorate the current rail monopoly situation.

[edblysard]

No, railroad Right of Ways are not public utilities, they are, for the most part, private property, paid for in money, goods and services rendered.

You just choose to view them as utilities, because it fits your needs to do so.

Yes, if HL&P(local light company) abandoned a line, and pulled the line and poles, there would be no problem getting service, there are so many other electric providers serving this area ....

"After all, fair is fair"

What in the world makes you think business is supposed to be fair?

Fair is for little league baseball, not business.

If the law allows a business to take advantage of certain things, then by all means, they should.

And by the way, there was a nice monoploy I really enjoyed using, SW Bell...it was nice getting one bill from one company. picking up the phone and dealing with one system nation wide.
And when something went wrong, you called one company, got one repairman, right quick, all for a price that was quite reasonable for the service provided.

Today, my phone bill requires a CPA to decipher, a lawyer to threaten them when I need service, and a heck of a big check book to afford.

But it is fair, I will grant you that.

Seven different "service providers" all send me tons of junk mail and spam email trying to get me to pay them to use their service, and, of course, they all use SW Bells transmission lines, so they can now charge me a surcharge for using lines built and maintaines by Bell.
So, now I can pay the "open access" parisites, for a service I used to get from one company, at almost twice the cost, with lousy service, using the same phone, over the same lines as before.
But, by golly, that bad old monopoly is gone.

Wow, what progress....

Is it fair that BNSF has the majority of the tracks in Montana?
No, not fair, but it is good business, especially for BNSF.

Is if fair that Safeway is the only supermarket in Porter Texas?

By your model, no, so I guess we should make Safeway allow Food City to used their building, coolers and displays, and their parking lot to sell their produce.

After all, Safeway, being the only supermarket willing to operate in Porter, out in the boonies, and therefore cornering the Porter market , is, by your criteria, a monopoly.

Shucks, thats not fair, they built a building for all themselves, and didnt build one for their compeition, so they should share their building?...

You know, open access....

This "debate" goes no where, because you, for some odd reason, seem to feel its ok to re-write history, or ignore it completly, to make the "facts" as you present them, fit your model of reality.

Which, of course, makes your screen monikor even more hilarious, because if this is your vision of the future, thank God you dont hold public office.

Because you refuse to present any serious bonifides, any further debate or discussion of this subject is pretty much a moot point, after all, it is useless to argue with shadows.

Ed

[Anonymous]

"Try to get your grain out of Montana and BNSF is about the only game in town. "
source; arbfbe

please read my post of january 1 2005 time: 12:11:53
i hope it will address what i believe to be an honest assertion:
"one railroad in an area does not mean no transportation competition."

futuremodal,
nice try, but not even close.
the farmer is a good guy, but productivity gains are only part of the increase in pre acre crop value. prices are up, subsidies are really up. i will leave it to you with your access to NASS figures how much more subsidy aide of all forms went into an acre of montana land in 1970 and how much in 2004? its greater than the doubling of yield.

since 1994 wheat prices have ranged from $3.25 up to $7.00 down to $2.30 back to $4.40 and now $3.00. i ask without any foreknowledge: have rail rates tracked the spikes and troughs in some effort to "scalp" the high wheat prices of 1995/96/97, 2002 or early 2004?
my guess is that freight prices for rail are a lot steadier and more predictable than farm prices for grain. i'll also guess that in the $4.00 years of 2002 and 2004 freight did not increase 80% above its prior 5 year average as grain values did. my point is freight did not eat the profit of the price gains....i don't think, but the numbers will tell the story.

the real volitility in the total grain transport cost is ocean freight. ocean freight eats the spread between cif seller and cif buyer in one gulp.... are you going to regulate vessel charges? you will not very easily get the international ship owners to go along, and if you try, then they will stop calling at your ports.

[arbfbe]

cbt141,

Yes, it was indeed to your post of 01/01/05 I was refering. My point was BNSF does indeed have serious competition in Montana for some traffic that can easily be hauled by trucks. Other traffic that is not as easily hauled on the highways gives the BNSF a near stranglehold in Montana. Grain is the best example. The higher value, lower quantity freight goes by trucks more often than rail since shippers are willing to pay a higher tariff for better service than what the railroad provides. Grain, coal and bulk lumber just takes too many trucks to deliver in the qualtities shipped.

Alan

[Anonymous]

alan,
i have not quite made my point with you. trucks do not figure into my competitive transport example. for this purpose forget trucks. think only about domestic barge and foreign grain handlers.

exporters make offers to foreign buyers basis the overall cost of grain landed at foreign port. if bnsf takes too big a bite of the overall cost of grain c.i.f. portland, ie, cost of grain interior montana plus rail to portland, then u.s.a. origin grain will be too expensive versus canadian, australian origin wheat. therefore u.s.a. wheat will not move to export position. in such a case, bnsf will have charged so much freight versus foreign shippers (foreign transport handlers are in fact the competitive factor in this example) that there will be no movement from montana to the coast and then onto export. this implies that bnsf will have overpriced their service and will receive no business. they will sit with empty hoppers and idle power until they allow rail rates to be reduced to a level competitive with foreign transport factors. at this point u.s.a offers of wheat from portland will be in fair value with brisbane or vancouver, et al, and then portland elevators will book freight and grain from montana to make grain available to asia.
bnsf is controlled in how much they can get away with charging by the need to allow montana wheat to be fairly priced with australian and canadian wheat.

[arbfbe]

cbt141,

Certainly I agree with your post 141 above. it is a world market and now the Russianxs are exporting it is even more competitive. When the grain in the US does not move the price falls and other factors come into play. Commodity price supports for growers enrolled in those programs as well as US loan gaurantees to foreign governments meant to encourage purchase of US grains. Someone more versed than I will have to explain the nuts and bolts of those programs.

Alan

[Anonymous]

cbt141,

According to the Grain Transportation Summary provided by USDA, there is roughly a $20 per metric ton price difference between ocean carriers out of the PNW vs Gulf Coast, averaging around $40 mt out of PNW and $60 mt out of Gulf Coast. The rail rates out of Minneapolis to Gulf Coast are around $25 mt, to PNW $45 mt. Either way, it costs $85 mt from Minneapolis to Japan. Now add Montana to the mix. Even though the mileage is less from Montana to PNW than it is from Minneapolis to Gulf Coast, the rail rates are twice as high Montana to PNW as it is from Minneapolis to the Gulf Coast.

It is blatantly obvious that Montana is subject to monopoly pricing. Not only that, BNSF's monopoly is a factor in allowing Montana grain to be overpriced relative to Australian or Canadian grain. If the STB had done their job and forced BNSF to accept access by UP or KCS as a requirement of the BN + SF merger (the same caveat that applied to the UP + SP merger which forced UP to accept BNSF over it's central lines), the trade position of the U.S. relative to its competitors would have been enhanced. That $20 mt spread is huge. Grain from Eastern WA costs less than $10 mt to Portland or Tacoma, thanks to competition from UP and the barge lines. Montana's grain belt is roughly halfway between PNW and Minneapolis, so logic would dictate that Montana grain should cost about $25 mt to PNW if there was competition from UP or some other rail service provider. As it is, truckers can carry grain out of Montana to Lewiston at a little over $30 mt, which makes the truck/barge combined rate the market maker, e.g. the "alternative" to BNSF's rates. It is ridiculous in this day and age that a low value bulk commodity is moving by long haul truck, but that's the price we pay for BNSF's monopoly.

I understand the point you're trying to make, but this acceptance of the monopoly position BNSF enjoys by perceiving it as not being a monopoly is hard to comprehend given the facts.

Ed: Have a nice life. Hope you figger out that there phone bill.

[Anonymous]

dave,
with all respect. thank you for the work done by NASS. you folks provide an excellent service, however, even with a group of very intelligent, hardworking folks at the task of counting china grain stocks NASS let a multi year 200 plus % bad count accumulate and ride for a decade. it is honestly hard to get this stuff right. the tip off that the NASS stocks numbers were too low was that the world price of grain was too low for such an restricted stocks count. free market price information triggered the review of the official data. result: price correct, data in error. market place 1, bureaucrats 0.

....and i say this as an admitted admirer and user of your product. honest.

if the grain transport summary you mention is put out by AMS then you already know that the people at AMS willingly admit that they get sketchy vessel pricing data. it is the nature of the data they work with. this reporting problem means that the trade only looks to these numbers as a rule of thumb measure. they are useful, but they are not rocket science. also, as you mention we are dealing with "averages" in what has been the single most volitile two years of vessel pricing in history. gulf/japan panamax rates have moved from under $16/t to over $70/t then into the $40's back out to the $60's and now maybe in the $50 area. an average is a great "talking" point but a poor policy tool.

montana does have a poor location. farmers went out there when there was no better place to go. they may have enjoyed cheap real estate advantages, solitude, beautiful country or just getting away from the in- laws, however, they willingly went to a place with a short growing season, no navigable water, the rocky mtns to the west and the dakota grain belt between themselves and the lakes to the east. do they pay for this decision ...yes. but when they sell a ranch to a california vacationer or $5.00 wheat to an asian they do not refund any of the heavy price to the railroad or to the elevator. they keep the good trades and they need to find a way to work through the bad trades. montana residents do not get to take the railroad's property in order to make montana's task a bit lighter. economics fairly extracts a cost for poor location, short growing season, dry weather and a host of other factors whether the farm is in montana or georgia. life is neither perfect nor easy for any one in or out of montana.

bnsf does not have a free hand in pricing transport. they have constraints. you would like to see more constraint, but other regulators are content with what now exists. the railroad would like to see less. somehow montana keeps shipping wheat out of state. there is no year after year accumulation of grain piling higher and higher. market forces are clearing the market of goods.

your solutions would push us further away from free market exchanges of work and services and deeper into the need to influence " bureaucrats with sliderules and imperfect data" to lean this way or that with findings from study commissions appointed by politicians who are influenced by self interested lobbyists. the absolute worst situation to which democracy can decline.

this is ed's problem as i see it. he has worked and saved to find a good investment, something he can rely on for an added income. the shares in bnsf he speaks of are his property. he earned them. they are his. you feel some sorrow for the local difficulties of property owners in montana so your solution is to confiscate the property of texans.
welcome to the welfare state. why did we bother standing up to russia?

the government should stay out of these "emminent domain", "common good" areas.
the founding fathers screwed up on slavery and emminent domain. these issues always come down to someone getting something without paying for it. both concepts are noxious to free men. i suggest watching elia kazan's "wild river" in which actress jo van fleet explains her view on having her property confiscated for the common good. it made her angry. she was being robbed. she didn't want to hear any lies about how the theft was being done by and for the angels. she understood that there is no right way to do a wrong thing.

in closing, i appreciate you good intentions. please don't settle the problem by creating an added injustice. look for a solution people can support freely, a solution that does not require the political force of the state to accomplish its ends. we get way too much shoved down our throats as it is.

[CSSHEGEWISCH]

As I see it here, the solution to the problem of grain rates for Montana wheat farmers is a combination of open access and rate regulation along the lines of the Crows Nest Pass Agreement in Canada.

As has been mentioned elsewhere and Ed has so descriptively pointed out on this thread, open access ain't all it's cracked up to be. Besides, you can't guarantee that any additional carriers would serve the small grain elevators and branchlines that BNSF is electing not to serve. After all, they're in business to make a profit, too.

Rate regulation will guarantee the farmer a better rate but it wouldn't necessarily improve the service. CN and CP did not invest any money in improving grain-hauling service in the past because Crows Nest Pass grain rates were hopelessly non-compensatory. Those rates are one of the main reasons that Canadian grain was hauled in boxcars well into the 1970's (at least) and that the Canadian Wheat Board and two different provinces purchased and owned covered hoppers to transport the wheat. The railroads didn't invest in grain transport because they couldn't get any rate of return on their investment with the rates they could charge.

[greyhounds]

QUOTE:
It is blatantly obvious that Montana is subject to monopoly pricing. ........ As it is, truckers can carry grain out of Montana to Lewiston at a little over $30 mt, which makes the truck/barge combined rate the market maker, e.g. the "alternative" to BNSF's rates.

Ed: Have a nice life. Hope you figger out that there phone bill.

Have you ever seen anyone so "blatanly" contradict themselves in the same paragraph?

1) Grain is subject to monopoloy pricing, but
2) There is an alternative to the "monopoly" that caps the amount the "monopoly" can charge, which means that
3) There is no monopoly



What is really being argued here is that the Montana farmers "deserve" special treatment by having someone else pay part of the costs of shipping their grain. Why are they "Special"? They aren't.

[Anonymous]

QUOTE: Originally posted by greyhounds

QUOTE:
It is blatantly obvious that Montana is subject to monopoly pricing. ........ As it is, truckers can carry grain out of Montana to Lewiston at a little over $30 mt, which makes the truck/barge combined rate the market maker, e.g. the "alternative" to BNSF's rates.

Ed: Have a nice life. Hope you figger out that there phone bill.

Have you ever seen anyone so "blatanly" contradict themselves in the same paragraph?

1) Grain is subject to monopoloy pricing, but
2) There is an alternative to the "monopoly" that caps the amount the "monopoly" can charge, which means that
3) There is no monopoly

greyhounds,

Under your definition, AT&T wan't a monopoly, because there were alternatives for communicating with one another - letters, telegraphs, or driving to see the person with whom one wanted to communicate.

Yet the courts clearly stated that indeed AT&T was a monopoly in telephony, and they took the necessary steps to correct the problem.

BNSF is clearly a monopoly for rail service in Montana, and it is also a monopoly for those modes which are predicated for the movement of bulk commodities out of Montana. The fact that BNSF sets it's rates above the competitive norm for the modes designed for the movement of bulk commodities is the only reason there is any grain moving long haul by truck to PNW ports in the first place. That is why we use quotation marks when refering to trucks as the "alternative", because logic would dictate that most if not all export grain out of Montana would move by rail if there was a competitive railroad market.

There is no contradiction on my part, rather a steadfast refusal on your part to admit the truth.

[Anonymous]

QUOTE: Originally posted by cbt141


montana does have a poor location. farmers went out there when there was no better place to go. they may have enjoyed cheap real estate advantages, solitude, beautiful country or just getting away from the in- laws, however, they willingly went to a place with a short growing season, no navigable water, the rocky mtns to the west and the dakota grain belt between themselves and the lakes to the east.

cbt141,

I disagree with your contention that Montana has a poor location. It is closer to the PNW export facilities than other Midwest HRS/HRW grain growing regions. Up until 1970, Montana grain shippers had three railroads to provide rail competition - GN, NP, and Milwaukee. Then GN and NP merged into BN, and shortly thereafter MIlwaukee retrenched, leaving these multi-generational family farms at the mercy of a BN rail monopoly. Say what you want about government involvement (and I don't necessarily disagree with you on that subject), but it was goverment involvement that created this predatory situation by allowing the BN merger and subsequent Milwaukee retrenchment without guaranteeing the continuation of rail competition to prevent this very situation.

I too am generally opposed to government interference, except in cases where injustices are created by past government interference, and mitigation is warranted.

When UP and SP merged, the government correctly recognized that such a merger would create a single rail entity where there had formerly been two along the Central corridor, and the government correctly granted BN rights over this corridor to maintain a semblence of rail competition. One must question why the STB can recognize this need in one segment of the country and completely ingore it in another. This disparaty begs a violation of the equal protection clause of the constitution.

Northern Tier rail shippers deserve the same protections as Central Corridor rail shippers. Open access is the obvious solution, but having the STB grant trackage rights to a rail competitor of BNSF over one or more of the Northern Tier lines would probably suffice for now.

[edblysard]

QUOTE: Originally posted by futuremodal

Ed: Have a nice life. Hope you figger out that there phone bill.

Dave,
If you are going to try and type Texan, you need to learn how to spell it...

Its, "figger out that thar phone bill"....

And yes, life is nice, real nice.

Jeeze, you raise 'em up, send 'em to school, buy 'em books, and all they do is eat the covers....

Y'all come back now, ya hear?[:D]
Ed

[greyhounds]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by greyhounds

QUOTE:
It is blatantly obvious that Montana is subject to monopoly pricing. ........ As it is, truckers can carry grain out of Montana to Lewiston at a little over $30 mt, which makes the truck/barge combined rate the market maker, e.g. the "alternative" to BNSF's rates.

Ed: Have a nice life. Hope you figger out that there phone bill.

Have you ever seen anyone so "blatanly" contradict themselves in the same paragraph?

1) Grain is subject to monopoloy pricing, but
2) There is an alternative to the "monopoly" that caps the amount the "monopoly" can charge, which means that
3) There is no monopoly

greyhounds,

Under your definition, AT&T wan't a monopoly, because there were alternatives for communicating with one another - letters, telegraphs, or driving to see the person with whom one wanted to communicate.

Yet the courts clearly stated that indeed AT&T was a monopoly in telephony, and they took the necessary steps to correct the problem.

Well, AT&T certainly didn't have a communications monopoly. People did just what you said - they communicated in other ways.

It depends on what definition is used. If a narrow enough definition is used, then every business can be defined as a "monopoly". Coca Cola can be said to have a monopoly because only Coca Cola can sell Coca Cola. They've got a monopoly on Coca Cola.

But to label Coca Cola as "a monopoly" company would certainly be absurd since a broader, more realistic, definition of the market would be "Colas" and include lots of competition.

What you're doing, I guess for political reasons, is defining the market in an unrealistic manner. The farmers have options, just as the AT&T customers had options. They're within trucking distance of a navigable waterway. You said so.

If you define the market as "rail transportation" you can yell "monopoly", but if you more realistically define the market as "transportation", you can't.

I'm convinced you just want a(nother) subsidy for those farmers. And there is no justification for giving them one. Shipping their grain is part of their cost, not mine.

And having three railroads in Montana didn't mean much, since the railroads were not allowed to compete on price. And Montana couldn't support three railroads - as evidenced by the demise of the Milwaukee Road.

[PNWRMNM]

Dave

If truckers are hauling out of Montana for $30 per ton, and that price is better than the railroads' that proves tha BNSF does not haver a monopoly. You cant have it both ways at the same time.

Frankly I can not see what the kick is except that farmers want lower rates so they are screaming monopoly to their legislators.

To All:

Here are some representative rates from BNSF tariff which is given on their website if anybody wants to go look. BNSF published rates are the real rates. They are subject to fuel surcharges, which I did not include in the interest of simplicity. In addition BNSF rates varry over the short run due to the COT program. Again for simplicity sake I used the tariff rates which should be the average over time. The rates quoted are all in 100 ton cars item 43521 Tariff BNSF 4022-K. They are from selected stations in Minnesota, North Dakota, South Dakota, Wisconsin to All Stations in Oregon and Washington. Mileage is to Kalama WA, a major export station on the Lower Columbia River with grain terminals having access to ocean going vessels.

Origin Station (MT) Great Falls Havre Wolf Point
Rate $/car $2966 $3181 $3772
Miles 899 907 1100
Rate $/car mile $3.30 $ 3.50 $3.42
Rate $/metric ton $32.59 $34.95 $41.45

The odd looking number here is Great Falls. The rate appears to be depressed relative to Havre and may be a competitive response to trucking to Lewiston.

All rates are for 52 car minimum blocks. At most origin stations, rates are provided for single cars, blocks of 26, blocks of 52, Coloaded trains of 110 cars and Trains of 110 cars. At Havre the spread from 52 cars to 26 is $75 per car and from 26 to singles is another $75 increase. The spread from 52 to 110 coload is $52 per car and from 110 coload to full 110 is $103 per car reduction. This seams like reasonable volume discounts to me.

Todays price of soft white wheat at Portland is $3.96 per bushel, or $145 per metric ton. The Havre rate is thus 25% of the value of the wheat in Portland. Havre is about half way across the State of Montana and should be reasonbly representative. To get to the 33% alleged in the newspaper you have to go to the Eastern edge of the state, Wolf Point.

The farmers have a lot of practice damning the railroads. Politicians have a lot of practice in looking at only one side of railroad rate issues. "Consultatnts" like futuremodal have a lot of practice telling politicians whatever story they want to hear.

Conisder the source and follow the money.

Mac

[Anonymous]

dave,
as an example of why people hate government interference in their lives...

let's imagine an issue is brought forward for discussion. let's suppose the topic is rail rates and their effect on grain prices in montana. a panel is appointed consisting of a professional grain trader, a railroad employee, several railroad executives, a long time industry observer / commentator and a government representative.

now the government representative puts forward a question for consideration and one by one all of the men who have worked in the industry and made solving the day to day problems of the industry their life's work express the opinion that there is not only no problem but that fixing this non problem will cause more problems and in fact will work an injustice on one segment of the constituency for the unfair benefit of another segment of the constituency. now just suppose that this is not the testimony that the government fellow wants to hear. maybe he has an agenda or a pet project in mind, so he avoids answering specific objections to his "evidence", he resubmits evidence which has been contradicted both by the other committee members and even by himself and he keeps the process going until every one is sick and tired of the whole thing.

the next step is to go to a legislative sponsor (also a stockholder in a trucking firm) and have him reconstitute the committee with four government employees (all political appointees of the sponsor), two farmers (from the legislator's district) and one woman whose husband was killed by a train at a grade crossing. then a seven to zip majority passes a self contradictary regulation which is based on weak data, contrived evidence and the milk of human kindness. democracy in action. will of the people.

gee, we're that committee!!!

p.s: montana has simply awful location. my god, dave, look at the map. montana's wheat is on the back side of nowhere. i "figger" that there are very few mills or ports that don't draw wheat from closer to themselves than the montana crop.
very few.... and it is worth noting, each of montana's big four mills is on bnsf.

works for them.