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[quote]QUOTE: Originally posted by dehusman How does open access ensure the rates will be lower? It requires an entire additional layer of management (the entity that controls the track) that has to be financially supported, it requires duplication of facilities and services (switching, storage, crews, engine facilities, inspection locations engine and car repair) or if one railroad will have to contract with another to use its facilities. If railroad A contracts to use the facilities of railroad B, you know railroad B is going to attatch a certain level of profit to it. All in all I can't see where it will be cheaper to operate the physical plant if you separate it from the railroads. So if you raise the costs and reduce the revenue (because that's what this is really all about isn't it, getting cheaper rates for the shippers) that means the railroads rate of return would drop even further than it is now. Dave H. [/quote] Railroad companies are already divided into MOW divisions along with the other divisions, with open access (the privatized version) you're just splitting the MOW division from the rest of the company and treating it as an independent company, so there's no new layer of management. You wouldn't necessarily see lower rates with open access unless some of the current ROW costs are ameliorated under separate ownership, such as property taxes, surcharges for track damage from flat spots on wheels, MOW tax credits (now available to shortlines), etc. One thing you'd never see under regulated open access is defered maintenance, since the access charge is based in part on attributable usage costs, and since the past usage of deferred maintenance by Class I's was usually used to sex up the balance sheet to attract a merger partner or attract new investment. Remember, the point of implementing open access is to equalize the infrastructure playing field among railroads, highways, and waterways, so that shipping choices will be based on economic fundamentals derived mostly from user fees and the tax advantages of public ROW ownership. Right now railroad use differential pricing imposed upon captive shippers to make up for tighter profit margins on their quasi-competitive corridors e.g. robbing Peter to pay Paul. Under the proprietary ROW ownership setup, railroad companies need to earn 180% over costs (e.g. revenue adaquacy) to achieve decent ROI's. Profit margins on competitive corridors are as low as 108%, so to make up for this they charge their captive shippers over 237% above cost. Since so much of their capital costs are tied up in infrastructure maintenance, by taking the ROW out of their hands and putting it into a state of equalization with highways and waterways, they can then lower their revenue adequacy requirements, perhaps enough to pass some of those cost savings on to shippers Railroads are going to have to do something about this rate differentiation eventually, because the indubitable laws of economics will cause plants/warehouses/etc located on captive raillines to shut down as they reach their replacement age, and any new plants/warehouses will be built where their is de facto rail competition. Thus, the pool of captive shippers paying 237% will be reduced over time while the pool of uncaptive shippers paying 108% will grow over time. Either it will be open access, or one giant rail monopoly for the whole nation (e.g. all rail shippers will be captive). Which one do you think will benefit GDP the most?
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