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[quote]QUOTE: Originally posted by beaulieu [quote]QUOTE: Originally posted by futuremodal Show me any railroad profits sheets where coal is being hauled at 102% of variable cost. You're confusing coal hauling with import intermodal. Import intermodal is where railroads can't come close to meeting revenue adequacy (which doesn't explain why most capacity investments are going to improve the import intermodal corridors). Most power plants are captive, even if the source of the coal is not. Therefore, DM&E will be able to charge a rate that is more than adequate to cover it's portion of the investment. [/quote] One other thing Dave, don't assume that Import Intermodal is as revenue inadequate as you presume, relative to its costs it is much better than Domestic Intermodal. The speeds harmonize better with other traffic, unlike the UPS bullets where costs of failure and disruption to other traffic more than offset the potentially higher revenues, after all the containers just spent two plus weeks on a ship that may have been delayed by storms. as long as the train isn't days late the shipper isn't going to get too nervous. You must have noticed that BNSF took a pass on the UPS business when UPS wanted fast trains from LA to Chicago. [/quote] beaulieu, the difference between Import Intermodal and Domestic Intermodal is that all import intermodal has competitive rail access at all major seaside container ports. Furthermore, overseas importers have a multitude of options regarding which combination of container lines and container ports to utilize. And finally most major US consumption markets are either located seaside, or located within a shorthaul of the major waterways (which all seem to be paralelled by at least three Class I's). Until the CN's Prince George container port comes on line, there are no captive container ports in North America. The point is, since all import intermodal has competition driving down rates, those import intermodal rates have to be at the low end of the RVC spectrum. Contrast that with domestic intermodal. There are many domestic intermodal terminals that are geographically captive to one Class I. The only other options available would require an expensive long truck haul to an alternate intermodal terminal, so the rate alternative would also be high. The monopoly Class I can charge rates from these terminals that are much higher than those rates from import intermodal terminals. And as you point out, since much domestic intermodal is time sensitive aka UPS, the rates for those shipments are on the high end of the RVC spectrum. Yeah, those time sensitive trains will use more fuel, but their crews are less likely to go dead, so the variable costs attributed to those trains cannot be that much higher. I guess if you count the delays to other trains going in the hole for the hotshots as a variable cost of the hothsot, you could make an arguement for a higher VC for the hotshots. But the rates the railroads can charge for hotshots are as high as any such rates can be, because the only alternatives are long haul trucks or airlines, so the rates can be just below those higher cost alternatives. I know BNSF has turned down more UPS business. They terminated the Swift RoadRailers. They are making business decisions that are not making sense. There is no way they can charge rate that exceeds the RVC standard of 180% on import intermodal no matter how much they try to minimize VC on those doublestacks, because there is just too much competition from other railroads and other shipping options to allow any profit mazimization. They are ordering more and more double stack wells. Those new equipment purchases cost money. They are spending an awful lot of money on increasing capacity on the LA to Chicago corridor. That is costing a pretty penny. If we attribute those expenditures as a portion of the doublestack VC, there is no way they are much above recouping 100% of RVC. And I suspect they may actually be below the 100% RVC on those double stack trains if we include the costs of capacity improvements and equipment purchases. We know they're not buying more spine cars for domestic TOFC, there seems to be plenty of those still sitting around stored on various sidings.
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