Let me add a little more technicolor to PHWRMNM's description of the FRA rulemaking process, for anyone who may be interested in further information on this subject (if there's anyone who is).
First, Federal regulatory agencies like FRA are subject to a Federal Law called the "Administrative Procedure Act" (APA), which dictates the procedures agencies must follow in adopting or changing rules. For most rules, the required procedure is to first publish a "notice of proposed rulemaking" (not an "advance notice of proposed rulemaking") in Federal Register. FRA will typically publish the full text of a proposd rule, with an preamble explaining it (which can be pretty extensive). The agency will then take comments (the minimum comment period is 30 days, although FRA often allows a longer time). Once the comment period closes, the agency will address the comments and eventually issue a final rule (or, in rare cases, decide no rule is necessary). With FRA, this can take several months or longer. It's pretty common for FRA to make changes in its proposed rule (somethimes major changes) in response to the comments. FRA also usually publishes a preamble with its final rules, explaining how the agency addressed the coments that were filed.
Second, an "advance notice of proposed rulemaking" isn't part of the required APA process. FRA sometimes uses this device to solicit comments on concepts, which they then use to draft a proposed rule which they subsequently publish in a notice of proposed rulemaking. For example, earlier this year, FRA issued an "advance" notice of proposed rulemaking on "Risk Reduction Programs" (a rule required the 2008 Rail Safety Improvement Act), which didn't contain a proposed rule text, but requested comments on a variety of issues. This will be followed by a "notice of proposed rulemaking" which will contain the proposed rule text, probably sometime in 2012.
Third, while not required by the APA, regulatory agencies sometimes use "negotiated rulemaking" procedures to develop proposed rules. FRA has been relying on this big time since the 90's. Many of their rules are developed through a negotiated rulemaking committee called the "Rail Safety Advisory Committee" (RSAC), which includes representatives from the freight railroads, Amtrak, commuter railroads, rail labor, and a whole bunch of other interests (including tourist/museum railroads and private car owners). However, not all FRA rules are developed this way (the alternate passenger service rule discussed in this thread wasn't). Where a rule is developed through the RSAC process, FRA will state this in the preambles to the proposed and final rules.
Fourth, one of the posts on this thread mentions that the alternate passenger rules were supposed to have been adopted by October 2009. I'm not sure whether this was intended to be critical of FRA, and my reputation there could be irretrievably ruined if I actually defend them on anything. But I'll take that risk here. The problem is that, when it adopted the 2008 Rail Safety Act, Congress mandated that FRA do a whole boatload of rulemakings and studies with short deadlines, but didn't give the agency any additional resources to do all this work (sound familiar?). So FRA has been concentrating its efforts on the projects which it considers high priority (like PTC and the passenger hours of service rules), and letting some of the projects that have lower priority (like the alternate passenger service rules) slip past their deadlines. I don't think they had much of a choice.
Probably much more than anyone really wants to know.
PNWRMNM Don, I do not disagree with your point on management bloat at ATK. The real question is which is worse, ATK bloat or the fact that you have such a narrow revenue base to support the real and necessary overhead for any route operator. I worked at the Seattle Coach Yard as a BN employee shortly after the creation of ATK. I believe that ATK is doing the work today. The point I was trying to make is that the best a new operator could reasonably expect at Seattle would be to contract with ATK for the work. I would further suggest that ATK will mark up their direct cost by a hefty percentage. There is almost no limit to how far they can go in terms of mark up becuase there is no reasonable site to relocate to, and even if a new operator found one it would involve an investment of a few million dollars to develop a facility. When I was there they could change wheels, and presumably do most any truck work required. I am not saying that these facts would apply at all locations, but logically this program would be a dis-integration of mechanical functions for which there are economies of scale. Mac
Don,
I do not disagree with your point on management bloat at ATK. The real question is which is worse, ATK bloat or the fact that you have such a narrow revenue base to support the real and necessary overhead for any route operator.
I worked at the Seattle Coach Yard as a BN employee shortly after the creation of ATK. I believe that ATK is doing the work today. The point I was trying to make is that the best a new operator could reasonably expect at Seattle would be to contract with ATK for the work. I would further suggest that ATK will mark up their direct cost by a hefty percentage. There is almost no limit to how far they can go in terms of mark up becuase there is no reasonable site to relocate to, and even if a new operator found one it would involve an investment of a few million dollars to develop a facility. When I was there they could change wheels, and presumably do most any truck work required.
I am not saying that these facts would apply at all locations, but logically this program would be a dis-integration of mechanical functions for which there are economies of scale.
Mac
I see what you're saying. If you couldn't lease space, or the whole facility, it would be slim pickings. You might be able to do some work out of doors, but in Seattle, that would be tough. Amtrak would be a disinterested partner, at best.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
Bucyrus Here is the only viable business model that I can see: Amtrak turns over a passenger operation to a private sector independent contractor who can bring so much efficiency to the operation that it makes a handsome profit. And then the contractor will reimburse the host railroad out of that profit sufficiently to make the operation attractive to the host railroad. It is the only plausible private business model because ultimately, the passenger operation has to pay for itself including the train, labor, supplies, expenses, and the railroad line.
It is the only plausible private business model because ultimately, the passenger operation has to pay for itself including the train, labor, supplies, expenses, and the railroad line.
That emperor has no clothes. The is no profit to be made. Only the possibility of a reduce subsidy level, perhaps to a level that isn't so completely embarrassing. I guess after a few decades, you don't notice the embarrassment.
I was not talking Amtrak providing anything if a private contractor wants to run his trains on a freight railroad.. Amtrak would not be involve at all.
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Here is the only viable business model that I can see:
Amtrak turns over a passenger operation to a private sector independent contractor who can bring so much efficiency to the operation that it makes a handsome profit. And then the contractor will reimburse the host railroad out of that profit sufficiently to make the operation attractive to the host railroad.
henry6 We are talking private enterprise here, not public funding. The passenger train enterprise and the railroad are supposedly private for profit businesses who are old enough to know how to take care of themselves. So the answer is, who knows, who cares?
We are talking private enterprise here, not public funding. The passenger train enterprise and the railroad are supposedly private for profit businesses who are old enough to know how to take care of themselves. So the answer is, who knows, who cares?
Henry,
Earlier, you suggested that Amtrak might provide an economic incentive to the host railroads by offering to upgrade their infrastructure. Where would Amtrak get the money to do that? If the passenger service were privately operated by a contractor, where would they get the extra money to upgrade the host railroad?
Dave, in that case it is the way the NCRR is chartered and organized which will determine who is putting up the money and how. If NCRR is a total ward of the state, then NC is, if it has the ability to raise money on its own, then NC may not be on the hook as much. I don't know.
PNWRMNM First is economy of scale. Since the new operations will be much smaller than ATK, there will be diseconomies of small scale. Extreeme example is President's salary. A new operator will incur substantial orgainzational and legal startup costs, which ATK is long past. Extent of these costs depends in part how hard managment will attack "high cost" union labor. Insurance costs per passenger will almost certainly increase. I do not know if ATK self insures, but insurance is a real economic cost. Mac
First is economy of scale. Since the new operations will be much smaller than ATK, there will be diseconomies of small scale. Extreeme example is President's salary. A new operator will incur substantial orgainzational and legal startup costs, which ATK is long past. Extent of these costs depends in part how hard managment will attack "high cost" union labor. Insurance costs per passenger will almost certainly increase. I do not know if ATK self insures, but insurance is a real economic cost.
Amtrak has shown no ability to produce economies of scale. In fact, they seem to have dis-economies of status-quo. A recent news blurb somewhere mentioned that they had added over 250 mgt positions in the past couple years and the current buyout/layoff hasn't even reached that level. 250 mgt postions to operate the same network? What for?
I think economies of scale could be had if one to the shortline conglomerates or contract commuter agencies took a stab at it.
Your Seattle example: Who is doing the maint for Sounder commuter trains? You are really talking about inspections, brakeshoes and some wheel work, along with some light repair of the HVAC and interior fittings. Specialized work, but not rocket science.
Henry:
That is exactly what NCDOT and NS are doing between Charlotte and Raleigh.
NCRR is North Carolina RR and is owned by the state.
http://bytrain.org/track/
Dave
Lackawanna Route of the Phoebe Snow
PNWRMNM T&E crews. I have a hard time believing anyone would take on the brotherhoods in Obama Nation. Default value I see as no change.
T&E crews. I have a hard time believing anyone would take on the brotherhoods in Obama Nation. Default value I see as no change.
It just happened with the VRE contractor this year! (and will probably happen at CalTrain when Amtrak stops being the operator)
Where is this money to come from. Who will put it up and why?
Bucyrus, I think you know the answer to that one...a freight railroad will not enter into a deal unless it were to make money, it is a for profit business. But, on further thought, what if the passenger company (not Amtrak here) were to offer either incentives, if not outright offers, to make improvements which the freight railroad could not make on its own? Would the trade off of running passenger trains in order to have a railroad free of slow orders and with adequate passing sidings or double track, a working and safe signal system, the ability to move freight trains in faster times with no derailments or overtime? Maybe it would be a 5 or 10 year deal, maybe 99 years, but is it worth doing?
Bucyrus,
The only reason for a freight railroad to get involved would be to make more than the pitifully low fee they now earn for putting up with ATK's disruption of their business.
My prediction is that since there is little to no economic up side, and lots of economic and political risks for the freight railroads, the Class I carriers will not get involved.
Okay, thanks Mac and Falcon48 for that clarification. So the freight railroads would have to approve the proposal and they are free to not approve it. Is there any reason why they would want to approve it? If the proposal were implemented, would a hosting freight railroad make any profit on the deal, would they lose money, or would they break even?
Falcon48 Bucyrus: I think that somebody needs to write another article explaining the meaning of the article linked to the first post. One thing I would like to know is this: Why is it significant that no freight railroad commented on the proposal? The significance of the fact that no freight railroad commented on the proposal is that it indicates that no freight railroad is very interested in the program (otherwise one of their army of lawyers would have submitted comments on it). As I pointed out in another post, the legislation contemplates that freight railroads hosting Amtrak trains would take over the service (either directly or through a contractor). As such, the legislation requires that any attempt to "privatize" an Amtrak route be made by a host railroad or on its behalf. If freight railroads have no interest in the program, it's a dead duck.
Bucyrus: I think that somebody needs to write another article explaining the meaning of the article linked to the first post. One thing I would like to know is this: Why is it significant that no freight railroad commented on the proposal?
I think that somebody needs to write another article explaining the meaning of the article linked to the first post. One thing I would like to know is this: Why is it significant that no freight railroad commented on the proposal?
The significance of the fact that no freight railroad commented on the proposal is that it indicates that no freight railroad is very interested in the program (otherwise one of their army of lawyers would have submitted comments on it). As I pointed out in another post, the legislation contemplates that freight railroads hosting Amtrak trains would take over the service (either directly or through a contractor). As such, the legislation requires that any attempt to "privatize" an Amtrak route be made by a host railroad or on its behalf. If freight railroads have no interest in the program, it's a dead duck.
The original article that started this off is a poorly written commentary on an FRA Final Rulemaking. In general, Federal rulemaking is a two step process. First an agency is directed, prodded, or petitioned to make some change. In this case they were directed by congress to address this subject. In practice this type of rulemaking "fleshes out" the intent of congress.
The first step is an Advance Notice of proposed rulmaking, or words to that effect. At this stage the agency says, via the Federal Register something to the effect that "We must/think we should do THIS about THAT and here are the Draft Rules we propose. You have 60, or 90, or whatever, days to comment. Send your cards and letters to this address.
Durring the comment period anyone who has an interest in the subject sends whatever comments they want. If they propose a change to the draft, and are serious, they will explain why their idea is better than what the agency proposed. The theory is that the regulations will be more complete and more effective as a result of this somewhat adversarial process.
The eleves at the agency then review the comments. They decide what changes to make and what suggestions to not implement. Then they sit down and write an explanation of what they changed and why and what comments they ignored and why. The result is then published as the Final Notice of Rulemaking. The final notice starts with the review of comments which is followed by the text of the new rules.
The author of the original peice, who probably does not spend many of his days slaving on one side of the Federal Register or the other, noticed that some of the commenters might consider running a trin or two for ATK, but did not read either the FRA's response or the rules closely enough to see that the only party who can apply to operate ATK's train must provide infrastructure for that train, and that this provision comes straight out of the law. The FRA will not fudge the infrastructure provision since if they do someone, an evil Classs I railroad no doubt, will sue them, they will loose, and worst of all look stupid. No one wants to look stupid.
I seriously doubt that "Trains" will want to waste ink explaining that their author wrote a nonsense piece because he did not understand the Rulemaking Process.
The railroads did not comment becuase they do not care what the rulemaking says. The law itself put them in control.
Bucyrus I think that somebody needs to write another article explaining the meaning of the article linked to the first post. One thing I would like to know is this: Why is it significant that no freight railroad commented on the proposal?
Would I want to ride a train where a high school girl was in charge? If she's trained, enthusiastic, and capable, why not? Better than some surly staffer putting in time (and tolerating the passengers) until they can retire.
Having been through an Army "Commercial Activities" study, I can say that the biggest fear is that the contractor will low-ball the bid, then up the ante once they get their foot in the door, especially when it turns out that some functions that were assumed (you mean I have to close the door, too?) weren't properly identified and end up costing more. It's a complex task - coming up with a job description/contract requirement spec. Try writing your own job up as a contract spec, then see how much you missed as you go through your day.
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
CHEAPER HELP!!!! I HATE THAT TERM AND SO SOULD EVERYONE! It is what has all but erased heapend American products and services, lowered the quality of life and the quality of products and service results. I am in and industry where hiring non experienced, stars in their eyes, off the street high school graduates has not only cheapened and degraded the product. I had a manager 45 years ago who would often explain that if it were easy and they wanted a poor job, they would have hired high school girts to do the job. A little politically incorrect statement by today's supposed standards but the same thing as saying Amtrak should get cheaper help for its on board staff. Would you ride a train that a high school girl was in charge of your comfort, safety, enjoyment, and anything else you expect in value, quality, and intgrity on a trip aboard a train. CHEAP, CHEAP, CHEAP. It doesn't provide quality, quantity, realiabity, and satisfactory products and services. Nothing to be proud of, nothing to buy, and if bought once, never to be bought again. And I'll tell my friends.
Let's start thinking about investing to provide services and products which will make people want to buy and pay for, something to build the future of jobs and economies on and not set up for the need of a bailouts or do withouts. CHEAP! NO! NO! NO!
Thank you for the cost category breakout. Without a P&L for either a specific train or service, or even ATK LD as a whole, it is impossible to say much with any confidence.
My response to your list is:
On Board Crews. I concur there may be room to cut costs with cheaper help here.
Mechanical. I think you may create more problems by subcontracting. Specifically where are you going to do it and how much will this place cost? Recall my Seattle example, which is a former RR facility on expensive downtown real estate "gifted to ATK in 1971. It is jointly used by at least three services. To pull any one out would involve substantial investment and probably increased switching costs. The best possible outcome at Seattle would be to subcontract with ATK. Other locations may not have this problem but any location will have a union problem. On average I see no savings here.
Stations and Reservations we agree no savings.
I would add categories:
Payment to "host" railroads. No increase is best attainable outcome.
Fuel. No increase is best possible outcome.
Equipment capital cost. Assuming lease from ATK, perceived will increase since ATK capital costs are paid by govt so probably do not show on ATK P&L. I seriously doubt ATK will say "Sure you can use my equipment for free." If new operator purchases its own equipment, the investor is taking a big risk that I doubt any bank, or Wall Street, would finance since the deal is too short to recover capital cost.
Corporate Overhead. May decrease, may increase. First thought is it should decrease since private enterprise is generally less bloated that Government. But there are a lot of buts.
Cost of capital. Will increase. ATK has no cost of capital since the IRS takes it out of the taxpayers pockets. Any new entity will have to raise funds, either internally or in the money market. That means someone has to sell this as an economically reasonable investment. This, I think, is the highest hurdle after freight carrier disinterest.
Dragoman "Sam1" said (bold inserts are mine): ... Government cannot, at least in this country, expropriate property and wealth without due process, which is what they would have been doing if they had forced the railroads to continue running passenger trains that threatened the financial viability of some if not most of the carriers. ... This may be technically true, but it is not exactly "what they would have been doing if they had forced the railroads to continue running passenger trains". They would have been regulating in the (perceived) public interest. Whether it is labor laws, safety regulation, pollution control, or requiring that a common carrier provide, as part of its overall franchise, some service which - though perhaps unprofitable - serves a public interest -- each of these is an example of regulation which cuts into a company's profits for the public good. Let us remember that there is no constitutional right to operate a railroad. It is a common carrier government-granted & regulated franchise, subject to operating in the public interest. ... Given the excellent performance of the freight carriers, why in the world would they want to take on a passenger franchise, which does not cover its fully allocated expenses anywhere? Are we so sure this is such a bad idea? Putting aside for a moment the question of just exactly how much was being lost on passenger operations 40-50-60 years ago (and the documented actions of certain carriers, such as the Southern Pacific, to deliberatey drive passengers away and cause that "loss" to increase), isn't it possible that enough has changed in the last 40-50-60 years to make profitable passenger service a possibility? Rail technology is more efficient, aviation is more expense and less "glamorous", ground transportation is more congested, and trains have become -- again -- the exciting "new" thing. There are places where operators apparently make money operating passenger trains, such as Virgin in the UK (oh yeah, they have "open access"!). And, we should perhaps avoid the "fully allocated" issue -- a good accountant can make any operation look profitable or not, depending on which of numerous legitimate allocation formulae are used. Besides, the much-vaunted airlines lose money all the time, and still they carry passengers. People invest in airlines, which make money, lose money, go belly-up, and investors lose all -- and it starts again. Maybe it is time to give US commercial passenger rail another chance.
"Sam1" said (bold inserts are mine):
... Government cannot, at least in this country, expropriate property and wealth without due process, which is what they would have been doing if they had forced the railroads to continue running passenger trains that threatened the financial viability of some if not most of the carriers. ...
This may be technically true, but it is not exactly "what they would have been doing if they had forced the railroads to continue running passenger trains". They would have been regulating in the (perceived) public interest. Whether it is labor laws, safety regulation, pollution control, or requiring that a common carrier provide, as part of its overall franchise, some service which - though perhaps unprofitable - serves a public interest -- each of these is an example of regulation which cuts into a company's profits for the public good. Let us remember that there is no constitutional right to operate a railroad. It is a common carrier government-granted & regulated franchise, subject to operating in the public interest.
... Given the excellent performance of the freight carriers, why in the world would they want to take on a passenger franchise, which does not cover its fully allocated expenses anywhere?
Are we so sure this is such a bad idea? Putting aside for a moment the question of just exactly how much was being lost on passenger operations 40-50-60 years ago (and the documented actions of certain carriers, such as the Southern Pacific, to deliberatey drive passengers away and cause that "loss" to increase), isn't it possible that enough has changed in the last 40-50-60 years to make profitable passenger service a possibility?
Rail technology is more efficient, aviation is more expense and less "glamorous", ground transportation is more congested, and trains have become -- again -- the exciting "new" thing. There are places where operators apparently make money operating passenger trains, such as Virgin in the UK (oh yeah, they have "open access"!).
And, we should perhaps avoid the "fully allocated" issue -- a good accountant can make any operation look profitable or not, depending on which of numerous legitimate allocation formulae are used. Besides, the much-vaunted airlines lose money all the time, and still they carry passengers. People invest in airlines, which make money, lose money, go belly-up, and investors lose all -- and it starts again.
Maybe it is time to give US commercial passenger rail another chance.
Accountants are amongst the most regulated folks in the country. This is especially true for a public company. Everything an accountant does in a public company is audited by the firm's internal auditors, external auditors, regulators, peer groups, etc. In the Fortune 500 company where I worked the external auditors were on board every working day of the year. Accounting rules in the U.S. allow some room for estimates, etc., but they are relatively narrow. The notion that business organizations are constantly cooking the books to fool the public is without foundation.
The earnings of the nation's airlines have nothing to do with passenger railroads.
Giving passenger rail in this country or any other country, without significant subsidies, albeit in some instances hidden, another commercial chance would be to lay an egg. Having said that, I am all for giving it a go, but I don't believe any business person in his or her right mind would opt to get into the passenger train business without significant subsidies. Which leads me to the point that I have made time and time again. I favor passenger trains - I recognize the need to subsidize them - in relatively short, high density corridors where expanding the airways and highways is cost prohibitive.
Sam1 Falcon48 I appreciate your response. It is well thought out. I agreed that fully allocated cost and avoidable cost are different cost accounting concepts. Allocating shared costs, i.e. management, common overheads, is tricky. And discontinuing a line of business would not eliminate all the shared costs, as you point out, although it could eliminate some of them, i.e. elimination of a passenger reservation system would reduce the amount of CPU capability a railroad's IT group might require. The remainder, of course, would be reallocated to the existing business lines. My perspective is that the railroads by the late 1950s or early 1960s could not cover the variable costs associated with most if not all of their passenger trains. They were eating into the seed corn. I don't have the numbers; I'll bet that they would be hard to get, especially now, but a friend of our family, who was a VP of the Pennsylvania, told us some horror stories about the money that the PRR was losing on its passenger trains, especially after 1958. I worked in accounting, finance, and audit for several Fortune 500 companies for more than 40 years. We had some lines of business that did not earn their fully allocated costs, but as a rule we did not keep them very long, especially if they were not part of our core competencies and business lines. In fact, on several occasions, we spun off lines of business that were marginally profitable on a fully allocated cost basis to obtain the resources to diversify into more profitable lines. I realize that a railroad, which has some of the attributes of a public utility, may not have been as free to drop marginal lines of business, i.e. passenger traiins, as the companies that I worked for, but in the long run a truly successful business covers its fully allocated costs on all of its lines of business or drops them. There is another cost associated with lines of business that don't cover their fully allocated costs, even if they cover their variable costs and contribute something to the fixed costs. Management focus! If management has to spend a lot of time worrying about marginal lines of business, it can lose the focus on the lines that are really important. I believe this is the reason that IBM got out of the PC business. I favor competitive markets. If the politicians would agree to drop the long distance trains, and allow competition in the high density corridors, there may be some operators, perhaps a railroad or two, that could cover the variable costs and make a decent dent in the fixed costs. The pricing structure would have to change. And so too would the management and labor compensation packages. Amtrak appears to behave like a government bureaucracy. Where is the competitive incentive to do things better, faster, cheaper, with the operating word being better? In any case, at the end of the day, creating Amtrak was a huge mistake. To date it has incurred losses of more than $27 billion, with an opportunity cost approaching $80 billion.
Falcon48
I appreciate your response. It is well thought out.
I agreed that fully allocated cost and avoidable cost are different cost accounting concepts. Allocating shared costs, i.e. management, common overheads, is tricky. And discontinuing a line of business would not eliminate all the shared costs, as you point out, although it could eliminate some of them, i.e. elimination of a passenger reservation system would reduce the amount of CPU capability a railroad's IT group might require. The remainder, of course, would be reallocated to the existing business lines.
My perspective is that the railroads by the late 1950s or early 1960s could not cover the variable costs associated with most if not all of their passenger trains. They were eating into the seed corn. I don't have the numbers; I'll bet that they would be hard to get, especially now, but a friend of our family, who was a VP of the Pennsylvania, told us some horror stories about the money that the PRR was losing on its passenger trains, especially after 1958.
I worked in accounting, finance, and audit for several Fortune 500 companies for more than 40 years. We had some lines of business that did not earn their fully allocated costs, but as a rule we did not keep them very long, especially if they were not part of our core competencies and business lines. In fact, on several occasions, we spun off lines of business that were marginally profitable on a fully allocated cost basis to obtain the resources to diversify into more profitable lines. I realize that a railroad, which has some of the attributes of a public utility, may not have been as free to drop marginal lines of business, i.e. passenger traiins, as the companies that I worked for, but in the long run a truly successful business covers its fully allocated costs on all of its lines of business or drops them.
There is another cost associated with lines of business that don't cover their fully allocated costs, even if they cover their variable costs and contribute something to the fixed costs. Management focus! If management has to spend a lot of time worrying about marginal lines of business, it can lose the focus on the lines that are really important. I believe this is the reason that IBM got out of the PC business.
I favor competitive markets. If the politicians would agree to drop the long distance trains, and allow competition in the high density corridors, there may be some operators, perhaps a railroad or two, that could cover the variable costs and make a decent dent in the fixed costs. The pricing structure would have to change. And so too would the management and labor compensation packages. Amtrak appears to behave like a government bureaucracy. Where is the competitive incentive to do things better, faster, cheaper, with the operating word being better?
In any case, at the end of the day, creating Amtrak was a huge mistake. To date it has incurred losses of more than $27 billion, with an opportunity cost approaching $80 billion.
[/quote]
Railroads historically have had (and still have) many service offerings that don't cover their fully allocated costs. The situation as to railroads is different than in many other industries, because joint and common costs are such a large part of the cost structure of the enterprise. For example, many different services are offered over a railroad's principal main lines. The "avoidable" costs of providing any particular service will often not be relatively very great, since the facilities and even the existing train service may still be provided if a particular service offering is discontinued. Because of this, fully allocated cost is a particularly poor measure in railroading for determining whether a particular service offering should be kept or discarded. It's different than a company that has relatively discrete lines of business, which only come together near the top of the organization. The various service offerings of a railroad come together at relatively low levels of production, for example, when carloads of various commodities are assembled into a train
Of course, a railroad, like any other enterprise, must ultimately cover all of its costs. The strategy in railroading has been to differentially price, getting a proportionately higher contribution from traffic which can bear a higher price than from traffic that cannot competitively provide this level of contribution. The "lower contribution" traffic is still attractive, since it provides at least some contribution to joint and common costs that the railroad would otherwise not get. As a result the "lower contribution" traffic will not be shed unless (i) the contirbution becomes negative (ie., the revenues produced by the traffic don't cover the avoidable costs of handling it), or (ii) the railroad determines that can earn more by shedding the "low contribution" traffic and using resources on higher contribution traffic. The second factor wasn't particularly significant when railroads had excess capacity -as they did for most of the post-WWII period. With excess capacity, it wasn't necessary to shed lower contribution traffic to handle higher contribution traffic - the railroad could handle both and was better off if it did so. Today, however, this is a consideration.
Nevertheless, I think you are right that passenger service had become a big loser by the late 1950's (and very likely earlier), and most railroads had a strong economic incentive to discontinue it (it was also a more discrete service offering than most ot the railroads other services) . If railroads weren't required to get regulatory permission to discontinue passenger trains (which, in pre-Amtrak days, they had to secure on a time consuming, train by train basis), it's likely that most intercity passenger services - and any semblence of a national passenger network - would have vanished by the mid 1960's, at the latest. In the absence of exit regulation, most railroads would have simply announced a withdrawal of passenger service and exited in short order, similar to what airlines do today when they determine that they can't viably serve certain markets. Faced with a regulatory requirement to continue offering passenger service, a railroad could either make the best of it and continue offering good service on the trains they still operated until they could discontinue them (e.g., ATSF, UP) , or hold costs to an absolute minimum, which typically led to serious service deterioration (e,g., PC, SP).
I don't think the situation has changed for the better today. In fact, from the standpoint of a freight railroad, the presence of Amtrak trains is, in many ways, worse than the olden days. Most railroads had excess capacity in the last years before Amtrak so, while the passenger service might be a big money loser, it didn't directly impact a railroad's physical ability to provide freight service (although the resources the passenger losses drained from the industry definitely impacted freight service, albeit indirectly). Today, at least on the major railroads, Amtrak passenger service usually consumes capacity and other resources the host railroad would otherwise use for profitable freight business - a significant opportunity cost to the host road. I don't see any reason a freight railroad would want to get involved in running Amtrak services itself. If it "took over" an Amtrak route (either directly or through an operator) it would still have the passenger trains on its system and would also incur the other costs of a passenger service which Amtrak now incurs (and is unable to fully recover from its fares). Looks like a non-starter to me.
CSSHEGEWISCH I don't think that the bottom line of passenger train operation has changed that much since 1971. The question is still over how much of a loss are you willing to tolerate. It would be interesting to see how much the various British passenger operators bring to the bottom line, also comparing their accounting standards and practices with ours. I have a question for sam1: if government has no reason to be in a commercial enterprise, how come that great socialist enterprise known as the Tennessee Valley Authority has not been privatized?
I don't think that the bottom line of passenger train operation has changed that much since 1971. The question is still over how much of a loss are you willing to tolerate. It would be interesting to see how much the various British passenger operators bring to the bottom line, also comparing their accounting standards and practices with ours.
I have a question for sam1: if government has no reason to be in a commercial enterprise, how come that great socialist enterprise known as the Tennessee Valley Authority has not been privatized?
An interesting question.
The Congressional Budget Office (CBO) makes recommendations each year on how the federal government could streamline its operations and thereby reduce the cost of the federal government. One of their recommendations is to privatize a significant portion of the TVA. Will it happen? Not likely.
Once an activity is assumed by the government, placing it in a competitive market, which is the great fear of people who don't understand the nature of competitive markets, becomes nearly impossible.
PNWRMNM Don, You are right about negative bids, that is how much will someone have to pay the contract operator. Since all long distance trains loose money, it is nonsense to immagine that anyone can operate a fragmented system cheaper than ATK can. Where are the economies to come from? Is labor going to take a cut so NS crews can replace ATK crews on the Crescent? Is UP going to speed up the Sunset enough that they can squeze a train set or two out of the equipment pool? If BNSF takes over the Seattle Coach Yard for the Empire Builder, will they contract with ATK to supply the labor? What about the WSDOT Talgo trains and the Coast Starlight and the Internationals that are also serviced here? This whole thing is a bit of political theater that I think the Class I carriers are smart enough to avoid. Mac
You are right about negative bids, that is how much will someone have to pay the contract operator. Since all long distance trains loose money, it is nonsense to immagine that anyone can operate a fragmented system cheaper than ATK can. Where are the economies to come from? Is labor going to take a cut so NS crews can replace ATK crews on the Crescent? Is UP going to speed up the Sunset enough that they can squeze a train set or two out of the equipment pool? If BNSF takes over the Seattle Coach Yard for the Empire Builder, will they contract with ATK to supply the labor? What about the WSDOT Talgo trains and the Coast Starlight and the Internationals that are also serviced here?
This whole thing is a bit of political theater that I think the Class I carriers are smart enough to avoid.
I owe you more about the "where" the savings would be.
Crew: the new reg says the new operator has to first consider existing Amtrak employees, but it doesn't say it has to eat Amtrak's contract with labor. So, possible savings there.
On board crew: doesn't have to supply one at all. Could sub the whole thing out to Marriott who could pay prevailing hospitality wages plus some.
Mechanical: Could sub it out to local commuter agency, RailAmerica, etc. Or, could hire a couple of guys of your own. Would save on local supervision Heavy work would still belong to equipment owner (Amtrak, most likely - no savings on heavy work)
Station and Reservations: Amtrak's are available (no savings)
What did I miss?
In 1971, Amtrak was about a whole lot more than preserving passenger service on the Penn Central, and the proof is it did little enough of that. (No service at all, to start, on the old Water Level Route west of Buffalo.)
Nor was Amtrak an "emotional" sop to the comparatively few passenger-train riders who were left. The main emotion involved was Washington's naked fear that a whole bunch of other railroads might follow PC into bankruptcy, which was not an unrealistic fear at that time.
Preserving a few trains and routes for a little while, as the politicians originally envisioned, was the political way to ease into eventual abandonment of the service. Also typical of temporary political creations, Amtrak ended up staying around for a while longer.
Which is not to say, as argued above, that circumstances haven't changed and maybe we really do need Amtrak, in one form or another, at this late date.
[quote user="Murphy Siding"]
"... Where would this proposal lead, if one of the bidders was a railroad, like, say, BNSF? Who better to understand how to make money on the rails, and who better to know how to work with the freight railroads?.."
To drop back and pick up on what Norris has said, plus the statement in the article. It was stated that one of the problems that the Government had found with their search for a bidder to contract out the AMTRAK, it was specifically mentioned that NO Freight Railroad had shown any interest in operating/contracting with Amtrak to operate passenger train routes as contractors or with contractors.
As mudchicken mentioned Vieola(?) is apparently going out of this side of their business (passenger operations, at least in the US.) Herzog was the other interested party mentioned in the article. I would make the point that operations of LD service is much different than commuter operations, so I would suspect that there is going to Have to be some sort of 'carrot' dangled in front of the interested bidders to get them to follow through.
AMYRAK has been the industries 'red-headed step child' since its inception. Bruised and operationally abused by its hosting railroads. Not to mention the financial and sadomaschostic style of budgetary financing practiced in the Congress and Senate as it deals with AMYRAK. It is an insane way to treat a business that would cripple it financially, as to any planning. It seems a style more fitted to those who seek to hinder and eventually do away with it , as to try an make it a viable system.
I don't think it's nonsense that there exists someone who could run the LD trains cheaper than Amtrak. Amtrak is not a model of efficiency and the commuter operators already have most of the back office staff and systems they'd need to make it go. I suspect they sub-out the food and possibly the sleepers.
But you are spot on about it being political theater. No class 1 is going to want to talk about this much less touch it.
My point was in fact that Amtrak was born of different circumstances and procedures, etc. than we have today....so to superimpose today's thinking atop 1971 will not give you the answers needed. Nor would today's answers be the right answers for then. We need to know and understand history, then think what is today and see what we learned from the past and what we don' t know about the present.
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