More, not less traffic?

[oltmannd]

Mark is right. It's very tricky business. Railroads, by their nature have very high fixed or long term variable costs and how you allocate these costs to the traffic can be tricky. Here's an example:

Suppose a certain customer offers you one more car a day - he supplies the car - in a lane where you already have train service. That is, this additional car would ride on local and road trains you already are running. It may take an extra few minutes to pick up this car, but the local train crew is already paid for, so there is no new out-of-pocket cost. This car will use various yards and terminals along the way, but no new out-of-pocket labor costs are incurred here, either. Same for road train crew costs. Now, this single car will cost you some fuel and some wear and tear, but lets say, the total new actual cost for this car is $200 for the trip. Let's say that your marketing & sales guys say you can charge $500 for the each shipment. Do you take the business? Sounds good - $300 net to the bottom line. That'll help the operating ratio, right? Well, maybe.

Suppose the typical revenue for a similar move is $1000, and a lot of that is now going to cover your fixed cost of owning and operating the train service network. Now suppose, over time, that you take on more and more of the $500 traffic until you capacity problems. Now, an additional car might cause the local crew to outlaw - or 50 cars to miss connections at a hump yard, or a whole extra section of a thru frt to be operated. Worse yet, some of that $1000 a carload traffic goes away so that what you thought was incremental business is now your base traffic - and it doesn't pay enough to cover your fixed costs.

This was the fix that PC and early Conrail found themselves in with intermodal traffic. It was priced and operated as if it was incremental traffic - all that car load traffic from the industrial northeast was paying for all track, terminals, staff, etc. But, when the industrial base shrank and intermodal grew, the result was red ink. It took Conrail 15 years to figure out how to make money at intermodal.

The whole issue of how you allocate costs is interesting, as well. Suppose you want to know how much it costs you to switch a car at a hump yard. You take your total costs and divide by the number of cars handled, right? Well, if your cars handled goes down 10% (so that you are now running at 85% of capacity instead of 95%), your cost per car goes up. Maybe, this extra cost means some traffic is now unprofitable. You raise the rates to cover and the traffic moves to truck. Now, your cars handled goes down again....

Incremental traffic, that is truly incremental and takes advantage of unutilized capacity can add quite a bit of money to the bottom line, but it's a dangerous game to play and identifying and allocating costs must be done with both eyes open.

[Anonymous]

Do these railroad managers use some formula e.g. ton/miles or car/miles to determine how many cars per train are needed to reach the break even point? The idea that they can't run a profitable train with 10 to 15 cars is anethema to me. There are plenty of branchlines out there that host no more than 25 or so carloads per week. Are these branchlines holding their own, or are they in effect subsidized by the mainline trains?

Dave

[Junctionfan]

Couldn't they operate it anyways just have an "as required" train and anything small like 10 or 15 cars could go onto a mixed freight. CN does this with train 155. Apparently this Buffalo to Toronto train run rarely because it is usually 5 or 10 cars or less and therefore train number 338 takes it. Occasionally though the first 90 cars can be double stacks. Sometimes they should run 155 for that much but oh well; it works. This is actually one of the few things that Hunter Harrison has done that I agree on.

[TH&B]

The "hi volume" advantage of rail is realy hi volume between A and B, not hi vlume from/to all over the place. Long distance is often realy just collecting traffic at A and moving it at hi volume to B. The effficientcy of the train on hi volume on a long journy can be enough to overcome the costs of distribution. Trains don't have the flexability that trucks do, and may not need it for mine to power plant.
The main thing about the Alameda corridor to the Port of LA is that it got built, ((just as with the chunnel)) it is needed even if traffic patterns do change and it may have a slow start. It is a rare medium to long term investment. Besides trucks should pay real cost user fees to avoid too much major hiway congestion. The truck traffic that realy needs to use that hiway route should and will be also able to afford the real costs and then get a better less congested drive along the route. Trucks using a certain hiway route because the access charge is below the real cost is bad ecconomy ((somebody will go broke, maybe the hiway owner... that is the government)).
Reducing level crossings alone is as good a reason as any to build.

[gabe]

Mark,

I don't doubt your contention that railroads are unprofitable in short haul, even when dealing with high volume. However, something I have always wondered, if this is this the case, how can those coal mine/power plant with a 1 to 2 mile haul ever be profitable? It would seem to me if coal mines find it more efficient to use a rail line to haul bulk the one mile to a power plant this efficiency would hold true for other areas?

Why does this short haul work via rail and others do not?

Gabe

[MP57313]

QUOTE: Originally posted by M.W. Hemphill
It's cheaper to truck from dock right to the sort center than to truck to the intermodal yard, load, haul 50 miles by rail, unload, and truck across the street again to the sort center. Even if the corridor tolls were free, it wouldn't change this much. Goes to show how uncompetitive rail can be for a short haul, even a high-volume short haul.

You can see this on I-710. It runs directly north from Long Beach and is a few miles east of, and parallel to, the Alameda Corridor. The 710 has heavy truck traffic on weekdays (not as bad on weekends) and carries a lot of the freight traffic that people had hoped would ride on the Corridor.

In more recent articles about future grade separation projects ("Alameda Corridor East" along the UP (SP) Sunset route through San Gabriel), the emphasis is now on grade crossing elimination and there is less mention taking trucks off the highways. The articles discuss truck traffic indirectly by stating that rail traffic is projected to increase...

[MP57313]

QUOTE: Originally posted by erikthered
Is this a seasonal event, like grain trains in the fall?
Erik

Certain items (imported toys for Christmas/holidays) are seasonal, but I don't know that the other loads fluctuate that much from month-to-month. Generally, the trend is up, up, up.

Recent news articles have shown that the Alameda Corridor fees are a dis-incentive for some all-rail hauls. Some stuff is trucked inland (Hobart Yard?) and then transloaded to rail there.

UP has been running ads for carmen in the local papers. Need to be able to work any time day or night.

[wcfan4ever]

I would hope this would increase traffic. Not like UP neends it with the shortage of crews but its good money.

[oltmannd]

When I was in the Conrail Intermodal dept in the mid 90s, I learned that the steamship traffic from the west coast ports did have some seasonality to it. It generally peaked in August and Sept with imports for the Christmas season. The domestic intermodal traffic tended to peak about a month later, and finally, the UPS peak was Thanksgiving to Christmas.

I suspect that we moved some of the same goods three times. FIrst from port to distribution center. Then, from there to a retail store, and finally as a UPS parcel to Grandma!

[Anonymous]

Was listening to National Public Radio this AM about hiring longshoremen in Los Angeles. Here's a summary:
1) There are 3000 job openings. There are 300,000 applications, so many that California is having a lottery to pick applicants.
2) Container ships were mentioned. One state official said that import traffic had expected to increase 7%- now they are expecting something in the neighborhood of double or triple that, which is why they're hiring.

It would seem to me that unloading containers is just step one in the process.

If the Port of Los Angeles is catching a 14% annual increase in intermodal (container) traffic, and-
-only two railroads- BNSF and UP- serve LA,
does this not mean that BNSF and UP should reasonably expect a 14% increase in intermodal traffic?

How would this effect hiring patterns for the railroads? What effect does something like this have on traffic planning for the railroads? Is this a seasonal event, like grain trains in the fall?

Erik