My son works 3PL and deals with this all the time. I didnt realize OKC was such a black hole. Is there no manufacturing there? I understand there is considerable oil production in the area, but there is nothing else?Ed
Sure like your perspectives, IronEagle. They show rail opportunities as well as woes that you share with the rails. I always wish truckers well as enterprising, hardworking hombres who could be role models for SOME, by no means all, railroaders who think the world, or their company, owes them a living.
Fred Frailey Iron Eagle, this dialogue has been instructive to me. Another black hole is South Florida. Truckers hate to send their tractor-trailers 350 miles south into the state. It is totally unproductive. The drivers fight their way down I-95 and then contend with the traffic nightmare and there is nothing to backhaul because South Florida, like Oklahoma City, produces nothing. This may account for the success of Florida East Coast on a very short 350-mile route. Truckers do better giving southbound loads to FEC at Jax, letting FEC dray the trailers at the other end and send them back empty, while the tractors and drivers backhaul out of Savannah. Fred Frailey
Iron Eagle, this dialogue has been instructive to me. Another black hole is South Florida. Truckers hate to send their tractor-trailers 350 miles south into the state. It is totally unproductive. The drivers fight their way down I-95 and then contend with the traffic nightmare and there is nothing to backhaul because South Florida, like Oklahoma City, produces nothing. This may account for the success of Florida East Coast on a very short 350-mile route. Truckers do better giving southbound loads to FEC at Jax, letting FEC dray the trailers at the other end and send them back empty, while the tractors and drivers backhaul out of Savannah.
Fred Frailey
Before FEC was taken over by its current owners (Fortress Investment Group?), company management was considering working a Meridian-Speedway-in-reverse deal with NS, which would have had FEC furnishing the money to upgrade NS's Macon, GA to Jacksonville line. FEC could then pick up trailers bound for Miami in Macon and haul the empty trailers back to Macon for the truckers. That would have left truckers to pick up loads in Macon, Atlanta or Birmingham without too long a deadhead move.
In re: IronEagle2006, 11-28-12, 12:10 AM
I'm always fascinated and interested by posts such as yours from someone active in toady's freight transportation marketplace. Thanks!
I would like to have a better understanding of the difference you see in your economics today (2012) versus 2008. You stated, " I used to profit at a Buck a mile in 2008 before Fuel Prices Jumped." But now, "I refuse to even turn my key on for less than 2.40 a mile for all miles from where I am sitting."
Diesel fuel has increased dramatically, and if I calculate correctly, it has gone up about $0.40 to $0.50 per mile. (Roughly doubling (+$2.50/gallon) @ 6 miles/gallon.) This suggests that other expenses have increased about $1.00 per mile. I would be interested to know more about those other expense items.
Thanks again!
CNSFWhen I worked at CN, there was a lot more freight moving from Toronto to Canada's maritime provinces (NB, NS, PEI) than there was coming back west. CN's only option in that lane was to work as hard as possible and price as low as possible to get as much of that westbound freight as it could, and even then it had to haul some empties back some of the time. However, the maritime provinces exported more to the northeastern US states than they imported. So the truckers got headhaul rates from Toronto to the maritimes, then another headhaul rate from the maritimes to NY, NJ, and PA, where they then looked for loads back 'home' to Toronto. CN didn't have that option - it doesn't serve that 'triangle'. On the other hand, CN could afford to sit on empties for a few days waiting for outbound loads because it only had trailers waiting, not drivers and tractors, too. So CN was more constrained by limited lanes, while the truckers had to worry more about how quickly they could get the next load. Sadly, it's never easy to make money.
Well, that's a tough one. Toronto to the maratime provinces, to the mid Atlantic states, then back to Toronto. I don't know of a good rail service route from the maratimes to the mid Atlantic states.
But..
The situation described is not unique to the railroad industry. The case where a single manufacturer (think of CN as "manufacturing" transportation) cannot, on its own, meet a market need is a common business problem. It's been called "descrepancy of assortment." One common solution is the use of a middleman (like a wholesaler) that buys components from various manufacturers and bundles them for sale.
This triangle of the maratime provinces looks tailor made for operation by a 3PL firm (middleman) that could buy transportaiton from various railroads and bundle it into a triangulated system that fits the freight market. Of course, there are a lot of conditions. Volume being a big one. Equipment control and interchange will have to be worked out, etc. Ideally the containers, the rail cars, the locomotives, and even the crews would run the three legs of the triangle. (Maybe the 3PL would own the equipment and employ the crews.) Just like the trucks and their drivers. But, of course, there has to be a reasonable rail route from Hallifax to Harrisburg along with volume. Just sayin'.
The ability to triangulate may be the next level for rail intermodal. There isn't a transportaiton firm in the world, from Ironeagle and his truck to United Airlines, that doesn't have to run some empty miles. None of these firms likes empty miles, but non-revenue miles are an unavoidable fact of life in the transportation business.
While motor freight is inherently more flexible than rail freight there are major offsetting cost advantages to rail. (given a decent volume.)
Let's go back to Oklahoma City. OK City is an inbound location. Containers/trailers go empty there and have no outbound loads available. What to do? Well, you can just refuse the freight in to OK City. Or, you can triangulate. If the empties from OK City are moved over to Amarillo there's all the outbound freight anyone can use. What's the cost of doing this? On a railroad the incremental cost to move the empties is quite low, providing existing train service is used. The railroad would need to build this incremental cost into its rates.
What's in Amarillo? Beef. Lots and lots of beef. The Texas panhandle and nearby southwest Kansas produce 42% of the beef in the US. Where does this beef go? Well, a whole lot of it goes west to California. So if you're using REFRIGERATED CONTAINERS (they all gasp) you've now got an empty reefer in Calfornia. That's not a problem, it's an opportunity. An opportunity for an eastbound transcon load of produce.
Important aside: The perishables market is the only long haul, high volume freight market in the US where the railroads have a marginal market share. To get this good revenue freight they need to be able to move reefer equipment into California under revenue load. That's the key to the whole thing.
While Calfornia produces the fruits and vegetables, they have to bring in the animal protein that goes on the plate. The truckers run beef, pork, and a whole lot of chicken in to California and come back out with produce. (The pork and chicken have longer hauls.)
It's basically an equipment control problem. And I don't understand why it's not easily solveable. Here's the circuit: 1) dry load Chicago to OK City, 2) empty to Amarillo, 3) beef load to California, 4) lettuce to Chicago. It doesn't seem hard to me. But apparently it's the next level for intermodal. There will be some empty miles. But everybody has to run empty miles, including the truckers.
OK, nobody get mad at me. I'm just sayin' here.
One fact of transportation, all modes, carriers provide service where there is money to be made on a continuing basis and where the costs of providing that service are less than the revenue from that service. If a carrier can't make money there is no incentive to continue providing service.
Never too old to have a happy childhood!
Ironeagle2006 I did some Research on the 53Foot Refrig Containers you talking about. The 2 Carriers that I can see that bought them are England and JB HUNT. I asked a driver for England that I ran into if he every Pulled one he said NO he could not he was to HEAVY to even try. He was a Regional Company Driver. With their Chassis they are 6K LBS Heavier than a Normal Spec trailer they run. 3 TONS of weight they can not haul. No one that ships Meat will load a trailer that will load 3 TONS less than a standard trailer will hold. Meat haulers are about the last Hold outs of 48 Foot trailers why they can scale almost 1000 More LBS than a 53 Foot Trailer so you want to haul 3.5 Tons less in a Container unless your hauling it for Fuel your not going to get many Takers.
I did some Research on the 53Foot Refrig Containers you talking about. The 2 Carriers that I can see that bought them are England and JB HUNT. I asked a driver for England that I ran into if he every Pulled one he said NO he could not he was to HEAVY to even try. He was a Regional Company Driver. With their Chassis they are 6K LBS Heavier than a Normal Spec trailer they run. 3 TONS of weight they can not haul. No one that ships Meat will load a trailer that will load 3 TONS less than a standard trailer will hold. Meat haulers are about the last Hold outs of 48 Foot trailers why they can scale almost 1000 More LBS than a 53 Foot Trailer so you want to haul 3.5 Tons less in a Container unless your hauling it for Fuel your not going to get many Takers.
The CR England reefer containers can handle 43,500 pounds of lading legally over the road. And that'll do.
It's true that a container/chassis combination will weigh more than a regular trailer. But, you can get weight back by using a day cab tactor speced out for a lighter weight. There might be a few pounds difference, but the tremendous cost efficiencies of rail container movement compared to over the road movement will more than offset the slight weight loss.
Certainly, the weight loss will be no where near 3.5 tons. At most I believe you're facing a 1,500 pound differential, or 0.75 ton. (And that's a maybe.) What counts is the cost per delivered pound of meat. And there isn't a trucker in the US than can come close to double stack economics on the long hauls of meat and/or poultry to the west coast.
CNSFIronEagle's right, the southwest is a big place and the outbound produce market moves around with the seasons. That means you can count on another empty move between your inbound load of beef and your outbound load of whatever. It's also worth noting from his example how much equipment cycle time is added by the (usually) once-daily nature of the terminal and train operations. An empty move that takes a few hours over the road will almost never take less than two or three days by rail. For an expensive asset like a reefer that time isn't immaterial. And no, that empty move isn't just incremental, because although the train might be running anyways, the flatcar wouldn't have been, and the drayage and terminal handling costs the same as for a load. Add to all that the fact that, in many places, empties are only handled on certain off-peak days of the week when the terminals and trains aren't chock-full of loads, plus the question of what do you do when one reefer unit fails under load on a train in the middle of nowhere, and you can start to see why intermodal's reefer market share is so small. That's not to say these challenges couldn't be overcome by really focused management, but as long as there's lower-hanging fruit still available, you keep picking it first. That said, railroads do triangulate where they can, it's just that they have fewer options that they can do efficiently enough to compete. At Santa Fe we balanced Texas by running a Chicago-Texas-California-Chicago triangle, and the reefers we had running out of California carried UPS or mail out of the Northeast back to LA, and then were repositioned empty to Fresno, Stockton, or wherever for their next produce load.
Yes, I know the harvest shifts around. You are going to have to move empty equipment to the loads. I don't see it as a big deal. The truckers have to do that too. And they have to do it at a much higher cost than the railroads. Ironeagle certainly was not right in his statement that the closest rail intermodal terminal to Yuma is LA - 400 miles in the wrong direction. The closest rail intermodal terminal would be Phoenix - 200 miles in the right direction. And, given the right conditions, the railroads can always put intermodal terminals near the growing areas - not every IM facility has to be on the order of Willow Springs. The IM terminal in Quincy, WA located near the apple orchards is an example of how to do it.
I do agree that issues such as getting the empty equipment to the loads and expanded triangulation could be solved by focused management. And therein lies the problem. There's mismatch between the railroads and the market that has nothing to do with the ability of the railroads to profitably handle this business. I think you told me that the BNSF wouldn't assign a salesman to a customer unless the customer did $1,000,000/year. This mismatch can be called "descrepancy of size". The railroads are great at dealing with the likes of UPS, JB Hunt, Peabody Coal, etc. But when a huge market is made up of smaller shippers the railroads simply don't connect with it. If they're not connected with the market they cannot focus on the market. The result in this case is that billions of dollars of high volume, high revenue, long haul freight moves over the road.
As to the marginal cost issue: The empty positioning moves are not marginal costs. But they cerainly do have marginal costs. Marginal cost is not something a movement is, marginal cost is something a movement has. Every movement on a railroad has marginal costs. Even the crude oil unit trains out of the Bakken have a marginal cost. That's the out of pocket cash. It's the absolute floor below which the railroad is worse off handling the business. If you cover that money flows to the bottom line. A railroad will go out of business if it only charges at the margin, they do have to cover average cost in the aggregate. But looking at the marginal costs of a movement IN CONTEXT is a very good way to help evaluate things.
The malfunction of a reefer unit in transit doesn't seem to be much of a problem. The railroads do move refrigerated business successfully. RailEx, Cold Train, and others get their shipments to market in good condition. Reefer units do quit running. But it seems to be a manageable problem.
I'll wrap this ramble up.
Rob Leachman (former UP employee) has an excellent two part article in the Union Pacific Historical Society's publication "The Streamliner". It deals with the last gasp of the Union Pacific and PFE to hold on to the carload perishable business. The transcontinental service was "good enough" but the government held down the rates. If you know of the time (1966-1976) you know it was a time of high inflation. The railroads had to eat cost increases while the government would not allow them to increase their charges. (the competing truck rates were not regulated at all)
Finnaly, the SP had had enough. It wasn't going to provide premium service at low rates. Once the railroads exited the market, courtesy of misguided, unneeded, counterproductive economic regulation, they lost the ability to connect with the market. They've yet to reestablish that connection. They no longer seem to have the corporate cultures to do so.
That's the real problem here. The railroads can handle perishables just fine and make a good buck doing so. But they don't have the structure, culture or people needed to develop the business.
Greyhound:Completely off topic, but if you want to see how railroads lose contact with a market and how railroads GAIN contact with a market, read the new edition of Indiana Railroad.
INDR are masters at developing a market where the Class 1s pass it by.
This is an excellent thread/discussion on the economics of transportation. Thanks to everyone for input, particularly from a trucking standpoint.
Ed
Ironeagle2006 Greyhounds I hate to Disagree with you however even with my PTO and Blower Equipped Tractor when I do haul loads for my Boss in our Vans and then with our Reefers I have to be able to Scale OVER 46500 with Full Tanks to be COMPETE with the Larger Fleets coming HOME from the West Coast. There are Carriers out there like Prime and EL Henderson that can and DO shove 48500 in their 53 foot Trailers and not have to Worry about Scaling their Trailers at ALL. 5K LBS when your being paid by the Hundred weight is ALOT of Revenue that your just Throwing away. My last Load from Salinas was 46K LBS in the wagon and I made 2.75 per Mile based on the Hundred weight rates Now I lose 3K LBS on my Load I lose 40 Cents PER MILE of my Revenue and I AM LOSING MONEY on every mile for 2300 MILES that I run. I would have lost close to 1500 Bucks if I could only Scale 43500 in my Trailer coming back from CA. See why Weight is a Issue with the Containers. Also with the Weight Penalty your going to need More of them to get the Same amount of Product to a Place say your Shipping 460K LBS of Meat to a place you want to ship 11 Containers that will take an Extra 3 Days and then you have to find Reloads for them and then get them back to the Meat plant or 10 Trucks that can haul it all then get them back a Week FASTER. The Reason I am saying LA for the Shipping point is SIMPLE size of the Area also in the LA area you have Bakersfield that you might be able to get Carrots and Grapes when they are in Season. Plus your going to have ALOT more inbound Containers coming INTO LA than into Phoenix and what are you going to need if your trying to do this EMPTIES. You do not want to be a Can Hauler having to haul your Load to PHX then have to Deadhead to LAX to get your Next Empty called Minimize your Empty Miles if at all Possible.
Greyhounds I hate to Disagree with you however even with my PTO and Blower Equipped Tractor when I do haul loads for my Boss in our Vans and then with our Reefers I have to be able to Scale OVER 46500 with Full Tanks to be COMPETE with the Larger Fleets coming HOME from the West Coast. There are Carriers out there like Prime and EL Henderson that can and DO shove 48500 in their 53 foot Trailers and not have to Worry about Scaling their Trailers at ALL. 5K LBS when your being paid by the Hundred weight is ALOT of Revenue that your just Throwing away. My last Load from Salinas was 46K LBS in the wagon and I made 2.75 per Mile based on the Hundred weight rates Now I lose 3K LBS on my Load I lose 40 Cents PER MILE of my Revenue and I AM LOSING MONEY on every mile for 2300 MILES that I run. I would have lost close to 1500 Bucks if I could only Scale 43500 in my Trailer coming back from CA.
See why Weight is a Issue with the Containers. Also with the Weight Penalty your going to need More of them to get the Same amount of Product to a Place say your Shipping 460K LBS of Meat to a place you want to ship 11 Containers that will take an Extra 3 Days and then you have to find Reloads for them and then get them back to the Meat plant or 10 Trucks that can haul it all then get them back a Week FASTER.
The Reason I am saying LA for the Shipping point is SIMPLE size of the Area also in the LA area you have Bakersfield that you might be able to get Carrots and Grapes when they are in Season. Plus your going to have ALOT more inbound Containers coming INTO LA than into Phoenix and what are you going to need if your trying to do this EMPTIES. You do not want to be a Can Hauler having to haul your Load to PHX then have to Deadhead to LAX to get your Next Empty called Minimize your Empty Miles if at all Possible.
OK, don't be hesitant to disagree. (I don't sense that you are.) This would be a pretty dull discussion board if no one disagreed. It's too bad that some folks really get defenssive when when someone disagrees with them. It's not like anyone knows everything. If you say you pulled 46K out of Salinas I'll certainly take your word for it. It is foolish to argue with someone who has first hand knowledge of what actually happened.
So if I've got a rail reefer container that can only load 43,500. just what do I do? Well to start out with I have to discount the rate. You've got me beat by 2,500 pounds and I have to compensate for that in the rate. I've got 5.4% less lading.
Your "I don't turn the key" minimum rate is $2.40/mile. I'll use that as the competitive figure. So right off the bat I've got to discount to $2.27/mile to make the cost per pound equal. (I hate doing that, but there's no choice here.) Now, all things being equal ratewise, they're going to use truck transportation over rail. So I've got to sweeten the pot.
I'll give the customer a 10% reduction. That takes the rail charge down to $2.04/mile. In double stack service a railroad will mint money at $2.04/container mile. Your minimum cost to the grocer woould be $0.12/pound at 2,300 miles. The really profitable rail container cost to the grocer would be $0.108/pound.
The grocery business runs on very low margins. They'll be very tempted to save that penny+ per pound. It will hit their bottom line. And the grocers do need that type of savings.
It would be much better if the rail equipment could load heavier. But right now, it'll do.
If you were hauling 48,500 pounds the rail rate would have to be further reduced to $1.92/mile. No worries. That's still a big money maker with double stack service.
In re: The posts of IronEagle2006 on this thread.
Sir, your posts resonate with reality. I am reminded of my early days as a railroad pricing guy (way back in the 1970s!), and my battles with the old heads about truck competition. I did a lot of competitive analysis then, and that even included logistics (LOL! I, naturally, like the UPS commercials these days: "We (heart) logistics.")
One of my favorite resources was a little book entitled, How to Succeed in Big-Time Trucking, which was written in the same "voice" as we hear on this thread from IronEagle2006. It was all about the customer, really, but chock-full of the realities of truck operations and simple, meaningful economics. (I never fail to be impressed by the practical insights of small business folks.)
I would go into "Rate Bureau" meetings armed with the simple stats of transcontinental trucking/logistics competition, for example, and be politely (usually) told that there was no way that Sam Tanksley Trucking of Cape Girardeau, MO (for example) was ever going to be a meaningful competitor of the mighty SP (for example), hauling finished paper from Tennessee to California and returning with fresh produce to the Midwest. Or Midwestern Distribution out of Ft. Scott, KS, or that nobody-trucker out of Arkansas ... what's his name? ... oh yeah, J.B. Hunt. After all, everybody (in the railroad business) knew that truckers weren't competitive over 500 miles, blah, blah, blah. Besides that, everybody (in the railroad business) knew that the only reason truckers survived at any distance was because they were subsidized, and therefore were to be scorned as pesky, but non-serious, competitors until the lobbyists could get the diesel fuel tax raised.
Funny, sorta ... I keep seeing repeated the "story" that in the 1960s and 1970s the transcon railroads were not allowed by the ICC to raise rates on the perishables fast enough to keep up with their costs, and therefore the roads had to forego the business. Indeed costs were going up fast and there was somewhat of a lag between the latest labor giveaway by railroad management and the rate increases granted by the ICC. Funny thing was, though, the whole "railroad CEOs vs ICC" furor was played out as if truck/logistical competition was irrelevant. Transcontinental logistics costs were going down as freight shifted from rail to truck.
Careful analysis showed that the routine application of across-the-board percentage rate increases raised the transcontinental railroad rates far faster than trucking/logistics costs were rising. The ironic result was a railroad rate umbrella over the truck competitors, which umbrella was of the railroad industry's own making, not that of the ICC. Millions of tons were diverted from rail to highway, and only now is some of that market share being regained. (The authority granted by the ICC to increase rates was totally permissive, and such increases could be freely waived to meet competition. The Southern Railway was widely despised in the industry throughout the 1970s because it routinely applied competitive analysis to all general rate increases, and it frequently "flagged out" of the increases on its traffic to remain competitive.)
The point of my reminiscing: Simplistic dismissal of a small competitor because his business model seems too simple is risky business. "I (heart) logistics."
Ironeagle2006 Figure with a 400 Mile Dray each way to Load then the 100-200 at the end to Unload it your up to 1000 Miles of dray Total so your looking at 3100 Miles. Almost a 1000 Miles MORE than what I can haul it Door to Door then you have the Extra 3 maybe 4 Days In Transit. Most Soft Produce like Lettuce and Strawberries you have 4 days more in Transit your going to loose 30-40% of the time you can have it on the Shelf. I asked a Buddy of mine that works for a Grocery warehouse that ships out anything you could think how long Produce sits in their Warehouse. They turn over EVERYTHING at least 2 Times a Week in Lettuce and other Softer Items Onions and Potatoes are Turned over Weekly. That give you a Clue how Fast they get it out of the Warehouses. Only at the Packers do they have the Enclosures that can store the Stuff safely in stuff like Onions and Potatoes so they can last but still Most places still turn those over in less than 3 Months. You think Lettuce is Bad on Bruising or Spoilage try Apricots and Cherries We call them the walking Diasaters. You look at them wrong and you will have a Claim. On 1000 Miles of Dray your looking at about 180 gallons of Fuel in the Truck being Burned Plus the Wages of the Driver even if the Drivers are using Old Equipment which in CA they can not anymore your still looking at a cost of close to 2 bucks a Mile in Dray Costs. Called a Friend of mine that knows another Owner of another Company that does some Draying of IM Trailers and Right now he is getting 2.25 a Mile out of Chicago to haul them for all miles. He has a Dedicated Contract for Wal-Mart and grabs loads for them and takes the Empties back. His round trips from Chicago are right at 200 Miles Total Distance. So 450 lets look at your Model shall we 2250 in Drayage Fees on both Ends then it takes the Can 3 more days to get here. Then you have roughly 4K to move the Can in a Z train to IL as you do not want to Delay it. So we are at 6600 Rough Estimate total costs with 3PL movers or even LP drivers as those are their Rates they are getting with FS. Compare that to my 2.40 a Mile for 2200 miles I am coming out roughly a Grand Cheaper and I am Faster. Than and I can haul More So you still think a 53 foot Refrig container is a better Option.
Figure with a 400 Mile Dray each way to Load then the 100-200 at the end to Unload it your up to 1000 Miles of dray Total so your looking at 3100 Miles. Almost a 1000 Miles MORE than what I can haul it Door to Door then you have the Extra 3 maybe 4 Days In Transit. Most Soft Produce like Lettuce and Strawberries you have 4 days more in Transit your going to loose 30-40% of the time you can have it on the Shelf. I asked a Buddy of mine that works for a Grocery warehouse that ships out anything you could think how long Produce sits in their Warehouse. They turn over EVERYTHING at least 2 Times a Week in Lettuce and other Softer Items Onions and Potatoes are Turned over Weekly. That give you a Clue how Fast they get it out of the Warehouses. Only at the Packers do they have the Enclosures that can store the Stuff safely in stuff like Onions and Potatoes so they can last but still Most places still turn those over in less than 3 Months.
You think Lettuce is Bad on Bruising or Spoilage try Apricots and Cherries We call them the walking Diasaters. You look at them wrong and you will have a Claim. On 1000 Miles of Dray your looking at about 180 gallons of Fuel in the Truck being Burned Plus the Wages of the Driver even if the Drivers are using Old Equipment which in CA they can not anymore your still looking at a cost of close to 2 bucks a Mile in Dray Costs. Called a Friend of mine that knows another Owner of another Company that does some Draying of IM Trailers and Right now he is getting 2.25 a Mile out of Chicago to haul them for all miles. He has a Dedicated Contract for Wal-Mart and grabs loads for them and takes the Empties back. His round trips from Chicago are right at 200 Miles Total Distance. So 450 lets look at your Model shall we 2250 in Drayage Fees on both Ends then it takes the Can 3 more days to get here. Then you have roughly 4K to move the Can in a Z train to IL as you do not want to Delay it. So we are at 6600 Rough Estimate total costs with 3PL movers or even LP drivers as those are their Rates they are getting with FS. Compare that to my 2.40 a Mile for 2200 miles I am coming out roughly a Grand Cheaper and I am Faster. Than and I can haul More So you still think a 53 foot Refrig container is a better Option.
Quite right. If 1,000 miles/$2,250 of drayage is added to a 2,200 mile rail haul the rail option will be noncompetitive with over the road movement. So, the railroads can't do that.
And they don't have to. Let's look first at loads out of Salinas. The highway distance you set is 2,200 miles. At your minimum of $2.40/mile that would be $5,280. We know we have to discount that by 5.4% to make up for the fact that you can carry more weight. OK, we're down to $4,995/load possible on the rail.
And let's accept your firgure of $450 destination drayage to some unspecified Wal-Mart distribution center. To look at the competitive situation we've got to increase that by 5.4% since there will be 5.4% more intermodal loads due to the weight deficiency. That would be $474.
It's 121 miles from Salinas to the UP intermodal terminal in Lathrop, CA. Using the same per mile drayage figure as at the destination, the equalized origin drayage cost would be 121 x 2 x $2.25 x 1.054, or $287.
With a 10% discount to your $5,280 (equalized to $4,995) the rail maximum charge inclusive of drayage would be $4,495. Minus the drayage ($761 total) the railroad will be left with $3,734 terminal to terminal revenue. I've got the rail distance from Lathrop to the Chicago Priviso IM terminal at 2,191 miles. So at $3,734 total for 2,191 miles we're looking at $1.70/container mile on the rail. Even with the additional expenses for reefer equipment that will still mint money for the railroad in double stack service.
Now, let's look at transit time. I'll take your word for whatever you say you can do, but for now I'll go with this. You leave Salinas and drive at a 70 MPH average for 11 hours. Then you're down for 10 by Federal regulation. Then another 11 hours at 70 MPH average. Then down again for 10. Then you bring it in. About 51.5 hours elapsed time from departure to arrival. You're average, including rest, is around 43 MPH.
If the Union Pacific focuses on the busines, they could put trains from Lathrop to Proviso at a 40 MPH average easy enough. So they'd be at 54.75 hours rail terminal to rail terminal. Add in the drayage time and rail movement is one day slower. (That's why the rail has to give a 10% discount.)
So it's up to the grocer. Does he take the one day faster transit time or does he take the rate savings. I believe he'll often take the savings. Rail can be conpetitive for this business. If no one throws in red herrings such as 1,000 miles of drayage on a 2,200 mile haul.
As to Yuma. Well, to be really competitive there the UP would have to put a rail IM terminal in the vicinity. You know what? That ain't no big deal. The BNSF has a privately operated IM terminal in Quincy, WA to get the apple business. All the railroad has to do is reposistion the empty equipment to the loads (as truckers also have to do) and have a terminal near the growing area.
But before they do that, they have to realize that they're missing billions of dollars in profitable freight revenue.
As to the damage potential to produce. Over modern rights of way and with articulated intermodal equipment the lettuce, appricots, et. al. will be a better, smother ride on the rail than they will on the highway.
Your turn.
Ironeagle2006 Ok this has happened to me and Others More times than I can count. I was heading to Jewels in Melrose Park Just this Week when they Canceled the Freaking Load IN Transit why they Overbought. So I am sitting with 46K LBS of mixed Produce on with No Buyer for the Product. Yes my boss billed Jewel for the Miles I had driven per the Agreement we reached with them. Then we started calling around to other Grocers in the area and seeing if they would take my load off me. Found one in the Local US Foods in Streator. I made it home for the Weekend 6 Hours Faster. Or What are you going to do if the USDA declares a Recall of Produce and it is in the Containers on a Train. When that Happens you have less than 24 Hours to Destroy it or the Carrier it is on gets Hammered with Fines beyond comprehension it seems. Remember that Spinach E Coli Outbreak a few Years ago. Drivers that where in route where Called by the Shippers and told to DESTROY their Loads all of them and Repaid for their Costs all of them. You think the RR's could unload and dump containers in the middle of Nowhere that fast. See the OTR industry can and has always beating the RR industry when it came to Service. As to the Apricots and other easy Bruised fruits well lets just say if the RR's are Crazy Enough to want to haul them let them try. Even with my All Air Ride Suspensions and such I always end up with some Bruised. Let alone with Slack action on a RR. For 5.4% when they are losing 20% of their Shelf time with Produce no Grocer is going to take that Discount. Also The Wal-Mart DC is in Spring Valley IL and it is one of the Larger ones in IL.
Ok this has happened to me and Others More times than I can count. I was heading to Jewels in Melrose Park Just this Week when they Canceled the Freaking Load IN Transit why they Overbought. So I am sitting with 46K LBS of mixed Produce on with No Buyer for the Product. Yes my boss billed Jewel for the Miles I had driven per the Agreement we reached with them. Then we started calling around to other Grocers in the area and seeing if they would take my load off me. Found one in the Local US Foods in Streator. I made it home for the Weekend 6 Hours Faster.
Or What are you going to do if the USDA declares a Recall of Produce and it is in the Containers on a Train. When that Happens you have less than 24 Hours to Destroy it or the Carrier it is on gets Hammered with Fines beyond comprehension it seems. Remember that Spinach E Coli Outbreak a few Years ago. Drivers that where in route where Called by the Shippers and told to DESTROY their Loads all of them and Repaid for their Costs all of them. You think the RR's could unload and dump containers in the middle of Nowhere that fast.
See the OTR industry can and has always beating the RR industry when it came to Service. As to the Apricots and other easy Bruised fruits well lets just say if the RR's are Crazy Enough to want to haul them let them try. Even with my All Air Ride Suspensions and such I always end up with some Bruised. Let alone with Slack action on a RR.
For 5.4% when they are losing 20% of their Shelf time with Produce no Grocer is going to take that Discount. Also The Wal-Mart DC is in Spring Valley IL and it is one of the Larger ones in IL.
Well, we will have to see if the grocers take the discount. I don't know what fruit or vegetable you are talking about, you know, the one with a five day shelf life. Maybe strawberries, maybe appricots. You can have the strawberries and most (like 87%) of the US appricot crop is not shipped fresh due to the low shelf life.
But when we get in to the heavy volume produce, such as lettuce, the shelf life allows rail transport. Romaine & Iceburg lettuce, broccoli, etc. have a shelf life of more than 14 days if maintained in the low 30s. There just isn't any 20% loss of shelf life with rail on the commodities that make up the real volume..
You can look it up:
http://postharvest.ucdavis.edu/producefacts/#vegetables
As to the Wal-Mart DC in Spring Valley, IL, it's tailor made for the Union Pacific. It's just 55 miles down I-39 from the UP intermodal terminal in Rochelle. Heck, one driver could possibly run three loads per day, make good money doing it, and be home with his Mrs. & kids every night. It would cut the destination drayage cost in half. You see what I mean by the rail opportunities here.
You do have me thinking about something. If Prime can get 48,500 in its Wabash Arctic Lites, just think of what they could get using light weight day cabs. Gonna' have to run the numbers to see if double stack economics beat the heavier loaded trailers moving TOFC. Just might want to stay with trailer on flatcar for this business. Thank you for the input.
As to the "What are you going to do if..." stuff. I guess whatever is done now. Produce does move by rail now. These things happen. They get handled.
CNSF We did have a slower train, 60-70 hours I believe, primarily for the perishables traffic. It was good enough for the lettuce, broccoli, etc. that we usually handled. All that, of course, was nearly 20 years ago now, so I don't know how relevant it is, but I can tell you that if there was a way for BNSF and some sharp trucking company to do to the perishables business what Santa Fe/JB Hunt did to long-haul dry freight, they'd probably have done it by now.
Aye, and therein lies the rub.
As you know from another thread, I'm convinced that railroads don't have a "marketing culture", "customer centric focus", or whatever you want to call it. If a potential shipper comes to the railroad(s) with trainloads of oil the railroads will do a great job setting things up to move the oil. But identifying and quantifying a diverse market and then planning a service/price/equipment strategy to capture such a market is not something they currently do well. Unless the potential new customers fit into the railroads' current operating system.
The difference betwen Hunt/Schneider and the perishables is that the perishables, by in large, do not fit in to existing operations. Hunt and Schneider did. The BNSF marketing folks could develop the Hunt/Scneider busines, which you did quite well, because it required no new concepts in the way BNSF operated.
There are two keys to capturing the multi billion dollar perishable traffic. (The railroads can haul perisables just fine.):
1) The refrigerated equipment must be returned to the west coast loading areas (which move around seasonally) with as few empty, non revenue, miles as possible.
2) There must be intermodal terminals located near the perishable producing locations or the drayage cost will eat up all the revenue.
The railroads have to have westbound revenue loads to get the equipment back to the eastbound produce. These loads exist. The truckers now handle them. The railroads certainly could handle them.
Let's look at what I call the "Beef Mine". An area centered around Amarillo, TX and Dodge City, KS produces 42% of the beef in the US. Steers and Heffers are slaughtered by the tens of thousands each day in this area. California, with its huge population, doesn't produce neary enough beef to meet its needs.
The railroads don't haul one pound of this beef in to California. They basically can't given their current operations. There is no intermodal service from the area of beef production to California.
These westbound beef loads could be part of moving the reefer equipment back to California under revenue load: 1) dry load Chicago to Denver, 2) empty move Denver to Amarillo, 3) beef load Amarillo to Los Angeles, 4) empty move LA to Bakersfield, 5) Load of broccoli Bakersfield to Chicago.
The problems with this are: 1) there currently are no intermodal terminals in Amarillo or Bakersfield, and 2) there is no intermodal train service from Denver to Amarillo or LA to Bakersfield. (The other route segments could move using existing train services.)
The perishable loads don't fit the existing operations. And, due to the lack of a marketing culture on the railroad, those operations require Hell to Pay in order to get changed.
I'm convinced the railroads (UP and BNSF) could handle this stuff and make a good buck doing it. But they'd have to have a culture that could identify and quantify the profit potential and then be willing to establish the terminals and service to get that potential.
For those just picking this up, I'm certain that the lack of a "Marketing Culture" on the US railroads is a lingering malignant legacy of past government economic regulation. Under such regulation the railroads were not allowed to develop markets or even develop a "Marketing Culture" for that matter. I can't think of one good thing that resulted from government economic regulation of transportation. I know of a lot of very bad things that resulted from government economic regulation of transportation.
In re: greyhounds, Sat, Dec 8 2012 3:06 AM, “Under such regulation the railroads were not allowed to develop markets or even develop a ‘Marketing Culture’ ….”
While I agree that regulation did nothing to foster a “marketing culture” in the railroad industry, historical accuracy is served by noting that there were significant instances of railroads, indeed, “develop[ing] markets” and one or two “Marketing Cultures” that contributed much to the survival and growth of the industry, even under regulation.
For example, in the late 1950’s, Frisco and/or Santa Fe (there seems to be differing histories) initiated movement of automobiles on flat cars: first, in TOFC mode, then multilevel racks. When this market development effort began, rail market share of automobile traffic was under 10%, but throughout the 1960’s the marketing innovation flourished across the railroad industry, taking market share toward 50+%. Automobile traffic remains a key market segment today.
For another example, soon after the passage of the Transportation Act of 1958, a key deregulation milestone which eliminated the “umbrella” rate-making authority of the ICC, the Southern Railway developed the “Big John” 100 ton covered hopper car for grain hauling in competition with barge lines into the Southeast. The evolution of that market development effort is seen culminated in today’s shuttle grain trains.
Throughout the 1960’s and 1970’s, the Missouri Pacific developed the market for hauling chemicals off the Gulf Coast in direct competition with barges. This involved systematic competitive and logistical analysis, service innovation, and intelligent pricing strategies. That market development initiative lives today in the Union Pacific’s formidable “chemical franchise” on the Gulf coast.
Throughout the early and mid-1960’s, Al Perlman of the New York Central consciously built a “Marketing Culture” which resulted in marketing innovations such as FlexiVan, a precursor of today’s domestic containerization, and FlexiFlo which built off of the old fashioned “team track” and is now seen in the form of “transload” and “logistics park” marketing. In 1966 or so, the Journal of Commerce ran a lengthy series of articles on the Central’s marketing prowess, noting the marked contrast of Perlman’s success when set against Theodore Levitt’s “Marketing Myopia” article of 1960 which held the railroad industry in general up to ridicule.
Interestingly, a New York Central alumnus, Robert Hamilton, moved over to the Southern Railway in the early 1960’s as head of Marketing. In combination with D.W. Brosnan, he developed a first rate marketing department that built relatively short-haul, “loose car” railroading into a powerful franchise. In the mid-1970’s, Forbes magazine named Southern as one of the five “best managed” companies in the U.S. No, not one of the five best managed railroads … one of the five best throughout the entire U.S. economy.
1960 was, perhaps, a pivotal year for those few who saw opportunity for “marketing” to become a significant factor in the railroad freight industry. For, even though the Transportation Act of 1958 was important, the railroad industry was widely seen as “dying” and no aspiring young business man would dare join railroad management. Levitt, as noted, mocked the industry for its lack of customer focus. Noted cultural historian Jacques Barzun wrote, also in 1960:
“I grieve to see the most advanced physical and social organization of the last century go down in shabby disgrace for lack of the same comprehensive imagination that built it up. [What is lacking is] the will of the companies to survive and to satisfy the public by inventiveness and skill.”
Such observations must have goaded men such as Perlman, Brosnan, Jenks, et al, to prove the commentators wrong, even in the face of still significant regulatory constraints. They put up a strong fight, developing markets and, in a few cases, marketing cultures. They set the stage for much of the success of the industry today.
466lex In re: greyhounds, Sat, Dec 8 2012 3:06 AM, “Under such regulation the railroads were not allowed to develop markets or even develop a ‘Marketing Culture’ ….” While I agree that regulation did nothing to foster a “marketing culture” in the railroad industry, historical accuracy is served by noting that there were significant instances of railroads, indeed, “develop[ing] markets” and one or two “Marketing Cultures” that contributed much to the survival and growth of the industry, even under regulation. For example, in the late 1950’s, Frisco and/or Santa Fe (there seems to be differing histories) initiated movement of automobiles on flat cars: first, in TOFC mode, then multilevel racks. When this market development effort began, rail market share of automobile traffic was under 10%, but throughout the 1960’s the marketing innovation flourished across the railroad industry, taking market share toward 50+%. Automobile traffic remains a key market segment today. For another example, soon after the passage of the Transportation Act of 1958, a key deregulation milestone which eliminated the “umbrella” rate-making authority of the ICC, the Southern Railway developed the “Big John” 100 ton covered hopper car for grain hauling in competition with barge lines into the Southeast. The evolution of that market development effort is seen culminated in today’s shuttle grain trains. Throughout the 1960’s and 1970’s, the Missouri Pacific developed the market for hauling chemicals off the Gulf Coast in direct competition with barges. This involved systematic competitive and logistical analysis, service innovation, and intelligent pricing strategies. That market development initiative lives today in the Union Pacific’s formidable “chemical franchise” on the Gulf coast. Throughout the early and mid-1960’s, Al Perlman of the New York Central consciously built a “Marketing Culture” which resulted in marketing innovations such as FlexiVan, a precursor of today’s domestic containerization, and FlexiFlo which built off of the old fashioned “team track” and is now seen in the form of “transload” and “logistics park” marketing. In 1966 or so, the Journal of Commerce ran a lengthy series of articles on the Central’s marketing prowess, noting the marked contrast of Perlman’s success when set against Theodore Levitt’s “Marketing Myopia” article of 1960 which held the railroad industry in general up to ridicule. Interestingly, a New York Central alumnus, Robert Hamilton, moved over to the Southern Railway in the early 1960’s as head of Marketing. In combination with D.W. Brosnan, he developed a first rate marketing department that built relatively short-haul, “loose car” railroading into a powerful franchise. In the mid-1970’s, Forbes magazine named Southern as one of the five “best managed” companies in the U.S. No, not one of the five best managed railroads … one of the five best throughout the entire U.S. economy. 1960 was, perhaps, a pivotal year for those few who saw opportunity for “marketing” to become a significant factor in the railroad freight industry. For, even though the Transportation Act of 1958 was important, the railroad industry was widely seen as “dying” and no aspiring young business man would dare join railroad management. Levitt, as noted, mocked the industry for its lack of customer focus. Noted cultural historian Jacques Barzun wrote, also in 1960: “I grieve to see the most advanced physical and social organization of the last century go down in shabby disgrace for lack of the same comprehensive imagination that built it up. [What is lacking is] the will of the companies to survive and to satisfy the public by inventiveness and skill.” Such observations must have goaded men such as Perlman, Brosnan, Jenks, et al, to prove the commentators wrong, even in the face of still significant regulatory constraints. They put up a strong fight, developing markets and, in a few cases, marketing cultures. They set the stage for much of the success of the industry today.
OK, this is what I get for trying to discuss the same subject on two different threads.
On the other thread I made it very clear that railroads do a good job with large shippers. Of course they can work well with companies such as Ford and GM that produce huge volumes at a few locations. (And ship to a relatively few destinations.)
The railroads did a good job with the automobiles. And with large chemical plants, and with Powder River coal, and with the newer Bakken oil, and with the container ships at major ports. Etc., etc., etc.
But what I said in this thread was: "But identifying and quantifying a diverse market and then planning a service/price/equipment strategy to capture such a market is not something they currently do well." Auto plants and chemical plants are not a diverse market. A single plant produces large volumes.
I'll stand by that observation.
I gave an example. I'll now go in to more detail. In SW Kansas and the Oklahoma panhandle there are five rather large slaughterhouses. Four of these produce beef. Tyson in Holcum, KS. JBS Swift in Liberal, KS and Dodge City, KS (2 plants total), and Cargill Meat Solutions in Dodge City. Seaboard Packing has a hog facility in Guymon, OK. (California is deficient in the beef production desired by its population and must bring in beef from other states. California is really deficient in pork production and Guymon is the closest major pork plant to California.)
Now none of these plants or companies has enough west coast volume to support a rail intermodal terminal. (unlike an auto plant that can support all kinds of rail operations.)
But taken together, as a market, instead of as individual customers, the companies and plants could justfy a rail intermodal terminal. But the railroads don't have the culture to look at things that way.The railroads don't look at 20 loads per day out of Tyson, 15 out of Cargill, 15 out of Seaboard, 40 out of JBS Swift and agregate them. It's certainly not because the railroad people are stupid. It's because for at least 50 years they were not allowed to develop a marketing culture that dealt with such a diversity of customers.
Since deregulation, nothing has happened to change the corporate marketing culture of the railroads. The oppression is gone, but they don't know what to do with the freedom.
As to the Transportation Act of 1958 eliminating the regulatory practice of setting rail rates high in order to protect other modes from rail competition: It did no such thing.
The prime examples are:
The Southern Railway "Big John" case where the railroad had to make 13 appearances in Federal Appelate Courts and two trips to the US Supreme Court in order to reduce its rates to competitive levels. The case was decided in 1965, well after the Trans Act of '58 was passed. The regulators were still trying to allocate freight by enforcing price differentials well after the '58 Act. That bit of paper didn't phase the regulators one iota. The Southern won this one before the Supreme Court. But that didn't stop the regulators.
http://www.nxtbook.com/nxtbooks/sb/ra0209/index.php?startid=26#/28
The Louisville and Nashville in the "Ingot Molds" case (1968) where the regulators held rail rates high to protect a barge line. The L&N lost this one before the Supreme Court.
The Interstate Commerce Commission v. The New York, New Haven and Hartford Railroad Co. (1963) in which the Supreme Court allowed the idiots at the ICC to hold rail rates high in order to protect Sea-Land and Sea Train from competition.
Having to argue your pricing decisions before the Supreme Court of the United States does not foster marketing innovation.
The Trans Act of '58 did absolutely nothing to prevent umbrella rate making by the regulators.
In re: greyhounds, Sun, Dec 9 2012 4:39 AM, “As to the Transportation Act of 1958 eliminating the regulatory practice of setting rail rates high in order to protect other modes from rail competition: It did no such thing.” “The Trans Act of '58 did absolutely nothing to prevent umbrella rate making by the regulators.”
A cursory review of at-hand material via Google Books:
The Economics of Regulation: Principles and Institutions, Volumes 1-2, MIT, 1988 (originally printed in 1970 – 1971)
By Alfred Edward Kahn
“The Interstate Commerce Act was amended in 1958 to instruct the Commission not to hold up the rates of a carrier to a particular level in order to protect the traffic of any competing transport medium…. But the 1958 amendment still enjoined the ICC to give ‘due consideration to the objectives of national transportation policy,’ which includes recognizing and preserving ‘the inherent advantage of each’ mode of transport.”
The ICC used the narrowest possible interpretation of the wording regarding “national transportation policy” to rationalize its continued application of the “umbrella” theory, but the Supreme Court effectively administered the coup de grace to that practice in its 1965 decision in the Big John case.
The wheels of justice … often grind slowly.
466lex In re: greyhounds, Sun, Dec 9 2012 4:39 AM, “As to the Transportation Act of 1958 eliminating the regulatory practice of setting rail rates high in order to protect other modes from rail competition: It did no such thing.” “The Trans Act of '58 did absolutely nothing to prevent umbrella rate making by the regulators.” A cursory review of at-hand material via Google Books: The Economics of Regulation: Principles and Institutions, Volumes 1-2, MIT, 1988 (originally printed in 1970 – 1971) By Alfred Edward Kahn “The Interstate Commerce Act was amended in 1958 to instruct the Commission not to hold up the rates of a carrier to a particular level in order to protect the traffic of any competing transport medium…. But the 1958 amendment still enjoined the ICC to give ‘due consideration to the objectives of national transportation policy,’ which includes recognizing and preserving ‘the inherent advantage of each’ mode of transport.” The ICC used the narrowest possible interpretation of the wording regarding “national transportation policy” to rationalize its continued application of the “umbrella” theory, but the Supreme Court effectively administered the coup de grace to that practice in its 1965 decision in the Big John case. The wheels of justice … often grind slowly.
Slowly grinding wheels of "Justice?" are not compatible with ever changing competitive market conditions.
Anyway, I wish it was true that the Supreme Court had ended "umbrella" regulation in 1965. Unfortunately, the regulators were persistent in their efforts to allocate freight between the varioius modes by setting rate levels so that each mode got a share. This was very detrimental to the nation's economy, but the regulators weren't knowledgeable in economics and didn't understand the ramifications of their decisions.
In 1968, three years after the "Big John" decision, the L&N was before the Supreme Court fighting an "umbrella" rullling by the ICC.
http://supreme.justia.com/cases/federal/us/392/571/case.html
It seems the phrase "You can't fix stupid." was very much appropriate when applied to the ICC. And in the "Ingot Molds" case stupid won. The rail rates were held high to allocate freight to the barge line. The Supreme Court agreed that the rail rates should be held high to protect the barge line from rail competition.
Stupid is bad. Persistently stupid is worse. Court sanctioned stupid harms the economy and the nation's people.
Umbrella pricing was being edicted and enforced 10 years after the Trans Act of '58. The regulators found a way around the intent of congress and the Supreme Court went along with the regulators. The Trans Act of '58 was ineffective in removing government edicted umbrella pricing.
In re: greyhounds on Sun, Dec 9 2012 5:46 PM, “Umbrella pricing was being edicted [sic] and enforced 10 years after the Trans Act of '58.”
It was a slog, for sure, to get full benefit of the 1958 Act. But it is possible to overstate the difficulty.
Railroad costs were well below truck costs for most movements, and truck protests were generally of no avail after the change in ’58. For example, the very early TOFC/multi-level rates published by the railroads immediately following the ’58 Act were well below truck rates, but far above fully-allocated railroad costs. The rates were poised to divert significant traffic to rail immediately. A railroad lawyer heavily involved in one case in the late 1950’s described to me his “invitation” to the truck lawyers to find more even railroad costs if they could, because the rail margins were so high. Even a truck-protective ICC couldn’t cite an “inherent advantage” by truck which would have enabled the ICC to invoke the national transportation policy argument. The auto traffic by rail flourished.
The Big John and Ingot Molds cases turned largely on arcane costing theories and were irrelevant to much, perhaps most, competitive rate making in the 1960s.
I don’t at all contest your major point that regulation was a huge negative factor in building “marketing oriented” railroad organizations. But it is valid, I believe, to understand that there were intelligent and aggressive railroaders in that era who were pushing back strongly against that regulatory regime with some considerable success, and the Act of 1958 was a significant turning point.
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