schlimmProbably more to do with differing views than Adams' credentials. greyhounds dismisses any views that differ from his, at least on here.
Greyhounds has every right to his personal opinion of Charles Francis Adams. But Adams does have some important credentials. He was President of the Union Pacific although its Federal debt pushed it into bankruptcy during his Presidency. He had many years of involvement with railroads and he wrote widely about them. And at a time when many railroad men were not particularly well educated Adams was educated at Harvard. His contemporary, Jay Gould, didn't attend any college and E. H. Harriman who came after him left school at 14. So, while I respect Greyhounds' opinion, I think it is a mistake to simply dismiss Adams.
Also his observation that before regulation and even after it began railroad management made agreements precisely to avoid competition and set higher rates is well known and widely documented.
John WRGreyhounds has a low opinion of Adams because Adams did not have a degree in economics. However, he was highly regarded in his day and had a lot more credibility with elected officials than most railroad men.
Probably more to do with differing views than Adams' credentials. greyhounds dismisses any views that differ from his, at least on here.
C&NW, CA&E, MILW, CGW and IC fan
schlimmAnd that was why I excerpted a summary of three differing economic historical interpretations of regulation much earlier in the thread.
I find Charles Francis Adams' writing on regulation interesting. In Railroads: Their Origins and Problems he shows that without regulation neither British and European nor American railroad owners wanted competition. Rather, they would join together and agree on their rates. In the US the railroads formed pools. Thus, before the days of regulation competition among railroads was something of a myth. It is true that the pools did not always work well but that is what the railroads intended. Adams suggested the government should recognized the pools and make then open rather than secret. Then rates could be let at a level that was fair to both the companies and the shippers. That would allow railroads to make a reasonable profit but prevent them from monopolistic practices.
Adams was a railroad manager (among other things) and operated in a day when there was absolutely no Federal regulation or constraint on railroads. There were state laws including the Granger laws but no regulation by the Federal Government. He had a kind of first hand experience which it would be impossible to get today.
Greyhounds has a low opinion of Adams because Adams did not have a degree in economics. However, he was highly regarded in his day and had a lot more credibility with elected officials than most railroad men.
Yes, I recall your post Schlimm. And I agree you make a good point. The most recent view, which makes sense to me, points out that under regulation some railroads were winners and others were losers. All railroads were not equal and it is a mistake to consider them as equals.
John WRI agree that dichotomous reasoning does not really explain anything because the world is not dichotomous. Railroad regulations were created for reasons that arose out of historical situations. We can argue about them but we cannot change them or the historical situation. I prefer to understand them without feeling a need to make a personal judgement about them.
And that was why I excerpted a summary of three differing economic historical interpretations of regulation much earlier in the thread.
Murphy SidingWhen there was only one railroad to haul grain out, and no other conceivable competitive alternative, who would anyone determine what the *fair* or *correct* price should be for shipping?
In 1906 Theodore Roosevelt signed the Hepburn Act. The Act empowered the Interstate Commerce Commission to set maximum railroad rates. As far as I know before that railroads were free to set their own freight rates and the only control on them was competition to the extent that it existed.
schlimmLike most matters in the real world, the truth is not obtained by dichotomous reasoning.
I agree that dichotomous reasoning does not really explain anything because the world is not dichotomous. Railroad regulations were created for reasons that arose out of historical situations. We can argue about them but we cannot change them or the historical situation. I prefer to understand them without feeling a need to make a personal judgement about them.
Every society in the history of the world has had government. It is not going away. To simply argue that government should not have governed as it did may be personally satisfying but it will not help us to understand our own economic history.
A question comes to mind. When there was only one railroad to haul grain out, and no other conceivable competitive alternative, who would anyone determine what the *fair* or *correct* price should be for shipping? The railroad would be trying to charge as much as they could. The farmer would be trying to pay as little as he could.
Thanks to Chris / CopCarSS for my avatar.
Of course I realized the case was hypothetical, but it illustrated nicely the fundamental flaws in the reasoning of the "Regulation bad' crowd. The historical reality of farmers and other groups that turned to the states and federal government after suffering at the hands of the rails illustrates why regulation started in the 19th century. To listen to some, regulation of the railroads originated in a vacuum. It is important to distinguish between the 19th and early 20th century laws and later laws and decisions from 1920 onward in terms of evaluating the wisdom of regulation. Like most matters in the real world, the truth is not obtained by dichotomous reasoning.
Schlimm,
The example was a hypothetical railroad shipping only 2 commodities both of which used its terminal points. It is common to use hypothetical examples that over simplify an issue in order to illustrate certain aspects of it. I thing the example was reasonable.
The issue of wheat farmers shipping their wheat was not part of the example. However, it was very real in the 19th and 20th century and a lot of wheat is still shipped by rail. There is more than one way to resolve issues in the US. When wheat farmers were unable to get railroads to take them seriously they turned to the government and they were a lot more successful there as you point out. Much of the objection to government intervention is simply saying "Ain't it awful what the government did." Well, it was awful for the railroads but better for the wheat farmers. And if railroads should be free to pursue their self interest in any way they can why shouldn't wheat farmers have that same freedom? That is all that happened.
John
Sure the railroad can charge what it can, but stiffing one or two shippers with all the fixed costs may cause them to use a competitor if they find out. The trouble was, for many of the farmers in the 19th century, there was no competitor or competing lines didn't compete on price (collusion).
greyhoundsIt’s obvious. The railroad should establish a commodity specific rate on ethanol of $1,200 while holding the rate on coal at or above $1,500.
Greyhounds,
Let me start off by thanking you for the explanation I asked for. I appreciate it.
And you are right. It is obvious the railroad should accept the ethanol shipments for $1200 a carload while shipping coal for $1500.
But the suit makers and the wheat farmers is not so obvious. Suit makers did not become dissatisfied with the way railroads treated them and start political agitation. However, wheat farmers did just that. And, over a period of years, that agitation resulted in Federal regulation of railroad rates. Might railroads have dealt with wheat farmers and with the government in a different way that would have resulted in less onerous regulation if not no government regulation at all? I think they could have. Of course that was then and this is now. I hope and I suspect freight railroads have learned from their history and will do better at dealing with government and shippers of wheat and similar commodities.
Regarding the routing of shipments, a general rule is that, all things being equal, shippers prefer dealing with one carrier versus two, with two versus three, and so on. Simplicity and ease mean lower administrative expense and hassle. It's easier administratively not having to figure out whom to call to find the location of your incoming shipment if just one carrier is named in the route. It follows that traffic between, say, North Jersey and Chicago went mostly via the roads that offered single-line service -- Erie (later EL), NYC, PRR. the rest fought for the scraps like beta members of a wolf pack. Little guys like L&NH had more leverage if the consignee/shipper was located solely on their line, and so got some business that way, but beyond that, had to claw and scratch and beg and plead for every joint line carload they bridged. So, potentially, they could "siphon off a significant amount of potential revenue," but practically speaking, that revenue remained just that -- potential, and not revenues actually collected. In this sense they lived, truly, at the mercy -- or whim -- of shippers.
John WR One think I have never understood, Greyhounds, is the railroad's practice of price discrimination. If I mail a package all the Post Office cares about is where it is going and how much it weighs. Can you explain why railroads charge different prices to move different things? John
One think I have never understood, Greyhounds, is the railroad's practice of price discrimination. If I mail a package all the Post Office cares about is where it is going and how much it weighs. Can you explain why railroads charge different prices to move different things?
The short answer is that the railroads charge different amounts for different commodities for the same reason that an airline will charge different amounts for similar seats on the same flight. You can’t price above the value of the service to the customer. Before the airlines were deregulated they pretty much used a “One Fare Fits All’ pricing system by government fiat. This resulted in tremendous inefficiency with 45% of the seats unsold. The same inefficiency would come to railroading with a one price for everything system.
It is important to realize that there is no such thing as “The Cost.” There are average costs, marginal costs, variable costs, fixed costs, etc. Understanding the components of each of these and how each cost changes with volume changes on a rail line is necessary. Throw in the fact that a carload shipment can move over multiple lines en route with each line having different cost characteristics and you may get some concept of just how difficult (impossible?) it is to accurately “Cost Out” a carload movement in a multiple product business such as railroading. My experience was that rail carload costing was largely just an aggregation of allocated averages. It was of very limited use in pricing and often did more harm than good.
Early on railroaders learned that they could not use a simple mileage based rate system with all commodities moving at the same rate per mile. The freight charges affect different commodities differently and this has to be taken in to account. The classic example is men’s suits. These suits are relatively high value, low weight, and each requires very little space in a railcar. Conversely, wheat is very low in value for the weight and space it requires. The same freight charge that will have negligible effect on the final sale price of a suit would easily more than double the price of wheat between the farm and destination. Men’s suits and wheat are different market segments with different demand curves and the railroads had to, and have to, often deal with these differences in their pricing.
The example that I’ve used before is a hypothetical railroad that runs from point A, where there is a coal mine, to point B, where there is a power plant. The railroad’s sole traffic is moving the coal from the mine to the power plant. Its costs for moving the coal are $1,000/car variable and $500/car fixed. This equals an average cost of $1, 500/car. (This railroad is obviously not multi-product. This makes cost determination simpler.)
Now let’s say that the railroad in question has a chance to add a commodity. Let’s say ethanol. An ethanol producer at point A wants to ship their product to point B. The railroad figurers, as best they can, that the variable cost of moving a carload of ethanol will be the same as moving a carload of coal, $1,000. But, the ethanol producer won’t ship at a rate of more than $1,200/car. That’s the value of the service to the ethanol producer and they will not pay more than that. This is below the current average cost of $1,500 and below the rate the coal shipper is paying.
What should the railroad do? Please remember that the fixed costs will not change with the ethanol movement. The railroad will be $200 ahead for each ethanol load shipped.
It’s obvious. The railroad should establish a commodity specific rate on ethanol of $1,200 while holding the rate on coal at or above $1,500. It cannot bring the coal rate down to $1,200 without going broke. If it insists on getting $1,500/car for the ethanol it won’t be shipped. The best solution for all concerned is the establishment of different rates on the different commodities. The railroad and the ethanol producer come out ahead while the coal shipper is not harmed in any way.
And that’s one of the reasons why there are commodity specific rates.
rdg2124 7 or 8 between NYC & Buffalo? NYC, Erie, Lackawanna, LV, & if you really stretch it, PRR (who wants to go by way of Philly & Harrisburg?), & B&O would be a SUPER-STRETCH (by way of Baltimore & Cumberland, Md, come on!!), so that's FOUR!! MAYBE 5. not 7 or 8.
7 or 8 between NYC & Buffalo? NYC, Erie, Lackawanna, LV, & if you really stretch it, PRR (who wants to go by way of Philly & Harrisburg?), & B&O would be a SUPER-STRETCH (by way of Baltimore & Cumberland, Md, come on!!), so that's FOUR!! MAYBE 5. not 7 or 8.
I'm no expert on the geopgraphy of that part of the world, so corrections are welcomed. True, the ones you mention are the only ones going all the way from NYC to Buffalo, but there are others which serve at least a portion of that territory. Lehigh & New England, NYO&W, Lehigh and Hudson River, and CNJ all serve at least part of the territory, unless my memory is playing tricks, and possibly Reading. This many RR's serving even a part of an area have to siphon off a significant amount of potential revenue.
Correct me if I'm wrong, won't be the first or the last time.
DeggestyThere is still a book rate, which is lower than the parcel post rate, and there used to be a library rate (it may still exist;
Johnny,
I overlooked the Post Office's book rate simply because I don't use it but ship many other things by parcel post frequently. I don't know about the library rate.
oltmannd If a refrigerator costs $500 to make in China and I'm willing to pay $1000 in my local Lowes, then the transport is worth some portion of the $500 difference.
Don,
Certainly when goods are priced in a retail store all costs of production including transportation have to be included in that price. I do accept that part of Greyhounds argument.
PNWRMNMAs a matter of law railroads are liable for loss and damage to goods
Mac,
Thanks for explaining the liability issue. It just seemed to me that if gold were shipped that is a very special kind of freight and I would expect it to be done in a special way.
MP173There were 15 factors which were applied to determine the freight classification.
Thanks for the explanation, Ed.
Thanks, Don, Balt, and Mac for your explications of different rates for different commodities. When you have worked with shipping for a few years, you know there are these differences, and you have some understanding of them.
When I was returning (almost) empty drums and "empty" gas cylinders, I did not have to worry about writing the class on the bill of lading; I would say that the trucking company knew what the classes were. But, when I was shipping vacuum pumps to be repaired, I did put the class on the bill if I had to write it (our shipping department usually took care of this, but there were times when I had to do all the work).
As to reduced rates for a particular company, the trucking company and the shipping, or receiving company, in the case of collect shipments, company better have a written contract, or horrible results could occur (a future bill for the difference between what was paid and the standard tariff, perhaps). I had a close working relationship with the traffic department in my plant, and I made sure that all was done properly.
As to shipping something via the Postal Service, there are different rates, depending upon what is being shipped and how fast you want it to reach its destination. There is still a book rate, which is lower than the parcel post rate, and there used to be a library rate (it may still exist; I have not shipped any books to a library in more than 54 years) which held when a library sent books and when the books were returned.
Incidentally, the FOB point is the point at which ownership changes. Why it is called Freight on Board, I do not know.
Johnny
John WR greyhoundsThere’s nothing wrong with discrimination unless it’s done for an “unjust” reason. Racial and gender discrimination are unjust, discriminating against slow runners in selecting a track team is good practice. One think I have never understood, Greyhounds, is the railroad's practice of price discrimination. If I mail a package all the Post Office cares about is where it is going and how much it weighs. Can you explain why railroads charge different prices to move different things? John
greyhoundsThere’s nothing wrong with discrimination unless it’s done for an “unjust” reason. Racial and gender discrimination are unjust, discriminating against slow runners in selecting a track team is good practice.
It's based primarily on the differential of the value of the stuff from where it is to where it's being moved to. If a refrigerator costs $500 to make in China and I'm willing to pay $1000 in my local Lowes, then the transport is worth some portion of the $500 difference.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
It has been a couple of decades, but I was involved in transportation (LTL trucking) and my responsibilities involved pricing and claims (loss or damage).
At that time there was a document called the NTFC which stood for "National Transportation Freight Classification". In that document, which was a 1000 page + tariff, commodities were assigned a "freight class". These classes ranged from class 50 thru class 500. Class 50 were items such as steel. Class 500 were very light weigh density products (think something like feathers). In 10 years of managing freight shipments, I never encountered a class 500 (Class 300 was about the highest).
There were 15 factors which were applied to determine the freight classification. Value of the product was one of the factors. The value of the lading was VERY MUCH a cost of transportation due to potential loss or damage. On certain high value products, shippers could declare a low value and have a lower freight charge. The exchange was limited liabilty in return for lower freight charges.
The rates were applied based on the class of the freight and essentially the distance. As deregulation swept thru the industry, the classification system and mileage rates remained, but trucking companies began customizing pricing to fit the shipper's needs, with rates typically falling.
Granted LTL trucking and railroading are different, but have similarities. LTL trucking involves multiple shipments in a single trailer moving from terminal thru break bulk terminals and finally delivered by a destination terminal. Often 3 or more terminals were involved. Think of how many terminals or yards are involved with a carload shipment.
While an LTL truck might have 20 to 30 different shipments with varying origins/destinations, a manifest freight train might have nearly 100 different shipper/consignees.
Take a look at any railroad tariff today. The documents are on line at the websites. Note the differences in rates for commodities. There are a number of factors which go into the final rates. So, while weight and distance are key factors in pricing (note I said pricing, not cost), there are many many more.
Ed
As a matter of law railroads are liable for loss and damage to goods they transport. The measure of value in FOB origin. There is no insurance on either side of the transaction. There are some, not many, released value rates by which the shipper agrees to value his product at a stated value less than actual value in return for a lower freight rate. This is a special case, the norm is carrier is liable for the full value of the cargo.
Mac
BaltACDLet's say you are hauling gold and coal - you wreck the shipments. Are you going to pay the beneficial owner of the shipment the same value per ton as a settlement? Would the beneficial owners accept the same value per weight?
I'm afraid I don't see your point, Balt. It seems to me that it would cost the same amount of money for a railroad to transport a ton mile of coal as it would cost to transport a ton mile of gold.
In the event of an accident I suspect railroads specific agreements and policies about loss and damage. Insurance to cover accidental loss is not really a transportation cost and appropriate insurance can be broken out and charged separately. I don't know how railroads actually provide for insurance. I would also suspect transporting a ton of gold would call for special insurance.
To get back to my Post Office example, when I mail a package parcel post insurance coverage is included in the postage. However, if I am mailing something especially valuable I can purchase additional insurance. I might also want to purchase a special service like sending it registered mail and declaring what is in the package to be sure I am covered in case of loss.
But I'm really talking about the cost of transportation, of actually moving freight from point A to point B.
When you ship something, you pay for weight and distance. That is how every other transportation system works, except US freight railroads. If there is insurance, say by ICC when using a moving company, it is by weight, unless the shipper purchases for replacement value.
Let's say you are hauling gold and coal - you wreck the shipments. Are you going to pay the beneficial owner of the shipment the same value per ton as a settlement? Would the beneficial owners accept the same value per weight?
Never too old to have a happy childhood!
Yes, greyhounds, that would be board feet, which is the standard measure for lumber. For the benefit of any of you who may not know of the measure, one board foot is 1" x 1" x 12"--or any dimensions which would give 12 cubic inches of undressed (roughcut) lumber. Of course, when you dress the lumber so that its sides are smooth, you remove wood--a roughcut 2x4 is 2" x 4", but a dressed 2x4 is 1 1/2" x 3 1/2"--and a 1 foot dressed 2x4 still is considered to contain 8 board feet.
In the cited case, the actual dimensions--length, width, thickness--did not matter; what mattered was the volume of wood that was shipped.
At times, the price for lumber may be expressed simply in dollars, with the "per thousand board feet" understood.
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