Industrial shipper abandonments in the 1970s

[jeffhergert]

CSSHEGEWISCH

 

 

Murphy Siding

 

greyhounds

 

...A possible solution is to franchise local and branch line services.  The franchisee will have both revenue and expense responsibility and the people making decisions should be more prone to act accordingly.  (No, this won’t be perfect either.  But it should be an improvement.)...

  

I find this interesting. Can you give me the big-picture tour of how something like this would work?

 

 

 

And just how would the franchise (?) arrangement be any different from the existing process of selling the branch to the new operator?

 

In some places they're not selling, but leasing out lines.  I'd guess by leasing they may be able to exert more control on interchange when the line would have options beside the owning class one.  

Jeff

[CSSHEGEWISCH]

Murphy Siding

 

greyhounds

 

...A possible solution is to franchise local and branch line services.  The franchisee will have both revenue and expense responsibility and the people making decisions should be more prone to act accordingly.  (No, this won’t be perfect either.  But it should be an improvement.)...

  

I find this interesting. Can you give me the big-picture tour of how something like this would work?

And just how would the franchise (?) arrangement be any different from the existing process of selling the branch to the new operator?

[Murphy Siding]

greyhounds

 

...A possible solution is to franchise local and branch line services.  The franchisee will have both revenue and expense responsibility and the people making decisions should be more prone to act accordingly.  (No, this won’t be perfect either.  But it should be an improvement.)...

 

 

I find this interesting. Can you give me the big-picture tour of how something like this would work?

[Shadow the Cats owner]

My boss provides all the cars we lease them for our SIT yards ourselves so no car hire fees there.  He also provides the tracks had them built for the SIT yards himself so no track maintance cost for the railroads we use a local contractor to maintain all our SIT yards.  We paid for the switches needed to connect to the Class 1 tracks ourselves.  The only track for all our SIT yards we do not directly maintain is one at our BNSF side that they actually bought from us.  It is the lead into the SIT yard that cuts off the Eastbound main or South track on the old Chili subdivision of the old ATSF mainline thru my town.  They bought it for a runaround track when the local is switching us and for storing track maintance equipment or any bad order cars that need repairs off of trains that come thru.  It is long enough to hold a rail train in the summer so they love it.  

 

Like I said the BNSF has no problems with us they love the amount of business we do generate for them.  Heck we are actually starting to get carload orders for our custom blended resins and the BNSF has no problems picking them up and dropping off the empties.  Several of our customers are wanting 100 ton lots now and are on the BNSF in TX so they worked out a shipping schedule they liked and well we are making it happen.   It is still revenue for us as we sell them the resins but not the shipping costs.  

[greyhounds]

SD60MAC9500

I can see the difficulty in quantifying cost of operation prior to the digital age. Though today with all the algorithms available to itemize line cost and get an idea of expenses would not appear to be all that difficult. Said train operating from Heyworth, IL to Gretna, LA is going to produce revenue. Would it not be possible to break down the revenue generated by the total haul into a percentages? A portion of the revenue is going to operating expenses. So why not break down operating expense into a percentage based on length of haul? If the Heyworth Branches portion of the haul is lets say 15 miles (this is just an example I don't how long the Heyworth Branch is) out of a total haul of roughly 850 miles. That comes to approximately 1.8%. The Heyworth Branch would get 1.8% of the revenue portion that's allocated to operating expenses. Of course this would be highly variable as trains would not always have the same: consist, weight, length, etc., and have different terminating points. Though would such a formula be feasible? Or have the RR's tried this formula already?   

It is possible to come up with all kinds of formulas.  How well those formulas reflect reality is the question. 

 

Railroad cost accounting, per shipment, is a rather large can of worms.  Some costs are readily identifiable.  For example, if a regular movement has assigned cars and the cars take 21 days to cycle from load to load it’s easy to calculate the ownership cost of the required freight cars.  In this example if the car cost $30/day to own the car ownership cost for each load is 21 x $30, or $630. 

 

On the other hand, how much of the crew cost goes to each load?  The crew is there and running the same miles whether the carload is there or not.  You can only do some arbitrary allocation and that will give you a BS answer.

 

It’s long been relatively easy to isolate and quantify the costs of operating a branch.  Even before BIG DATA.  (Don’t confuse the determination of the cost of operating the branch with the cost moving each rail car.)  If you try to get it down to each car, you’re going back into an arbitrary allocation of costs.

 

The problem is the revenue allocation to the branch.  Branch lines (and local switching services) are inherently less efficient than main line operations.  Volume drives average rail costs down.  Branch lines generally have less volume than main lines.  So, their cost per unit handled is higher than main line operations.  If revenue is allocated solely on a mileage basis the branch will likely show as losing money. 

 

The branch (or local switching service) must be allocated extra revenue to cover its less efficient operation.  How much extra?   Good question.

 

Edit to add:  Back in the bad old days of ICC regulation I spent some time doing line abandonment analysis.  We had to show that the line lost money.  (Why the government thought we would get rid of a line that made money is lost in government illogic.)

 

They did come up with a revenue allocation number.  50% of the revenue went to offset the expenses of the branch.  For every line, no matter what, it was 50%.  Just an arbitray number picked out of the air.  The government just loves magic numbers.  

 

 

 

 

 

[greyhounds]

blue streak 1

  Agree.  Maybe STB can get the class 1s attention if it proposes open access to any short line that wants to service a segment ?  Ad

Nope.  I don't agree with the open access concept.  It goes against the inherent economics of railroading.  A railroad has to aggregate units of sale in to units of production.  The unit of production being a train.  Open access will split the available business and will make this necessary aggregation more difficult and more costly.   

One franchisee per branch or local area operation of service.  Anything else will drive up the costs of rail shipments.  That's not a good plan.

[blue streak 1]

greyhounds

  Using the franchise system will, at least, give profit and loss responsibility to those making the decisions.  Again, it won’t be perfect, but it should improve things.

 

 

Agree.  Maybe STB can get the class 1s attention if it proposes open access to any short line that wants to service a segment ? 

[Convicted One]

greyhounds

I think the phrase "No railroad has EVER..." is out of place.  It implies a standard of perfection which cannot be met.  Of course, such things have happened.  They don’t make sense, but they happen.  Kind of like our life events from time to time.

I agree with you. It's seldom a good idea to base arguments  on absolutes.

Even so, there have been instances here on this forum as well as others, where notoriously stubborn posters have claimed just that...or very similar.

Usually, if I recall properly, it's some variant of an industry insider  getting his pants in a knot as a result of railfans' speculation of particulars pertaining to his sacred turf.

When you bother to dig deep enough, you frequently  find the two sides are arguing about separate issues pertaining to the same line.  But, once the adrenaline flares up, the absolutes start flying.  Shifting the focus of the discussion from "understanding" to "schoolin"   

 

[SD60MAC9500]

 

greyhounds

For a Class 1 it’s difficult to do these things.  1) It is impossible to accurately determine the cost of each load for carload traffic.  There are formulas for doing so, but they’re made up out of whole cloth.  2) It is impossible to determine the profit/loss status of a branch line.  Sometimes, it’s just plain obvious.  But, while the costs of operating the branch can be reasonably isolated and determined there is no valid way to assign revenue to the branch. 

 

In the previously cited Heyworth, IL example unit trains of grain are moved.  If such a train moves to Gretna, LA for export just how much of the revenue is assigned to the Heyworth branch?  There’s no valid way to make such an assignment.  And remember, the operating officials don’t have revenue responsibility, only expense responsibility.

 

 

I can see the difficulty in quantifying cost of operation prior to the digital age. Though today with all the algorithms available to itemize line cost and get an idea of expenses would not appear to be all that difficult. Said train operating from Heyworth, IL to Gretna, LA is going to produce revenue. Would it not be possible to break down the revenue generated by the total haul into a percentages? A portion of the revenue is going to operating expenses. So why not break down operating expense into a percentage based on length of haul? If the Heyworth Branches portion of the haul is lets say 15 miles (this is just an example I don't how long the Heyworth Branch is) out of a total haul of roughly 850 miles. That comes to approximately 1.8%. The Heyworth Branch would get 1.8% of the revenue portion that's allocated to operating expenses. Of course this would be highly variable as trains would not always have the same: consist, weight, length, etc., and have different terminating points. Though would such a formula be feasible? Or have the RR's tried this formula already? 

 

[greyhounds]

Convicted One

This is an interesting thread to read, when weighed against the hard cases who insist: A. No railroad has EVER chased away a customer that was willing to pay a fair price B. No railroad has ever abandoned a line that had willing customers wanting to do business Both are arguments we've seen advanced here a time or two.

I think the phrase "No railroad has EVER..." is out of place.  It implies a standard of perfection which cannot be met.  Of course, such things have happened.  They don’t make sense, but they happen.  Kind of like our life events from time to time.

 

Look at it this way:  An operating official is under pressure to reduce expenses.  So, he/she will reduce expenses.  This official has no profit/loss responsibility, only expense responsibility.  If the railroad looses more than it gained it is of no consequence to the official who made the decision.  They did as told and will get an “At A Boy” or an “At A Girl”.  That their directed actions hurt the railroad company is not considered.  

 

A possible solution is to franchise local and branch line services.  The franchisee will have both revenue and expense responsibility and the people making decisions should be more prone to act accordingly.  (No, this won’t be perfect either.  But it should be an improvement.)

 

This is being done in some places.  Tree cited an example in New York State.  In Illinois, the CN has leased a line from Clinton to Heyworth to a short line operator.  This operator has full profit and loss responsibility for the line.  Presumably, that operator will act accordingly. 

 

For a Class 1 it’s difficult to do these things.  1) It is impossible to accurately determine the cost of each load for carload traffic.  There are formulas for doing so, but they’re made up out of whole cloth.  2) It is impossible to determine the profit/loss status of a branch line.  Sometimes, it’s just plain obvious.  But, while the costs of operating the branch can be reasonably isolated and determined there is no valid way to assign revenue to the branch. 

 

In the previously cited Heyworth, IL example unit trains of grain are moved.  If such a train moves to Gretna, LA for export just how much of the revenue is assigned to the Heyworth branch?  There’s no valid way to make such an assignment.  And remember, the operating officials don’t have revenue responsibility, only expense responsibility.

 

Using the franchise system will, at least, give profit and loss responsibility to those making the decisions.  Again, it won’t be perfect, but it should improve things.

 

 

[mudchicken]

But did the PSR proponet who could do no wrong realize he/she had sinned? The people doing all the apologies were just his/her foot soldiers.

[BaltACD]

Shadow the Cats owner

It's amazing when you threaten to get the STB involved in with a service issue with a railroad that is under the PSR belief system.  Just the threat of my boss going to them from his lawyers got the NS to not only pull our empties but also the loads that had been waiting for weeks then also bring in cars we had been waiting on those that had not been diverted to the BNSF for us.  We also got a formal apology from the Dearborn Division trainmaster and 2 different customer service reps also called my boss and personally apologized to him.  The best part was NS agreed to service us as needed from now on and did it in writing.

Come to Jesus moments do work.

One just has to know who Jesus is to get Him involved.

[Shadow the Cats owner]

It's amazing when you threaten to get the STB involved in with a service issue with a railroad that is under the PSR belief system.  Just the threat of my boss going to them from his lawyers got the NS to not only pull our empties but also the loads that had been waiting for weeks then also bring in cars we had been waiting on those that had not been diverted to the BNSF for us.  We also got a formal apology from the Dearborn Division trainmaster and 2 different customer service reps also called my boss and personally apologized to him.  The best part was NS agreed to service us as needed from now on and did it in writing.

[Convicted One]

tree68

the impression has been the difference between how the others view "fair."

I have no doubt that is a factor,  but I also believe other factors such as volume, opportunity cost, and incompetence have their roles, as well.

What is that old saying: "we are too much accustomed to attribute to a single cause, problems that are a product of many"

[tree68]

Convicted One

A. No railroad has EVER chased away a customer that was willing to pay a fair price

B. No railroad has ever abandoned a line that had willing customers wanting to do business

Methinks the impression has been the difference between how the others view "fair."

[zugmann]

Ulrich

I  wouldn't blame every service failure today on some facet of PSR.

PSR is just another tool.  But it's like using your ratchet for a hammer. 

[Convicted One]

This is an interesting thread to read, when weighed against the hard cases who insist:

A. No railroad has EVER chased away a customer that was willing to pay a fair price

B. No railroad has ever abandoned a line that had willing customers wanting to do business

Both are arguments we've seen advanced here a time or two.

[Fred M Cain]

Shadow the Cats owner

Murphy they are not responding to anything we send them.  Electronic requests for service emails phone calls to our supposed CS rep are going unanswered.  Our lawyers can not even get anyone to answer the freaking phone as to why they are refusing to service us and we are at the point we are demanding answers.  BNSF stepped up to the plate got our cars that NS had with the Medical grade resins we had been hauling in our trucks to interchanged in Chicago and then dropped them off in our SIT yard on their tracks.  This way we can start providing proper service to our customer again.  NS I swear is in a full fledged PSR meltdown when it comes to PSR customer relations and anymore they are shooting themselves in the head while trying to shoot themselves in the foot.  The local ethonal plant they service in the area is wanting to have Iowa Interstate put in a track to service them as NS does not want the business either.   

 

 

I don’t know why railroads have to do this.  It’s kinda like if you have a LOT of small shipments that make a little bit of money for the road but a few really HUGE shipments that make a LOT of money for the road then they concentrate on the big stuff and ignore the little stuff.  But all those little carloads add up.  Or are all businesses a bit inclined that way?

 

In the custom trailer factory I work in, we have some very devoted customers that order lots of small trailers that each make a nice profit.  But every once and a while a customer will order five or six huge and very expensive trailers that have much thicker profit margins and they squeeze those orders in and push back our other customers that have been waiting for MONTHS for their orders.  HA ~ !

 

Is this kinda what NS is doing a little bit of?  They ignore all those little guys at their own peril, or, maybe I should say MY peril, too, ‘cause I’m an NS shareholder.

 

Regards,

Fred M. Cain

[mudchicken]

At least one of those entities that fits your description has filed a complaint with STB. (Sanimax, and they are also in the courts / NOR 42171)

 

[Ulrich]

adkrr64

 

 

Ulrich

 I don't ship alot by rail, but I have noticed a marked improvement over the last 20 years. Most of all, its easier to do business with the railroads... they respond in a timely manner to rate and service  requests.. and I'm by no means a high volume user of rail.

 

 

Which railroad(s) are you typically doing business with?

 

 

CN and CSX primarily

[adkrr64]

Ulrich

 I don't ship alot by rail, but I have noticed a marked improvement over the last 20 years. Most of all, its easier to do business with the railroads... they respond in a timely manner to rate and service  requests.. and I'm by no means a high volume user of rail.

Which railroad(s) are you typically doing business with?

[Ulrich]

I  wouldn't blame every service failure today on some facet of PSR. Service failures have been around since the beginning of time, and they will go on forever or until humans somehow evolve to a perfect state. I don't ship alot by rail, but I have noticed a marked improvement over the last 20 years. Most of all, its easier to do business with the railroads... they respond in a timely manner to rate and service  requests.. and I'm by no means a high volume user of rail. Many shippers who now don't use rail left long ago.. back in the 70s when economic regulations were still firmly in place. Many of those will likely never come back as they've pivoted to other modes and likely any direct rail access has been removed decades ago. 

[zugmann]

How bad does it get before the feared "R" word starts to get thrown about?

[jeffhergert]

I've heard from a couple of different sources that we're going to piddle away a $10 million a year contract.  The contract requires they get service (switched) 5 days a week, but the railroad has decided to only switch them 3 days a week.  They want the 5 day service.

The customer has complained, but so far as I know they have not taken legal action.  They are however, building new truck docks. 

Jeff

[matthewsaggie]

My experience with dealing with NS and CSX for 38 years in several public agencies:

1- If they ignore you long enough you will go away and stop bothering them.

2- Nobody has the authority to say yes, but everyone has the authority to say no.

 

[zugmann]

We're on an anti-OT kick now.  Nothing over 9 hours and change.  No exceptions.  

[SD70Dude]

Lithonia Operator

Shadow the Cats owner

We have been trying for now 3 weeks to get them removed from our SIT yard and still nothing.  We also have 2 sidings full of fracking sand that needs to be picked up but again can not get anyone at NS to respond to our demands.  Yep your hearing that right 2k tons ...

 Then he found out why our requests had been ignored.  NS was trying to freeze us out due to PSR.  Why we don't ship a trainload a week with them.  Our lawyers are now involved this one will be fun as well they are suggesting a formal complaint to the STB along with a request for an order to provide service to us. 

That's outrageous. Really bad. Kind of a poster child for what's wrong with PSR from the customer point of view.

 

Please keep us posted on this. I'm very interested in where this leads.

Unfortunately, this sort of thing has been the norm for railroad-customer relationships in recent years.  Every time someone tries to spout off about how great Hunter Harrison and PSR are, remember stories like this.  

This may be a ploy to squeeze higher freight rates out of Shadow's employer, as opposed to completely running them off (but that works too if it will make the OR go down).

The PSR mentality toward captive customers is similar to the Mafia.  Don't ship or pay enough?  Well, that's a nice operation you got there, would be a shame if something were to "happen" to it.......

 

[Shadow the Cats owner]

Murphy they are not responding to anything we send them.  Electronic requests for service emails phone calls to our supposed CS rep are going unanswered.  Our lawyers can not even get anyone to answer the freaking phone as to why they are refusing to service us and we are at the point we are demanding answers.  BNSF stepped up to the plate got our cars that NS had with the Medical grade resins we had been hauling in our trucks to interchanged in Chicago and then dropped them off in our SIT yard on their tracks.  This way we can start providing proper service to our customer again.  NS I swear is in a full fledged PSR meltdown when it comes to PSR customer relations and anymore they are shooting themselves in the head while trying to shoot themselves in the foot.  The local ethonal plant they service in the area is wanting to have Iowa Interstate put in a track to service them as NS does not want the business either.   

[Murphy Siding]

Shadow the Cats owner

It also doesn't help that the Railroads especially the class 1's treat customer service like it is a black hole something never to be done.  We have 10 empties that have needed to be picked up here at our SIT yard on the NS side of the operation.  I have been trying to get a hold of someone at NS for the last 2 weeks to get them taken away.  My emails phone calls have gone unanswered.  Heck even my boss can not get anyone on the freaking phone.  Yet at anytime anyone of our customers can call us during regular hours and within 2 mins tops have someone on the phone and have that person working on solving their needs and problem they are having.  I hope this explains why industries also left the Railroads they flat out do not care about their small customers anymore.  Unless your name is UPS JB or a major shipper and even then you might get ignored at times.

 

You have to call or e-mail them? Why? With BNSF we are set up to simply go on their webite, check a box, and release cars for pick up.