futuremodal wrote: TimChgo9 wrote:As I read these threads, I begin to wonder if Open Access is a good idea. Now, I have no railroad freight moving experience at all, all I know is what I read. But it seems, that opening up rail lines to "anyone" who wants to use them, while someone else (be it government, or a corporation, or what have you) maintains the infrastructure seems like a model that could be fraught with problems. While, from what I read, "competition" would increase, and would benefit those captive shippers out there (would it?), it seems like a system asking for trouble. Aside from safety, and maintenance issues, would Open Access mean that any Tom, Dick or Harry that could afford to buy a train, ask for permission to run it on the rails? Let me ask it this way.. Say that I have some money to burn, and I find out that the railroads are now "Open Access" and I have always wanted to buy a train, and run it, and make some money. So, I buy an old locomotive, and some cars, and put myself in business as "TimChgo9 Transportation Company" Now, under OA, would I be able to just put my train on the tracks, and go drumming up customers, or not? How would I be regulated, would the FRA still play a part, or not? Who inspects my equipment, and the training of my Engineers and Brakemen? Or under OA, would all of the regulations be cursory? Or nonexistent? And if the government were to be the ones in control of the infrastructure, would repairs even be made, or would one have to jump through bureaucratic hoops to get something simple done? How long would it take to replace defective rail, or ties, or worn switch points? Not to mention signals, crossing gates, and the like. Since the owner would have no vested interest in a profit, then what would be the motivation to fix anything? AND if there is an accident due to poor infrastructure maintenance, who reimburses the affected carrier, as well as the shipper? What would be the regulating body? Airports can be used by anyone who wants to start an airline, whether they own 2 747's or a bunch of Gulfstream I's, they may be able to start the airline, but they have to submit to the FAA as far as airworthiness of their airplanes, crew training and etc... So, would I have to submit to the FRA, or in lieu of them, would the infrastructure owner demand standards. And who gets priority? The big Railroads, or is it a first come first served.... In other words, if I am there with my old GP40 and my half a dozen cars, can I ask for and get priority over, say, a Chicago to Seattle intermodal? Who would dispatch? Does that fall under "Infrastructure" or would each carrier dispatch their own? I don't see these questions being answered, all I see are one person's apparent dislike, if not loathing of the big railroads, and perhaps his desire for OA is to see the "giants" cut down to size, and his remarks are followed by, either jibes, links to other places, or large, broad based answers that don't deal in nuts and bolts. The theory of a "level playing field" where everyone can "compete fairly" is a nice one.... in theory. But, would it not lead to a period of confusion, over crowding, reduction of service, and possibly a decrease in safety? And if that were the case, would that be good? (Before anyone says anything, I know that some railroads defer maintenance, and have the occasional "safety issue", since I am not a railroader, the railroaders in this forum could probably address the safety thing better than I can) I don't think OA is a magic bullet as some in this forum would like to suggest. It can't be, there is nothing that is a "magic bullet" for anything. Logic would dictate that if OA were implemented, it would lead to a potential mess. While the system we have now works for some, and not really for others, would we be doing rail transportation in this country any favors by going OA? Did you notice how you framed it all in your last sentence? E.g. "doing rail transportation.....any favors" rather than "doing US rail shippers any favors". Just a thought, but why is it that US politicos are supposed to prioritize railroads over rail shippers? But to answer your question, yes OA is meant to benefit rail shipping in the US, not necessarily the current rail industry. Obviously, an unhealthy rail line sector is bad for rail shipping. But what we are witnessing today is that a strong and powerful rail industry is not necessarily good for rail shipping interests. So somewhere between having a healthy but abusive rail line sector and an advantageous rail shipping sector but struggling railroad industry is where we're trying to find the utilitarian optimum. BTW - for the record, I see OA as just one option for bringing comprehensive intramodal rail competition to bear. Another option I'd favor is keeping the integrated model but making sure all regions of the country have at least three rail service providers, e.g. triopoly or better. The latter would probably involve a lot of track sharing to prevent overcapitalization. As for anyone with some bucks buying their own locos and railcars and offering their services (just like many trucking outfits), I'd say the dispensers of scarce capacity would laugh you out of the office, while the overseers of ample capacity would probably consider your bids. You'd be better off just forming a 3rd party intermodal company like Pacer, then subletting your rail transport needs to one of the presumed established rail service providers - BNSF, UP, KCS, DME, et al. Other than the largest trucking outfits like JBHunt or UPS, I can't see too much of non rail outfits deciding to run their own trains with an advent of OA.
TimChgo9 wrote:As I read these threads, I begin to wonder if Open Access is a good idea. Now, I have no railroad freight moving experience at all, all I know is what I read. But it seems, that opening up rail lines to "anyone" who wants to use them, while someone else (be it government, or a corporation, or what have you) maintains the infrastructure seems like a model that could be fraught with problems. While, from what I read, "competition" would increase, and would benefit those captive shippers out there (would it?), it seems like a system asking for trouble. Aside from safety, and maintenance issues, would Open Access mean that any Tom, Dick or Harry that could afford to buy a train, ask for permission to run it on the rails? Let me ask it this way.. Say that I have some money to burn, and I find out that the railroads are now "Open Access" and I have always wanted to buy a train, and run it, and make some money. So, I buy an old locomotive, and some cars, and put myself in business as "TimChgo9 Transportation Company" Now, under OA, would I be able to just put my train on the tracks, and go drumming up customers, or not? How would I be regulated, would the FRA still play a part, or not? Who inspects my equipment, and the training of my Engineers and Brakemen? Or under OA, would all of the regulations be cursory? Or nonexistent? And if the government were to be the ones in control of the infrastructure, would repairs even be made, or would one have to jump through bureaucratic hoops to get something simple done? How long would it take to replace defective rail, or ties, or worn switch points? Not to mention signals, crossing gates, and the like. Since the owner would have no vested interest in a profit, then what would be the motivation to fix anything? AND if there is an accident due to poor infrastructure maintenance, who reimburses the affected carrier, as well as the shipper? What would be the regulating body? Airports can be used by anyone who wants to start an airline, whether they own 2 747's or a bunch of Gulfstream I's, they may be able to start the airline, but they have to submit to the FAA as far as airworthiness of their airplanes, crew training and etc... So, would I have to submit to the FRA, or in lieu of them, would the infrastructure owner demand standards. And who gets priority? The big Railroads, or is it a first come first served.... In other words, if I am there with my old GP40 and my half a dozen cars, can I ask for and get priority over, say, a Chicago to Seattle intermodal? Who would dispatch? Does that fall under "Infrastructure" or would each carrier dispatch their own? I don't see these questions being answered, all I see are one person's apparent dislike, if not loathing of the big railroads, and perhaps his desire for OA is to see the "giants" cut down to size, and his remarks are followed by, either jibes, links to other places, or large, broad based answers that don't deal in nuts and bolts. The theory of a "level playing field" where everyone can "compete fairly" is a nice one.... in theory. But, would it not lead to a period of confusion, over crowding, reduction of service, and possibly a decrease in safety? And if that were the case, would that be good? (Before anyone says anything, I know that some railroads defer maintenance, and have the occasional "safety issue", since I am not a railroader, the railroaders in this forum could probably address the safety thing better than I can) I don't think OA is a magic bullet as some in this forum would like to suggest. It can't be, there is nothing that is a "magic bullet" for anything. Logic would dictate that if OA were implemented, it would lead to a potential mess. While the system we have now works for some, and not really for others, would we be doing rail transportation in this country any favors by going OA?
Did you notice how you framed it all in your last sentence? E.g. "doing rail transportation.....any favors" rather than "doing US rail shippers any favors". Just a thought, but why is it that US politicos are supposed to prioritize railroads over rail shippers?
But to answer your question, yes OA is meant to benefit rail shipping in the US, not necessarily the current rail industry. Obviously, an unhealthy rail line sector is bad for rail shipping. But what we are witnessing today is that a strong and powerful rail industry is not necessarily good for rail shipping interests. So somewhere between having a healthy but abusive rail line sector and an advantageous rail shipping sector but struggling railroad industry is where we're trying to find the utilitarian optimum.
BTW - for the record, I see OA as just one option for bringing comprehensive intramodal rail competition to bear. Another option I'd favor is keeping the integrated model but making sure all regions of the country have at least three rail service providers, e.g. triopoly or better. The latter would probably involve a lot of track sharing to prevent overcapitalization.
As for anyone with some bucks buying their own locos and railcars and offering their services (just like many trucking outfits), I'd say the dispensers of scarce capacity would laugh you out of the office, while the overseers of ample capacity would probably consider your bids. You'd be better off just forming a 3rd party intermodal company like Pacer, then subletting your rail transport needs to one of the presumed established rail service providers - BNSF, UP, KCS, DME, et al. Other than the largest trucking outfits like JBHunt or UPS, I can't see too much of non rail outfits deciding to run their own trains with an advent of OA.
With true OA, you wouldn't have to buy anything. The cost of entry into railroading would be near zero. All the equipment you'd need is available for lease. All you'd need is a little bit of credit to secure a lease on a locomotive, an engineer's licence and a way to keep HOS records and away you go. Those operators with a young, non-union work force would be the winners and the traditional carriers would be the losers. OA would play out exactly like it did in the airline industry with all the "legacy" carriers, that used to "own" the routes going belly up (United, Delta, USAir -twice, American, TWA, PanAm, Continental) as the new guys with low pensions and labor rates took hold (Southwest, JetBlue, Airtran).
If you restrict or regulate access, then it isn't "open" and is much more like the regulated truck companies used to operate. Notice that most of them have gone by the wayside and have been replaced by JBHunt, Schnieder and other post-regulation upstarts.
But, because of the huge number of OD pairs for rail shipments in the US, the best analogy would be if UPS and FedEx were required to allow "open access" to each others sorting centers. Completely unworkable.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
futuremodal wrote: But now you're setting up an undefined straw man to try and shoot down the premise. In other words, you're probably not going to call the railroad to ship 100 tons of flaxseed 50 miles down to the barge port, nor are you going to call J.B. Hunt to ship 10,000 tons of potash from Saskatchewan to Portland OR, nor are you going to call Bubba's Barge line to ship 10 UPS trailers from Dubuque to Memphis...........
But now you're setting up an undefined straw man to try and shoot down the premise. In other words, you're probably not going to call the railroad to ship 100 tons of flaxseed 50 miles down to the barge port, nor are you going to call J.B. Hunt to ship 10,000 tons of potash from Saskatchewan to Portland OR, nor are you going to call Bubba's Barge line to ship 10 UPS trailers from Dubuque to Memphis...........
No, Dave. You're the one with the straw man. Each of the movements you cite has significant competitive alternatives. Just not the alternatives you (straw man like) cite.
futuremodal wrote:But to answer your question, yes OA is meant to benefit rail shipping in the US, not necessarily the current rail industry. Obviously, an unhealthy rail line sector is bad for rail shipping. But what we are witnessing today is that a strong and powerful rail industry is not necessarily good for rail shipping interests. So somewhere between having a healthy but abusive rail line sector and an advantageous rail shipping sector but struggling railroad industry is where we're trying to find the utilitarian optimum.
1435mm wrote: Datafever wrote:There are a couple of points that keep getting made over and over that just kind of nag at the back of my cognitive processing. These points frequently seem to be used to bolster each other and they do provide a backdrop for each other. These points are:1) Trucks are not (always) a competition for trains.2) Imported goods are never captive.Both statements are fairly accurate. The argument seems to go something like this:Domestic manufacturers that are captive shippers are at an economic disadvantage to imported goods. Since imported goods will get low competitive rail rates while domestic manufacturers (at least the ones for whom truck transport is not an alternative) are likely to be tied to only one Class 1 railroad and therefore pay exorbitant monopolistic rates. This gives imported goods an economic advantage over domestic goods and contributes to the trade imbalance.And yet, what types of commodities cannot reasonably be transported by truck? Minerals (such as coal and potash) are brought up as an example. Grains (such as wheat and corn) are another example. Liquids (such as ethanol).But these are not the types of commodities that are generally imported. Most imported goods can generally be reasonably transported by truck or rail. Domestic manufacturers of those types of goods can also use truck or rail for transport and therefore they are not captive shippers. Therefore they are not paying outrageous monopolistic rates for transportation of their goods. And therefore, they are on level playing ground economically.I don't know that I have done a very good job of expressing what I wanted to say, but hopefully my point has been made.Notwithstanding the "argument", it rests on a false premise, that trucks and railroads each have an impregnable market segment only they can fill. Coal, grain, potash, ethanol are all not only "reasonably" transported by truck but in enormous volumes and often for some surprisingly long distances. Transportation is too complex to reduce to simple generalizations about the market-matched niches of transportation modes, and the result of that reduction has been and continues to be a lot of bad public policy. There are plenty of examples of coal moving 500 miles by truck and 5 miles by train, for instance.
Datafever wrote:There are a couple of points that keep getting made over and over that just kind of nag at the back of my cognitive processing. These points frequently seem to be used to bolster each other and they do provide a backdrop for each other. These points are:1) Trucks are not (always) a competition for trains.2) Imported goods are never captive.Both statements are fairly accurate. The argument seems to go something like this:Domestic manufacturers that are captive shippers are at an economic disadvantage to imported goods. Since imported goods will get low competitive rail rates while domestic manufacturers (at least the ones for whom truck transport is not an alternative) are likely to be tied to only one Class 1 railroad and therefore pay exorbitant monopolistic rates. This gives imported goods an economic advantage over domestic goods and contributes to the trade imbalance.And yet, what types of commodities cannot reasonably be transported by truck? Minerals (such as coal and potash) are brought up as an example. Grains (such as wheat and corn) are another example. Liquids (such as ethanol).But these are not the types of commodities that are generally imported. Most imported goods can generally be reasonably transported by truck or rail. Domestic manufacturers of those types of goods can also use truck or rail for transport and therefore they are not captive shippers. Therefore they are not paying outrageous monopolistic rates for transportation of their goods. And therefore, they are on level playing ground economically.I don't know that I have done a very good job of expressing what I wanted to say, but hopefully my point has been made.
But now you're setting up an undefined straw man to try and shoot down the premise. The combination of shipping volumes, distance, and time sensitivity generally dictate which mode is chosen for the main haul. Are you talking about 10,000 tons of coal/grain/potash/et al, or are you talking about a few hundred tons of coal/grain/potash/et al? Are you talking a few hundred miles or a few thousand miles? Once you determine your product's shipping characteristic, then you decide how it moves - other than intermodal combo's, you're not going to sub an alternate mode in place of the optimal mode.
In other words, you're probably not going to call the railroad to ship 100 tons of flaxseed 50 miles down to the barge port, nor are you going to call J.B. Hunt to ship 10,000 tons of potash from Saskatchewan to Portland OR, nor are you going to call Bubba's Barge line to ship 10 UPS trailers from Dubuque to Memphis...........
Lee Koch wrote: I have another question, though. I've read alot of theory and some statistics on this thread, and now I'd like to see some factual examples (please, no links!) of pricing for captive shippers compared to rates for non-captive shippers and compared to other modes of transportation (primarily trucking). I suspect that the price per ton-mile is lower for almost anything by rail, even for the so called captive shipper, than it would be by truck, but this is just an assumption, as I have no facts to back it up with.
Yes, I was talking about movement from the elevator.
They used to lay temporary railroad tracks in sugar cane fields and load directly into diminutive trains. Aside from that, farm products have always come out of the fields on somebody's back, in a horse drawn wagon, or in a truck.
greyhounds wrote: Datafever wrote:And yet, what types of commodities cannot reasonably be transported by truck? Minerals (such as coal and potash) are brought up as an example. Grains (such as wheat and corn) are another example. Liquids (such as ethanol). Oh, they move by truck just fine. On a tonnage basis, trucks move 2/3 of the US field crops. Less than 18% of the tons move by rail. Now that changes when you measure by ton-miles instead of tons, but since most of the field crops don't move very far, trucks dominate. Ethanol and coal are also trucked. For more info on the crops see: http://www.fapri.missouri.edu/outreach/publications/2004/FAPRI_UMC_Briefing_Paper_04_04.pdf
Datafever wrote:And yet, what types of commodities cannot reasonably be transported by truck? Minerals (such as coal and potash) are brought up as an example. Grains (such as wheat and corn) are another example. Liquids (such as ethanol).
Oh, they move by truck just fine. On a tonnage basis, trucks move 2/3 of the US field crops. Less than 18% of the tons move by rail. Now that changes when you measure by ton-miles instead of tons, but since most of the field crops don't move very far, trucks dominate. Ethanol and coal are also trucked. For more info on the crops see:
http://www.fapri.missouri.edu/outreach/publications/2004/FAPRI_UMC_Briefing_Paper_04_04.pdf
1435mm wrote: Notwithstanding the "argument", it rests on a false premise, that trucks and railroads each have an impregnable market segment only they can fill. Coal, grain, potash, ethanol are all not only "reasonably" transported by truck but in enormous volumes and often for some surprisingly long distances. Transportation is too complex to reduce to simple generalizations about the market-matched niches of transportation modes, and the result of that reduction has been and continues to be a lot of bad public policy. There are plenty of examples of coal moving 500 miles by truck and 5 miles by train, for instance.Take a look at the Bureau of Transportation Statistics Commodity Flow Surveys by Mode.S. Hadid
Datafever wrote:There are a couple of points that keep getting made over and over that just kind of nag at the back of my cognitive processing. These points frequently seem to be used to bolster each other and they do provide a backdrop for each other. These points are: 1) Trucks are not (always) a competition for trains. 2) Imported goods are never captive. Both statements are fairly accurate. The argument seems to go something like this: Domestic manufacturers that are captive shippers are at an economic disadvantage to imported goods. Since imported goods will get low competitive rail rates while domestic manufacturers (at least the ones for whom truck transport is not an alternative) are likely to be tied to only one Class 1 railroad and therefore pay exorbitant monopolistic rates. This gives imported goods an economic advantage over domestic goods and contributes to the trade imbalance. And yet, what types of commodities cannot reasonably be transported by truck? Minerals (such as coal and potash) are brought up as an example. Grains (such as wheat and corn) are another example. Liquids (such as ethanol). But these are not the types of commodities that are generally imported. Most imported goods can generally be reasonably transported by truck or rail. Domestic manufacturers of those types of goods can also use truck or rail for transport and therefore they are not captive shippers. Therefore they are not paying outrageous monopolistic rates for transportation of their goods. And therefore, they are on level playing ground economically. I don't know that I have done a very good job of expressing what I wanted to say, but hopefully my point has been made.
greyhounds wrote: As far as large railroads being less efficient than smaller ones, the author cited by MS, Kent T. Healy, has been deceased for 20 years. He studied an industry that no longer exists in the same form. I'm sure he did good analysis, but it's relavancy today is questionable. Tremendous productivity gains in railroading came from deregulation. And the author's work concentrated on the regulated era, which induced a lot of inefficiencies into railroading.
As far as large railroads being less efficient than smaller ones, the author cited by MS, Kent T. Healy, has been deceased for 20 years. He studied an industry that no longer exists in the same form. I'm sure he did good analysis, but it's relavancy today is questionable. Tremendous productivity gains in railroading came from deregulation. And the author's work concentrated on the regulated era, which induced a lot of inefficiencies into railroading.
If so, then looking at deregulated industries should shed some light on whether large or smaller corporations are more efficient. If the proposition is that post-deregulation, railroads look more like other corporations, then note that Healy was drawing his analysis from work done on unregulated industries, and only confirmed that railroads behaved the same in terms of efficiency related to size. Regulation had nothing to do with it.
Modern analysis has confirmed that not only are there inherent diseconomies of scale in industrial corporations -- Healy simply showed that railroads, even as regulated, obeyed general economic laws -- but that as the result of improvements in communications and IT technology, the optimum size of corporations is becoming smaller, not larger.
This would not be the first instance that the rail industry got it backwards by thinking as some do that IT technology enables larger corporations to be more efficient. This is, after all, the same industry that thought the Staggers Act would allow them to raise rates.
Maybe PCs and IT do allow larger corporations to be more efficient, but the same technology allows smaller corporations the same advantages. The technology, in that instance, does not change the concept of diseconomies of scale, rather, makes them more, rather than less significant compared to a hypothetical smaller competitor.
Today, the little guy's Dell is just as good as the GM VP's Dell. Forty years ago, there was a world of difference between what the GM guy had available and what the little guy had.
In 1968, I had a choice between my yellow, finely-machined Pickett slide rule, or a third generation IBM 360 identical to the one MILW upgraded to that year. From experience, I will tell you exactly what the difference is between these eras, then and now.
The false premise offered by BobWilcox and greyhounds is that PC and IT technology offers advantages to large corporate enterprises. Yet, the fact that $600 now purchases 10,000 times the computing power of an IBM 360, operates in favor of the smaller, not the larger, enterprise in terms of leveling the competitive advantage formerly offered to large corporations which alone could afford the high investment and ongoing costs required by a 360 installation.
The IBM 360 created an economy of scale that favored the larger corporate enterprise at the very time that Healy was doing his landmark study. Since then, the desktop PC has destroyed that economy of scale. This has to shift the threshold of any diseconomy of scale down, not up.
Healy's results would now show a shift further in favor of smaller railroad companies, as the result of both deregulation and IT technology. Recent econometric analysis supports that view.
"As for the future, the stock market does not expect the largest firms to outperform smaller firms. The stock market valuation of the largest firms, relative to smaller firms, has declined sharply between 1964 and 1998 (Farrell 1998). In 1964 the largest 20 firms comprised 44 per cent of total stock market capitalisation in the United States; in 1998 they accounted for 19.5 per cent. Market value primarily reflects future growth and profit expectations, and thus the market is increasingly sceptical of large firms’ ability to compete with smaller firms. This could be due to industrial evolution, but if it is assumed that diseconomies of scale do not exist, then the largest 20 firms should presumably be able to compensate for a relative decline in their mature businesses by effortlessly growing new businesses.
"A study of firms on the New York stock exchange (Ibbotson Associates 1999, 127-143) similarly showed that small firms outperformed large firms between 1926 and 1998. The total annual shareholder return over the period was 12.1 per cent for the largest size decile and 13.7 per cent for the second largest size decile. It increased steadily to 21.0 per cent for the smallest size decile (p. 129). The real return to shareholders after adjustment for risk (using the capital asset pricing model) was -
"The above evidence shows that concentration in the manufacturing sector—defined as the share of value added, employment, assets or market capitalisation held by large firms—has changed little or has declined over much of the last century. The size of large manufacturing firms has kept pace with the overall growth of the manufacturing part of the economy since the 1960s in value-added terms, but has declined in employment terms since 1979 (and has declined relative to the total US corporate sector and the global corporate sector). This indicates that there is a limit to firm size and that this limit may be decreasing in absolute terms, all of which supports the research findings of this thesis."
Bureaucratic Limits of Firm Size: Empirical Analysis Using Transaction Cost Economics, PhD Thesis,
http://canback.com/dissertation.pdf
The OA argument may be that the rail industry, having already destroyed its ability to operate at societally acceptable levels of efficiency -- that is, maximized -- might be, for its own good, broken into a model that permits recovery of those efficiencies; whereas arbitrary break-up of the industry into more efficient independent units may be impossible at this point.
You touched on one of the major reason the UP melt down began in Houston…the attempt by UP to “standardize” the old SP yard system, Englewood in particular, into the UP culture way too fast…
Each terminal, and each yard develops around the customers it serves, and not all customer are the same.
Each terminal manager and every corridor manager who have held their position for any length of time know who needs what service, when and why.
Attempting to make those SP customers accept what they, (UP) though they should have, and trying to change the culture instead of allowing it to adapt plugged the yards with trains.
The rest of the story is well known…
Ed
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Well, I am seeing a little bit of today's "Dilbert" in the discussion.
Anyway, looking at the "Dark 70s":GDP Growth (Real)1940s5.6%1950s 4.1%1960s 4.4%1970s 3.2%1980s 3.0%1990s 3.1%2000s 2.7%The "Dark Days" of the 1970s were "less dark" in terms of economic growth than the 1990s. Railroads were reaching their former WWII tonnage highs by the mid-1970s, and these tonnage highs were substantially higher than they carried during the 1950s and 1960s.As near as I can tell, the argument is:1) we never heard of Kent Healy2) we haven't read his study and don't actually know what it says3) but, we know it's wrong4) because "things" have changed.5) railroad economists with strong economic and engineering backgrounds in the rail industry don't understand the industry,6) No, we have no actual data for anything we say.Although regulation is typically blamed for the plight of railroads in the 1970s, and deregulation "unleashed" productivity surges -- although now, I see PCs and the internet are at least partly responsible -- there is little support for this.Actual economic growth in the 1970s was not bad. But three business models got into trouble in that era -- railroading, automotive, and aircraft manufacturing. For examples, Rock Island, Chrysler, and Lockheed.From the standpoint of regulation as a causation, it probably wasn't much of a factor compared to other, more significant, factors. Rock Island operated in a regulated, competitive environment. Chrysler operated in a highly competitive, deregulated environment. Lockheed operated in a highly subsidized environment. You could not find three more divergent business models -- all suffering the same problem. Regulation obviously was not the commonality. However, a high capital need during a time of high inflation, and historically high interest rates to obtain that capital was a significant and compelling commonality. Altman-Z analysis of U.S. corporations in 1979 showed a predictive power of over 90% for economic distress for those corporations with a score less 1.8 or less. But the Altman-Z score is derived from balance sheets and income statements, and appears historically entirely independent of regulatory considerations. And the score, and the basis for the score, does not appear to have substantially drifted -- that is, the elements that determined corporate health in 1970 are identical to the factors that determine corporate health in 2006.The point? Standard econometric analysis suggests that corporations still succeed the old-fashioned way -- continually improving productivity and passing the savings along to customers. Or fail in the same fashion by being unable or unwilling to do so.Now, has IT "revolutionized" something? Technological change has driven industrial productivity for over 150 years. There is absolutely nothing new about that. Productivity generally increases every year in every industry unless someone is screwing up. A productivity curve for steam engines on American railroads, for instance, shows a regular rate of marginal improvement in economic efficiency of maintenance and operation in every year after 1920. Did dieselization change the curve? Nope. I have here a mechanical Burroughs adding calculator. It has 150 keys, and you pull a handle to perform the operation. Anecdotally, I am told this machine enabled the railroad to replace three clerks with one. That was 80 years ago. Did the advent of the electronic calculator again improve productivity? No doubt. Did the IBM 360 computer do what Ken Strawbridge describes above? Yes, and it did so for MILW and CNW in 1959, forty seven years before Ken Strawbridge discovered he could do it just yesterday on a desktop. Is that remarkable progress? Not really. It's normal progress.Does software and IT improve productivity? Well, the evidence is spotty on that. Some studies have reported declining productivity. The point is that in order to constitute something remarkable, the productivity increase has to be marginally greater than the historical rate of productivity improvement which almost always exists continuously in any forward looking industry. There is no evidence that has happened in the rail industry as a specific response to IT acquisition. None whatsoever. These operations have always been improving, and IT would be a normal part of that process -- a process that was occuring when Kent Healy was a little boy, when Healy did his studies, and will be occuring in the next generation as well.So, does any of that change what Kent Healy looked at in terms of general economic operating principles in the rail industry?Not one iota.
Well, as far as IT productivity improvements ... There are a lot of people not employed as clerks by the railroads because of IT productivity improvements.
Just as an example from another industry, I was recently task to produce a 10% ramdom sample of a customer base. In less than 45 minutes it went from "Hey, we need you to do this" to having the sample, including account number, name, addrerss, city, state, zip +4, ready. That was over 230,000 randomly selected records. You couldn't even try such a thing without the IT productivity. Common sense needs to be applied to evaluations of things like IT productivity. Without it you'd have clerks reaching into jars drawing out random account numbers, then copying the names and addresses onto some endless list that was 230,000 names long. It would take an army of clerks. And a couple of 'em would spill coffee on the list.
While the UP has had continuing problems digesting its acquisistions, it has improved its operating ratio by five points from 3Q2005 to 3Q2006. Are their problems the result of their large size, on some inadequate management? We're gonna' see.
And the Southern, N&W (the old one), Central of Georgia, Nickle Plate, Wabash, and part of the Pennsylvania, Reading, New York Central, etc. all went together to produce a very efficient larger Norfolk Southern railroad.
As did the CB&Q, GN, NP, SP&S, SLSF, and ATSF.
And the best growth into a larger system of all has to be the Canadian National's acquisisitons of the IC, WC and DM&IR (I'll count the GTW as already having been part of CN). The CN's operating ratio in the 3rd quarter was in the mid 50's. That's literally unbelievably good. And they operate a huge, expanded, system that goes from Hallifax to New Oleans to Prince Rupert. They seem to be able to handle the larger size just fine.
The experiences of the NS, BNSF and CN refute the notion that bigger is less efficient in railroading. The jurry is still out on the UP. I don't want to talk about CSX, they still don't know what they do for a living.
Kent T. Healy may not have been wrong at the time he wrote, but he seems to be out of date. Of course, that's not his fault. It's hard to stay up to date when you've been deceased for 20 years. May he rest in Eternal Peace and never have to worry about a railroad operating ratio again. God Rest His Soul.
bobwilcox wrote: marcimmeker wrote: Bob, I think Michael's response answers the question about the impact of pc's and the internet on productivity By the way, Michael, thanks for that info. greetings, Marc Immeker Yes it does, his sizeable contribution was made before the arrival of PC and the internet. I think he passed away about 20 years ago.
marcimmeker wrote: Bob, I think Michael's response answers the question about the impact of pc's and the internet on productivity By the way, Michael, thanks for that info. greetings, Marc Immeker
Bob, I think Michael's response answers the question about the impact of pc's and the internet on productivity
By the way, Michael, thanks for that info.
greetings,
Marc Immeker
Well, whatever this means. You just can't throw out something like "computers" or "global warming" and say it explains or does not explain something important without some data.
A McKinsey consulting report in 2001 pointed out that there was a poor correlation between productivity and IT spending.
The report looked at all 60 sectors of the US economy, finding that most of the productivity growth in the U.S. economy after 1995 came from only six sectors: Retail trade, wholesale trade, computer manufacturing, semiconductor manufacturing, securities trading, and telecom services.
Three sectors that spent heavily on computer and internet technology -- hotels, retail banking, and long-distance data telephony -- had little to show by way of productivity gains.
Railroads have not been a sector that has shown actual productivity benefits as a result of IT investments. If you have a study to the contrary, I would like to see it.
marcimmeker wrote:Bob, I think Michael's response answers the question about the impact of pc's and the internet on productivity By the way, Michael, thanks for that info. greetings, Marc Immeker
BTW - For those of you who claim you are paying higher electric bills due to energy deregulation (and I mean genuine deregulation which includes the open access caveat, not the partial dereg of Staggers), you might find this interesting.....
http://www.energycentral.com/site/newsletters/ebi.cfm?id=238
.....as it seems that the Texas dereg experiment (which includes OA over transmission lines) has resulted in "significantly lower" electric bills for the average Texas customer.
Quote of Note: "A residential customer in Houston, for example, would have saved $1,450 over the last four years while one in Dallas would have saved $800."
Furthermore, there is the innovation factor - " At the same time, the commission says that deregulation has spawned innovative pricing options as well as new green products and services."
So, as we debate whether the electric utility comparison to an OA rail system is apt or not, at least admit that energy dereg (when it's done right as it seems to have been done in Texas) does lower prices for the customers.
Thank you, that's all.
bobwilcox wrote: MichaelSol wrote:Well, it's not my theory, but rather the results of a study by a well known railroad economist. Kent Healy has probably done more statistical work on post WWII railroads than anyone.Who is Kent Healy and what has he published? Does his research consider the impact of PCs and the internet on productivity?
MichaelSol wrote:Well, it's not my theory, but rather the results of a study by a well known railroad economist. Kent Healy has probably done more statistical work on post WWII railroads than anyone.
Well, it's not my theory, but rather the results of a study by a well known railroad economist. Kent Healy has probably done more statistical work on post WWII railroads than anyone.
"As a gut-wrenching validation of that theory, Healy's apostles point to Union Pacific's service hiccup when it absorbed the Chicago and North Western in 1995 and UP's tumble over Niagara Falls following its 1996 acquisition of Southern Pacific. Some even suggest the relative success of Burlington Northern's 1995 merger with the Santa Fe is owed mostly to fleeing Union Pacific customers."
From the Third Quarter 2006 issue of the American Association of Railroad Superintendent's Journal: "Taylor worked for the Nickle Plate Railroad, Union Railroad, Bessemer Lake Erie Railroad as a trainmaster, the Rock Island Railroad as vice president and controller, Amtrak as regional vice president for the Midwest, and TTX as assistant vice president where he retired in 1991. Taylor served on the AARS board of directors for seven years and was treasurer from 1986 to 1991. [Taylor got his start in the] Yale course taught by Kent T. Healy, [which] was famous for churning out several railroad CEOs and high ranking officials. When Taylor took the course, tuition was $450 a semester."
The Kent T. Healy Fund, Inc., a group of active and retired railroad executives, has set out to "stimulate interest in and knowledge of transportation, with particular reference to railroads, and to encourage young men and women to choose careers in transportation, particularly railroad man-agement and engineering," according to Downing B. Jenks, president of the Fund and former President of Missouri Pacific Railroad. One of the gifts that launches the program is $10,000 from the Kent T. Healy Fund, and the other is $300,000 in the form of a charitable remainder trust from Mr. Jenks, his wife, and his children.
The Kent T. Healy Fund, Inc., was formed in 1985 by alumni of the late Professor Kent T. Healy of Yale University, to honor their professor and mentor and to continue his work in preparing students for careers in transportation. "Professor Healy's graduates have had a major impact on the industry and have included 30 presidents and vice presidents of railroads and railroad suppliers,"said Dean Gregory Farrington of SEAS in acknowledging the gift.
Works:
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