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Murphy The statement that higher rail rates would keep more U.S. producers stateside while lower rail rates would lead to an exodus of U.S. producers is not par for the course. It makes no sense. It flies in the face of conventional wisdom and practical experience. In general transportation costs rise as mileage increases. All things being equal, it would be cheaper to locate a production facility closer to the consumption center (the point that Mark got right) than thousands of miles away from the consumption center (we're assuming inputs are not tied to a certain locale). For Marks statement to have merit, the consumption centers in the U.S. would have to be captive to one railroad, then it would make sense to locate as close as possible to the consumption center since the farther away you are the higher the transport costs become. However, it is equally true that even with two or more railroads serving a consumption center (with or without OA) it is still best to locate as close as possible to the consumption center, because you are still faced with the increased transportation costs the farther away you get. To say that lowering rail rates would cause firms to pull up roots is just plain wrong. In reality, the opposite is true. Given that most captive rail shippers in the U.S. are U.S. producers, those producers will have higher transportation costs than those producers who have access to two or more railroads (and thus lower transportation costs), regardless of location. Since many current captive producers planned their plant sites prior to the onset of differential pricing, in their analysis' they got burned by an unforseen cost increase due to Staggers and the megamergers. Since there is no guarantee that more mergers won't come about, or the likelyhood that differential pricing will ever disappear, U.S. producers who are looking for new plant sites will be unlikely to locate anywhere in the U.S. even in places where there are currently two or more Class I's, and will likely keep taking substantial glances at China, et al, for their new plant. Apparently, when you add in the lower labor costs, less regulation, more government aid than they'd get in the U.S., the advantage swings to overseas siting when Stateside transportation costs (from plant to port) are higher than the corresponding plant to port transport costs overseas. If the U.S. side had lower rail rates hard wired by long term guarantee of rail competition rather than rail consolidation, then the advantage might swing back to siting back in the USA. Remember, importers already have long distances to transport, but also have competitive choices in getting to the U.S. ports, so the key is what they face when they shift from ship to U.S. surface transportation in getting to that large consumer market. Since most if not all U.S. ports have access to two or more railroads in linking to those large consumer areas, the importers don't have to consign themselves to one railroad and it's captive rates. In essence, the importers transportation market Stateside is already OA in spirit. Compare that to the captive U.S. producers, who pay twice as much in getting from plant/elevator/etc to a U.S. port as importers pay in getting from port to market, even though the Stateside distances may be roughly similar. If Mark or myself infers that once an import gets to shore they are starting from square one along with U.S. captive producers in terms of surface transportation costs, then the difference between captive rail rates and competitive rail rates makes all the difference. Then the only way U.S. producers could get the edge back is by offering them competitive rail rates regardless of their current locale. In other words, if U.S. producers had comprehensive access to competitive rail rates they'd be more inclinded to stay Stateside, because then they'd have the advantage. However, for the sake of explanation, why do you think that Mark's statement is correct?
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