QUOTE: The presumably sane people at AAR, STB and even at GAO, routinely calculate the average revenue received per ton-mile received by American railroads on an annual basis.
QUOTE: Fixed costs were substantially divorced from variable costs.
QUOTE: Today, with very large transactional organizations operating near or at capacity, the old rate reasoning is no longer true.
QUOTE: In any case, the 180% variable cost thresh-hold of rate reasonableness is based precisely on just such an allocation of fixed and variable costs for the average freight movement, and even though Greyhounds insists that it's "bogus," the rest of the rail industry recognized the usefulness of just such an allocation over two decades ago, and it is, in fact, part and parcel of the legislation that governs the industry today.
QUOTE: Originally posted by MP173 So, are you saying MIchael, that the establishment of 180% of variable costs are based on average costs? Having had a background in transporatation pricing, I would think the 180% threshold would be based on actual costs of the movement, not just averages. The actual costs can very easily be determined, based on cost accounting data, including switching costs, linehaul, transfer costs in yards, etc.
QUOTE: Originally posted by MichaelSol It seems odd to have to point out that the 180% variable cost threshold is considerably above the actual variable cost (100%) and if that additional "80%" does not or cannot be meant to cover fixed costs and provide a profit, then what is it designed to do? Best regards, Michael Sol
QUOTE: Originally posted by bobwilcox The threshold is not a germaine issue to anything except who has the burden of proof in a rate case.
QUOTE: Originally posted by CSSHEGEWISCH I've brought up this issue previously, and it seems to have been sidestepped or ignored at the time. Any discussion of "open access" also has to consider labor's point of view on the matter. I would think that it would be viewed primarily as a union-busting tactic, and not without cause, considering Springfield Terminal with Guilford and the Winona Bridge RR proposal by BN. "Open access" is going to be difficult if not impossible to implement witihout bringing labor into the discussion. FM may find this fact difficult to deal with, but it needs to be addressed.
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QUOTE: Originally posted by edblysard Precisely, Mr. Wilcox...thank you. We are not a public utility. We are a business, and the employees do prefer that some of the money end up in their pockets... Now, of course, FM or M Sol will whip out their version of the common carriers act....and try and convince us it is a duty to offer un-profitable service under the law...or argue there is a moral obligation to provide service... Ed
QUOTE: Originally posted by MP173 I think that money went to the shippers in the form of reduced rates. Not just in the railroad industry, but also trucking. I talked to a CEO client of mine today (very successful trucking company) and he indicated the shippers are feeling quite a bit more frisky these days and are putting pressure on reducing freight charges....this is the first time in about 2-3 years per my client. ed
QUOTE: Originally posted by daveklepper How could trucking be restricted to its natural short-haul market when most analysists that have any impartiality at all write that trucking pays onlly one-third to one-half the costs trucking imposes on the highway system? And on top of that the truckers get the highway without paying any real estate taxes on the land the highways occupy while railroads pay real estate taxes on their rights of way? But traffic is returning to the railroads because of highway congestion and lack of qualified drivers. But I am not sure that open access would, in the long run, result in the inequities being any less than they are now, just different, nor the traffic greater, in the long run. Unless increased subsidy of railroads in one way or another is part of the open access arrangement.
QUOTE: Originally posted by futuremodal The idea that trucking only pays "one-third to one-half the costs" of their *actual* road damage is a fallacy. It makes no sense to include city streets, country roads, commuter lanes, bike paths, etc. in determining an actual allocation of the costs imposed by trucks on cross country highways. If we limit said highways to only those actually used for interstate transportation, then truckers do pay their fair share of road costs. That's only logical when we are trying to compare truckers' ROW costs vs railroad ROW costs. We shouldn't even count short haul trucker's road damage, because there is no railroad equivelent of a local distribution network. The railroads are totally dependent on trucks to get the goods from the point of origin and/or to the final destination, for all but maybe coal. If it was cheaper for trucks to haul over the highway rather than by TOFC, there would be no such thing as TOFC. The only times trucks go over the road is because there is no TOFC service being offered for that particular point to point haul. Since TOFC exists, it must mean that the costs truckers pay to use highways are higher than the costs to use the railroad. Assuming the railroads are charging a rate that covers their variable costs, an allocation of fixed costs, and some level of profit (which is debatable), then even the one true inequity between truckers and railroads (e.g. the fact that railroads pay property taxes on the ROW) does not amount to all that much comparitively. Could it be that (from a purely interstate highway perspective) truckers are actually paying more than their fair share of highway costs?
QUOTE: Originally posted by NS2317 Why would you not include city streets or country roads? That makes no sense, even more so when you consider that often times these routes are the only access points to many industries for OTR trucks. To factor in just the interstate highways would be doing nothing but turn the trucking industry into the railroad industry. Since OTR trucks have access to most any road, on a local delivery basis, they have the most open access of any transportation mode available.
QUOTE: Originally posted by tomtrain Not an expert, but it appears to me that there's been a bloodletting of union truckers in recent years. Their cost structure has been too high as in other businesses, and they haven't had gov't regulation to keep lower cost/better service competitors or divisions from serving customers.
QUOTE: Originally posted by MichaelSol Passenger vehicles, which account for 93 percent of total highway travel, pay 64 percent of total Federal highway user fees. Combination trucks, on the other hand, pay over 25 percent of total highway user fees even though they travel less than 5 percent of total mileage. Among the truck classes, user fees vary substantially by vehicle weight. Single unit trucks registered at 50,000 pounds or more pay 2.5 times as much per mile in Federal user fees as single unit trucks registered at 25,000 pounds or less.
QUOTE: Originally posted by NS2317 QUOTE: Originally posted by MichaelSol Passenger vehicles, which account for 93 percent of total highway travel, pay 64 percent of total Federal highway user fees. Combination trucks, on the other hand, pay over 25 percent of total highway user fees even though they travel less than 5 percent of total mileage. Among the truck classes, user fees vary substantially by vehicle weight. Single unit trucks registered at 50,000 pounds or more pay 2.5 times as much per mile in Federal user fees as single unit trucks registered at 25,000 pounds or less. Using this, is it safe to say that there are 9 passenger vehicles for every combination truck?
QUOTE: Originally posted by MichaelSol The formula was derived based on an assessment of averages or, if you like, a non-linear regression of a series of analytical exercises of fixed and variable costs. Like any algorithm or mathematical equation, the result obtained is then applied substituting actual numbers relevant to the individual situation and comparing those to the hypothetical 180% derived from known numbers or averages of those numbers. Note that the 180% of the variable cost of service is 180% of whatever the variable cost of service actually is: that is exactly your "actual cost of movement." There is nothing hypothetical about that part: the variable costs of the service are the actual variable costs of service, case by case. And you can't read a precision into the 180% threshold that is not intended to be there. It is the point at which the burden of proof ostensibly shifts under the legislation -- although the Federal Courts have considerably altered that Congressional guideline. It is possible for the railroad company to prove, above the 180% threshold, that its fixed costs exceed the proportion included in the base assumption of 180%. Variable costs, of course, can't be any different under that assumption than the 100% of variable costs implicit therein. Only fixed costs can meet or rebut the presumption. That's how the formula works. And those have to be "allocated" otherwise the formula makes no sense at all. As it is, 100% of variable costs is about as far as you can go with variable costs in that formula. 100% is 100%. You just can't get any more variable costs than 100% of them. Anything above that has to be something else. Fixed costs and profit are about all that is left to consider. However, at an "average," presumably of line haul, rate, train size, etc, 180% of the variable cost of service defines the combination of operating costs, variable and fixed, below which the railroad's rate is presumed "reasonable". Now, the question might be, and I think it answers the proposition of the other gentleman that believes everyone is a troll, has a political agenda, or is not dealing from a full deck if they disagree with him, if the 180% variable cost of service threshold is not specifically designed to set "rate reasonableness" -- and rates must cover fixed costs, variable costs, plus profit exactly what, then, does that 180% threshold suggest as a mandated reasonable rate standard? Congress could have said, rate reasonableness occurs when rates "1) cover all of the variable costs of the service, 2) covers the proportionate fixed costs allocated to the service, and 3) promises a ___% return on investment to the railroad." Congress didn't do that. It didn't say "100% of the variable costs of the service, plus more,' instead it set "180% of the variable cost of the service" as the threshold for rate reasonableness. You might suspect that there was a specific calculation involved, regarding an average allocation of fixed costs and profits, that was utilized in arriving at that percentage and that it was not merely a random act of Congress that threw a dart, missed 170% and 190%, and just happened to hit 180%. Indeed, the legislative history will show that the railroads objected to the originally proposed 160%, based on their argument that their fixed costs were a higher percentage of the total costs, justifying the 180% figure instead. Indeed, it is the difficulty of allocating fixed costs on a case by case basis that is the reason for the variable cost formula, based on studies and averages of such costs and their relationship to variable costs. It is only a footnote that some are attempting to now argue on this thread that rates measured by that variable cost reference are not designed to cover variable costs, fixed costs, and generate a profit. Yet, that position has to beg the question in rational minds as to why Congress saw fit to set rate reasonableness solely on the basis of a percentage of variable costs of service, if that percentage did not also include a provision of payment of fixed costs and a reasonable rate of return to the railroad company. It seems odd to have to point out that the 180% variable cost threshold is considerably above the actual variable cost (100%) and if that additional "80%" does not or cannot be meant to cover fixed costs and provide a profit, then what is it designed to do? Best regards, Michael Sol
QUOTE: Originally posted by MichaelSol QUOTE: Originally posted by NS2317 QUOTE: Originally posted by MichaelSol Passenger vehicles, which account for 93 percent of total highway travel, pay 64 percent of total Federal highway user fees. Combination trucks, on the other hand, pay over 25 percent of total highway user fees even though they travel less than 5 percent of total mileage. Among the truck classes, user fees vary substantially by vehicle weight. Single unit trucks registered at 50,000 pounds or more pay 2.5 times as much per mile in Federal user fees as single unit trucks registered at 25,000 pounds or less. Using this, is it safe to say that there are 9 passenger vehicles for every combination truck? No. Commercial vehicles generally are on the road. Automobiles generally sit in garages or parking lots. Relative highway mileage would be a poor measure of vehicle numbers. A commercial truck might easily do 200,000 miles per year, although the average is probably closer to 60,000 miles annually. According to the EPA, the average American automobile travels about 12,500 miles per year. Additionally, when they are moving, the over-the-road trucks spend more time proportionately on highways, whereas automobiles no doubt spend more time proportionately off the highways, on streets and other roads. Best regards, Michael Sol
QUOTE: Originally posted by greyhounds One more time: Fixed costs can not be allocated in any meaningful way. That doesn't mean you don't have to cover them, you do. It just means that you can't assign them on a proportional basis to a line of business. And that's what you specifically tried to do to prove a bugus point for whatever your own weird reason was.
QUOTE: Originally posted by NS2317 "Using this, is it safe to say that there are 9 passenger vehicles for every combination truck on the highways at a given moment in set section of highway?" The railroad knows what caused the rail to wear, but one can only speculate what caused the highway's wear and tear.
QUOTE: Originally posted by MichaelSol QUOTE: Originally posted by NS2317 "Using this, is it safe to say that there are 9 passenger vehicles for every combination truck on the highways at a given moment in set section of highway?" The railroad knows what caused the rail to wear, but one can only speculate what caused the highway's wear and tear. According to the U.S. Census Bureau's Vehicle Inventory and Use Survey, the average truck, as defined by the Federal Government, has a capacity of between 6,000 and 8,500 lbs. That is, 95% of all trucks are rated under 8,500 lbs. If you want to skew the results by eliminating the two lowest weight categories, 53% of all trucks are still under 16,000 lbs, that is, the average truck on the road is just about 12,000 lbs capacity if you eliminate all trucks under 8,000 lbs. If that doesn't support a particular argument, you can further skew the results by taking only trucks classified over 10,000 lbs. In that instance, 82% of all trucks are under 40,000 lbs capacity, the average is about 19,500 lbs. Only if you eliminate all trucks with less than 50,000 lbs capacity can you obtain an average weight capacity of trucks on the highway of just about 70,000 lbs. Taken as a whole, only 1.24% of all trucks are rated over 80,000 lbs, and only 15.6% of all trucks are rated over 60,000 lbs. Hope that is of some help in what you are trying to do. Best regards, Michael Sol
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