I would like for someone who really understands the situation to tell us how close we may or may not be to re-regulation? There has been a lot of chatter back and forth in the railroad media about it. Are we close to this or is it just sabre rattling by Obestar and his cohorts? This has come up before but has gone back to sleep up til now. I am not an expert at all, I just read the magazines and the internet. I have no first hand knowledge. I hope there is someone out there that does know what's going on to tell us if we should worry or not.
Thanks in advance,
George
That's a good point. The railroads financial health would not really impact me personally. That begs the question, "Why worry about something you can't control?"I guess I am pulling for the railroad industry the way other people do about their favorite football team. I want the industry to do well or at least be basically healthy. It enhances my enjoyment of train watching, model railroading and other train related activities to know that industry will continue on into the foreseeable future if not into infinity. I lived through the Penn Central seventies when there was doubt as to whether the industry would be around by 2000. The Staggers act essentially saved railroading in North America. The railroad companies doing well gave us train lovers something to cheer about as well as more trains to watch. I, for one, felt vindicated that the industry that I loved so much proved that it could exist in the "real world" of free enterprise. It proved that railroads were NOT "out dated" or "obsolete" after all. Re-regulation would take that away, I think.
overall wrote: The railroads financial health would not really impact me personally.
As long as you don't use electricity, don't plan to buy consumer goods, don't plan to buy a new car, don't plan to use anything made of plastic, don't plan buy a new car or drive on an interstate highway (or pay the taxes to support the highways), the railroads' financial health won't bother you a bit.
Dave H.
Dave H. Painted side goes up. My website : wnbranch.com
That's a good point Dave. I do have more reasons to be concerned about the railroads financial health than the fact that I'm a railfan. So, back to the original question, does anyone know if the railroads are likely to be re-regulated? I wish a trained political observer would wiegh in on this.
Thanks,
Although I don't claim to be an expert but someone who has been around for a number of years I find that every time the Democrats get control of the house or the Senate the subject of re-regulating the Railroads appears.
The railroad's have done a fine job since deregulation, one only has to look at the almost constant flow of trains on Cajon Pass to see it and the railroad's have a far better system now than before deregulation.Remember their was very little welded rail and concrete ties were unheard of at the time of deregulation.
The railroads are doing just fine without government regulation, but the democrats are always looking for controls on everything and that has been a major problem for years.
overall wrote: I would like for someone who really understands the situation to tell us how close we may or may not be to re-regulation? There has been a lot of chatter back and forth in the railroad media about it. Are we close to this or is it just sabre rattling by Obestar and his cohorts? This has come up before but has gone back to sleep up til now. I am not an expert at all, I just read the magazines and the internet. I have no first hand knowledge. I hope there is someone out there that does know what's going on to tell us if we should worry or not.Thanks in advance, George
Good luck with that. I'd love to help, but my crystal ball is a bit cloudy just now...
LC
One concern that certain shippers have expessed deals with the issue of "cross subsidy."
For example look at the chemical plants located along the Gulf Coasts of Texas and Louisiana. Much of their high tariff shipments ("high" because the railroad has expensive hazardous material liability should anything go wrong) are also highly profitable to the railroads when everything goes right. A lot of those shipments go off line from the BNSF and UP at points such as New Orleans, Memphis, Saint Louis, and Chicago. The issue these shippers have is this: are they paying unreasonably high freight rates to these two originating carriers in order to pay for the construction of additional Powder River Basin capacity, the double tracking of the Santa Fe Chicago-Los Angeles mainline, and/or the Sunset Route expansion - routes that see less profitable traffic and also routes they seldom use?
From what I've read, this issue of possible cross subsidy could invite some form of limited re-regulation.
I think this issue will be decided by the upcoming election, and right now we are way too far away to be able to see definitvely which way it will go. If we go D, expect the regulation talk to become a whole lot more than idle chatter. If we go R, it may not go away, but there may be a whole lot more resistance to it.
In either case, based on past history, a heavily regulated rail industry (by heavy I mean that market pricing is out the window) is an unhealthy industry. If the industry is unhealthy, look for more abandoned lines and less investment in infrastructure. Look for rusted out AC4400's and slow orders. Look for more trucks on the freeway system, higher taxees to pay for wear and tear to the freeway system, and people clamoring that even 'more' regulation is the solution to the problems regulation created.
Heck - at that point maybe Amtrak could get into the freight business.
Bob-Fryml wrote:One concern that certain shippers have expessed deals with the issue of "cross subsidy."For example look at the chemical plants located along the Gulf Coasts of Texas and Louisiana. Much of their high tariff shipments ("high" because the railroad has expensive hazardous material liability should anything go wrong) are also highly profitable to the railroads when everything goes right. A lot of those shipments go off line from the BNSF and UP at points such as New Orleans, Memphis, Saint Louis, and Chicago. The issue these shippers have is this: are they paying unreasonably high freight rates to these two originating carriers in order to pay for the construction of additional Powder River Basin capacity, the double tracking of the Santa Fe Chicago-Los Angeles mainline, and/or the Sunset Route expansion - routes that see less profitable traffic and also routes they seldom use?From what I've read, this issue of possible cross subsidy could invite some form of limited re-regulation.
I would ask these shippers just what is an 'unreasonable rate'? Are they paying more to ship by rail than it would cost to ship by truck? Not likely. So then, do they "feel" the RR rates are too high? Then let them negotiate, but they need to keep in mind the risks involved hauling their cargo. That naturally carries a premium, and heck yeah they should pay for it
The term 'cross subsidy' is thrown around merely as a way to demonize profit-making. It is ridiculous that any shipper should expect to pay only the pure cost of transportation
I have product lines that lose money, and as a result I have to charge a premium on other products to make up the difference. I don't know of a single business that operates any differently
There is no legitimate public interest in the government establishing what RR's can and cannot charge for their services. The only motivation for regulating RR's comes from special-interest money machines that want to tip the scales unfairly in their constituents' favor
"Cross-subsidy" is generally considered to be a Trojan Horse. Its been an excuse for government to interfere for years.
Keep in mind that the chief legislator pushing this is from a state with a political history of dislike of all railroads going back to the days of the robber barons.
One thing for you all to ponder: In the academic world that I worked in most of my life, its becoming even more fashionable for the non-business/engineering faculty (in other words, liberal arts, social sciences, education, health-related, etc.) to emphasize that the Fed Government should be playing a far more active role in running just about everything, including all transportation. More specifically, I know from conversations I've had that many of these "soft-science" faculty haven't a clue about what is happening with today's American railroads. Many of them assume the freight railroads are in the same financial shape as Amtrak. And its safe to say that many of them would prefer to have the Feds own all railroads so we can have European high-speed passenger rail throughout the county--quite a few have told me exactly that. The idea of rail freight doesn't even enter into their thoughts. You can say "so what" but remember they are the ones educating both your children and their teachers.
alphas wrote: "Cross-subsidy" is generally considered to be a Trojan Horse.
"Cross-subsidy" is generally considered to be a Trojan Horse.
By who?
I started thinking about the captive shipper/receiver issue and the auto industry. A number of new auto plants have been built in recent years, mostly in the southern states. Are these plants located so that access by more than one railroad is possible, either through physical connection or track rights? Alternately, does the manufacturer reach some kind of a long term understanding with a single railroad before finalizing a location?
When I started thinking about this I was thinking about the auto industry, but the same questions would apply to any industry that is capable of generating a large number of freight movements.
According to the “Thomas” website (this is a site devoted to tracking activities in Congress) nothing much has really happened on this. HR 2125 has been referred to the Subcommittee on Railroads, Pipelines, and Hazardous Materials. This happened on May 4th of this year. S 953 is in the Committee on Commerce, Science, and Transportation Senate Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security. Hearings held. This happened on October 23rd of this year. Maybe it will just die in committee.
Dakguy201 wrote: I started thinking about the captive shipper/receiver issue and the auto industry. A number of new auto plants have been built in recent years, mostly in the southern states. Are these plants located so that access by more than one railroad is possible, either through physical connection or track rights?
I started thinking about the captive shipper/receiver issue and the auto industry. A number of new auto plants have been built in recent years, mostly in the southern states. Are these plants located so that access by more than one railroad is possible, either through physical connection or track rights?
Toyota, for instance, makes it an absolute requirement that if it builds a plant, there will be access by two rail companies. Then they put the requirement on local government to do it or lose it. Local and state governments then step up to the plate, just like trained ponies, and build new rail lines to meet Toyota's requirements so that it will build the plant.
In this fashion, Toyota avoids the captive shipper problem suffered by legacy plants owned by GM, Ford and Chrysler. At the same time, government assistance is used directly to compete with old-line American industries. The fact is that railroad pricing policy is directly responsible for this state of affairs. The policy creates rustbelts all by itself, and creates a vacuum for government funding which gets filled by whoever has the wherewithal and inclination to build a rail line for a new plant. On the other hand, some lucky railroad gets a new line built at government expense, so that it can compete for traffic with some other rail line, keeping rates competitive for Toyota, while it jacks up rates for GM and Ford somewhere to make its quarterly profit goals.
This is the natural result of unregulated captive pricing, it is cross-subsidization at its worst, it has implications throughout the economy, and it results in a distortion of a rational investment decision-making process.
Ultimately, does it help the railroads? Not one bit. The Ford plant closes down and the railroad loses the business, ultimately, to competitive locations. In return for the quick return from a captive shipper, the railroad exposes itself to the ultimate result that industries will relocate and that the railroad, by charging too much, will eventually find itself in a catfight somewhere else charging too little to try and keep the business.
Of course, the railroad is a fixed plant. Most industries aren't. Somebody somewhere thinks that captive pricing at the unbearable margin is smart business, and that it does not represent the cross-subsidization that allows cutthroat rates on competitive traffic. They will kill the golden goose for the short term, and wonder why the R/VC ratio continues to go down, not up.
MichaelSol wrote:...while it jacks up rates for GM and Ford somewhere to make its quarterly profit goals.
...while it jacks up rates for GM and Ford somewhere to make its quarterly profit goals.
Which GM and Ford plants had their rates raised?
MichaelSol wrote: This is the natural result of unregulated captive pricing, it is cross-subsidization at its worst, it has implications throughout the economy, and it results in a distortion of a rational investment decision-making process.
I think I understand and believe that analysis. However, that leads one to think that railroad regulation, as was first attempted around the turn of the 20th century, was a good thing.
Perhaps we really are saying that, and it is only governmental imcompetence and "regulatory capture" previously discussed by you that leads to Staggers type deregulation. Somehow, my libertarian side is not willing to accept that conclusion.
Maybe I should go back and read Frank Norris one more time? I'm not real comfortable when the real world confronts my bias.
Bob-Fryml wrote: One concern that certain shippers have expessed deals with the issue of "cross subsidy."
So I guess when you go to the store to buy frozen peas you expect that the profits from the sale of frozen peas will ONLY be used to repair, maintain and upkeep the freezer chests? You wouldn't want to cross subsidize the toilet paper section.
If you buy a new F150 pickup that Ford will use the profits from the sale of the truck to maintain and service the F150 line? You wouldn't want to cross subsidize the Taurus assembly plant.
On the other hand, maybe since your boss pays you to come to work he should require you to spend your paycheck entirely on buying work clothes and transportation to and from work, he wouldn't want to cross subsidize your trips to the movies.
dehusman wrote: Bob-Fryml wrote: One concern that certain shippers have expessed deals with the issue of "cross subsidy."So I guess when you go to the store to buy frozen peas you expect that the profits from the sale of frozen peas will ONLY be used to repair, maintain and upkeep the freezer chests? You wouldn't want to cross subsidize the toilet paper section.If you buy a new F150 pickup that Ford will use the profits from the sale of the truck to maintain and service the F150 line? You wouldn't want to cross subsidize the Taurus assembly plant.
"Cross subsidies" are not an issue when there is true competition for the product/service that the customer is buying - which is most likely the case for the groceries or F-150. If the grocer or Ford tried to raise prices too much, you and most other customers would take their business elsewhere - because you had that option.
The difference is that many shippers do not have a choice when it comes to shipping by rail, and they don't have the alternative of going elsewhere when the railroad charges all the traffic can bear and uses the profits to provide service at a loss in cases where there is competition.
overall wrote: According to the “Thomas” website (this is a site devoted to tracking activities in Congress) nothing much has really happened on this. HR 2125 has been referred to the Subcommittee on Railroads, Pipelines, and Hazardous Materials. This happened on May 4th of this year. S 953 is in the Committee on Commerce, Science, and Transportation Senate Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security. Hearings held. This happened on October 23rd of this year. Maybe it will just die in committee.George
Congress has failed to do much of anything this year. I understand that 9 of 10 budget bills are incomplete so far. I think that there is a power fight by the Democrats to wrest total control of Congress and the Executive long before the upcoming elections.
I dont think that the status of regulation is going to slow the railroads or improve them. I read today that CSX had yet another derailment in Baltimore. All the regulation in the world is useless if you aint got good track to run the choo choo on.
bobwilcox wrote: MichaelSol wrote: ...while it jacks up rates for GM and Ford somewhere to make its quarterly profit goals. Which GM and Ford plants had their rates raised?
MichaelSol wrote: ...while it jacks up rates for GM and Ford somewhere to make its quarterly profit goals.
According to Toyota, an auto plant that is limited for service to one rail entity suffers from higher transportation rates charged ranging from between 7% and 20% over the rate that Toyota can get by requiring two railroad service entities. Rather than looking at individual plants -- the contracts are confidential as you well knew when you posted the question -- these numbers were derived from statistical studies of all such plants -- preserving individual contract confidentiality -- and reflects the results found in every econometric study done on the subject. See, for instance, Park, Babcock, Lemke and Weisman, "Simulating the Effects of Railroad Mergers," Southern Economic Journal, 2001, 67(4), 938-953, 941.
With a little thought, you might have guessed that from the strong emphasis that Toyota places on that particular requirement, which otherwise negatively impacts the decision making process because it diminishes significantly the available locations for new plants.
dehusman wrote: If you buy a new F150 pickup that Ford will use the profits from the sale of the truck to maintain and service the F150 line? You wouldn't want to cross subsidize the Taurus assembly plant.
This is exactly what the railroads said when they wanted out of the passenger business -- that they should NOT have to cross-subsidize other lines of business. Congress agreed that cross-subsidization was an evil for the rail industry since the railroads complained so loudly about it, took the railroads at their exact word that they abhorred cross-subsidies, and established the 180% R/VC standard as an initial measure of cross-subsidization which invoked scrutiny.
overall wrote:I would like for someone who really understands the situation to tell us how close we may or may not be to re-regulation? There has been a lot of chatter back and forth in the railroad media about it. Are we close to this or is it just sabre rattling by Obestar and his cohorts? This has come up before but has gone back to sleep up til now. I am not an expert at all, I just read the magazines and the internet. I have no first hand knowledge. I hope there is someone out there that does know what's going on to tell us if we should worry or not.Thanks in advance, George
Not much direct answer to your question yet ...
To paraphrase our old friend LC, if I had a crystal ball I'd use it for something useful like finding out tomorrow's winning PowerBall number. So take everything I say as an educated guess.
Your question was directed to someone who "really understands the situation." I don't know ANYONE who really understands what goes on in Washington. On the other hand your question is one we consider professionally at least once every day as it has direct bearing on our business decisions going forward, both internally and for our clients.
I assume you are asking about ECONOMIC re-regulation (rates, service levels, abandonment, mergers, etc.) as opposed to additional safety regulation. I think the answer to your question is this: Re-regulation is not even remotely close. There could well be a bill, not of significance, passed in the next session that tweaks the current regulatory framework. I do expect the Democratic Party to win control of both houses and the White House in the next general election, but I still don't think that will lead to a substantial re-regulation bill passing and getting signed as there is not an overwhelming support for it (though another bill with minor tweaks is likely).
Here's why: 1. The railroad industry is very good at speaking with one voice whereas shippers are not cohesive -- a congressman will be consecutively lobbied by shippers who have very different ideas, leading to the congressman to conclude that either shippers don't know what they want, or that re-regulation is a narrow special-interest bill being opposed by other special interests, in other words, a zero-sum game for the congressman. 2. Congress has historically been loathe to referee between competing business groups. Consumer groups are not highly mobilized or on board for railroad re-regulation nor do I expect them to be. 3. Many shippers, such as those that are broad-based or very large, are opposed to re-regulation (unless they could shape it to their own benefit) as they expect the result to them would be increased rates and decreased service, as well as insert a bureaucracy that adds cost, delay, and confusion. 4. Many congressmen represent districts that would be disadvantaged by re-regulation (think ports, large cities, manufacturing centers) that traditionally have Democratic Representation; i.e., the party that might support it from an ideological perspective will have a substantial element that won't support it from a local perspective. 5. Districts that might benefit (e.g., wheat farmers without access to waterways) often have representatives that have difficulty supporting regulation from an ideological perspective. 6. It goes against the political trend of the last 50 years, which is to reduce the role of direct government management of the economy.
As always, feel free to discount everything I say.
RWM
Railway Man wrote: Re-regulation is not even remotely close. ...Here's why: 1. The railroad industry is very good at speaking with one voice whereas shippers are not cohesive --
...
Here's why: 1. The railroad industry is very good at speaking with one voice whereas shippers are not cohesive --
Money talks.
The rail industry spends about $6 million a year lobbying Congress. The American Chemistry Council -- the primary shipper voice arguing re-regulation -- spends about $1 million.
The problem -- for the shippers -- is that the railroad industry currently has it both ways. To arguments in favor of re-regulation, the industry can point to 49 USC 10707 and say that it already is regulated to protect shippers from unreasonable rates.
Indeed, that is exactly what the industry says to Congress:
"The Staggers Act did not completely deregulate railroads. In addition to retaining authority over a variety of non-rate areas, the ICC (now the STB) retained the authority to set maximum rates or take other actions if a railroad was found to have market dominance or to have engaged in anti-competitive behavior.1 The Staggers Act established a safety net, which still exists, to address the needs of rail customers for whose traffic there is no effective competition. In situations in which railroads have market dominance - i.e., situations in which there is an absence of effective competition from other rail carriers or modes of transportation for the traffic at issue - railroads must establish rates that are reasonable. The STB will award reparations and prescribe appropriate rates if a railroad's rates are determined to be unreasonably high." G. Paul Moats, Association of American Railroads, Senate Testimony on S. 772, The Railroad Antitrust Enforcement Act, October 3, 2007.
The average Congressman would be justifiably confused about what the shippers want. It is clear that there already are laws in place to protect them. To the average Congressman, the response that the STB has taken years and years to put into place any effective means for the average small shipper to be able to file a rate case, has made such cases enormously expensive to present, and takes years to make decisions sounds like something he hears about government agencies every day.
To him, what's new?
With that background, it is highly unlikely Congress would be motivated to pass landmark legislation on anything, let alone railroads which they know little or nothing about. The old days, when powerful Committee Chairmen like Warren Magnuson had a long history of detailed understanding of railroads and railroad legislation and were better informed than the industry and agency representatives appearing to testify before the Senate ICC Committee, are long gone.
Today, such proposals represent confusing agenda items on long and confusing agendas set before a Congress whose popularity based on performance is such that even a current War gains twice the approval rating from the public.
This isn't a Congress that can pass legislation, even if it thought it would do some good.
So we agree at least on the general question, that significant re-regulation is unlikely at present or near-future.
Thanks to all for taking the time and trouble to reply. I feel better about this now. I will continue to watch the "Thomas" website for more developemants as they occur and pass them on.
Thanks again,
Dakguy201 wrote: I started thinking about the captive shipper/receiver issue and the auto industry. A number of new auto plants have been built in recent years, mostly in the southern states. Are these plants located so that access by more than one railroad is possible, either through physical connection or track rights? Alternately, does the manufacturer reach some kind of a long term understanding with a single railroad before finalizing a location? When I started thinking about this I was thinking about the auto industry, but the same questions would apply to any industry that is capable of generating a large number of freight movements.
Here's my understanding of how things work at one new auto plant. I have no inside information and am not close to the situation, so this may be totally wrong.
Nissan recently built a large new auto plant (capacity 400,000 vehicles/year) in Canton, MS, which is approximately 20 miles north of Jackson. The plant is located on a CN/IC line. I believe that as a condition of building there Nissan required CN/IC to give KCS access to the line from KCS's line in Jackson, with each carrier doing the plant switching six months of each year. In effect this plant is on two competing rail lines. As always, corrections or additional information welcome.
Another poster commented that local governments would build access for another railroad when a potential plant location is served by only one RR. I'm not a big fan of government spending money to benefit private entities, but it's hard to argue with the benefits that would accrue to the local citizenry from having an employer provide thousands of relatively good-paying jobs to the local economy. Canton is the county seat of Madison County, MS. Madison (the town), also in Madison County, is relatively prosperous; the rest of the county is not, and Canton was a poor town 10 years ago. The Nissan plant must have seemed like a bonanza sent from heaven, and it benefits people within a 40-50 mile radius.
Thanks to all of you into providing some insight on this issue. I have been curious to know some more of the reasoning from the shipper's side and what might happen (which sounds like nothing).
Brian
Several of the railroads largest shippers are reasonably happy with the way transportation has been regulated in the quarter century since Staggers became law. In the past I had conversations with UPS employess who were buying rail transportation every day. They did not want to see a return to the old days of the 1970s. They worked in that world and thought it harmed UPS. On the other hand the were very concerned about the railroads earning enough to deliver the service they wanted.
I would expect the other intermodal shippers feel the same as do the auto manufactures.
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