Dakguy201 Falcon48 Actually, the UP/CP was probably a good example of successful government involvement in transportation. The reason was that the government not only gained significant political benefits (as you recognize), but the government actually made a boatload of money as well. The "checkerboard" pattern of land grants (the government retained alternate sections along the railroad) allowed the government to sell the retained sections after the railroad was completed for much more than the entire property had been worth prior to the enterprise. I question if the government made any money on the retained lands of the checkerboard. My reason is that the same Congress (1862) that passed the Pacific Railroad Act also passed the Homestead Act and the Morrill Act (land grant colleges). I've never seen numbers, but I suspect the lands were given away under those programs. I frequently dispair at the actions of the current Congress. At such times, it helps to remember the permanent achievements of that Congress of 1862, which I suspect was comprised of the same kind of individuals who inhabit it today.
Falcon48 Actually, the UP/CP was probably a good example of successful government involvement in transportation. The reason was that the government not only gained significant political benefits (as you recognize), but the government actually made a boatload of money as well. The "checkerboard" pattern of land grants (the government retained alternate sections along the railroad) allowed the government to sell the retained sections after the railroad was completed for much more than the entire property had been worth prior to the enterprise.
Actually, the UP/CP was probably a good example of successful government involvement in transportation. The reason was that the government not only gained significant political benefits (as you recognize), but the government actually made a boatload of money as well. The "checkerboard" pattern of land grants (the government retained alternate sections along the railroad) allowed the government to sell the retained sections after the railroad was completed for much more than the entire property had been worth prior to the enterprise.
I question if the government made any money on the retained lands of the checkerboard. My reason is that the same Congress (1862) that passed the Pacific Railroad Act also passed the Homestead Act and the Morrill Act (land grant colleges). I've never seen numbers, but I suspect the lands were given away under those programs.
I frequently dispair at the actions of the current Congress. At such times, it helps to remember the permanent achievements of that Congress of 1862, which I suspect was comprised of the same kind of individuals who inhabit it today.
Railroads appear to be like parks. There is great excitment and pressure on government to create them. Once built, everybody loves to use them, but nobody wants to pay for them.
Artifical rate reduction by regulation will give euphoria for the term of those putting it in place. When deferred maintenance comes due, most will be long out of office. That will be left for somebody else to deal with.
Will any of those cable tv ads eastern railroads are now running start warning people that all that feel good, green, warm and fuzzy stuff will go away if the railroad can not make its services pay?
My comment was in response to curruption, effectiveness, and public value as insinuated by other's comments and not about private investments in such projects. .
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Falcon48 Actually, the UP/CP was probably a good example of successful government involvement in transportation. The reason was that the government not only gained significant political benefits (as you recognize), but the government actually made a boatload of money as well. The "checkerboard" pattern of land grants (the government retained alternate sections along the railroad) allowed the government to sell the retained sections after the railroad was completed for much more than the entire property had been worth prior to the enterprise. And, as a condition to the grants, the railroads had to move government traffic at bargain rates (it may have even been free, but I'm not sure about that), a measure which stayed in effect through two world wars. Today's policy makers would be well advised to look at what their predecessors did in the 19th century rather than simply throwing money at politically favored infrastructure projects as we do today (e.g., the inland waterway system). By the way, I think your suggestion that UP and CP couldn't attract private investment when they were being built is incorrect. It's been awhile since I delved into the history of this enterprise, but I believe the land grants enabled both railroads to raise private capital, and that was one of their main purposes. The Lincoln article in the latest Trains Magazine also shows that private capital was involved, when it tells about how the Pacific Railroad Act was changed in 1864 to make the government's mortgage secondary to the private mortgages, in order to attract investment. UP's bankruptcy in the 1890's had a lot more to do with the financial machinations of its promoters (remember Credit Mobilier?) than with the actual viability of the enterprise. The proof of that is that UP did very well after it emerged from bankruptcy with new owners.
Actually, the UP/CP was probably a good example of successful government involvement in transportation. The reason was that the government not only gained significant political benefits (as you recognize), but the government actually made a boatload of money as well. The "checkerboard" pattern of land grants (the government retained alternate sections along the railroad) allowed the government to sell the retained sections after the railroad was completed for much more than the entire property had been worth prior to the enterprise. And, as a condition to the grants, the railroads had to move government traffic at bargain rates (it may have even been free, but I'm not sure about that), a measure which stayed in effect through two world wars. Today's policy makers would be well advised to look at what their predecessors did in the 19th century rather than simply throwing money at politically favored infrastructure projects as we do today (e.g., the inland waterway system).
By the way, I think your suggestion that UP and CP couldn't attract private investment when they were being built is incorrect. It's been awhile since I delved into the history of this enterprise, but I believe the land grants enabled both railroads to raise private capital, and that was one of their main purposes. The Lincoln article in the latest Trains Magazine also shows that private capital was involved, when it tells about how the Pacific Railroad Act was changed in 1864 to make the government's mortgage secondary to the private mortgages, in order to attract investment. UP's bankruptcy in the 1890's had a lot more to do with the financial machinations of its promoters (remember Credit Mobilier?) than with the actual viability of the enterprise. The proof of that is that UP did very well after it emerged from bankruptcy with new owners.
I agree. The UP was an example of "good" government involvement in transportation. An example of a type that can not be replicated today. The UP served its purpose. It greatly improved communication with California and provided a powerful political symbol that California was linked with the rest of the US. It also helped get the Great Plains settled which was necessary if the US was to hang on to the Great Plains.
As you stated, the government did well financially because it could provide a lot of the financing by selling land that was otherwise virtually useless. (Corn and hogs from Nebraska were of little value unless they could be moved to market.)
However, the rail venture left a lot to be disired when it came to commercial success. The UP was the ultimate "developmental railroad". These were lines built into undeveloped, largely unpopulated, areas with the hope that business would develop with the provision of good transportation. These were common in the US and usually financed by private capital. The hope was that the business developed before the money ran out. Sometimes it worked, sometimes it didn't. The UP project was so large that few investors were willing to take a chance. I didn't question UP's success as a political transportation venture. I questioned its commercial success. I think that's accurate. It took a while, but after the development did occur, over several decades, the venture became a commercial success.
I do maintain that the venture had a lot of trouble raising private funds due to the risk cited above. (I never said they couldn't attract investment, but they did have trouble attracting it.)
It was found necessary to split the venture into two corporations in order to attract investment. These were the UPRR and the Credit Mobiler of America. The latter was the construction firm. The construction firm was easier to finance because investors could be reasonably sure of payment (Even the government bonds had to be sold to people with money.) because payment for construction was ongoing as work was completed. In contrast, an investment in the developmental railroad known as the Union Pacific was a risky bet on the future development of the frontier.
It was messy, but it worked out.
Of course there was a scandal, or at least reports of a scandal. It was alledged that the Credit Mobiler inflated construction charges. I don't doubt this happened. You can't do these "government involved" projects today without someone trying to get a few extra dollars. But there was a lot of mud slinging aimed at defeating U.S. Grant for a 2nd term and his oponnents weren't above some exaggerations.
More than you ever wanted to know about what I think of the UP construction.
greyhounds henry6 Maybe you are right. Making a case for State's Rights that is. NYS dug the Erie Canal and PA the Main Canal all with basically fantastic economic results for their public and business constituants. But the Federal Government horned in on the UP/CP trans con and the Mississippi,Ohio, and Tennesee rivers waterway control system! I don't see inland waterways as a good example of "good" government involvement in the economy. Almost from the get go the Erie Canal had to be protected against competition to the detriment of people and commerce. First, the canal froze for around four months per year. In those four winter months people couldn't travel and freight movement halted. It quickly became obvious that private railroads did a better job. Parallel railroads were forced, by law, to pay canal tolls on freight they handled in the months the canal was open. New York State had built an obsolete facility and resorted to punative measures to cover its mistake. It did help to make New York the premier port, but how much of that was actual growth and how much was just diversion from other ports is an open question. Inland rivers really can't be privately owned. So we get political manipulation of investment in navigation projects. South of St. Louis the Mississipi is a wonderful, natural transportation artery. North of St. Louis to St. Paul it requires 25 locks and dams which were built, and for decades operated, at no charge to the barge lines. In addition to this subsidy, rail rates were held artificially high by Federal regulators in order to keep business on the river. (I guess they learned to do that from the Erie Canal.) The dams and locks screwed up the environment. The subsidy and the regulation hurt the economy. Political influence got massive, wasteful projects such as the Tennessee-Tombigbee "Canal" built. The Missouri north of Omaha handles very little cargo, but it is maintained, by law, to a 9' depth for commercial navigation. Basically, it's a waste of our money. If you want other examples of wasteful government spending they exist in spades on the inland waterway network. That network is a very good case study on why the government should stay out of transportaiton. The Union Pacific was basically a political enterprise to tie California with the rest of the US. No knowledgeable person invested in the UP itself when it was built. It went through undeveloped country and much of that country had little or no prospect for development. The railroad itself went bankrupt. Now, do I think the UP should have been built with land grants? Yes. It was important to tie California to the eastern US to prevent another secession and the land grants really didn't cost the government anything. But it is not an example of successful government involvement in commerce.
henry6 Maybe you are right. Making a case for State's Rights that is. NYS dug the Erie Canal and PA the Main Canal all with basically fantastic economic results for their public and business constituants. But the Federal Government horned in on the UP/CP trans con and the Mississippi,Ohio, and Tennesee rivers waterway control system!
Maybe you are right. Making a case for State's Rights that is. NYS dug the Erie Canal and PA the Main Canal all with basically fantastic economic results for their public and business constituants. But the Federal Government horned in on the UP/CP trans con and the Mississippi,Ohio, and Tennesee rivers waterway control system!
I don't see inland waterways as a good example of "good" government involvement in the economy. Almost from the get go the Erie Canal had to be protected against competition to the detriment of people and commerce. First, the canal froze for around four months per year. In those four winter months people couldn't travel and freight movement halted. It quickly became obvious that private railroads did a better job.
Parallel railroads were forced, by law, to pay canal tolls on freight they handled in the months the canal was open. New York State had built an obsolete facility and resorted to punative measures to cover its mistake. It did help to make New York the premier port, but how much of that was actual growth and how much was just diversion from other ports is an open question.
Inland rivers really can't be privately owned. So we get political manipulation of investment in navigation projects.
South of St. Louis the Mississipi is a wonderful, natural transportation artery. North of St. Louis to St. Paul it requires 25 locks and dams which were built, and for decades operated, at no charge to the barge lines. In addition to this subsidy, rail rates were held artificially high by Federal regulators in order to keep business on the river. (I guess they learned to do that from the Erie Canal.) The dams and locks screwed up the environment. The subsidy and the regulation hurt the economy.
Political influence got massive, wasteful projects such as the Tennessee-Tombigbee "Canal" built. The Missouri north of Omaha handles very little cargo, but it is maintained, by law, to a 9' depth for commercial navigation. Basically, it's a waste of our money.
If you want other examples of wasteful government spending they exist in spades on the inland waterway network. That network is a very good case study on why the government should stay out of transportaiton.
The Union Pacific was basically a political enterprise to tie California with the rest of the US. No knowledgeable person invested in the UP itself when it was built. It went through undeveloped country and much of that country had little or no prospect for development. The railroad itself went bankrupt. Now, do I think the UP should have been built with land grants? Yes. It was important to tie California to the eastern US to prevent another secession and the land grants really didn't cost the government anything. But it is not an example of successful government involvement in commerce.
greyhounds I don't see inland waterways as a good example of "good" government involvement in the economy. Almost from the get go the Erie Canal had to be protected against competition to the detriment of people and commerce. First, the canal froze for around four months per year. In those four winter months people couldn't travel and freight movement halted. It quickly became obvious that private railroads did a better job. Parallel railroads were forced, by law, to pay canal tolls on freight they handled in the months the canal was open. New York State had built an obsolete facility and resorted to punative measures to cover its mistake. It did help to make New York the premier port, but how much of that was actual growth and how much was just diversion from other ports is an open question. Inland rivers really can't be privately owned. So we get political manipulation of investment in navigation projects. South of St. Louis the Mississipi is a wonderful, natural transportation artery. North of St. Louis to St. Paul it requires 25 locks and dams which were built, and for decades operated, at no charge to the barge lines. In addition to this subsidy, rail rates were held artificially high by Federal regulators in order to keep business on the river. (I guess they learned to do that from the Erie Canal.) The dams and locks screwed up the environment. The subsidy and the regulation hurt the economy. Political influence got massive, wasteful projects such as the Tennessee-Tombigbee "Canal" built. The Missouri north of Omaha handles very little cargo, but it is maintained, by law, to a 9' depth for commercial navigation. Basically, it's a waste of our money. If you want other examples of wasteful government spending they exist in spades on the inland waterway network. That network is a very good case study on why the government should stay out of transportaiton. The Union Pacific was basically a political enterprise to tie California with the rest of the US. No knowledgeable person invested in the UP itself when it was built. It went through undeveloped country and much of that country had little or no prospect for development. The railroad itself went bankrupt. Now, do I think the UP should have been built with land grants? Yes. It was important to tie California to the eastern US to prevent another secession and the land grants really didn't cost the government anything. But it is not an example of successful government involvement in commerce.
You're missing my point. NYS built the Erie Canal and it was a success in that New York City became a better harbor and the growth of eastern New York and the City flourished because of it. Despite what was said abou the Main Line Canal, it was a catalyst for the growth of the economy in Eastern PA. Both projects were done at the behest of the named states, NY being 100%, PA being participatory, projects that could not be acomplished by private enterprise. But, in the context of the comments was made in relation to the posts that the bigger the government, the more costly and more opportunity for boondogling or whatever you want to call it. Yes, the Transcontinental Railroad was rife with it. And so has the inland waterway systems and even highway project been boondogled through earmarks, etc. I am not debating the rights and wrong, nor the politics of it, just stating the appearances and results.
Sorry, my recollection and at least one authoritative source disagrees with you for the Pennsylvania "Main Line of Public Improvements. To be clear, that was the system of: 1) railroad from Philly to Columbia on the Susquehanna River; 2) the Middle Division Canal from there along the Susquehanna through Harrisburg and along the Juniata River valley to Hollidaysburg; 3) Allegheny Portage Railroad inclined planes to Johnstown; and 4) Western Division Canal along several rivers to Pittsburgh.
"It cost a monumental eighteen million dollars and had accumulated forty million in debts by the time it was knocked down [sold - PDN] for $7,500,000 to its commercial successor. What slowly replaced it, under the skilled hand of Chief Engineer John Edgar Thompson, was the Pennsylvania Railroad."
- Oliver Jensen in The American Heritage History of RAILROADS IN AMERICA, American Heritage Publishing Co., Inc. (subsidiary of McGraw-Hill, Inc.), New York, copyright 1975, ISBN 0-07-032526-X, Chapter 2. On to the Western Waters, pp. 36, 38, and 39; quote is from top of pg. 39.
To be fair, the same source says this about the NYS effort: "Meanwhile, the Erie Canal, although it continued to operate a profitable freight business, stopped carrying passengers." (pg. 36, bottom) [emphasis added - PDN.]
That the Pennsylvania government's effort was an early multi-modal technological camel ("horse designed by a committee"), slow, inconvenient, and a financial disaster, which was salvaged and superseded by the PRR of old and its legendary Chief Engineer, speaks volumes to me about who to look to - and who not - for the appropriate level of regulation of the railroad industry, and wisdom, leadership, character, and support out of the current financial crisis.
- Paul North.
henry6 choochoobuff I, by no means am trying to make this partisan. Granted Repubs are supposed to be pro business and have done a horrible job lately, Dems are supposed to be pro social issues, which are no closer to being solved than the 1960's. My point is that when government as a whole, gets in the way of the natural flow of the ecomonic cycle, things go amok. I will be the first to say, I am no longer going to get hung up on the party, only the good of this nation and it's people. Maybe you are right. Making a case for State's Rights that is. NYS dug the Erie Canal and PA the Main Canal all with basically fantastic economic results for their public and business constituants. But the Federal Government horned in on the UP/CP trans con and the Mississippi,Ohio, and Tennesee rivers waterway control system!
choochoobuff I, by no means am trying to make this partisan. Granted Repubs are supposed to be pro business and have done a horrible job lately, Dems are supposed to be pro social issues, which are no closer to being solved than the 1960's. My point is that when government as a whole, gets in the way of the natural flow of the ecomonic cycle, things go amok. I will be the first to say, I am no longer going to get hung up on the party, only the good of this nation and it's people.
I, by no means am trying to make this partisan. Granted Repubs are supposed to be pro business and have done a horrible job lately, Dems are supposed to be pro social issues, which are no closer to being solved than the 1960's. My point is that when government as a whole, gets in the way of the natural flow of the ecomonic cycle, things go amok. I will be the first to say, I am no longer going to get hung up on the party, only the good of this nation and it's people.
The Pacific Railway Act authorized the transcontinental railroad in part because the route between Omaha and the California state line was not part of any state at the time. The waterways mentioned are all involved in interstate commerce, which is the preserve of the Federal government.
bobwilcox During the Great Depression railroads were central to our economy. In 60 years the country has moved into an information driven world. Railroads are important but they are no longer at the core of our economy. This sad fact and Don Phillips recent column about Amtrak getting decent funding because of India's bomb leads me to believe that US freight legislation will be a pawn in negotiations about much larger issues. We we are witnessing a fundamental transformation in the relationships between governments and the world economy. Obama and the Congress are going to be much more focused on how to keep China sending money to pay the governments bills than wiether the chemical plant over in Waynesboro, VA is served by the Buckingham Branch in addition to the NS.
During the Great Depression railroads were central to our economy. In 60 years the country has moved into an information driven world. Railroads are important but they are no longer at the core of our economy.
This sad fact and Don Phillips recent column about Amtrak getting decent funding because of India's bomb leads me to believe that US freight legislation will be a pawn in negotiations about much larger issues. We we are witnessing a fundamental transformation in the relationships between governments and the world economy. Obama and the Congress are going to be much more focused on how to keep China sending money to pay the governments bills than wiether the chemical plant over in Waynesboro, VA is served by the Buckingham Branch in addition to the NS.
Your conjecture about Obama and Congress is just that: conjecture. Our whole government has to look at our whole existance. We have moved toward being subservient to China simply because investors wanted to reap the most from their investment despite what it would eventually do the the ability of the United States to manufacture and compete. (Please, someone define the word "patriotic" to me and why these investor guys are more patriotic than an American who wants a job and to work?) Railroads are a major part of the American economy, a much greater part than most Americans realize. "Once the passenger train dissappeared from the local depot, so did the railroads" is how most American see it. Railroads have to be taken into considereation in balancing (or rationalizing) a transportation system which will serve industrial and personell needs in the most effecient, ecnomical, environmental, and safe manner.
Oh, I want Chinese steam locomotives, But I don't want Chinese money. (But I see the Brits have just built a new steam locomotive, maybe we should ask them to build one for us!). But it has been American bussinesses who have looked to China for manufacturing and as a new place to market Amterican products made in China!
choochoobuff What evidence does anyone have to suggest that Congress can do anything right, especially in the business world of business, regardless of the party in charge?
What evidence does anyone have to suggest that Congress can do anything right, especially in the business world of business, regardless of the party in charge?
That is an interesting (and loaded) question given that Republicans (who have been in "charge" for the last 8 years) are said to be businessmen and the Democrats (who have been around for a while) is said to be the party of lawyers! The only answers will first bring some sparring here, then a full fledged boxing match; 20 rounds to a draw!!
The depression of the 1930's created a golden opportunity for command and control advocates to put theory into practice by greater government regulation. Are we seeing the current attempt to reregulate railroads because current hard times have changed the political climate?
A "fair" tax often ends up being one paid by others? Are "fair" rates a benefit to be paid for by the few? There are more shippers than railroads.
The history of command and control economic policies is checkered at best. Unfortunetly, we are not living in the best of times. Distress has ways of reducing acceptance of rational solutions in the political arena. I would not bet against this reregulation plan passing.
Is there another Conrail down the line? May the circle be unbroken?
Falcon48 The issue of whether all of the ICC commissioners in the 1930's were attorneys or not seems to me to be a side issue, although I don't think that all of them were. Similarly, the question about whether the commissioners were dominated by their hearing examiners or their attorney staffs seems to be a side issue. Again, however, I don't think they were. The ICC in those days was considered a very prestigious agency and many of its commissioners were people of some ability (Joe Eastman, who you mentioned, is one who immediately comes to mind). People like this weren't likely to blindly defer to hearing examiners and professional staffs. I haven't read the 1930's container decision (I don't have immediate access to ICC reports). But the philosophy it seems to represent, based on the description in the postings, was a common one in that era. Railroads must not be allowed to do things that the regulators saw as wasteful competition. This wasn't just a creation of attorneys - it had been accepted rail regulatory policy ever since enactment of the Transportation Act of 1920 (which was largely designed to turn railroads into a regulated cartel, and eliminate such "wasteful" competition as the construction of new rail lines in areas which already had rail service). Remember, too, that, in the aftermath of the Great Depression, hard competition was thought to be a bad thing, and the government's role was to protect private industry from its own excesses. Seen in this light, the container decision makes some sense. NYC probably believed that, if it didn't offer the rate/service package it had proposed, it ultimately lose the higher rated traffic to trucks (it had to believe this, otherwise undercutting its own rates would make no sense). But the ICC in those days wasn't that concerned with considerations like this. It was far more concerned with insuring the stability of rate structures, and preventing any shippers from having what it considered artificial rate advantages over others. And it was also concerned about preventing the "wasteful" competition the 1920 Act had been directed against. It's the same kind of policy that later led to decisions refusing to allow rate initiatives that undercut the "modal advantages" of the truck industry, and, even later, the infamous "Big John" decision. It wasn't primarily the creation of attorneys - it was the creation of government policy makers, both in Congress and in the ICC, and it continued to be government policy for decades. Needless to say, from the vantage point of today, we can see that this was a perverse policy, and seriously handicapped the rail industry as trucking took away increasing large slices of former rail traffic. But those effects were probably not clearly seen at the time (in fact, the impact of highway transportation in general was not fully appreciated in the early 1930's). The immediate effects of NYC's new strategy - the disruption of the existing, all sacred rate structures, the danger that some shippers would, horror of horrors, gain advantages over other shippers, and the short term loss of revenues (both to NYC and other roads) were the things that really mattered. And they would be the things that continued to matter until the era of regulatory reform.
The issue of whether all of the ICC commissioners in the 1930's were attorneys or not seems to me to be a side issue, although I don't think that all of them were. Similarly, the question about whether the commissioners were dominated by their hearing examiners or their attorney staffs seems to be a side issue. Again, however, I don't think they were. The ICC in those days was considered a very prestigious agency and many of its commissioners were people of some ability (Joe Eastman, who you mentioned, is one who immediately comes to mind). People like this weren't likely to blindly defer to hearing examiners and professional staffs.
I haven't read the 1930's container decision (I don't have immediate access to ICC reports). But the philosophy it seems to represent, based on the description in the postings, was a common one in that era. Railroads must not be allowed to do things that the regulators saw as wasteful competition. This wasn't just a creation of attorneys - it had been accepted rail regulatory policy ever since enactment of the Transportation Act of 1920 (which was largely designed to turn railroads into a regulated cartel, and eliminate such "wasteful" competition as the construction of new rail lines in areas which already had rail service). Remember, too, that, in the aftermath of the Great Depression, hard competition was thought to be a bad thing, and the government's role was to protect private industry from its own excesses.
Seen in this light, the container decision makes some sense. NYC probably believed that, if it didn't offer the rate/service package it had proposed, it ultimately lose the higher rated traffic to trucks (it had to believe this, otherwise undercutting its own rates would make no sense). But the ICC in those days wasn't that concerned with considerations like this. It was far more concerned with insuring the stability of rate structures, and preventing any shippers from having what it considered artificial rate advantages over others. And it was also concerned about preventing the "wasteful" competition the 1920 Act had been directed against. It's the same kind of policy that later led to decisions refusing to allow rate initiatives that undercut the "modal advantages" of the truck industry, and, even later, the infamous "Big John" decision. It wasn't primarily the creation of attorneys - it was the creation of government policy makers, both in Congress and in the ICC, and it continued to be government policy for decades.
Needless to say, from the vantage point of today, we can see that this was a perverse policy, and seriously handicapped the rail industry as trucking took away increasing large slices of former rail traffic. But those effects were probably not clearly seen at the time (in fact, the impact of highway transportation in general was not fully appreciated in the early 1930's). The immediate effects of NYC's new strategy - the disruption of the existing, all sacred rate structures, the danger that some shippers would, horror of horrors, gain advantages over other shippers, and the short term loss of revenues (both to NYC and other roads) were the things that really mattered. And they would be the things that continued to matter until the era of regulatory reform.
I think that's a good, accurate synopsis. I read it as saying the danged government tried to take railroads away from economic decisions. And make those decisions based on what?
I don't share any admiration for Eastman. He may have been strong willed, but he was a socialist. And he was a lawyer.
http://books.google.com/books?id=pCoK3vn7URcC&pg=PA153&lpg=PA153&dq=eastman+%22interstate+commerce+commission%22&source=web&ots=QNvJnqkUp_&sig=u9yT0Lj9q82QVmlhXm9No7O6Jdo&hl=en&sa=X&oi=book_result&resnum=4&ct=result
In my way of thinking, a socialist is someone who rejects economic reality in favor of "higher goals". "Higher Goals" are fine, but reality is not something that can be rejected through a law. When the ICC was making its non-economic based decisions under his leadership they were hurting the railroads, the US economy, and the people of the US. He could have acted against this, but his belief that the government (in this case government personified by himself) knew best lead him to promote measures which harmed the people he was supposed to serve.
With regards to lawyers' influence, it's not a side issue. People view facts in the context of their personal background. If someone is trained in marketing, they'll view a problem as a marketing issue. If someone is an operating person, they tend to see the problem as an operating issue, etc. It's the same with lawyers. They will see problems as legal issues that can best be solved through more laws and regulations. Because lawyers tend to dominate legislatures and regulatory bodies we get marketing issues, such as freight rates, decided as legal issues. They are really an economic issue.
The only solutiion that seems viable to me is to keep the regulators away from as much as possible. Granted, there need to be rules involving such things as enforcement of contracts, etc. But setting prices between economic entities is not a legal issue, although the lawyers tend to see it as such.
One of the main goals of the drive to reregulation is to get the lawyers more involved in pricing. We're going to repeat the mistakes of the Eastman era.
Falcon48 When I posted my response to Jeaton's post, I completely overlooked the major point he was making (the old slogan about haste making waste comes to mind).
When I posted my response to Jeaton's post, I completely overlooked the major point he was making (the old slogan about haste making waste comes to mind).
You're forgiven!
After digging up the facts, I think it would be found that the big price increases actually started three or four years years after the last round of major mergers and only begain to take place with the surge of traffic that started about 2004.
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
Bagehot greyhoundsFirst, by your false accusation that I am "missreprsenting" the opinion and second by your twisting of my statement that these government commissions are dominated by lawyers into the claim that they were all (your emphasis) lawyers. We can have good discussions out here, but only if people are honest and respectful. You might want to try that approach this time around as "Bagehot". The hearings on the container rates were held in various locations by Attorney-Examiner Harry C. Ames and Commisioner Porter. Ames, the attorney, made the report to the full commission. This control of infomation given to the Commission was more than enough to give him "dominance" over the decision. It doesn't matter if the other commissioners were ex circus clowns or lawyers. The information and reccomendation they received came through a lawyer's filter. Hearing examiners, in my experience, were always attorneys. Every one that I have ever known was. Our library has a wall full of hearing examiner reports to the Commission. Every single one was authored by "an attorney." In this instance, one of the Commissioners was Joseph Eastman. He was hardly a circus clown and was never in his distinguished career suspected of having his opinions "dominated" by anybody. Hearing examiners didn't write Commission opinions. I have no idea what your gripe about attorneys is, but you obviously have one, and think that attorneys, by training, were against Containers. Interesting perspective, I am guessing clouded by a divorce or something. Who should the Hearing Examiners have been and why would this one hate Containers? At the time, railroads carried 95% of intercity freight. Your alleged crisis hadn't happened yet. And trucks were regulated in 1935 at the urging of the rail industry as trucking's share of intercity freight approached the burdensome figure of 7% and 90% of that was within a 70 mile radius. Apparently the truckers weren't very good yet at what you accuse them of doing. The vast bulk of the competitive impact of the lower cost of containers, the Opinion makes clear, would have been suffered by the railroads themselves as they undercut each other to gain traffic share. You don't get that. The point of the Opinion, ultimately, is that by pricing solely by weight, the railroads were losing their ability to price differentially. If you don't understand what that means, then or today, that's your loss. Differential pricing is what the game is all about, otherwise railroads end up like farmers, selling a commodity rather than a service. When you lose differential pricing, it doesn't matter what your costs are -- you will be cutting rates to beat the other guy's costs -- and the other guy's costs are just as low. That's what that opinion states clearly. And that's exactly what would have happened. Now, this is the second or third time I have been personally insulted for daring to disagree with somebody as apparently there is an ongoing civil war going on here and I stepped into it. Apparently this topic has been discussed before, but I wasn't part of it, and I resent being accused of stealing someone else's opinion or thoughts on the matter, or "sounding" like them as though I had. If this has been a previous topic, then why bring it up again? What's the point here? I originally signed on a few weeks ago because a colleague said there was some research posted here a couple of years ago that relates to a trade study I am working on. I don't know if this forum's search feature is disabled, the archives are locked off, or what, but I was unable to access anything older than June of this year. So, this forum wasn't of much use to me. Maybe I just couldn't figure out how to use it, but I did ultimately find what I needed from another source and so my reason for being here has expired. Next step: how to unsubscribe. I've tried that three or four times now, and haven't been able to figure that one out either. Unfortunately, these conversations draw one in, and It has resulted in an occassional post on my part. I am amazed how vitrolic some of the posters are here, and there doesn't seem to be any moderation. I am certainly not wasting any of my time further. I don't like the attitudes expressed here. Especially by people who write as though they ought to know better. For instance, I have never, in my career, seen a supervisor whom a railroader thought was "over his head" posted publicly for all to see and to be able to figure out who he was. In my day that would have been a Rule 704 write-up. The fact that it happened here, and alleged railroaders did it, represents a side of railroading I don't want to be associated with in any form. I am disgusted by the idea and the thorough lack of professionalism shown. If it takes a moderator to do this, since I can't seem to figure out how, please disconnect my registration. I don't want to be on here. These guys can have their little civil war. I don't need an insult contest to discuss rail rates. I work with them and discuss them every day with real professionals -- and for railfans, believe me, they don't talk like these guys, and that includes the shippers, some of whom are consummate professionals -- and only made the mistake of coming here to look for a citation on a recommended paper. My letter to the publisher on recent posts here will go out this week. Signing off. -- Bagehot
greyhoundsFirst, by your false accusation that I am "missreprsenting" the opinion and second by your twisting of my statement that these government commissions are dominated by lawyers into the claim that they were all (your emphasis) lawyers. We can have good discussions out here, but only if people are honest and respectful. You might want to try that approach this time around as "Bagehot". The hearings on the container rates were held in various locations by Attorney-Examiner Harry C. Ames and Commisioner Porter. Ames, the attorney, made the report to the full commission. This control of infomation given to the Commission was more than enough to give him "dominance" over the decision. It doesn't matter if the other commissioners were ex circus clowns or lawyers. The information and reccomendation they received came through a lawyer's filter.
The hearings on the container rates were held in various locations by Attorney-Examiner Harry C. Ames and Commisioner Porter. Ames, the attorney, made the report to the full commission. This control of infomation given to the Commission was more than enough to give him "dominance" over the decision. It doesn't matter if the other commissioners were ex circus clowns or lawyers. The information and reccomendation they received came through a lawyer's filter.
Hearing examiners, in my experience, were always attorneys. Every one that I have ever known was. Our library has a wall full of hearing examiner reports to the Commission. Every single one was authored by "an attorney."
In this instance, one of the Commissioners was Joseph Eastman. He was hardly a circus clown and was never in his distinguished career suspected of having his opinions "dominated" by anybody.
Hearing examiners didn't write Commission opinions. I have no idea what your gripe about attorneys is, but you obviously have one, and think that attorneys, by training, were against Containers. Interesting perspective, I am guessing clouded by a divorce or something. Who should the Hearing Examiners have been and why would this one hate Containers?
At the time, railroads carried 95% of intercity freight. Your alleged crisis hadn't happened yet. And trucks were regulated in 1935 at the urging of the rail industry as trucking's share of intercity freight approached the burdensome figure of 7% and 90% of that was within a 70 mile radius. Apparently the truckers weren't very good yet at what you accuse them of doing. The vast bulk of the competitive impact of the lower cost of containers, the Opinion makes clear, would have been suffered by the railroads themselves as they undercut each other to gain traffic share. You don't get that.
The point of the Opinion, ultimately, is that by pricing solely by weight, the railroads were losing their ability to price differentially. If you don't understand what that means, then or today, that's your loss. Differential pricing is what the game is all about, otherwise railroads end up like farmers, selling a commodity rather than a service. When you lose differential pricing, it doesn't matter what your costs are -- you will be cutting rates to beat the other guy's costs -- and the other guy's costs are just as low. That's what that opinion states clearly. And that's exactly what would have happened.
Now, this is the second or third time I have been personally insulted for daring to disagree with somebody as apparently there is an ongoing civil war going on here and I stepped into it. Apparently this topic has been discussed before, but I wasn't part of it, and I resent being accused of stealing someone else's opinion or thoughts on the matter, or "sounding" like them as though I had. If this has been a previous topic, then why bring it up again? What's the point here? I originally signed on a few weeks ago because a colleague said there was some research posted here a couple of years ago that relates to a trade study I am working on. I don't know if this forum's search feature is disabled, the archives are locked off, or what, but I was unable to access anything older than June of this year. So, this forum wasn't of much use to me. Maybe I just couldn't figure out how to use it, but I did ultimately find what I needed from another source and so my reason for being here has expired.
Next step: how to unsubscribe. I've tried that three or four times now, and haven't been able to figure that one out either. Unfortunately, these conversations draw one in, and It has resulted in an occassional post on my part. I am amazed how vitrolic some of the posters are here, and there doesn't seem to be any moderation. I am certainly not wasting any of my time further. I don't like the attitudes expressed here. Especially by people who write as though they ought to know better. For instance, I have never, in my career, seen a supervisor whom a railroader thought was "over his head" posted publicly for all to see and to be able to figure out who he was. In my day that would have been a Rule 704 write-up. The fact that it happened here, and alleged railroaders did it, represents a side of railroading I don't want to be associated with in any form. I am disgusted by the idea and the thorough lack of professionalism shown.
If it takes a moderator to do this, since I can't seem to figure out how, please disconnect my registration. I don't want to be on here. These guys can have their little civil war. I don't need an insult contest to discuss rail rates. I work with them and discuss them every day with real professionals -- and for railfans, believe me, they don't talk like these guys, and that includes the shippers, some of whom are consummate professionals -- and only made the mistake of coming here to look for a citation on a recommended paper. My letter to the publisher on recent posts here will go out this week.
Signing off.
-- Bagehot
dehusman greyhounds These are the results for the New York Central: Boxcar Container Freight Claims: $0.120 $0.000 (That’s a correct number) Clerical Costs: $2.545 $0.041 Platform Costs: $2.270 $0.000 Crane Costs: $0.000 $0.096 Switching Costs: $1.850 $0.714 Linehaul Costs: $2.230 $1.240 Car Maintenance: $0.405 $0.149 Total $9.420 $2.240 Are these costs per ton or per car or container. A"container" in the 1930's wasn't a shipping container like we have now, a 'container' in the 1930's was a metal box that was more like an airline cargo container, there were from 6 to 20 of them in a gondola or flatcar (they weren't standardized between railroads). Also I don't know how much "competition" there was with trucks. In 1919 Eisenhower left Washington in the spring with a truck convoy and didn't get to San Francisco until September. Even if the roads were four times faster by 1930 that would still mean a long distance transit time of weeks or months, hardly "competition" with a rail route that would take days or weeks. Since LCL is usually a time sensitive shipment I don't see how, except for short runs trucks could provide any kind of a comparable service to railroads. The interstate highway system wasn't started until the late 50's.
greyhounds These are the results for the New York Central: Boxcar Container Freight Claims: $0.120 $0.000 (That’s a correct number) Clerical Costs: $2.545 $0.041 Platform Costs: $2.270 $0.000 Crane Costs: $0.000 $0.096 Switching Costs: $1.850 $0.714 Linehaul Costs: $2.230 $1.240 Car Maintenance: $0.405 $0.149 Total $9.420 $2.240
These are the results for the New York Central:
Are these costs per ton or per car or container. A"container" in the 1930's wasn't a shipping container like we have now, a 'container' in the 1930's was a metal box that was more like an airline cargo container, there were from 6 to 20 of them in a gondola or flatcar (they weren't standardized between railroads).
Also I don't know how much "competition" there was with trucks. In 1919 Eisenhower left Washington in the spring with a truck convoy and didn't get to San Francisco until September. Even if the roads were four times faster by 1930 that would still mean a long distance transit time of weeks or months, hardly "competition" with a rail route that would take days or weeks. Since LCL is usually a time sensitive shipment I don't see how, except for short runs trucks could provide any kind of a comparable service to railroads. The interstate highway system wasn't started until the late 50's.
Good question. I should have put that in the post. The figures are in dollars per ton. Please note that most of the costs, and the savings, are in the terminal operations. Not the line haul.
The containers were introduced on what today would be "short hauls". Early container operations were concentrated in the industrialized northeastern quadrant of the US. The first New York Central container service was between Chicago and Cleveland.
Today, as in 1931, most freight doesn't move very far. Under present operating models, railroad terminal expenses preclude the rails from competing with trucks for most freight in the US. Once you get a train together and get it moving it can generally produce ton-miles at a much lower cost than a truck. But when you add in the origin and destination rail terminal costs, the overall cost by truck is less unless there are enough miles in the move to overcome the termial cost disadvantage. Today, the railroads don't even try to compete for most freight. They go after only the long hauls or heavy bulk moves or shorter routes. They don't even try to haul Chicago-Cleveland merchandise.
What was happening in the 1920's and continued onward was that the length of haul on which trucks could compete was steadily increasing. The New York Central was very aware of this trend and took good, appropriate action in response. It didn't take an Interstate Highway for a truck to be competitive between Chicago and Cleveland. (Or on a similar length of haul) I agree that it would have been hard for trucks to compete running across Wyoming on transcontinental runs, but they were making significant inroads in the industrialized northeast. Which is where the high volume of freight was. It was also where the New York Central was.
Operating in this "freight rich" environment of relatively short distances the truckers selectively solicited high rated commodities which put a decent dent in rail profitability.
The NYC didn't wait for a crisis. They understood what was happening and found a new, innovative way to deal with the main problem - the terminal expenses of rail movement. This allowed them to stay competitive on lanes such as Chicago-Cleveland. Then the danged government just told the railroad "You Can't Do That".
We'll never know if the continued development of the container system would have allowed the NYC and its successors to remain competitive for merchandise traffic on lanes such as Chicago-Cleveland. What we do know is that without the container system they were not able to remain competitive.
When I posted my response to Jeaton's post, I completely overlooked the major point he was making (the old slogan about haste making waste comes to mind). His point was that that a major reason railroads have been able to raise their prices in recent times is related to lack of excess capacity, not market power. He is absolutely correct. For most of the last quarter century (probably longer), railroads have had ample excess capacity, so the challenge was how to get traffic that made at least some contribution to the bottom line That led to a strategy of making low prices to get to get traffic that otherwise wouldn't move. As long as the rates covered the short term incremental costs of handling the traffic (fuel, car hire, etc), the railroad was better off handling it. This is similar to airline pricing strategies that seek to fill up seats that would otherwise go empty with people paying bargain fares, so they get at least some contribution from capacity that would otherwise be wasted (the trick is trying to keep customers who would otherwise buy higher price tickets from using the lower fares, but that's a topic for another day).
While this strategy makes sense when there is excess capacity, it is no longer viable when there is little excess capacity in the network, or at particular bottleneck points, which is the stiuation the railroads have had in recent years. It's not only that the railroad doesn't need to cut rates to get new business (although that's part of it). It's also that the cost to handle new business isn't limited to the incremental cost of putting a few extra cars on existing freight trains. In order to handle any significant volume of new business, the railroad will have to expand capacity, and the cost of that capacity has to be recovered from the traffic, or the railroad is better off not handling it at all. The same equation applies to existing business. If an existing block of traffic is moving at rates based on short term incremantal costs, and the railroad could use that capacity to handle higher rated traffic, then the existing traffic should be priced at the higher rate, because that's what the capacity is worth. Another way of looking at it is that, if there is little or no excess capacity, and the railroad must expand capacity to handle additional traffic, the cost of that capacity isn't just attributable to the new traffic - it's attributable to the existing traffic as well, and both segments of traffic must earn enough to justify the capacity they are consuming.
jeaton CURE and other groups advocating more regulation of railroad rates claim that the mergers of the roads into 6 major Class 1's has reduced competition between any two points to generally two lines, at best, and the lack of competition between rail carriers has let them boost rates without fear of loss of business. I contend it is not any kind of monopoly condition that gives railroads pricing power, rather, it is the lack of any significant excess capacity to handle new business. Given that premise, what would be the point of cutting a rate to get new business? It lends itself to a condition where customers may have to pay more just to keep a spot in the "production" schedule. The ironic thing is that any government mandate to reduce rates also reduces the pile of cash available to expand capacity. One securities analyst calls reregulation MAD-Mutually Assured Destruction.
CURE and other groups advocating more regulation of railroad rates claim that the mergers of the roads into 6 major Class 1's has reduced competition between any two points to generally two lines, at best, and the lack of competition between rail carriers has let them boost rates without fear of loss of business.
I contend it is not any kind of monopoly condition that gives railroads pricing power, rather, it is the lack of any significant excess capacity to handle new business. Given that premise, what would be the point of cutting a rate to get new business? It lends itself to a condition where customers may have to pay more just to keep a spot in the "production" schedule. The ironic thing is that any government mandate to reduce rates also reduces the pile of cash available to expand capacity.
One securities analyst calls reregulation MAD-Mutually Assured Destruction.
However, it's true that the ICC once had a policy disfavoring end to end mergers and favoring parallel mergers, but the ICC had abandoned this policy long before Staggers, largely in response to the failed PC merger. During the time this policy was in effect, there were undoubtedly mergers that reduced the number of competing railroads in particular locations, because that's precisely what the ICC was encouraging. There were basically two reasons for it: (i) the ICC felt that a parallel merger was a way to eliminate excess capacity (a big issue at the time) and (ii) parallel mergers would minimize adverse effects on non-merging railroads. A "vertical" market extension merger would have disadvantaged the non-merging railroads by reducing their opportunities to handle the interchange traffic of the merging roads, something the ICC wanted to avoid. In retrospect, this was exactly the wrong policy. Encouraging "vertical" mergers would have forced the non-merging railroads to themselves merge with other roads to create larger networks, which is what should have happened in response to postwar changes in rail traffic patterns. And it eventually did happen after the ICC changed its policies.
Ironically, the more modern mergers have not materially reduced the number of railroads competing between origin and destination markets. The reason is that, when the ICC changed its merger policy, it adopted a practice of requiring rail-rail competition to be preserved where a merger would otherwise eliminate it. The failure of the applicants in the Santa Fe - Southern Pacific merger to adequately do this is the principle reason their merger was not approved. This is also the reason that, in the UP-SP merger, which eliminated UP-SP competition at a number of locations, the BNSF was given trackage rights to replace the lost competition.
Finally, the number of so-called "competing" railroads serving particular markets in pre-Staggers days is really pretty meaningless, since the railroads were pricing their competing services collectively through rate bureaus ("collective ratemaking" was a euphemism for legalized price-fixing). See my earlier post of today.
Can anyone tell us what the present-day method of pricing is for containers. I suspect it may be close to that rejected by the ICC nearly 80 years ago, primarily based either on weight or size, with temperature controlled containers obviously atttracting extra charge.
On the competition angle, I have a radical proposal. The nature of private rights-of-way means that in most cases a railroad inherently has monopoly power, reduced somewhat where interchange is possible. My suggestion is that any railroad line that has more than one railroad operating over it, either another freight carrier, Amtrak or commuter, be taxed at the same rate as the competing road system.
Every town of course wants competitive rail freight service and passenger trains, but only if someone else pays the price, preferably the railroad. With the possibility of losing major property tax revenue, they would have to face up to the very unequal playing field that railroads don't always survive. The rail executive has his own dilemma, whether the property tax savings resulting from a tenant will be a net benefit to the railroad.
I don't want to open a debate as to whether commercial trucks pay their share of construction, upgrading and maintenance of the road network. It is, however, reality that they make no significant contribution in the form of taxes to the various cities, towns and and rural districts for the public roads. Like the railroad, these roads and highways occupy land, sometimes very valuable land, so it seems only appropriate that commercial highway users pay the equivalent property tax too, or that both modes be exempt.
John
Dave H. Painted side goes up. My website : wnbranch.com
henry6 The inability of the Class Ones to come up with enough money to rebuild their own infrastructure and haveing to come to Congress for help should say something. Congress deregulated them so that they could make lots of money unhindered by rules and regulations and an agency looking over thier shoulders. When that deregulation took effect the big railroads promised more competition thus more competitive rates and that the existing railroads would prosper. Today there are fewer Class I railroads with less competition and shippers crying foul. Since this is opposite what the industry promised would happen with deregulation, your darn right reregulation will be a subject to be brought up to the STB and Congress. But reregulation does not have to be the same as it was under the ICC. I believe in fact that it would be suicidal for all forms of transportation if it were to be the same. Of course today railroads are not competing against themselves any more, at least not like in the past, but only against other land transportation systems. So what is going to be the crux of the reregulation or no regulation arguement is going to center around the word "competition" followed by the word "service" followed by "responsibility".
The inability of the Class Ones to come up with enough money to rebuild their own infrastructure and haveing to come to Congress for help should say something. Congress deregulated them so that they could make lots of money unhindered by rules and regulations and an agency looking over thier shoulders. When that deregulation took effect the big railroads promised more competition thus more competitive rates and that the existing railroads would prosper. Today there are fewer Class I railroads with less competition and shippers crying foul. Since this is opposite what the industry promised would happen with deregulation, your darn right reregulation will be a subject to be brought up to the STB and Congress. But reregulation does not have to be the same as it was under the ICC. I believe in fact that it would be suicidal for all forms of transportation if it were to be the same. Of course today railroads are not competing against themselves any more, at least not like in the past, but only against other land transportation systems. So what is going to be the crux of the reregulation or no regulation arguement is going to center around the word "competition" followed by the word "service" followed by "responsibility".
With respect to your suggestion that there is less rail-rail "competition" these days than there used to be, I suspect you are not very familiar with how railroads "competed" with each other prior to Staggers (few people are, since that was over a quarter century ago). In pre-Staggers days, railroads collectively made most of their rates through "rate bureaus", which were legalized price fixing cartels (like OPEC). In fact, the existence of these cartels was one of the main reasons (although not the only one) there were so many railroads - the bureaus tended to keep rate levels high enough to protect their weakest members, which lessened incentives to restructure the industry. In the end, of course, it didn't work, and probably made the inevitable restructuring more painful than it otherwise would have been. Looking back from the vantage point of 2009, the industry probably should have restructured itself into fewer but longer haul railroads in the late 50's and into the 60's, as passenger and short haul freight business left the railroads. What you had by the 1960's was a system where the major railroads could provide a complete origin-destination "single line" service for only a minority of their remaining business (about a third as a national average). That's not a sustainable structure.
I'm very familiar with the rail rate bureaus, because I used to work for one. Their influence extended beyond what they formally did - they instilled a "cartel mentality" throughout the industry that affected virtually the entire range of their competitive activities. The Staggers Act was designed to kill the rate bureaus, and it did - both by imposing severe restrictions that made rate bureau ratemaking impractical and by creating incentives (like the ability to make contracts with shippers) for making rates outside the bureaus. As a result, the bureaus were out of the rate making business by 1984 (they survived solely as tariff publishing houses until the 1990's). The elimination of rate bureau ratemaking was one of the major reasons that rail prices declined after Staggers. Even though there may be fewer Class I railroads today than prior to Staggers, they are far more competitive with each other than the pre-Staggers railroads ever were.
By the way, I have to smile at the arguments some of the proponents of the "Kohl Bill" are making in favor of repealing the antitrust exemptions that railroads still have (which aren't much). They seem to think that railroads are still making rates collectively, which hasn't been the case since 1984. The other thing that makes me smile is that one of the major antitrust "exemptions" the bill is aimed at is something called the "Keogh doctrine" (not actually an exemption, but a judicial principle that private parties can't bring an antitrust case for damages against rates which have been filed with and reviewed by a regulatory agency). The reason this makes me smile is that, while the "Keogh doctrine" was originally created in a long ago railroad case (I think it was in the 1920's), it almost certainly is not applicable to railroads today. That's because Congress repealed the "filed rate" requirement as to railroads in 1996, which destroyed the underlying basis for the doctrine (the reason I said "almost certainly" is because there have not, to my knowledge, been any cases addressing the applicablity of "Keogh doctrine" to railroads since 1996). But the "Keogh doctrine" is alive and well in the utility and communications industries, and there are several cases in recent years where utility and communication companies have successfully avoided antitrust liability because of it. The irony is that utility companies, which are some of the most vocal supporters of the "Kohl Bill," want to kill the "Keogh doctrine" for railroads, where it's probably already dead, but haven't proposed or suggested that it be killed for their own industry, where it clearly is being used to shield anticompetitive conduct. I guess that, if you're a utility, what's good for the goose is definitely not good for the gander.
PNWRMNM Ulrich, Regarding your question about doubling of a rate. The party cited was Seminole Power. My suspicion is that this is a "legacy contract", one entered into 10 years or so ago. At that time the prevailing railroad marketing logic was to lock up the business for as long as possible. Evidently they made no provision for rate increases. As these contracts come up for renewal the railroads are repricing them based on current market conditions and corrent costs and current capacity which is still relatively constrained. If my guess as to the underlying situation is correct, the power has not seen a real rate increase in 10 years because of the long term contract. Absent that contract rates would have risen a bit over each of the past 10 years and the jump would not be much today. Ten years of 7% increase will about double any number. Typical of shipper PR, they complain about a big jump today, when in fact they have enjoyed a bargain at the carrier's expense for some extended period of time. Typical media does not bother to find out what is really going on. The Union Pacific's 2007 annual report, on page 20, includes the following statement: "Since 2004, we have repriced approximately 75% of our business." That means that 25% has not been repriced for an indeterminate period prior to 2004. Mac
Ulrich,
Regarding your question about doubling of a rate. The party cited was Seminole Power. My suspicion is that this is a "legacy contract", one entered into 10 years or so ago. At that time the prevailing railroad marketing logic was to lock up the business for as long as possible. Evidently they made no provision for rate increases. As these contracts come up for renewal the railroads are repricing them based on current market conditions and corrent costs and current capacity which is still relatively constrained.
If my guess as to the underlying situation is correct, the power has not seen a real rate increase in 10 years because of the long term contract. Absent that contract rates would have risen a bit over each of the past 10 years and the jump would not be much today. Ten years of 7% increase will about double any number. Typical of shipper PR, they complain about a big jump today, when in fact they have enjoyed a bargain at the carrier's expense for some extended period of time. Typical media does not bother to find out what is really going on.
The Union Pacific's 2007 annual report, on page 20, includes the following statement: "Since 2004, we have repriced approximately 75% of our business." That means that 25% has not been repriced for an indeterminate period prior to 2004.
Mac
You're probably right about the ten year term; however, I doubt they're predicating their steep rate increase on 7% year over year. I've never heard of anyone in the freight business getting that kind of an annual increase, especially when inflation has been lower over that period. Most carriers would consider themselves fortunate to get 2% annually...in my experience many rates haven't changed much if at all in the 20 years I've been in the business. In fact some have gone down and most shippers today are looking at lowering their rates. Most of my accounts have asked me to reduce my rates over what they were 4 or 5 years ago. That's why the doubling of rates sounds so outlandish to me. If I did that my accounts would immediately question my competence.
Bagehot If it takes a moderator to do this, since I can't seem to figure out how, please disconnect my registration. I don't want to be on here. These guys can have their little civil war. I don't need an insult contest to discuss rail rates. I work with them and discuss them every day with real professionals -- and for railfans, believe me, they don't talk like these guys, and that includes the shippers, some of whom are consummate professionals -- and only made the mistake of coming here to look for a citation on a recommended paper. My letter to the publisher on recent posts here will go out this week. Signing off. -- Bagehot
Never too old to have a happy childhood!
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