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
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".
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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
Gee - The price of everything else goes up on the manufacturing end and mysteriously the transportation provider can't raise his rates to cover his costs? Meanwhile utilities are guaranteed a set rate profit. Hmmmm.....
never mind....
Holy Doppelgänger Batman, ya think?
23 17 46 11
Bagehot This was so interesting I had to pull the volume in our rail library and read it last night. The representation, it turns out is not true. Now, I don't about the "lawyer" part -- it was a decision of the full Commission. I assume you looked up the backgrounds of the full ICC in 1931 and found that they were all lawyers. All lawyers? I'm not too sure about that, but it would be interesting if true. However, the Opinion itself -- and it is a well written and interesting opinion -- ultimately stood for the proposition that the Container rates being proposed were based entirely on weight. The ICC pointed out that by offering that alternative, it certainly was competitive -- because it eliminated the ability of the railroads to obtain revenue by differential pricing for high value goods. Yeah, everybody who had been paying higher rates would go for that! They would do it today! The ICC carefully pointed out that the loss of revenues to the industry would be catastrophic if the NYC was allowed to offer a generic rate based on solely on weight. The NYC itself hadn't considered that it was losing higher revenue traffic in order to carry the same traffic at lower rates. Whether it was a lawyer or an economist that actually wrote the thing, I don't know, but whoever it was clearly understood that the NYC was so enamored of its bright idea, that it hadn't considered the fact that the proposal ultimately wasn't about containerization -- which the ICC pronounced as an innovative idea -- it was the idea that NYC was offering a low rate for everything, based simply on weight and that proposal violated the classification system for rate-making that the railroads themselves -- then and now -- relied on for their revenue structure. It didn't matter that the the rates were offered on containers, flatcars, boxcars, or donkeys -- the ICC objected to the rate methodology which offered nothing more than one railroad offering a dramatically lower rate for everything -- and initiating a massive reduction in overall revenues to the railroad companies at a time when revenues were already deflating (1931). The ICC basically said: it's a good idea but your rate structure makes no sense for the industry. I don't know why you misrepresented that Opinion -- it was not about containers, per se, but rather about an ultimately destructive rate proposal. The Opinion looks to me, given the point in time that it was written and the regulatory constraints, that it would have been a disservice to the rail industry to allow that particular rate proposal -- as the ICC basically said: you need to think this through; you may be thinking this will give you more traffic. Don't be stupid. Everyone will then do the same thing. In the long run, you won't get more traffic. And in the meantime you will end up with a rail industry with half the revenues of the current rail industry. Railroads were already entering receivership because of declining revenues. The ICC would have completely destroyed the industry if it had permitted the NYC rates. In the context of the times, the case may be a very good example of intelligent regulation -- without offering a generic defense of regulation otherwise -- rather than how you represented it to the readers here. As to other comments on this thread, about shippers "wanting something for nothing," I've never met shipper who thought or talked that way. Every shipper I've ever dealt with understands the need for profit for all of their suppliers of goods and services, including railroads. No business succeeds by trash-talking its customers. -- Bagehot
This was so interesting I had to pull the volume in our rail library and read it last night. The representation, it turns out is not true. Now, I don't about the "lawyer" part -- it was a decision of the full Commission. I assume you looked up the backgrounds of the full ICC in 1931 and found that they were all lawyers. All lawyers? I'm not too sure about that, but it would be interesting if true.
However, the Opinion itself -- and it is a well written and interesting opinion -- ultimately stood for the proposition that the Container rates being proposed were based entirely on weight. The ICC pointed out that by offering that alternative, it certainly was competitive -- because it eliminated the ability of the railroads to obtain revenue by differential pricing for high value goods.
Yeah, everybody who had been paying higher rates would go for that! They would do it today!
The ICC carefully pointed out that the loss of revenues to the industry would be catastrophic if the NYC was allowed to offer a generic rate based on solely on weight. The NYC itself hadn't considered that it was losing higher revenue traffic in order to carry the same traffic at lower rates. Whether it was a lawyer or an economist that actually wrote the thing, I don't know, but whoever it was clearly understood that the NYC was so enamored of its bright idea, that it hadn't considered the fact that the proposal ultimately wasn't about containerization -- which the ICC pronounced as an innovative idea -- it was the idea that NYC was offering a low rate for everything, based simply on weight and that proposal violated the classification system for rate-making that the railroads themselves -- then and now -- relied on for their revenue structure.
It didn't matter that the the rates were offered on containers, flatcars, boxcars, or donkeys -- the ICC objected to the rate methodology which offered nothing more than one railroad offering a dramatically lower rate for everything -- and initiating a massive reduction in overall revenues to the railroad companies at a time when revenues were already deflating (1931). The ICC basically said: it's a good idea but your rate structure makes no sense for the industry.
I don't know why you misrepresented that Opinion -- it was not about containers, per se, but rather about an ultimately destructive rate proposal. The Opinion looks to me, given the point in time that it was written and the regulatory constraints, that it would have been a disservice to the rail industry to allow that particular rate proposal -- as the ICC basically said: you need to think this through; you may be thinking this will give you more traffic. Don't be stupid. Everyone will then do the same thing. In the long run, you won't get more traffic. And in the meantime you will end up with a rail industry with half the revenues of the current rail industry.
Railroads were already entering receivership because of declining revenues. The ICC would have completely destroyed the industry if it had permitted the NYC rates. In the context of the times, the case may be a very good example of intelligent regulation -- without offering a generic defense of regulation otherwise -- rather than how you represented it to the readers here.
As to other comments on this thread, about shippers "wanting something for nothing," I've never met shipper who thought or talked that way. Every shipper I've ever dealt with understands the need for profit for all of their suppliers of goods and services, including railroads.
No business succeeds by trash-talking its customers.
Wow. You remind me a whole lot of Michael Sol.
First, 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".
Ames ignored the container's true benifit. It greatly, and I mean greatly, reduced the cost of moving freight. In 1930 the ICC conducted a cost study on container vs. boxcar l.c.l freight movement. (l.c.l was the freight most threatened by the new truck competition and the first to be containerized on the railroads as a response to that competition.)
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
Source: Cheng Shih Hsu, Status and Problems of Co-ordinated Rail-Motor Service in the United States, (Philadelphia: University of Pennsylvania, 1932) p. 147
If the New York Central was "enamored", as you say, with its container innovation, it was enamored with very good reason. By the ICC's own study containerization dropped the railroad's cost of moving freight by over 76%. No rational person could look at those numbers and not be enamored. (In 1929 the NYC testified before the commission that it had never had a freight claim on containerized freight.)
l.c.l frieght, the type of freight that moved in these containers, represented a full 12% of NYC's freight revenue in 1929. This revenue was under severe competitive threat from the new motor carriers. The New York Central recognized that it could not maintain this revenue with its traditiional boxcar service and rate structure. It found an innovative way to compete - the container.
What was happening with the advent of motor freight was a destruction of the rate structure you describe. The railroads' ability to charge more for moving high value goods than for moving low value goods was going away. The truckers typically copied railroad tariffs, but with a twist. They'd undercut slightly the price on high value goods while charging more for the low rated, low value commodities. This diverted the high revenue freight to the trucks while leaving the low revenue freight on the rail.
You, like the ICC, falsely claim that the New York Central's container rates were destroying the rate stucture. This ignores two important things: 1) The rate structure was no longer viable due to motor freight competition, and 2) It's not really the total revenue that counts. It's the spread between the revenue and the costs that counts. (The motor carriers were not economically regulated by the Federal government. In 1931 they could charge what they wanted to charge.)
The New York Central had an innovation that dropped the cost of moving freight by rail dramatically. If they had to pass along some of the cost savings to their customers in order to retain the business, so be it. They recognized that they came out ahead by doing so. This is more than that danged government lawyer Harry C. Ames understood. By preventing through government fiat the use of the container's main benifit, that it reduced costs, to retain rail business the government regulators effectively blocked its use in total.
It is only by ignoring the new truck competition, as you do, and as Harry C. Ames did, that this awful decision can be termed "well reasoned". Well, the competitive environment can't be ignored in a well reasoned anything.
This, IMHO, is the worst regulatory decision ever made with regards to transportation in the United States. It prohibited the railroads from innovating to retain traffic and forced that traffic to go to higher cost motor freight. This increased the logistics costs to our nation and hindered economic growth.
As Marc Levison said: "The key question asked today is no longer how much capital and labor and economy can amass, but how innovation helps employ those resources more effectively to produce more goods and services." By blocking the container innovation the government regulators screwed the US economy and the people of the US. They did this a lot. And now we seem to be going back to the bad old days.
First, thanks to both of you for going back to the original source.
Now this gets really interesting - to me, anyway - but I've got to go do some other things for the bi-weekly paycheck. Will try to post again later in the day.
- Paul North.
greyhoundsThe most salient example is, I think, "In the Matter of Container Service", handed down by a lawyer of the Interstate Commerce Commission in 1931. .... ... Domestic containerization developed rapidly and produced the same reductions in logistics costs that international containerization produced. This was great for the US economy, but the government regulators didn't see it that way. They just blocked it. They ordered the container rates increased to a level that made domestic container movement uncompetitive. They were lawyers and they thought as lawyers, not as economists or business people. Economic growth and the public good, best being served by free market innovation, were sacrificed.
....
... Domestic containerization developed rapidly and produced the same reductions in logistics costs that international containerization produced. This was great for the US economy, but the government regulators didn't see it that way.
They just blocked it. They ordered the container rates increased to a level that made domestic container movement uncompetitive. They were lawyers and they thought as lawyers, not as economists or business people. Economic growth and the public good, best being served by free market innovation, were sacrificed.
Although I disagree with reregulation I do see the shippers' point. The article states that some freight rates are doubling. DOUBLING? Why? I can understand and appreciate why these shippers are angry and concerned...just as you and I would be concerned about a sudden doubling of our insurance, phone cost etc.
Furthermore, due to economic circumstances there is plenty of capacity available and costs are down not up (look at fuel for example). How do the rails justify doubling rates? They must realize that doing so would seriously jeopardize their customers as a utility (for example) might have trouble passing that cost on to its own customers.
The railroads are doing this to themselves...truck rates are WAY down...in the present situation no sane trucker would contemplate a large rate increase. What planet are the rail managers on?
This history of railroad economic regulation in the US is not a good one. Rate and service regulation severly hurt the railroads and did great and lasting damage to the US economy. Countless loads of freight were diverted from rail to less efficient road and barge movement to the detrimit of the nation.
The most salient example is, I think, "In the Matter of Container Service", handed down by a lawyer of the Interstate Commerce Commission in 1931.
If you read (and I suggest you do so) a book titled "The Box, How the Shipping Container Made the World Smaller and the World Economy Bigger" by Marc Levinson you'll find the following quotes:
"(International Sea) Transportation has become so efficient that for many purposes, freight costs do not much effect economic decisions. ... It is better to assume that moving goods is essentially costless than to assume that moving goods is an important component of the production process. ... Before the container, such a statement was unimaginable." - page 8.
"The key question asked today is no longer how much capital and labor an economy can amass, but how innovation helps employ those resources more effectively to produce more goods and services." - page 12.
The theme of Levinson's great book (he's an economist) is that the international sea container reduced the costs of moving freight so much that the world economy changed through growth.
Now wouldn't it have been wonderful to have that level of logistics cost reduction happen here within the US decades before such a development on the international level. It would have made our domestic economy grow and prosper. In fact, such a development of a domestic container system was happening before the idiot government regulators put a stop to it. Domestic containerization began to develop in the US (see the "innovation" quote above) about as soon as trucks that could carry a decent load of freight were developed. Domestic containerization developed rapidly and produced the same reductions in logistics costs that international containerization produced. This was great for the US economy, but the government regulators didn't see it that way.
The commissions that do this sort of thing always end up being dominated by lawyers who listen to arguments of other lawyers and make lawyerly decisions. I suspect this is why the A.B.A. supports one of the reregulation bills. Things will get decided by lawyers in a manner the lawyers understand. Economics be damned.
That's just one example of the terrible effects of past regulation. There are many, many others.
Now there is an effort to return to those days. It won't work this time either. There is no way on Earth that a government commission (inevitably controlled by lawyers) can determine a "correct" price for rail service. In trying to do so they'll screw things up again and we'll generally be worse off for it. The only "winners' will be the politically connected few who know how to manipulate the politicized system to their advantage.
If I stick up a guy with my own gun I should expect to go to jail but if I can get congress to use their hired guns to rob someone else, like the greedy railroad, drug company, cable provider, electric utility, pick your own corporate bad guy, that is just smart business.
Hmmm....yeah, regulation worked really well the last time around. So well in fact, that countless numbers of railroads went bankrupt due to lack of money from too-low rates they couldn't change, and the infrastructure itself degraded to mud, rust, and rotted ties. It appears that these shippers think nothing of turning millions a year in profits themselves, but they think the railroads should charge just enough to break even, and keep the status quo. Sadly, there are those in Congress who'll cry a river over the shippers "plight" and give them what they want. Get ready to relive the pre-Staggers Act days of the 1970s' all over again!
Joe H. (Milepost S256.0; NS Griffin District)
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Well, it only seems fair. If the government is going to set the prices that a transportation company can charge for it's services, it should be able to set Mr. Shipper's selling price as well.
You might as well go right to a wage and price freeze while you're at it. Paging Richard Nixon....
Thanks to Chris / CopCarSS for my avatar.
The farmers, elevators and middle men want the railroads to supply cars whenever they want them and in the quantities they need, all at a super low price, regardless of how much the cars cost, the cost of capital and the rate of return, the price of fuel and all the rest. They have found willing politicians who buy into this on their behalf. The general public will buy into it, as well, because they will only get one side of the story from a media that is too lazy to check the facts at best, and increasingly biased against business at worst.
John Timm
Dear Greedy Something-for-Nothing Shippers:
Go ahead and re-regulate and watch your shipping costs more than double, contrary what you have deluded yourselves to believe while being blinded by skewwed balance sheets.
Get a life!
Very truly yours (not!),
Mud
The above-referenced article was in yesterday's Wall Street Journal - Mon. Jan. 5, 2009 - Page A-5, I believe. It can also be accessed online - at least for approx. the next 7 days (per the WSJ's website) at:
http://online.wsj.com/article/SB123111502899652523.html
It's interesting, but not much new to anyone who's been following this subject for the past several years.
- Pau North
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