The enabling legislation started in 1978 (43 FR 26314 June 19, 1978 & 42 FR 35017 July 7, 1977)....Effective date June 1, 1983. related to, but separate from Staggers...one of the things that hobbled the industry for decades previous.
ICLand Well, if it was predicted to happen, I guess I missed the memo. The ones I got said that the rail industry needed the freedom to raise rates to provide adequate returns. On the other hand, I can truly say that I read it here first! Regarding rates, there is something of a misconception presented here. The driver of higher rates in the 1970s was primarily inflation. Equipment, materials, capital itself was costing on the order of 14-18%. And the price of diesel fuel doubled, tripled, quadrupled. And this really kicked in, 1975-1979. Railroads couldn't increase rates fast enough. Literally. That was the point of Staggers: enable railroads to increase rates more quickly and flexibly. It was a savage four years. Adjusted for inflation, this is shown quite clearly. The average railroad rate today is the equivalent of railroad rates in 1975. Rates prior to that time are lower than today's rates. Indeed, the long decline in adjusted rates since Staggers was only an unwinding of the fast run-up in rates that occurred in a very short time between 1976 and 1982. And it took 30 years to unwind those rates as railroads enjoyed on the one hand impressive improvements in productivity, and, on the other hand, increasing real costs in terms of physical plant and equipment. And, again, the adjusted cost of diesel fuel, electric power, computing power, communications have all been declining during that time, accounting for much of the claimed "productivity" when in fact it was nothing of the kind. Otherwise, productivity and substantial cost declines won the day, but it has only restored rates to what they were in 1975 in adjusted dollars, and that represents a historic high in railroad rates up to that time.You're comparing post-Staggers rates with a very select, narrow, period of history that labored under extraordinary economic circumstances. This is why nearly all presentations on Staggers rates do not show inflation adjusted rates prior to 1980. There's a public relations reason for that. Compared to a long period of relatively stable inflation prior to 1975, today's rates are higher and have been higher since Staggers was enacted. On the other hand, due to productivity increases, profitability has increased compared to those times, although sometimes detailed examinations, such as comparing UP then and now, makes you wonder where the improvement really is. There is a chart here which partially shows this: http://www.fra.dot.gov/downloads/policy/freight5a.pdf Talk to old, established shippers. They'll let you know. (link enabled by adding [] and 'url' fillers - selector)
Well, if it was predicted to happen, I guess I missed the memo. The ones I got said that the rail industry needed the freedom to raise rates to provide adequate returns. On the other hand, I can truly say that I read it here first!
Regarding rates, there is something of a misconception presented here. The driver of higher rates in the 1970s was primarily inflation. Equipment, materials, capital itself was costing on the order of 14-18%. And the price of diesel fuel doubled, tripled, quadrupled. And this really kicked in, 1975-1979. Railroads couldn't increase rates fast enough. Literally. That was the point of Staggers: enable railroads to increase rates more quickly and flexibly. It was a savage four years.
Adjusted for inflation, this is shown quite clearly. The average railroad rate today is the equivalent of railroad rates in 1975. Rates prior to that time are lower than today's rates. Indeed, the long decline in adjusted rates since Staggers was only an unwinding of the fast run-up in rates that occurred in a very short time between 1976 and 1982. And it took 30 years to unwind those rates as railroads enjoyed on the one hand impressive improvements in productivity, and, on the other hand, increasing real costs in terms of physical plant and equipment. And, again, the adjusted cost of diesel fuel, electric power, computing power, communications have all been declining during that time, accounting for much of the claimed "productivity" when in fact it was nothing of the kind. Otherwise, productivity and substantial cost declines won the day, but it has only restored rates to what they were in 1975 in adjusted dollars, and that represents a historic high in railroad rates up to that time.You're comparing post-Staggers rates with a very select, narrow, period of history that labored under extraordinary economic circumstances. This is why nearly all presentations on Staggers rates do not show inflation adjusted rates prior to 1980. There's a public relations reason for that. Compared to a long period of relatively stable inflation prior to 1975, today's rates are higher and have been higher since Staggers was enacted. On the other hand, due to productivity increases, profitability has increased compared to those times, although sometimes detailed examinations, such as comparing UP then and now, makes you wonder where the improvement really is.
There is a chart here which partially shows this:
http://www.fra.dot.gov/downloads/policy/freight5a.pdf
Talk to old, established shippers. They'll let you know.
(link enabled by adding [] and 'url' fillers - selector)
I guess you really didn't get the memo. As I clearly stated, the purposes of deregulation and the mergers were to improve the financial health of the rail industry and improve efficiency. That happened. Did the memo you received state that deregulation and mergers would cause the financial health of the rail industry to deteriorate? Did it also say dereg and mergers would make the railroads less efficient? No, I don't think it said that. The only reason for deregulation and the mergers would have been to promote efficiency and financial health. Nobody would have supported dereg and the mergers othewise. Please go see if you can find the correct memo.
The rate levels in 1975 and the relatively equal rate levels created by the 20 year decline in rates after deregulation produced a very different result. In 1975 the industry was an inefficient financial basket case. In the 21st Century those very same rate levels support a financially heallthy industry that is, according to the FRA, the most efficient and safest in the world.
You've made my case by showing that the rail freight industry is far more efficient after dereg and after all the mergers. According to your chart, it's charging the same as it was in the early 1970's, but those same rate levels produce a far different result now. If they're charging the same prices, then the only reason that the railroads can be financially healthy is that they've improved efficiency.
They get more output from less input. The fact that they can successfully exist at a price level that was previously inadequat proves my point. Thank you.
greyhoundsYou've made my case by showing that the rail freight industry is far more efficient after dereg and after all the mergers. According to your chart, it's charging the same as it was in the early 1970's, but those same rate levels produce a far different result now. If they're charging the same prices, then the only reason that the railroads can be financially healthy is that they've improved efficiency.
Railroads such as Union Pacific and Norfolk & Western were charging the same rates then, and earning higher rates of return. Since I have no idea what your case is, I have no idea how that specific measure of declining efficiency supports it.
And how the historically high rate levels of 1975 are a good thing because we've reached them again today, supporting the notion that a healthy Union Pacific and N&W in 1975 represented some kind of failure, but that lower rates of return for them today represents some kind of exalted triumph over their condition in 1975 is a conundrum I will have to leave to someone more qualified to analyze, as I have a feeling it has little to do with economics one way or another.
ICLand greyhounds You've made my case by showing that the rail freight industry is far more efficient after dereg and after all the mergers. According to your chart, it's charging the same as it was in the early 1970's, but those same rate levels produce a far different result now. If they're charging the same prices, then the only reason that the railroads can be financially healthy is that they've improved efficiency. Railroads such as Union Pacific and Norfolk & Western were charging the same rates then, and earning higher rates of return. Since I have no idea what your case is, I have no idea how that specific measure of declining efficiency supports it. And how the historically high rate levels of 1975 are a good thing because we've reached them again today, supporting the notion that a healthy Union Pacific and N&W in 1975 represented some kind of failure, but that lower rates of return for them today represents some kind of exalted triumph over their condition in 1975 is a conundrum I will have to leave to someone more qualified to analyze, as I have a feeling it has little to do with economics one way or another.
greyhounds You've made my case by showing that the rail freight industry is far more efficient after dereg and after all the mergers. According to your chart, it's charging the same as it was in the early 1970's, but those same rate levels produce a far different result now. If they're charging the same prices, then the only reason that the railroads can be financially healthy is that they've improved efficiency.
In 1975, the N&W and the UP were two of the rare exceptions to the generally dire financial conditions for railroads. At the time, the N&W had the benefit of being able to serve Appalachian coal mines with their very big domestic and foreign markets. The UP thrived because they usually received a division of revenue on interline traffic much higher than their portion of the cost for handling the business.
Had these companies not become part of larger systems, they would now be relegated to dust bins.
"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
jeatonIn 1975, the N&W and the UP were two of the rare exceptions to the generally dire financial conditions for railroads. At the time, the N&W had the benefit of being able to serve Appalachian coal mines with their very big domestic and foreign markets. The UP thrived because they usually received a division of revenue on interline traffic much higher than their portion of the cost for handling the business. Had these companies not become part of larger systems, they would now be relegated to dust bins.
If recognizing what happened is 20/20 hindsight, as one poster wrote, I suppose attempting to explain what didn't happen qualifies as 20/20 nosight. I posted the 1996 ROI results: the smallest railroad posted the best results by far: Illinois Central. Does it mean anything? Apparently not. CN is, adjusted for inflation, relative in size to the C&NW in 1975 to the larger railroads of its era. What RR dust bin do you invest in these days?
A merger wave engulfed US railroads in the late 90s. In virtually every single case, rates of returns fell. No rate of return improved within the time frame that impacts would be reasonably measured. To the point: the failure of these mergers to generate predicted returns is consistent with results of mergers outside the rail industry. So you have two sets of consistent facts: failure to show positive results across several comparable mergers, and consistency with other merger efforts outside the industry. No one can show facts to the contrary, until and unless some intervening factor changes the overall economic environment, in which case merged and unmerged benefit alike, or even more favorably to the unmerged. And let me be a Missourian for a moment: if mergers benefit RRs preferentially to non-merged railroads under the same conditions: show me. It should be easy, reading some of the comments; as easy as showing how the Staggers Act predicted rates would go down.
Proof? No, not to people for whom these are some kind of sacred political cow. There will never be a proof adequate.
I understand, to a lot of people, actual evidence doesn't matter much. The narrative is more important.
As to the "rare exceptions" in the 1970s, I sense that, at least here, a narrative has been constructed of unmitigated economic crisis. To the extent that what did happen was set in motion by the failure of an unprecedented merger attempt, I find the current allegations somewhat ... interesting; ironic considering comments attempting to support the efficacy of "mergers."
But, for those who enjoy reality instead of speculation, here are some comparisons of the leading railroads, by ROI, between the eras of 1976 and 2008:
Railroad (Class I) ......... ROI, 1976N&W .......................... 7.6
Elgin, Joliet & Eastern ...... 6.7% Chicago & Illinois Midland ... 6.5%Southern Ry .................. 6.3%Missouri Pacific ............. 6.1%Union Pacific ................ 5.9%Richmond, Fredricksberg & Pot. 5.9% ---------------------- The average of the top seven Class I railroads (in terms of ROI) in 1976 (a very bad year) was 6.43%. The average 2008 (a reasonably good year) of the top seven Class I railroads (Return on Assets*) was 6.14%. Canadian National ... 6.9% Norfolk Southern .... 6.81% BNSF ................ 6.49% Union Pacific ....... 6.28% CSX ................. 6.26% KCS ................. 4.70% Canadian Pacific .... 4.54%
* ROI and ROA are terms of art. They are not necessarily directly comparable between railroads depending on depreciation policies, and not necessarily directly comparable between 1976 and 2008 because of accounting changes in 1984 shifting from betterment accounting to depreciation accounting for roadway items. However, they offer ballpark perspectives.I understand that some will say that very small roads skewed the numbers unfairly upward in 1975.
Yeah, they did. They are not around to skew it upward today, although one of the smallest surviving Class I's does, in fact, skew the average up. It is interesting to note how smaller railroads keep skewing the results upward over broad periods of time. "Nothing to be seen here, move on." But, UP was only fourth of the large Class I's showing good returns -- its uniqueness isn't quite that unique and that rationale, that there were "just two" unique railroads, breaks down compared to MoPac and Southern, which not only had different circumstances, but taken together, represent an Eastern road, a Southern Road, a Midwestern Road, and a Western Road. That's as diverse as it gets.
And if you take the four largest from each list, their rates of returns at 6.475% are identical. The fact is, "most" railroads were not in trouble in the 1970s, but memory even among experienced railroaders is rewriting that fact in favor of the very large fallout that did affect important roads as a result of the biggest merger failure, at that time, in world history. There's a balance in there; "most" railroads were not in bankruptcy court, but were doing as "OK" as today. And the factual record clearly shows that.
As was pointed out on this thread earlier, very rarely has any Class I even reached "revenue adequacy" under 30 years of deregulation and after extensive mergers. And I see that touted here as evidence of "outstanding success." Others might argue, validly I think, that failure to achieve even "adequacy" represents at least some level of failure, hardly evidence of success. I guess people have different standards.
I will admit, it is interesting to see how people think. I'm not sure its worth the effort since there isn't much in the way of facts in return.
Why is this a sore spot? Well, it wasn't until I thought about it. But, a friend of mine, a retired Chief Dispatcher, was reminiscing a couple of months ago. His office in 1975 was two blocks from mine. Three years later, it was 350 miles away. By 1985, it was 2,000+ miles away. And he related, "every time you got a chance to catch your breath and put your feet up, it meant that the Company needed to add another territory to your jurisdiction. So, there was this relentless pressure, and every time there was a merger, a new set of geniuses, who had never done this before, came in and upset the apple cart in the name of efficiency. And they removed sidings, closed down yards, consolidated dispatchers, and couldn't figure out why things didn't work as well as they did before. We lost fluidity, had tired crews, tired dispatchers, nobody was happy. They announced that it wasn't their job to make anyone happy. Considering that costs went up, and returns went down, they succeeded."
jeatonICLand greyhounds You've made my case by showing that the rail freight industry is far more efficient after dereg and after all the mergers. According to your chart, it's charging the same as it was in the early 1970's, but those same rate levels produce a far different result now. If they're charging the same prices, then the only reason that the railroads can be financially healthy is that they've improved efficiency. Railroads such as Union Pacific and Norfolk & Western were charging the same rates then, and earning higher rates of return. Since I have no idea what your case is, I have no idea how that specific measure of declining efficiency supports it. And how the historically high rate levels of 1975 are a good thing because we've reached them again today, supporting the notion that a healthy Union Pacific and N&W in 1975 represented some kind of failure, but that lower rates of return for them today represents some kind of exalted triumph over their condition in 1975 is a conundrum I will have to leave to someone more qualified to analyze, as I have a feeling it has little to do with economics one way or another. In 1975, the N&W and the UP were two of the rare exceptions to the generally dire financial conditions for railroads. At the time, the N&W had the benefit of being able to serve Appalachian coal mines with their very big domestic and foreign markets. The UP thrived because they usually received a division of revenue on interline traffic much higher than their portion of the cost for handling the business. Had these companies not become part of larger systems, they would now be relegated to dust bins.
In a Stanley Crane speach (that's out in the internet somewhere...) he explains how he was persuaded to support legislation that would help Conrail get a fair division of interline revenue. The divisions of revenue that were far outside of the cost split were propping up the western and southern roads at the expense of the Conrail. The point is, you have to look a the industry as a whole to have any chance of seeing any merger effects.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
oltmannd In a Stanley Crane speach (that's out in the internet somewhere...) he explains how he was persuaded to support legislation that would help Conrail get a fair division of interline revenue.
In a Stanley Crane speach (that's out in the internet somewhere...) he explains how he was persuaded to support legislation that would help Conrail get a fair division of interline revenue.
Just how much persuasion did that take?
There may be some confusion here - let me attempt to sort it out. I believe Don is referring to back when L. Stanley Crane was President and CEO of the Southern Rwy. - which was before he became CEO of ConRail - and had all those glossy color 2-page ads in Trains each month wherein a selected Southern blue-collar employee would say a few good words and then have Crane explain how the Southern was great and moving forward, etc.
Anyway, as I recall it sometime in the late 1970's CR declared an embargo - esp. on inbound boxcar traffic from the southern US railroads - claiming chronic and structural "revenue inadequacy" for the high terminal costs CR incurred in handling them. A good part of the problem was that with the decline of manufacturing in the NorthEast US, there were few outbound loads, so that traffic was highly unbalanced. Of course, that CR embargo provoked a furor and a commercial, interchange and regulatory crisis, which was eventually resolved by granting CR a bigger slice of the rate division as approved by the ICC - the details of which I don't know.
- Paul North.
John Kneiling once wrote roughly this about the Penn Central merger: "Al Perlman of NYC and Stuart Saunders of PRR got this idea, and couldn't let go of it, even when it got burdened down to the point of impracticality by all sorts of conditions - like including the New Haven, maintaining all kinds of passenger services, etc. - demonstrating that they were amateurs, because they couldn't walk away from it. A pro is a guy who knows when to and can say 'No' to a deal."
I'll observe that 'walking away' was not unheard of in the industry, even back then - the UP had sense enough to walk away from its attempted acqusition of the Rock Island after the ICC hearings and appeals had dragged on for like 10 years before a lukewarm approval was granted - by which time the Rock was pretty widely recognized as the granger railroad equivalent of a 'dead man walking'.
ICLand oltmannd In a Stanley Crane speach (that's out in the internet somewhere...) he explains how he was persuaded to support legislation that would help Conrail get a fair division of interline revenue. He was persuaded? Just how much persuasion did that take?
Thanks for that link, Don. I'd not known of that speech or its publication before - a fascinating read.
ICLand What happened?Mergers.
What happened?
Mergers.
Paul_D_North_JrThanks for that link, Don. I'd not known of that speech or its publication before - a fascinating read. - Paul North.
YoHo1975ICLand What happened?Mergers. Stack and Pig trains? Powder River Coal? The entire profile of what the railroad carried changed over the last quarter of the 20th century. Intermodal is a low margin high reliability business to be in, but its one of the few games in town. Having access to markets likely drives mergers as much as anything else.
LCL? REA Express? Flexi-van? Pocahontas coal?
Oops, I meant, Hanjin, JB Hunt, UPS and Powder River coal.
If one of the questions here is whether or not mergers have led to greater efficiency for railroads, wouldn't operating ratio be the best metric, rather than ROI or ROA?
C&NW, CA&E, MILW, CGW and IC fan
schlimm If one of the questions here is whether or not mergers have led to greater efficiency for railroads, wouldn't operating ratio be the best metric, rather than ROI or ROA?
No. A lower operating ratio is a good thing, but it's not the real goal.
It measures the operating margin - how much does a railroad have to spend to get the revenue. (operating expenses/revenue) Higher margins are good, but they are only part of the equation. Profitability = margin x volume. Proitability is maximized when the last unit of production is sold exactly at its cost of production. (marginal cost = marginal revenue) Obviously, this is hard to do in the real world, primarily because things keep changing and it's very hard to nail down the exact cost of hauling that final load of freight. But that's the general idea.
If the marginal costs go down due to greater efficiency the railroad will seek freight at lower revenue while attempting to maintain prices on existing business. That lower revenue will still cover the lowered costs. i.e. they can reach out further from an intermodal terminal, incurring higher dray costs while getting lower rail revenue and still come out ahead.
This will improve their profitability but mess with the OR because both the numerator and denominator will go down Because they both decline, the OR can stay constant while profitability goes up. Greater efficiency allows lower rates to be profitable and profitability is the real goal, not a lower OR.
And that is just what happened.
While operating ratio is a rail industry-specific metric, operating margin (operating income divided by revenue), which takes into account profit, might be the best indicator of how well-run a rail is and allows for a direct comparison of how efficient it is pre-and post merger.
schlimmWhile operating ratio is a rail industry-specific metric, operating margin (operating income divided by revenue), which takes into account profit, might be the best indicator of how well-run a rail is and allows for a direct comparison of how efficient it is pre-and post merger.
ICLandYoHo1975ICLand What happened?Mergers. Stack and Pig trains? Powder River Coal? The entire profile of what the railroad carried changed over the last quarter of the 20th century. Intermodal is a low margin high reliability business to be in, but its one of the few games in town. Having access to markets likely drives mergers as much as anything else. LCL? REA Express? Flexi-van? Pocahontas coal? Oops, I meant, Hanjin, JB Hunt, UPS and Powder River coal.
oltmanndschlimmWhile operating ratio is a rail industry-specific metric, operating margin (operating income divided by revenue), which takes into account profit, might be the best indicator of how well-run a rail is and allows for a direct comparison of how efficient it is pre-and post merger.It's really too squishy for that. Conrail drove it's OR to new lows in the last year before the NS/CSX merger by throwing every thing that wasn't nailed down into the boiler to make steam. It didn't reflect the OR of being an ongoing concern. I can also change based on a road's operating philosophy. If you decide you don't want to own any freight cars (and not lease any long term), the the cost of ownership of the car fleet you are using is an operating cost. If you own all your own cars, it's a capital cost. You could make nearly the same profit and have a radically different OR.
Then just use: net income/revenue. That would get around your concerns while allowing direct YTY comparisons by using a ratio rather than simply comparing net profits. If, for example, NS -n 2009 has 4X the revenue as in 1975, but only 2.5X the profit, it would appear to be a much less efficient operation and the mergers have led, as some economists theorize (Freiburg School), to more inefficiency.
YoHo1975 Are you really trying to suggest that the percentage of traffic and the margins on carrying it are the same?
Are you trying to suggest that railroad traffic hasn't always been changing and that margins haven't always been changing? When have they ever been "the same"?
Union Pacific carried 16% of its tonnage in coal in 1925; it's about 23% today. Powder River up. Norfolk & Western had 70% coal tonnage in 1925, it's 22% on the NS today. Pocahontas down.
Hint: percentage of traffic never stays the same. Margins never did, they never will, but you can get a sense of how well a company is doing or a management is doing by using standard financial metrics that make reasonable comparisons possible over time and between companies or managements.
The traffic profile is one gigantic undeniable difference. the question to ask is how would say, the UP of the mid 70s do with the traffic mix of the 2000s?
Of course, that's not a very easy comparison to make, but then, that's the point.
greyhoundsIf the marginal costs go down due to greater efficiency the railroad will seek freight at lower revenue while attempting to maintain prices on existing business. That lower revenue will still cover the lowered costs. i.e. they can reach out further from an intermodal terminal, incurring higher dray costs while getting lower rail revenue and still come out ahead. This will improve their profitability but mess with the OR because both the numerator and denominator will go down Because they both decline, the OR can stay constant while profitability goes up. Greater efficiency allows lower rates to be profitable and profitability is the real goal, not a lower OR. And that is just what happened.
If the OR stays constant, profitability on lower revenues goes down, not up.
80/100= 80%
Profit= 20
Revenue declines to 90; costs decline to 72. 90/72. Operating Ratio = 80%
Profit = 18.
And that is just what happens.
schlimmoltmanndschlimmWhile operating ratio is a rail industry-specific metric, operating margin (operating income divided by revenue), which takes into account profit, might be the best indicator of how well-run a rail is and allows for a direct comparison of how efficient it is pre-and post merger.It's really too squishy for that. Conrail drove it's OR to new lows in the last year before the NS/CSX merger by throwing every thing that wasn't nailed down into the boiler to make steam. It didn't reflect the OR of being an ongoing concern. I can also change based on a road's operating philosophy. If you decide you don't want to own any freight cars (and not lease any long term), the the cost of ownership of the car fleet you are using is an operating cost. If you own all your own cars, it's a capital cost. You could make nearly the same profit and have a radically different OR. Then just use: net income/revenue. That would get around your concerns while allowing direct YTY comparisons by using a ratio rather than simply comparing net profits. If, for example, NS -n 2009 has 4X the revenue as in 1975, but only 2.5X the profit, it would appear to be a much less efficient operation and the mergers have led, as some economists theorize (Freiburg School), to more inefficiency.
ICLand Norfolk & Western had 70% coal tonnage in 1925, it's 22% on the NS today. Pocahontas down.
YoHo1975 The traffic profile is one gigantic undeniable difference. the question to ask is how would say, the UP of the mid 70s do with the traffic mix of the 2000s?
You're trying to argue something, but I don't know what. That "something" happened that may have caused something else to go up, down, or sideways? Interest rates change too. The whole economy has gone up and down at least once during that time.
How is the traffic profile "one gigantic, undeniable difference"?
The fact is, financial metrics don't care. They measure what is there, in dollars, and if it improves, the financial metrics improve; if they deteriorate, the financial metrics show the deterioration and it doesn't matter if UP carries fewer cows and more coal or more cows and less coal. If the mix generates a poor financial result, well, shouldn't that show up? Wouldn't it? So what if the mix changes? That's the whole point of the financial metrics, measuring a company's financial position as a result of the business it is doing.
oltmanndICLand Norfolk & Western had 70% coal tonnage in 1925, it's 22% on the NS today. Pocahontas down. And less than 1/2 is Poky coal - but tonnage is similar. But...NS = Sou + NYC&StL, + Wabash + 1/3 PRR plus a good dash of NYC. So, how do you untangle that in the analysis?
Well, it was kind of my point in response to the observation: " Are you really trying to suggest that the percentage of traffic and the margins on carrying it are the same?"
The answer is clearly no, and one good reason is that the companies being measured are likewise in a state of long term flux, as are the industries, the economy, technology and civilization. But, to find reference points for comparison ... ah, yes, financial metrics.
YoHo1975 Are you really trying to suggest that the percentage of traffic and the margins on carrying it are the same? That moving from a traffic profile that was Boxcar loads, Coal and some intermodal, to a traffic mix intermodal, Unit trains and some mixed freight along with the inherent change in fees for such services doesn't present a major shift and a change in the way railroads must be operated? Is that really what you're saying?
I've read this over, and I still can't figure out where you are going.
UP had a profit margins in 1965 of 14.4%, 1976: 5.9%, 2008: 6.28%.
Don't you think those take into account "traffic mix"?
How could they NOT take into account, automatically, "traffic mix"?
Are you suggesting that because the profit margin is so much lower after deregulation than it was in the doldrum days of the 1960s, and not that much better than the crisis days of the 1970s that "something" must be wrong with the way it is measured?
And that traffic mix changes must explain it?
Of course they do! And beyond that, deregulation and mergers must play a role because they are partial drivers of traffic mix. The point is, the claims of deregulation and merger benefits were supposed to give railroads more control over their mix, and hence, their profitability, i.e. make them more profitable.
And that's what we look at for results. And, were they successful at what they said would be the natural results of deregulation and mergers?
A railroad of 1975, with it's route profile and commodities hauled is not a railroad of 2010. This change is independent of success or failure, but it does make a big difference on what is possible. The business model that got UP it's 1975 financial figures, at least as far as I can tell simply does not exist. In other words, they can't do what made them that money in the 1970s.
Part of that change is internal, in the form of mergers, new minds, fresh ideas. Part of it is external, the service that shippers want has changed. Moving containers from California to the midwest is far and away more important for a western road in 2010 as compared to 1975. How would 1975 UP handle such traffic? They have essentially one route in to California and one into Portland. They don't get revenue from the WP/SP or C&NW portions of the routes. They have extensive competition. In fact, ATSF is the ONLY railroad from 1975 that would probably have a viable California Intermodal route in 2010.
By bringing in WP, SP and C&NW, UP has created a viable end to end network to move containers from all of the west coast. They have a network that is tailored to the traffic patterns that currently exist. Or at least, that's the implicit goal of those mergers.
So, I guess to make it simple, what I'm trying to suggest is that the context of those financial figures is not the same. Why did they make all these changes and not "apparently" improve their bottom line? Because going out of business would result in an even worse bottom line.
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