According to their own website they've been around since the 1950s and are based in Italy. They entered the US market by purchasing the Shell polymer business a few years back. They are among the world's largest polymer manufacturers with operations in Europe, Asia, South America, Mexico and the US.
BaltACD Lest we all forget - The Staggers Act was implemented in 1980 - because of the floundering financial status of the rail industry - even those who weren't in bankruptcy weren't financially healthy. Customer industries of that era dictated the pricing power - With the implementation of Staggers and the return of Class I carriers to relative financial health - pricing gets negotiated amongst near equals. Negotiating pricing is not for the squeamish - on either side. As I understand it M&G is now renegotiating after the expiration of a 10 year contract - a lot of things have transpired in 10 years on both sides of the negotiation - the prices for EVERYTHING involved in the cost basis for the carriers has increased - in many cases exponentially. It is time for M&G to step up their game rather than whine about it.
Lest we all forget - The Staggers Act was implemented in 1980 - because of the floundering financial status of the rail industry - even those who weren't in bankruptcy weren't financially healthy. Customer industries of that era dictated the pricing power - With the implementation of Staggers and the return of Class I carriers to relative financial health - pricing gets negotiated amongst near equals. Negotiating pricing is not for the squeamish - on either side.
As I understand it M&G is now renegotiating after the expiration of a 10 year contract - a lot of things have transpired in 10 years on both sides of the negotiation - the prices for EVERYTHING involved in the cost basis for the carriers has increased - in many cases exponentially.
It is time for M&G to step up their game rather than whine about it.
Doesn't sound like they're whining to me. According to the article their new plant in TX has access to several rail carriers. They've got options..as Ward says they can go truck (his suggstion even if tonque in cheek)...they can go barge...or they can move their plant. If shipping via CSX becomes uneconomical they can also move the plant to MX where other costs are lower as well..not so far fetched as they already have operations there and are already experienced in global production.
I don't see anything wrong with CSX attempting to raise rates to what they need...that's business. But when the head of the company makes statements like (let them ship truck) he's really missing the point as shippers do have options. Many have gone offshore to avoid costs here... which is why we constantly whine about China and Mexico. Shippers can move and they can shutdown.
Sounds to me like CSX should send a team in to M&G to identify what can be done to reduce transportation costs. M&G isn't in the tranportation business so don't expect them to do that...(the article quotes the chief of SALES)...Once that has been done they could perhaps recommend cost saving measures that would defray or at least mitigate CSX's own proposed increases. That's really what should happen. CSX might even recommend barge for some of M&G's business...sometimes there's nothing wrong with recommending a competitor and that can go a long way to building trust and preserving the relationship for another day. It isn't (or at least shouldn't be) about squeezing the customer like a lemon to get as much out of him as possible...it is about maximizing profit by maximizing value provided...and that often requires a more consultative approach that may include other transportation modes and even competitors.
greyhounds gabe: My concern is that railroads are going to kill the goose that lays the golden egg and take this too far. In circumstances wherein there are two competing railroads, my preference is for the government to butt out. In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so. Gabe P.S. Glad to see this thread with a little more activity. What would you have the STB do? There is no good way for them to determine what the railroad rate "Should" be. If they try, they'll just transfer money from one corporation to another corporation and screw things up in the process. We've got a 60 history of government regulating rail rates. The result wasn't good. In any event, the claim that M&G Polymers is somehow captive to CSX is unsupportable. The established standard for being "Captive" is that the customer has no viable alternative to one railroad. That alternative does not have to be a second railroad serving the facility.. M&G has such a viable alaternative. They're located on the commercially navigable Ohio River and they have a dock. http://seaport.findthebest.com/l/6530/M-And-G-Polymers-Point-Pleasant-Polyester-Plant-Apple-Grove-Dock They're shipping buik product. If their logistics people can't figure out how to use Ohio River barges to provide effective competiion for CSX then those folks can't do their jobs. All M&G has to do is barge its output to a river-rail transfer on a short line and it has opened up competition. That's going to cost something, but that extra cost will be the limit on CSX rates. There is rail rate limiting competition available, but aparently M&G would rather whine to the goverment than solve its own problem. M&G should get some plans drawn up and take them to CSX. Then say: "See this, we're going do this so we can reduce our shiping costs. If we spend the money to set this up we're going to use it and it will be at least 10 years before you can even think about getting the freight back. Now how about renegotiating our rates." Instead, they whine.
gabe: My concern is that railroads are going to kill the goose that lays the golden egg and take this too far. In circumstances wherein there are two competing railroads, my preference is for the government to butt out. In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so. Gabe P.S. Glad to see this thread with a little more activity.
My concern is that railroads are going to kill the goose that lays the golden egg and take this too far. In circumstances wherein there are two competing railroads, my preference is for the government to butt out. In circumstances of captive customers, however, it is my hope that the STB shows a little more teeth before Congress directs them to do so.
Gabe
P.S. Glad to see this thread with a little more activity.
What would you have the STB do? There is no good way for them to determine what the railroad rate "Should" be. If they try, they'll just transfer money from one corporation to another corporation and screw things up in the process. We've got a 60 history of government regulating rail rates. The result wasn't good.
In any event, the claim that M&G Polymers is somehow captive to CSX is unsupportable. The established standard for being "Captive" is that the customer has no viable alternative to one railroad. That alternative does not have to be a second railroad serving the facility.. M&G has such a viable alaternative. They're located on the commercially navigable Ohio River and they have a dock.
http://seaport.findthebest.com/l/6530/M-And-G-Polymers-Point-Pleasant-Polyester-Plant-Apple-Grove-Dock
They're shipping buik product. If their logistics people can't figure out how to use Ohio River barges to provide effective competiion for CSX then those folks can't do their jobs. All M&G has to do is barge its output to a river-rail transfer on a short line and it has opened up competition. That's going to cost something, but that extra cost will be the limit on CSX rates. There is rail rate limiting competition available, but aparently M&G would rather whine to the goverment than solve its own problem.
M&G should get some plans drawn up and take them to CSX. Then say: "See this, we're going do this so we can reduce our shiping costs. If we spend the money to set this up we're going to use it and it will be at least 10 years before you can even think about getting the freight back. Now how about renegotiating our rates."
Instead, they whine.
Well said, and I am sypathetic to your point.
However, I see it more as a strategic withdrawl than a bow to government regulation. I really fear that something bigger is coming. I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me.
gabe ................... I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me. Gabe
................... I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me.
Thanks to Chris / CopCarSS for my avatar.
Murphy Siding gabe: ................... I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me. Gabe Would it be fair to let the government compare rates lawyers are charging with rates other laeyers are charging to different clients for different things, to determine a fair price? It seems like the law of supply and demand tends to set prices a whole lot better than governments have been able to do. I understand the idea that a railroad shouldn'r charge *too much*. The problem seems to be in how *too much* is determined, and by whom. Right now, the free market is trying to determine what the *right* price is for this relationship between CSX and the plastics company. What's the opposite of a free market?
gabe: ................... I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me. Gabe
I will tell you this much, I would welocme the government restriction of my rates if it would simultaneously permit me to be the only lawyer businesses in Indianapolis could access. Gabe
The market should be the deciding factor in what rates are charged. CSX should be free to charge whatever it wants and M&G should be free to look for alternatives. Ideally both parties will come to terms on rates that are mutually beneficial. Why involve the government?
gabe I will tell you this much, I would welcome the government restriction of my rates if it would simultaneously permit me to be the only lawyer businesses in Indianapolis could access. Gabe
I will tell you this much, I would welcome the government restriction of my rates if it would simultaneously permit me to be the only lawyer businesses in Indianapolis could access. Gabe
One other element is always the elephant in the closet when it comes to rate discussions. Does the company setting the rate really want the customer as a customer.
A element that evolved from the implementation of the Staggers act is that the carriers finally began looking at the actual costs involved in servicing customers vs the rates that were being charged. The number of lines closed, abandoned or sold off to short line carriers was a result of this kind of analysis. A tactic that is used in rate negotiations, especially when a customer is viewed as costing more than their business is worth is to set the rate level to the point where the customer is paying the rate to make the business worth handling.
I have no idea of the particulars in this case...it could be when the initial rate was negotiated for Plant A's traffic, plant A was one of 20-30 customers in that particular serving area and now through market forces and the recession they are the only customer left and as a consequence ALL the overhead involved in the operation and maintenance of that line now falls to the remaining customer to support. Rates are not devised in a vacuum - the market does work - sometimes not in the manner that the parties involved desire.
Never too old to have a happy childhood!
Ulrich The market should be the deciding factor in what rates are charged. CSX should be free to charge whatever it wants and M&G should be free to look for alternatives. Ideally both parties will come to terms on rates that are mutually beneficial. Why involve the government?
For the sake of discussion, if you were M&G and CSX was the oil industry would you have the same feelings about the cost of a gallon of gas? The point being made in the Fortune Magazine article is the allegation of a cartel, isn't that what the American public has been crying foul about for years when it comes to gas. Why involve the government, they are selective in who they get down on and the oil industry is one where their tails are between their legs. Railroads on the other hand, a whole different story.
But the answer isn't governement intervention, it is a freer marketplace where others may enter as they see fit or where customers can choose alternatives. I hear you on the price of gas, I buy fuel and I don't have much control over the price I have to pay. However I do have control over minimizing usage and the ability to pass the cost on to my own customers. M&G, likewise, has numerous options including accepting CSX's rates and passing them on to their own customers in terms of rate increases. That's how its supposed to work. My only beef with the article is CSX's seemingly cavalier attitude which in my opinion does nothing for their cause or for the cause of railroading in general. Imagine you go to a nice restaurant and you enquire about customizing a menu item to your liking. The owner comes out and tells you "take it as its presented on the menu or go home and cook it yourself"...its just not good to deal with customers like that.
Saying a freer market is the only solution implies that the market is somehow rational and will always tend to the best aka "correct" decision.
Unfortunately the real world has proven time and again that markets are no more rational than any other human endeavor. If for no other reason than the market ignores some of the the costs of these transactions (the common current example is environmental costs, but they are hardly the only example)
The ultimate answer to this specific problem of skyrocketing (or so we are told) rail rates may be a certain amount of regulation. The answer to the next specific problem may be less regulation. We may think regulation is the answer but write poor regulations or think freer markets are the answer, but loosen the wrong regulations or in the wrong way.
In short there is no pat answer here. Regulation, Freer market. Neither can or should be universally correct, because the world will simply flip you the bird when you try, because humanity is irrational and doesn't always act out of self-interest. Doubly so when banded together as a corporation.
Not really familiar with the Point Pleasant area, but the thought did cross my mind. The NSRR crosses the Ohio River just north of the newer Point Pleasant Bridge ( old bridge collapsed in 12/67, killed 46 people) . NS crosses into Ohio on the former NYC RR/Conrail Bridge (nee: K&M RR). The CSX RR line parallels the East Bank of the Ohio River ( line is nee: B&O RR).
Was wondering if there were any reciprocal trackage rights that would effect the situation in that area, allow NS RR access to Apple Grove,W Va area?
YoHo1975 Saying a freer market is the only solution implies that the market is somehow rational and will always tend to the best aka "correct" decision. Unfortunately the real world has proven time and again that markets are no more rational than any other human endeavor. If for no other reason than the market ignores some of the the costs of these transactions (the common current example is environmental costs, but they are hardly the only example) The ultimate answer to this specific problem of skyrocketing (or so we are told) rail rates may be a certain amount of regulation. The answer to the next specific problem may be less regulation. We may think regulation is the answer but write poor regulations or think freer markets are the answer, but loosen the wrong regulations or in the wrong way. In short there is no pat answer here. Regulation, Freer market. Neither can or should be universally correct, because the world will simply flip you the bird when you try, because humanity is irrational and doesn't always act out of self-interest. Doubly so when banded together as a corporation.
I'm also in favor of safety and environmetal regulations...regulations in those areas are needed or else some operators would simply ignore safety and their impact on the environment. However we're talking about economic regulation here. I don't think we need the hand of government to help with pricing when all executives involved are well paid to sort those matters out amongst themselves. Why else pay them 7 and 8 figure salaries? That's what they get paid for.
I just completed a coast to coast journey from Portland, Maine to Frisco via Boston, Chicago, and Seattle and traveled over several railroads, namely CSX,NS, CP, BNSF, and UP. By far and away the WORST track I encountered was CSX, with one sideways jolt so bad I thought we were on the ground. It was more like a big WHAM with a lot of sidesway before it settled out, but it was obvious that the Boston-Albany section needed a LOT of work, some with decades old jointed rail. I was in bed and asleep when it happened, so I have no clue whether we took a switch too fast or what, but we were traveling at track speed so I doubt we crossed over or something like that. Even for a seasoned rail fan it was a little scary.
However, there were considerable slow orders where it appeared to be a tremendous amount of track work was going on between Boston and Albany, mostly what appeared to be sections of double track or really long sidings. At one point it looked like they were putting in an intermodal yard, but no work on the track we were riding on. To be done in the future? Anyone know? In contrast the NS trackage into Chicago was good, as was the rest of the trip to Frisco. My hat is off to Amtrak who put on a first class show all the way --- some 4,200 miles of it! Great trip!!
Let's say you negotiated a 8 year contract for transportation of your product in 2003 for, lets say, $1.44 a ton. Now it is 2011 and the carrier says he will agree to a rate of $3.54 a ton. Would one consider that 'highway robbery' and much too high of a increase?
I keep records on the fuel purchases for my vehicles....My average fuel price in 2003 was $1.44 - my average fuel price in 2011 has been $3.54. When long term contracts expire, those that have to pay experience sticker shock. While on one hand they know the price of their product has increased over time - they can't comprehend that their suppliers prices have also increased - the longer the term of the contract, the more sticker shock when current day prices are applied.
Once upon a time, I made a commitment to myself - I would NEVER pay more for a vehicle than I paid to buy my first house. Managed to keep that commitment for 33 years, however, my most recent vehicle exceeded the purchase price of first house by over 50%.
As humans, we always feel shipping should be free. When we shop online we will always gravitate to the provider that offers free shipping for our purchase. But the reality is that shipping is not free.
We dont know the specifics for the rates involved here, nor will we as it is probably confidential information. Many corporations have not seen the increase in their prices the past 10 years. Certain segments of what I sell today is priced at 50% of what the price was 10 years ago...that is not 50% HIGHER, but 50% of the price 10 years ago. Meanwhile the pricing power of the Fortune 20 company which supplies the base material keeps increasing on a yearly basis, sometimes twice or three times during the year.
In many aspects of our economy we are in a deflationary movement. Not all, but many. Margins are really squeezed on many lines of business these days. The companies and industries with pricing power, and let's face it railroads fall into that category are exercizing that power, often in dramatic cases.
So, one must question the rationale behind a 10 year transportation contract, particularly if there was no cost escalation provisions or fuel surcharge. Perhaps it is time the railroad walk away from this business, doing so with a rate which makes the shipper decide whether or not it is worth it. Maybe it is time for the business to move...either down south with multiple rail access or perhaps overseas.
Either way, it will get worked out.
Ed
IF the cost increase reflects fuel I'll believe it. If the fuel surcharge is separate, then I agree inflation over the past 10 years simply does not justify much of a rise in rates.
Not that there aren't other reasons to raise rates, but if the argument is inflation, then the economic numbers clearly do not agree.
Fuel yes, there's been serious inflation in Oil. But across the board? not so much.
MP173 In many aspects of our economy we are in a deflationary movement. Not all, but many. Margins are really squeezed on many lines of business these days. The companies and industries with pricing power, and let's face it railroads fall into that category are exercizing that power, often in dramatic cases. So, one must question the rationale behind a 10 year transportation contract, particularly if there was no cost escalation provisions or fuel surcharge. Perhaps it is time the railroad walk away from this business, doing so with a rate which makes the shipper decide whether or not it is worth it. Maybe it is time for the business to move...either down south with multiple rail access or perhaps overseas. Either way, it will get worked out. Ed
Very true. Every shipper I talk to is looking to reduce transportation cost...a few will accept a small increase if it can be justified. But most are asking their transportation providers to come up with cost reductions. Those of us who are in the industry are responsible for figuring out how to do that. Some rates never seem to change...my skid rates from the Midwest into Ontario have been the same for 20 years give or take a little for fuel adjustment. Container/trailer lot shipments take rate increases more easily..but LTL..forget it...there's so much overcapacity that a smart shipper can get those moved very cheaply.
Sometimes the low hanging fruit is picked and one really has to get creative. I told one of my own customers to focus his sales efforts locally to minimize transportation expenditure. As soon as you sell nationally or internationally you lose your competitive advantage to local suppliers...ie.a plastics manufacturer in Toronto would do better to sell his products to customers in Toronto and not Saint Louis, thereby minimizing transportation cost and delivery time. That can't always be done of course, but it is surprisiing just how often shippers will ignore the market outside of their door and go after customers a thousand miles away...makes no sense really.
Well, you've kind of got it. When you say that markets are no more rational than any other human endeavor we need to keep in mind that government and government regulation are also a human endeavors. They're often irrational too.
For government economic regulation to really work well we'd need to find omnipotent human beings who were impervious to political realities. They'd have to know when to apply regulation, what kind of regulation to apply, how much of it to apply, and then execute the plan just right. No one can do that.
Those who favor government involvement often compare an ideal of government to the reality of the free market. There is no ideal government. While free markets may be far from perfect, they eventually correct toward the proper solution. Bad regulation tends to just linger.
Or, as Thomas Sowell (PhD economist) just wrote:
"Whether the particular issue is housing, medical care or anything in between, the agenda of the left is to take the decision out of the hands of those directly involved and transfer that decision to third parties, who pay no price for making decisions that turn out to be counterproductive."
I've said it before, it's hard to imagine a worse regulatory decision that "In the Matter of Container Service" handed down by the ICC in 1931. This decision prevented the railroads from: 1) making necessary changes required by the advent of motor freight competition and, 2) hindered the development of intermodal transporation. These results greatly harmed the US economy and the US people.
The decision effectively throttled needed changes and development for 50 years. A free market would have corrected much sooner. In fact, absent government regulation the market was developing an integrated transportation system that used the rail and truck modes to their best advantage. It was stopped cold by regulation. An the nation suffered economically. If you want other examples of regulatory misconduct I can sure provide them.
MP173 [snipped] Perhaps it is time the railroad walk away from this business, doing so with a rate which makes the shipper decide whether or not it is worth it. Maybe it is time for the business to move...either down south with multiple rail access or perhaps overseas.
(There's a parallel here in labor union - employer relations: the National Labor Relations Board used to rule [circa late 1970's] that closing a plant rather than letting it be unionized was not an "unfair labor relations practice". The rationale was that the plant closing was such as drastic step - "economic suicide" - that it really corroborated the employer's claim that unionizing the plant would make it uneconomic. Since that also killed the employer's business at that location, the thinking was that the employer isn't bluffing, and is really serious about the union making the plant uneconomic actually being the case.)
All that being said, I have a recollection that there's a rule or presumption by the STB that a rate up to 180% of the railroad's variable costs is presumed to be "fair"; above that, not so much. I don't know, though, who - railroad or shipper - has the burden of proof in challenging or defending a rate that's above - or below - that threshold. Perhaps someone else here does ? (Otherwise, I'll have to find time to look it up myself . . . ).
- Paul North.
gabe I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me. Gabe
I would think that the STB would be able to compare rates with rates for companies served by two railroads to determine what is fair. But, you know the business a lot better than me.
Not really. To be financially viable any rail system, anywhere in the world, has to practice what's known as "Ramsey Pricing". It's named after the economist who first described it although businesses have been doing it forever. It's particularly important to railroads because their fixed costs are such a high percentage of their total costs.
What it boils down to is that a producer or service provider will take in to account the competition when setting a price. The classic example I've seen cited is grain rates from the Champaign, IL area to Atlanta and New Orleans. The distance is approximately the same but the rates to Atlanta are significantly higher than the rates to New Orleans.
The reason for the difference is, of course, the existence of barge competition to New Orleans. (Truck to a river terminal.) Is this fair? Well "Fair" is an elusive concept while necessary is very real. If the government were to order the rates to New Orleans increased the grain would shift to truck/barge and the national economy would be forced to incur a higher cost for moving the grain. (Rail now is the lower cost mode.) If the government were to order the rates to Atlanta lowered the railroads would have less money to cover their fixed expenses and have to cut back somewhere such as capacity expansion, maintenance, employment, etc.
Neither solution is a good one. Don't compare rates. Just realize that Ramsey Pricing is necessary and, in fact, desirable. It maximizes the benefits our nation gets from rail service. And, in the end, that's what it's all about.
Paul_D_North_Jr. What that amounts to for the railroad is economic suicide - or maybe fratricide - at least with regard to this customer. Instead of a customer with some traffic and some contribution towards the overhead & profit, the railroad gets nothing. That's so drastic a result that its necessity and veracity tends to speak for itself, at least for me. The railroad is really putting its money on the line and where its mouth is - "Shipper, your traffic and rates are so bad for us railroaders that we'd be better off without you !" - and the railroad might just get what it wishes for. - Paul North.
What that amounts to for the railroad is economic suicide - or maybe fratricide - at least with regard to this customer. Instead of a customer with some traffic and some contribution towards the overhead & profit, the railroad gets nothing. That's so drastic a result that its necessity and veracity tends to speak for itself, at least for me. The railroad is really putting its money on the line and where its mouth is - "Shipper, your traffic and rates are so bad for us railroaders that we'd be better off without you !" - and the railroad might just get what it wishes for.
I don't think one can assume that just because CSX wants a large increase implies that they're not making money at current rates. They may not be happy with their current margins, or if Ward's comment (i.e. let them use trucks) is any indication, they may simply not want the business for other reasons. It sure looks like they don't want the business to me. If I wanted to get rid of an account I couldn't think of a better way than jacking up the price and publicly pronouncing that if they don't like it they can try other vendors.
Norris:We do not know if M&G was receiving freight services below fair market price. We cannot establish what "fair" is because there is no competition in this case. There is only 2 rates....one from the past and now the present.
What CSX is betting on is that they have priced their rates on a situation in which M&G will squeel and complain, but really have no short or intermediate term alternative. Long term...everything dies or goes away.
Here is my take on this. Correct me if I am wrong, but didnt Shell own the plant? If so, then the rates out of this location were no doubt part of a 10 year contract covering all of the Shell business. Shell had pricing power. When Shell sold the plant, the rates remained the same. Now without Shell involved, the pricing power swings to CSX and they enter the room with a big grin on their faces.
Several of us here are involved either in ownership of transportation (Ulrich) or sales (Norris and myself). We understand the implications of competition and the implications of pricing power. We all adjust our pricing and services according to the strongest competitor in the market.
CSX competitor on this is coming out of the Houston area and Mexico where there is multiple access to carriers. CSX understands this and is pricing their services accordingly. It will be up to M&G to adjust. That adjustment will either be lower selling prices, thinner margins, access alternatives for transportation, or move.
Who will blink first on this? At a time when jobs are critical to this economy, my guess is the gov'nor will get even more involved, probably thru tax reductions to offset the transportation costs.
So, who wins and who loses in this scenario? CSX wins, M&G ties, and taxpayers lose.
Just my thoughts.
Murphy Siding said: "... Something that's missing fro the discussion about the plastics company and the high rates, is that, the plastics company is complaining about how high the rates are going to go up. They never mention, that for quite a while, they've been receiving their transportation at WAY below fair market price. In fact, giving the amount the railroad wanst to increase the rate, the shipper has probably been getting it below cost for quite some time. If you were the railroad, would you want to continue shipping at rates that lost you money? Suppose, that the actual cost to service this customer is more than you could ever get them to pay? Then what?.."
Going back to the original link; The reason for the process, currently, is the expiration of a potentially 10 year old rate(?) The negotiation were apparently started well in advance of the expiration of the old contract.
Contract negotiations are partially a product of the personalities involved as well as the situational economics involvedl . Not having been there, who knows how these particular negotiation went? Positions of strength, actual situational facts, theatrics, testosterone? Some people negotiate like Attila the Hun, and some, like Mary Poppins.
The original story linked had a aerial photo of the M&G Operation at Apple Grove,W.Va. the rail infrastructure seemed to present a pretty impressive picture for that operation. Looks like a pretty plum resource for the railroad to have,in that area.
Ulrich It sure looks like they don't want the business to me. If I wanted to get rid of an account I couldn't think of a better way than jacking up the price and publicly pronouncing that if they don't like it they can try other vendors.
It sure looks like they don't want the business to me. If I wanted to get rid of an account I couldn't think of a better way than jacking up the price and publicly pronouncing that if they don't like it they can try other vendors.
Like not letting the switch engine take cars from the yard on the south side of the main track over to the facility on the north side for a week or 10 days. That's what the old heads said the railroad (don't know if CNW or UP at the time) did to Fareway (regional grocery chain) at their Boone distribution center. Didn't take long at all for Fareway to stop using rail and only receive by truck.
Another way is to lose cars for a month or so. Back in the early 1980s when the MILW was operating the ex-RI (now IAIS) between the Quad Cities and Iowa City they did just that. Between Durant and Wilton was/is a fertilizer plant. They always did a good business with the railroad, in bound loads. I knew the agent at Durant and one day on the way to visit him I noticed no cars at the plant. That was unusual. I asked him why and he told me about the lost cars. After that they went to mostly trucks to receive their feedstocks. Later on they did start using the railroad again. Definitely after IAIS took over, but I think even before during MILW operation, although I'm not sure if the volume was as big as before. (I haven't been that way in years now, don't know the current situation.)
I'm sure there are many instances of the above, or similar, examples that have happened. Sometimes it's accidental, sometimes not so much. (I think Fareway was deliberate, Twin States accidental) Still the results are the same, businesses shift away from rail to trucks.
Jeff
greyhounds While free markets may be far from perfect, they eventually correct toward the proper solution. Bad regulation tends to just linger.
I am unaware of any country in history that has had a true free market to test this theory. Certainly the US never has. I'm not trying to make a political argument here nor make the case that government regulation is somehow better or always best, What I do know is that in the history of the US, there are few if any examples of the market "correcting toward the proper solution" without government involvement. Going all the way back to the founding of the country. The level of involvement has changed just as the markets themselves have. Even Adam Smith supported a level of government regulation.
Again, don't want to go down a political rat hole which happens all too often on this board, but there's never been a market free of all regulation and so we can't know how such a market would react.
To me, the ideal location for a new factory/distribution center would be on a short line or regional with multiple Class 1s ... options to prevent this.
Intermodal rates are pretty much governed by the market. Let's face it, both NS and CSX can go Chicago to NYC or Boston, or Atlanta, etc. Ditto UP/BNSF - Chicago to west coast. So the rates pretty much level out.
With margins thin on intermodal, the overall corporate margins for a railroad needs the captive shipper business to be taken as high as possible. If the railroads do not police themselves, they will live to regret it. Eventually the regulation will return.
Railroads cry the same song....we barely cover our cost of capital. It has taken 30 years to get to this point where we have decent margins. Well, all they have to do is raise the margins on their intermodal by 15-20% to get there...but that will not happen as it is competitive.
I will repeat myself...as a salesman I want absolutely no competition, as a consumer, I want choices.
MP173 Who will blink first on this? At a time when jobs are critical to this economy, my guess is the gov'nor will get even more involved, probably thru tax reductions to offset the transportation costs. So, who wins and who loses in this scenario? CSX wins, M&G ties, and taxpayers lose. Just my thoughts. Ed
Do the tax payers lose though?
As you said, that plant creates jobs and if they move, then those jobs are gone, the employees end up on the unemployment rolls, possibly out of the workforce. They pay less taxes and buy fewer goods which ultimately hits West Virginia doing harm to all the population to some extent.
So perhaps the taxpayers (really you mean people of West Viginia) actually win, because the revenue they give up is less then the revenue they could lose with the plant shutting down.
So it could be a net good for everyone.
This by the way is an example of the hidden costs that the free market rarely takes into account.
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