As to the last point, the ICC got involved because the law required it. And that particular regulatory law existed because there was a demand for it when the statute was enacted.
schlimm Who knows, but you may have to cut their rate and that will lower your overall margin. It is fundamentally difficult (and frankly wrong) to charge different rates to different customers for the same thing or service and not expect a problem. Then you have to manage that situation. Over time, it creates a lot of ill will, distrust and resentment with customers. Historically the rails created a lot of ill will with their customers for a variety of reasons, just one (among many) why the rails % share of freight traffic by measures other than ton miles declined.
Who knows, but you may have to cut their rate and that will lower your overall margin. It is fundamentally difficult (and frankly wrong) to charge different rates to different customers for the same thing or service and not expect a problem. Then you have to manage that situation. Over time, it creates a lot of ill will, distrust and resentment with customers. Historically the rails created a lot of ill will with their customers for a variety of reasons, just one (among many) why the rails % share of freight traffic by measures other than ton miles declined.
Why is it "Frankly Wrong?" Look at the situation. (This is a very realistic situation often faced by railroad marketing/pricing people.) Under your "Frankly Wrong" belief the railroad can do nothing to get the new ethanol business.
1) They can't charge more to move the ethanol because of the truck competition.
2) They can't lower the coal rate to the ethanol rate because they wouldn't cover their total cost if they did so.
Under your unfounded "belief" all the railroad can do is watch the trucks go by hauling freight that the railroad could make money on. That's the position the government regulators put the Pennsylvania in with the "Ingot Molds". If it was just that little bit of business it wouldn't have been significant. But it wasn't just that little bit of business. That's the way they regulated rail rates. It helped kill the Pennsylvania and it hurt the people of the United States.
If the railroad in the example did establish the ethanol carload rate at $300 below the coal rate there would be no adverse effect on the coal. Their charges wouldn't change by a dime. Don't cry if you ain't hurt.
On the other hand, the railroad would benefit from extra income and the ethanol folks would benefit from whatever savings they received by shipping at a lower cost. In the end, since all costs are eventually passed on to the end users (us), the American people would benefit. You don't seem to want that and I don't understand why you don't want that. Government price regulation of rail rates created inefficiencies that cost the American people dearly.
The best example I can think of that proves the benefits of selling the same service at different prices comes from the airline industry. They basically auction the seats on a flight. People on the same flight can be paying vastly different prices for the same transportation. Would your "Frankly Wrong" belief prevent this?
If such pricing were prevented it would certainly result in a less cost efficient airline industry. Since everyone operates on their own personal demand curve, preventing the auction of airline seats would result in empty seats. This would be unsold production by the airline. This would drive up the cost to people who did buy seats - not a good outcome. You seem to want this, and I don't understand why.
The investment dollars needed for rail capacity (and airline capacity) are a precious scarce resource. They should not be wasted. Government price regulation causes such waste.
One more time. Why did the dang government need to involve itself in the "Ingot Molds" case?
schlimm Fine and good, except for two things that your marketing guys overlooked: 1. You apparently did not include a contribution for that line to the overhead of the central administration. Every line, division, etc. has to contribute to that. 2. If the coal company finds out (and they will) that they are paying (in your example) $300 more per load than the ethanol company does, you are going to have to deal with an enraged primary customer. And that will change the entire picture.
Fine and good, except for two things that your marketing guys overlooked: 1. You apparently did not include a contribution for that line to the overhead of the central administration. Every line, division, etc. has to contribute to that. 2. If the coal company finds out (and they will) that they are paying (in your example) $300 more per load than the ethanol company does, you are going to have to deal with an enraged primary customer. And that will change the entire picture.
I strongly disagree with your assessment of the situation.
1) In the cited example the railroad will have $730,000 more in its bank account at the end of the year than it would have had without the ethanol. This $730,000 can be used to pay interest on debt, taxes on property, and other overhead. That's a significant contribution to overhead. In fact, any revenue above the variable cost is sometimes referred to as: "Contribution to Fixed Costs." 'Cause it ain't no profit until all the costs are paid.
2) The coal company is using the railroad for one reason and one reason only. That reason would be that the railroad is the most cost efficient way to move their coal. They'd leave the railroad in a heartbeat if they could save money by moving the coal another way. That's got to be the railroad's focus. To keep themselves the low cost method of transport for their main customer. Getting additional revenue from the ethanol will help the railroad do this. They won't have to have the coal company pay for everything. Odds are that the coal company will understand this common sense and not be upset by the railroad's lower rate on ethanol.
It's far better if a buyer and seller have a good, cordial working relationship. But there is a natural conflict between a buyer and seller. (Think of the last time you bought a car.) I've had customers stand there and literally scream at me. We kept on getting their business. Why? Because we were the most cost efficient way to move their product, that's why.
In my opinion the #1 caause was property taxes. Not just the ones on RRs which were very unreasonable as the almst total political budgets came from prop taxes. NY might have kept the 4 track and PRR the same if if they could have "banked" the unneeded track ??
The property taxes on all the industrys that PRR and NYC served caused them to move to less tax locations thereby killing the RR traffic base. Maybe some would have bullt / re built their NE facilities.
In my book, anyone who says it is unfair to charge different rates to different people is at heart a socialist, not an exponant of free market capitalism.
The unit train customer gets a service for half the price the single-car customer gets on a per car basis, and I think that it fair. That is because I believe in the free market system.
If Sothwest Airlines charges one-third the full-rate ticket price for off-peak middle-of -the-week travel, I think that is fair because I believe in the free market system.
If somone drives a Cadilac and I drive a Chevy, I have no right to resent him.
To me, the coal company has zero right to complain. If they want, when the contract is up, they can try to use the Ethanol price to bargain with the railroad, but the result should be the result of negotiation without any government interference whatsoever. That is my opinion.
Thanks to Chris / CopCarSS for my avatar.
I understand your point, but for a customer to have a valid complaint that a company is charging different prices for the same thing, a customer has to prove that the thing they are purchasing is the same thing that is being sold for another price. And even if they do prove that, there is no recourse other than simply not buying anything from that supplier. If enough customers do that, the company will have to decide if the ill-will is costing them more than the benefit of selling an item for a lower price than it sells to another customer. To the customers paying the full price, it does make them feel like they are subsidizing the ones getting the discount. So the resentment might go beyond just the failure to get the low price.
This question recently came up in some discussion about the Cumbers & Toltec Scenic Ry. If they board all the paying passengers and are ready to leave, and if someone shows up at the last minute without a reservation; should they discount the price if necessary to get that latecomer to buy the ride? If they are not willing to discount, and if the seat runs empty as a result, then they make less money than they would have had they offered a discount to make the sale.
However, if they offered a discount to the latecomer and if the other passengers found out, they might feel cheated and thus refrain from riding the railroad again in the future because of ill will. But then again, the latecomer had to take a chance on being refused a ride even at full fare if the train had sold out and had no extra seats. So, it might be argued that the discount for the latecomer was compensation for him taking a risk that the full fare passengers did not have to take. So, the latecomer really did not purchase the same product as the full fare passengers.
narig01 PS to the above. One thing I could never understand is this: Why the electric power companies have not tried to get railroads to electrify. It would entwine the two together like nothing else would. I know this is kind of off topic. Thx IGN
I know this is kind of off topic.
Thx IGN
"The When and If of Wires - future electrification projects"
But there were (and may still be) some major obstacles:
1. Both railroads and electric utilities are already capital-intensive - they each need a lot of money invested 'up front" - and the time frame for the repayment or return on investment of which is usually measured in decades (20 to 50 years, 'depending'). Such investment is usually 'stranded' or sunk - once it's made and the asset is installed in place, it's there for essentially forever - it can't be easily repossessed, resold to a new owner, converted to other uses, etc. Electrification only added to or shifted that handicap from one business to the other - it did not eliminate reduce that burden. Then in the 1970's inflation took off (from a variety of causes), which greatly increased interest rates and made capital investment even more risky and less attractive.
2. Poor financial performance and credit-worthiness of the railroads in the 1960's and 1970's made almost everyone reluctant to invest in or commit financing to them, except for an FRA program which no one ever actually utilized. Some utilities got into financial trouble then and in the 30 years since, too.
3. Both railroads and utilities have lots of other projects and investments with faster paybacks/ higher rates of return, etc.
Nevertheless, I'm an advocate for and optimist about this. That previous thread occurred before I joined here, but there are a lot of good points there, esp. those by greyhounds. The economics can already work in some niche situations, and with gas and diesel fuel at close to $4 per gallon ('depending') and some electric rates now lower account of plentiful natural gas lowering the marginal price of purchasing electricity in the deregulated market ("merchant generators"), it's not far off in many other situations, especially as rail volumes increase on certain routes. I'd say that by 2020 electrification will be well under way - it'll take 20+ years to do all the Class I mainlines anyway . . .
- Paul North.
C&NW, CA&E, MILW, CGW and IC fan
schlimm 2. If the coal company finds out (and they will) that they are paying (in your example) $300 more per load than the ethanol company does, you are going to have to deal with an enraged primary customer. And that will change the entire picture.
2. If the coal company finds out (and they will) that they are paying (in your example) $300 more per load than the ethanol company does, you are going to have to deal with an enraged primary customer. And that will change the entire picture.
How wil it change the picture? What will the enraged coal shipper do as a consequence of learing the cost of shipping ethanol? Will they end the use of rail and shift to a different and cheaper form of transportation?
schlimm Ken: I really don't know what would be exactly the best method to allocate fixed costs. But to "cover" them means to allocate them into the pricing of services so that the revenue stream in toto will cover those costs. If you only price a service with a margin above the variable (operating) costs, you will either not cover the fixed costs if they are high, as in a railroad, or you will end up with no profit. What you will end up doing by default is allocating that share of the fixed costs to some other service you offer, sort of a loss leader. There's no getting away from it. Perhaps the rationale for the ICC decision was that the PRR was operating a service below the true cost to eliminate competition, and once that was done, would have priced it at whatever they wanted? That sort of thing has happened in many modalities (retailing comes to mind), but it is uniquely grievous when unlike retailing, especially grocery stores, the limited competition is eliminated.
Ken: I really don't know what would be exactly the best method to allocate fixed costs. But to "cover" them means to allocate them into the pricing of services so that the revenue stream in toto will cover those costs. If you only price a service with a margin above the variable (operating) costs, you will either not cover the fixed costs if they are high, as in a railroad, or you will end up with no profit. What you will end up doing by default is allocating that share of the fixed costs to some other service you offer, sort of a loss leader. There's no getting away from it. Perhaps the rationale for the ICC decision was that the PRR was operating a service below the true cost to eliminate competition, and once that was done, would have priced it at whatever they wanted? That sort of thing has happened in many modalities (retailing comes to mind), but it is uniquely grievous when unlike retailing, especially grocery stores, the limited competition is eliminated.
Well, that's understandable. You can't know what exactly would be the best method to allocate fixed costs. There is no "Best" method for allocating fixed costs because there is no good method for allocating fixed costs. As I said previously, fixed costs "can't rationally be allocated in diverse output enterprises, such as a railroad.."
Now Sam1 did a good job justifying fixed cost allocation for electric power. Not for specific sales, but for lines of business. You can get close, with a lot of estimates, for lines of business (but not specific sales) in a single output enterprise, such as electric power. But when you're in a diverse output enterprise, such as a railroad, which hauls anything and everything from anywhere to everywhere, you can't get close.
OK, let me use a greatly simplified example to show how a railroad selling its service at below average costs benefits everyone concerned ---the railroad---everyone.
Let's say there is a railroad that runs from a coal mine to a power plant. Its sole business is coal from the mine to the power station. It's total cost in a year is $54,750,000. This breaks down to $36,500,000 variable and $18,250,000 fixed. (That's a reasonable ratio for a railroad.) The average cost is $1,500/load as they have 100 loads per day, 365 days per year. (I told you this was greatly simplified.) That would be $1,000 variable and $500 fixed for each load.
Now let's say that there is a new ethanol plant near the coal mine. Excellent marketing work by the railroad determins that there is a 10 load per day potential from the ethanol plant, But the most they can price is $1,200/load otherwise the ethanol will go by truck. The railroad figures its variable expense for moving the ethanol would be the same as moving the coal. $1,000/load. But their current average cost is $1,500/load. Should they try to capture the ethanol business even though its revenue will be below their average cost?
Of course they should. The added revenue exceeds the added variable cost. Take the money and run the trains
Here's the nutshell:
Before the ethanol the railroad's total cost was $54,750,000 consisting of $36,500,000 variable and $18,250,000 fixed. After the ethanol the railroad's total cost was $58,400,000. ($3,650,000 additional variable and $0 additional fixed.) But the revenue increased by $4,380,000 which is $730,000 more than the cost increase. I'd give the marketing guy a bonus.
Keeping an established network, such as a railroad, in as full use as possible is key to efficiency. It drives down average costs for everyone. In this case the ethanol transported at below average cost would decrease the average cost of any carload moving from $1,500 to $1,455. Reductions in cost, they be good things.
Now look at what would happen if the dang government regulators blocked the railroad's price because it was below the average (or fully allocated) cost. First, the railroad is SOL because it doesn't get the additional $730,000. (Bye, bye Pennsy) Second, the ethanol plant is SOL because it can't use the most cost efficient method to distribute its product. (This is what happened to the steel mills.) Third, the nation is SOL becuase we've got to cover the cost of using a less efficient distribution system for the energy.
That's exactly what happened in this idiotic "Ingot Molds" decision.
As far as driving the competition out of business and then raising the prices; That's a fairy tale. The Ohio River wasn't going away. Neither were the highways.
Barges and trucks are mobile. They can go away. And they can come back. They only way this notion of driving them out of business and then raising prices could possibly work is if the railroad could establish barriers to entry for competition by the barges and trucks. i.e. "Once we get rid of 'em, don't let 'em get back in." The railroads had no power to do such a thing.
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Sam1 Allocation of overheads and fixed costs to product lines is a complex subject. It is beyond the scope of these forums. Having said that, a business can determine the cost of goods sold, which includes an allocation of overheads, to determine its operating profit, and then look to cover the fixed costs with the combined product operating profits. In the case of the electric utility business in Texas, upon deregulation, we determined that we needed to allocate some of the fixed costs, i.e. depreciation, interest, taxes, etc. by product line and by segments, e.g. generation, transmission, distribution, retail, etc. Actually, the regulator required us to do it. We were able to come up with fixed cost allocation models that were acceptable to management, the regulators, and perhaps most importantly our external auditors. Allocations contain heaps of estimates. The key question is whether they are logical and can be supported.
Allocation of overheads and fixed costs to product lines is a complex subject. It is beyond the scope of these forums. Having said that, a business can determine the cost of goods sold, which includes an allocation of overheads, to determine its operating profit, and then look to cover the fixed costs with the combined product operating profits.
In the case of the electric utility business in Texas, upon deregulation, we determined that we needed to allocate some of the fixed costs, i.e. depreciation, interest, taxes, etc. by product line and by segments, e.g. generation, transmission, distribution, retail, etc. Actually, the regulator required us to do it. We were able to come up with fixed cost allocation models that were acceptable to management, the regulators, and perhaps most importantly our external auditors.
Allocations contain heaps of estimates. The key question is whether they are logical and can be supported.
I pretty much agree with what you've said. Having said that, I'll point out very important differences between electric power supply and railroading. ("Boxcars aren't kilowatts" as some wise men once said.)
First, a question. While you've got all these allocation models, what do you do with unused capacity? Do you just let it sit idle if you can't sell it for the average modeled cost? Or do you sell the off peak capacity at a price below the average cost if that's all that's possible? That's really what we're talking about. The Pennsylvania Railroad could handle additional business, such as the ingots, without adding capacity. They wanted to sell the unused capacity for what they could get in a competitive situation. Doesn't your power company do the same?
As I said, people can develop all kinds of formulas to allocate overhead costs. But what it all comes down to is what price you can get for your product/service/capacity that will produce the best outcome for your enterprise.
You're talking about costs of goods sold by product line. Not individual sale pricing. There's a huge difference in deciding whether the operating revenues of a transmission line exceed the costs of the transmission line and deciding if the use sold during an off peak time was preferable to letting the line be idle and generating no revenue. (The average cost would go up if the line was left idle.) The less specific the costing, the more accurate the costing.
You're also talking about an enterprise with a single output, electric power. Every cost relates back to providing one output to the customers, electric power. Railroads aren't like that. They produce many multiple outputs. That greatly complicates any rail overhead allocation.
But, thanks for the great input.
PS to the above. One thing I could never understand is this: Why the electric power companies have not tried to get railroads to electrify. It would entwine the two together like nothing else would.
BaltACD The one thing that gets conveniently overlooked by today's railroad scholars is the lack of pricing power that railroads had during the pre-Staggers era of ICC regulation. No matter what the cost basis of the carriers the final arbiter of all interstate rates was the ICC, where the carriers were basically viewed as the 'over dog bully' and decisions rarely favored the carriers, Despite all the signs of impending failure from the carriers in the Northeast - the real wake up call didn't occur until Penn-Central filed for bankruptcy and even with that bankruptcy it took several years to get to Staggers, which gave the carriers to opportunity to set prices and service to correspond with demand. Even after Staggers it took the carriers nearly two decades to understand what operating as a minimally regulated industry was all about - educating leaders whose entire careers had been in a highly regulated environment in operating in a deregulated world was not a easy transition. The calls for re-regulation of the Carriers is coming from monopoly industries who, in the past, could get the carriers to ask 'how high' when the monopoly industries commanded 'jump'. The monopoly industries find having to negotiate transportation with a 'equal' as being against everything they hold dear. Those who are crying loudest about being captive to a single carrier, have for years been the sole supplier of their own end products to their customer base.
The one thing that gets conveniently overlooked by today's railroad scholars is the lack of pricing power that railroads had during the pre-Staggers era of ICC regulation. No matter what the cost basis of the carriers the final arbiter of all interstate rates was the ICC, where the carriers were basically viewed as the 'over dog bully' and decisions rarely favored the carriers, Despite all the signs of impending failure from the carriers in the Northeast - the real wake up call didn't occur until Penn-Central filed for bankruptcy and even with that bankruptcy it took several years to get to Staggers, which gave the carriers to opportunity to set prices and service to correspond with demand. Even after Staggers it took the carriers nearly two decades to understand what operating as a minimally regulated industry was all about - educating leaders whose entire careers had been in a highly regulated environment in operating in a deregulated world was not a easy transition.
The calls for re-regulation of the Carriers is coming from monopoly industries who, in the past, could get the carriers to ask 'how high' when the monopoly industries commanded 'jump'. The monopoly industries find having to negotiate transportation with a 'equal' as being against everything they hold dear. Those who are crying loudest about being captive to a single carrier, have for years been the sole supplier of their own end products to their customer base.
Never too old to have a happy childhood!
If by intuition, you really mean creativity, i.e. divergent thinking, then I'd say yes, that is a key to success. But to ignore the contributions of good cost accounting is to lay the groundwork for financial suicide.
schlimm Murphy Siding: I imagine there's some of this same thing going on in most every industry. How do they price things to make a profit in your industry schlimm? Quite different in healthcare, as so much is determined by insurance. In academia it's a different world. But years ago in retail, it was a running battle for us buyers with the cost accountants, who always wanted to be sure we were allocating overhead, and like most folks in that field, when it is a big operation, they had specific formulae. Hardly anyone outside the accounting division much likes accountants, but they are an essential ingredient in any successful operation. One of the biggest reasons start up businesses fail is they underprice (hardly ever overprice) their services or products by seat of the pants calculations, aka, intuition, hunches, business acumen or plain guessing.
Murphy Siding: I imagine there's some of this same thing going on in most every industry. How do they price things to make a profit in your industry schlimm?
I imagine there's some of this same thing going on in most every industry. How do they price things to make a profit in your industry schlimm?
Quite different in healthcare, as so much is determined by insurance. In academia it's a different world. But years ago in retail, it was a running battle for us buyers with the cost accountants, who always wanted to be sure we were allocating overhead, and like most folks in that field, when it is a big operation, they had specific formulae. Hardly anyone outside the accounting division much likes accountants, but they are an essential ingredient in any successful operation. One of the biggest reasons start up businesses fail is they underprice (hardly ever overprice) their services or products by seat of the pants calculations, aka, intuition, hunches, business acumen or plain guessing.
greyhounds schlimm: Thanks for the explanation. I am no cost accountant, but I seem to recall that fixed costs (overhead) have to be allocated to the price of goods or services in some way or else a company loses money if it only covers the variable costs. Fully allocated costing is one such method, which I do recall is often disliked by the sales departments and can create some internal tension with the accounting department of a company. No, fixed costs (overhead) doesn't have to be allocated. It has to be covered, but it can't rationally be allocated in diverse output enterprises such as a railroad (Or a McDonalds). People can, and have, come up with formulas for such allocations. But just because there is a formula that produces a number doesn't mean the number is meaningful. Again, in railroading and other lines of trade, overhead cost has to be covered but it can't be rationally allocated to specific units of sale. Pricing is much more complex than crunching a bunch of numbers. In the subject situation the railroads involved couldn't set the price. The price was being set by competition. In this case a truck-barge movement of ingots. The maximum rail price that would get the business was above the rail variable cost but below the contrived fully allocated rail cost. So should the railroads want business at a maximum price that is above variable but below fully allocated cost? Of course they would want such business. They would be better off with the business as it would make some contribution to covering their fixed costs. When the government regulators rulled that they could not price at such a level they seriously hurt the Pennsylvania Railroad and other railroads. Not only did such a rulling hurt the railroads, it hurt the nation because it prevented the US from receiving maximum benefit from its railroads. In 1967 the Pennsylvania Railroad had precious little traffic that was not subject to truck and/or barge competition. When the dang government greatly restricted their ability to compete for such business, it was, by in large, a death sentance for the railroad. (See "In the Matter of Container Service" for another inane government decision that helped kill the Pennsy.) Again, can you explain why the government needed to even be involved in this situation, or any other such situation where the pervasive intermodal competition existed. They only screwed things up and hurt the country.
schlimm: Thanks for the explanation. I am no cost accountant, but I seem to recall that fixed costs (overhead) have to be allocated to the price of goods or services in some way or else a company loses money if it only covers the variable costs. Fully allocated costing is one such method, which I do recall is often disliked by the sales departments and can create some internal tension with the accounting department of a company.
Thanks for the explanation. I am no cost accountant, but I seem to recall that fixed costs (overhead) have to be allocated to the price of goods or services in some way or else a company loses money if it only covers the variable costs. Fully allocated costing is one such method, which I do recall is often disliked by the sales departments and can create some internal tension with the accounting department of a company.
No, fixed costs (overhead) doesn't have to be allocated. It has to be covered, but it can't rationally be allocated in diverse output enterprises such as a railroad (Or a McDonalds). People can, and have, come up with formulas for such allocations. But just because there is a formula that produces a number doesn't mean the number is meaningful. Again, in railroading and other lines of trade, overhead cost has to be covered but it can't be rationally allocated to specific units of sale.
Pricing is much more complex than crunching a bunch of numbers. In the subject situation the railroads involved couldn't set the price. The price was being set by competition. In this case a truck-barge movement of ingots. The maximum rail price that would get the business was above the rail variable cost but below the contrived fully allocated rail cost. So should the railroads want business at a maximum price that is above variable but below fully allocated cost?
Of course they would want such business. They would be better off with the business as it would make some contribution to covering their fixed costs. When the government regulators rulled that they could not price at such a level they seriously hurt the Pennsylvania Railroad and other railroads. Not only did such a rulling hurt the railroads, it hurt the nation because it prevented the US from receiving maximum benefit from its railroads.
In 1967 the Pennsylvania Railroad had precious little traffic that was not subject to truck and/or barge competition. When the dang government greatly restricted their ability to compete for such business, it was, by in large, a death sentance for the railroad. (See "In the Matter of Container Service" for another inane government decision that helped kill the Pennsy.)
Again, can you explain why the government needed to even be involved in this situation, or any other such situation where the pervasive intermodal competition existed. They only screwed things up and hurt the country.
narig01 UP 4-12-2: narig01: Greyhounds or Mr North: A question If Al Perlman had run Penn Central after the merger could he have pulled it off. With or without Blevens (the CFO or treasurer I think) money support? Try to remember he started the Rio Grande to out hustle UP. And he was starting to do that at the New York Central. Thx IGN If you research this farther, you will find that Penn Central forced Perlman and his associates out. The reasons involved were complex to say the least, but it seems that there were a number of utterly incompetent managers in Penn Central Some loved him; some did not--but he did know how to run a railroad. John My original question was what if Al Perlman had run the combined Penn Central, Could he have made it work? Try to remember some of the talent he would have had. Jim Hagen(I think) Mike Flanery, Jim McClellan to name a few. Thx IGN
UP 4-12-2: narig01: Greyhounds or Mr North: A question If Al Perlman had run Penn Central after the merger could he have pulled it off. With or without Blevens (the CFO or treasurer I think) money support? Try to remember he started the Rio Grande to out hustle UP. And he was starting to do that at the New York Central. Thx IGN If you research this farther, you will find that Penn Central forced Perlman and his associates out. The reasons involved were complex to say the least, but it seems that there were a number of utterly incompetent managers in Penn Central Some loved him; some did not--but he did know how to run a railroad. John
narig01: Greyhounds or Mr North: A question If Al Perlman had run Penn Central after the merger could he have pulled it off. With or without Blevens (the CFO or treasurer I think) money support? Try to remember he started the Rio Grande to out hustle UP. And he was starting to do that at the New York Central. Thx IGN
Greyhounds or Mr North: A question
If Al Perlman had run Penn Central after the merger could he have pulled it off. With or without Blevens (the CFO or treasurer I think) money support?
Try to remember he started the Rio Grande to out hustle UP. And he was starting to do that at the New York Central.
If you research this farther, you will find that Penn Central forced Perlman and his associates out. The reasons involved were complex to say the least, but it seems that there were a number of utterly incompetent managers in Penn Central
Some loved him; some did not--but he did know how to run a railroad.
John
My original question was what if Al Perlman had run the combined Penn Central,
Could he have made it work? Try to remember some of the talent he would have had. Jim Hagen(I think) Mike Flanery, Jim McClellan to name a few.
Loving addresses the Perlman issue in The Men Who Loved Trains, which I referenced earlier. It has been approximately a year since I read the book, but I believe he concluded that Perlman would have had a dramatic impact on the combined Central/PRR, but in any case regional economics as well as two extremely different corporate cultures were working against the merger. Making the Central and Pennsy merger work would have been a daunting task.
Perlman, if I remember correctly, wanted to merge the Central with the C&O, which he believed would be a better fit.
Murphy Siding I imagine there's some of this same thing going on in most every industry. How do they price things to make a profit in your industry schlimm?
UP 4-12-2 narig01: Greyhounds or Mr North: A question If Al Perlman had run Penn Central after the merger could he have pulled it off. With or without Blevens (the CFO or treasurer I think) money support? Try to remember he started the Rio Grande to out hustle UP. And he was starting to do that at the New York Central. Thx IGN If you research this farther, you will find that Penn Central forced Perlman and his associates out. The reasons involved were complex to say the least, but it seems that there were a number of utterly incompetent managers in Penn Central Some loved him; some did not--but he did know how to run a railroad. John
schlimm Ken: I really don't know what would be exactly the best method to allocate fixed costs. But to "cover" them means to allocate them into the pricing of services so that the revenue stream in toto will cover those costs. If you only price a service with a margin above the variable (operating) costs, you will either not cover the fixed costs if they are high, as in a railroad, or you will end up with no profit. What you will end up doing by default is allocating that share of the fixed costs to some other service you offer, sort of a loss leader. There's no getting away from it.
Ken: I really don't know what would be exactly the best method to allocate fixed costs. But to "cover" them means to allocate them into the pricing of services so that the revenue stream in toto will cover those costs. If you only price a service with a margin above the variable (operating) costs, you will either not cover the fixed costs if they are high, as in a railroad, or you will end up with no profit. What you will end up doing by default is allocating that share of the fixed costs to some other service you offer, sort of a loss leader. There's no getting away from it.
narig01 Greyhounds or Mr North: A question If Al Perlman had run Penn Central after the merger could he have pulled it off. With or without Blevens (the CFO or treasurer I think) money support? Try to remember he started the Rio Grande to out hustle UP. And he was starting to do that at the New York Central. Thx IGN
If you research this farther, you will find that Penn Central forced Perlman and his associates out. The reasons involved were complex to say the least, but it seems that there were a number of utterly incompetent managers in Penn Central whose real motivation was to set up the golden handshake/nest egg for themselves. By attempting to run the railroad the way it probably should have been run, he was screwing up their plans, so they forced him out. Trains ran a highly detailed article a couple years back on Alfred Perlman.
My uncle was a high ranking employee within Melon Bank and at least moderately active within the Pittsburgh society circles. He and my aunt contended that a lot of dirty behind the scenes money grabbing went on at Penn Central during the late 1960's, as various managers were motivated to line their own pockets at the expense of the railroad. Prior to her death, my aunt had said the truth of the alleged financial misdeeds may never fully see the light of day--but that's really all I know.
Precedent is as important in court decisions as in regulatory decisions. Dismissing it out of hand would leave the door open for capricious decisions.
The various regulatory bodies at both the state and federal level came into existence because there was a general desire for it. Also, there is still a strong undercurrent of distrust for Big Business so the issue of regulation is not going to go away.
schlimm Thanks for the explanation. I am no cost accountant, but I seem to recall that fixed costs (overhead) have to be allocated to the price of goods or services in some way or else a company loses money if it only covers the variable costs. Fully allocated costing is one such method, which I do recall is often disliked by the sales departments and can create some internal tension with the accounting department of a company.
The Men Who Loved Trains by Rush Loving Jr. contains some helpful insights into the demise of the PRR, as well as the other Northeastern roads, and the emergence of Conrail. I recommend it.
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