LION is monk, lives in monastery. Congregation said all monasteries in the Congregation will use the same standard accounting methods. End of story.
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I get the feeling at Don Phillips mistrusts Boardman quite a bit. But because Amtrak is a step child of Congress rather than Wall Streeters, no one will ever get a straight or common answer, especially for accounting purposes, from Amtrak...but come to think of it we don't from private enterprises today either. Amtrak being a political puppy just makes it all the easier to use different methods of accounting for political purposes than we are used to. It is playing with the half full/half empty conundrum on an as needed or as can be adapted basis.
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And Wall Streets accounting methods were so pristine that the financial melt down of bank bail outs never happened.
Figures lie and liars figure.
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That's my point, Balt...accounting is a manipulation of numbers and figures so designed to defend or tear apart anything you want anyway you want. In this case Boardman is doing just that to get what he feels he wants and needs for Amtrak. And he does this from the point of being the most politically savvy Amtrak president.
Since Amtrak is a corporation, a quasi-governmental one, it should use these accounting standards. The most authoritative source of generally accepted accounting principles (GAAP) developed by FASAB for federal entities is contained in The FASAB Handbook of Accounting Standards and Other Pronouncements, As Amended (FASAB Handbook). Past violations of accounting standards (Enron, etc.) does not mean the attempt to follow uniform accounting procedures should be abandoned, any more than the fact that drivers violate traffic laws means those should be abandoned.
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I don't know if Phillips ever passed an accounting course. One very frustrating thing regarding writers such as Phillips is that you never know their qualifications for being a critic. Same thing with some commenters on this forum.
Myself, I'm not an accountant. But I did take and pass several accounting classes at the undergraduate and graduate level.
The objective of accounting is to match revenues and expenses. For example, if a firm had $500,000 of revenue from selling turnips last year, just what was the total expense of getting that $500,000 in revenue? If it was more than $500,000 they really need to do something. Up to, and including, the cessation of selling turnips.
The matching of revenues and expenses is much more subjective than some people want to believe. It's far easier to imagine a villain (evil Wall Street type) than it is to actually understand the complexities.
My favorite railroad example comes from when I was doing analysis of branch line abandonments. The expenses weren't much of a problem. We could determine the crew pay, the maintenance on the branch, the taxes, the fuel used, etc. pretty well . But we couldn't match revenues to those expenses in any meaningful manner.
An example would be the branch line from Bloomigton, IL to Mason City, IL. Right at 45 miles long. Six days a week a crew would go on duty in Bloomington and take very few cars to and from the various small towns between Bloomington and Mason City. Now, those cars weren't going to or comming from Bloomington.
If we received a carload of lumber destined to the branch from the Union Pacific at Council Bluffs we had to haul it about 626 miles to get it to Bloomington. Then a maximum of 45 miles on the branch. 93% of our haul was off the branch. If we got $600 to move the car from Council Bluffs to destination, just how much of that $600 could be "matched" to the branch's expenses? We certainly couldn't haul the car from Council Bluffs to Bloomington for nothing. Any answer would have to be subjective, not objective.
On a straight mileage pro rate only $42 would be subjectively allocated to cover the branch expenses. On that basis the branch was a dead weight looser. The government regulators, ever mindful of politics, had to come up with a different formula for revenue allocation. And they did. We were to arbitrarily allocate 50% of the revenue to the branch. They had no real basis for this arbitrary allocation. But they wanted to avoid the political heat from branch line abandonments. (The 50% figure applied across the board to all branches.)
So, according to government mandated accounting, we hauled the lumber 626 miles for $300, then another 45 branch line miles for another $300. It was a totally arbitrary, politically movitivated, form of accounting. In any event, the branch still came up a looser under the government mandated accounting system. And it is thankfully gone.
The point is that there is a real element of subjectivity in accounting. People need to understand that. Good managers will look at the accounting numbers, understand their context and subjectivity, and make decisions accordingly. People such as Phillips seem to just get confused.
Don is an old line journalist....achieve the art with the skills; work at it with intelligence and enthusiasm; research and study the facts and then chek them again; develop reliable and credible contacts; respect your contacts, your readers, your work and yourself; report with an even hand. Then, if you want or when you can, draw your own conclusions and report them as your conclusions and thoughts. Frailey and a few others around Trains have that same bent, unlike those in the mass media of newspapers, TV, Radio, and internet.
greyhounds An example would be the branch line from Bloomigton, IL to Mason City, IL. Right at 45 miles long. Six days a week a crew would go on duty in Bloomington and take very few cars to and from the various small towns between Bloomington and Mason City. Now, those cars weren't going to or comming from Bloomington. If we received a carload of lumber destined to the branch from the Union Pacific at Council Bluffs we had to haul it about 626 miles to get it to Bloomington. Then a maximum of 45 miles on the branch. 93% of our haul was off the branch. If we got $600 to move the car from Council Bluffs to destination, just how much of that $600 could be "matched" to the branch's expenses? We certainly couldn't haul the car from Council Bluffs to Bloomington for nothing. Any answer would have to be subjective, not objective.
Ken,
Keeping in mind that the goal of the company is to produce net income, I'd first subtract out the incremental cost of moving the car from Council Bluffs to Bloomington, then compare the remainder with the pro-rated costs for moving the car from Bloomington to the destination. If the remainder is less than the pro-rated costs then the branch line is almost certainly a loser, with the exception based on keeping an otherwise profitable customer.
You're right in that the is a great deal of subjectivity in cost and revenue allocation.
- Erik
Accounting for large complex organizations causes myriad of assumptions to be made when allocating both revenues and expenses.
We all know what happens when you ASSUME - something about ass U and me.
Another item of subjectivity is whether the recipient of that carload would be happy with it being hauled only to Bloomington. If not, then the railroad looses the entire $600 if that branch line is gone. That loss may not impact the balance sheets much today, but may well do so at a future point when enough branch lines are dropped due to their perceived individual lack of profitability.
Or the railroad may find itself stronger and more financially viable when it drops its branch lines and focus on the business it can generate on the main line.
greyhounds' example of allocating a part of the revenue to the branch line move makes me think of the former practice (is it still the practice?) of revenue allocation to a short line which had a part in a particular movement--the short line received more than its proportional share of the total revenue when its mileage was compared with the total mileage.
Johnny
Phillips makes a number of statements regarding Amtrak's accounting procedures that appear to be without support. He quotes a Mr. Seldon as someone who has insight into Amtrak's cost allocation methods, i.e. loading the long distance trains operating in the NEC with extraordinary costs if I remember correctly. How Seldon got his information remains a mystery. What is even more interesting is the fact that he was the only source willing to be named in Phillips article. To know how Amtrak allocates its costs, one would have to be an insider or have an insider give him or her access to the company's books.
As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards.
The implication that Amtrak's officers are unduly influencing the company's accounting procedures and practices, i.e. not following GAAP as well as governmental accounting principles where applicable, is not supported. The further implication that the external auditors from one of the world's most highly regarding accounting firms are turning a blind eye to these accounting irregularities is likewise without foundation.
Amtrak follows the same accounting principles as every other stock company in the United States. That is not to say that they don't have some wiggle room in how they interpret and apply accounting standards, especially when it comes to estimates, i.e. depreciation, amortization, retiree benefits, etc., but any estimates that they use must be supported, and they must be consistent.
I like Don Philiips and read his column and appreciate his insights. The same with Frred Frailey. But the two do not agree on everything. I think Don's opinion of Boardman is less than Fred's. although Fred has criticised Boardman on occasion as well. But I agree with Henry that, with all his faults, and he is not a Rystrup or Claytor or Gunn, he may be the best man for Amtrak at the present time, better than the three just pentioned, again for the present time. Of course it depends on what you want Amtrak to be. I think Boaaaardman understands what the majority of concerned Americans want Amtrak to be, and I believe I agree with them and h im. Inlcuding the retention of dining and sleeping cars and long distance trains.
Sam1As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards.
Just as a reminder for those 'not in the know' -- FASB and FASAB are two very different organizations. FASB is general accounting, and FASAB is Federal application. It is a matter of discussion which of these is more applicable to determining a proper form of GAAP for Amtrak as a 'quasi-public' (and therefore by implication quasi-Federal) organization, but anyone considering the issues should look at BOTH when discussing the issue.
Overmod Sam1As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards. Just as a reminder for those 'not in the know' -- FASB and FASAB are two very different organizations. FASB is general accounting, and FASAB is Federal application. It is a matter of discussion which of these is more applicable to determining a proper form of GAAP for Amtrak as a 'quasi-public' (and therefore by implication quasi-Federal) organization, but anyone considering the issues should look at BOTH when discussing the issue.
What you say is true. My impression is that the biggest difference between public company accounting and government accounting is that the latter uses fund accounting. Otherwise the overwhelming majority of the principles are the same.
Amtrak's Balance Sheet has an owners equity (capitalization) category just like a business. It does not have a general fund like a government agency.
The key point is neither Amtrak's management or anyone else just makes up their own accounting rules as they go along. Management must follow generally accepted accounting principles and practices or be called out by the external and internal auditors. I have read nearly every Amtrak financial report for the last eight years. I don't recall the auditors every issuing anything other than a clean audit report.
The audit community (external, internal, private, government, etc.) has gotten a few black eyes over the years. And people out of the know like to generalize the outliers to the whole. All up, however, auditors do a pretty good job. They get it right most of the time, frequently to the chagrin of management.
An examination of the Amtrak 2012 Consolidated Financial Statement audited by Ernst and Young says only adhering to GAAP, without specifying FASB or FASAB.
In one section it does refer to FASB ASC topic 20 in reference to Fair Value Measurements.
ASC stands for Accounting Standards Codification. It was effective for interim and annual periods after September 15, 2009. ASC reorganized thousands of GAAP pronouncements into roughly 90 accounting topics and displays all topics in a consistent structure. It makes GAAP easier to understand, at least for accountants as well as reasonably sophisticated financial statement users.
ASC appears repeatedly throughout Amtrak's financial statements.
henry6I get the feeling at Don Phillips mistrusts Boardman quite a bit.
I agree, Henry. But it is more than a feeling and it goes beyond Joe Boardman. Consider Don Phillips' second sentence: The misinformation is spread by confused and shallow politicians, young reporters who have no idea of what they're talking about, and by Amtrak officials who have learned they can count on the first two groups not to understand their technical jargon." (Emphasis added). Don Phillips charges there is a deliberate and successful effort by "Amtrak officials" to decieve just about everyone.
Then in his second paragraph, the one he wants us to read three times and think about, he makes two statements about Amtrak. First, Generally Accepted Accounting Principles would show Acela "loses money, big-time." Second, "If Amtrak calculated long-distance train financials in the same way it counts Acela financials, most long distance-distance trains would be would be profitable."
So Amtrak officials deliberately provide a "mass of misinformation" to get us to believe Acela makes money when it doesn't and long-distance trains loose large amounts of money when they do not do so.
The word that covers all of that is mistrust. In fact, deep mistrust.
John
As mentioned, there is a lot of fuzzy stuff in accounting. Look at your own home budget. You may have a limited budget for entertainment, etc, but if you consider dinner at your favorite restaurant as part of your food budget, then the entertainment budget stays on (or under) the budgeted amount, while your food budget goes high.
A friendly auditor wouldn't have a problem with this. Someone looking to make you look bad would have a field day.
As Disraeli (famously quoted by Twain) said - "There's lies, damned lies, and statistics." And accounting...
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diningcarThe Phillips column in the June issue takes substantial issue with accounting methods used by Amtrak in reporting the profitabilty, or lack thereof, for different Amtrak operations
I have not yet had the opportunity to read the article in question, however it has often appeared to me that Amtrak must accelerate the amortization of their plant and use the inflated cost figures that result for shock value. How all the better to justify those inflated charges for sleeper service?
No wonder the long range trains are all "losing" money, if Amtrak insists upon amortizing entire cost of their sleeping cars well before their actual service life has lapsed?
Convicted OneNo wonder the long range trains are all "losing" money, if Amtrak insists upon amortizing entire cost of their sleeping cars well before their actual service life has lapsed?
Do you suggest (as Don Phillips does) that Amtrak misrepresents their long distance trains as loosing large amounts of money when in fact most long distance trains make a profit?
Since according to Amtrak's financials, depreciation represents only ~15% of Amtrak's expenses, it seems unlikely that the claims made by Phillips are credible. But perhaps an expert like sam1 could shed more light on this.
John WR Convicted OneNo wonder the long range trains are all "losing" money, if Amtrak insists upon amortizing entire cost of their sleeping cars well before their actual service life has lapsed? Do you suggest (as Don Phillips does) that Amtrak misrepresents their long distance trains as loosing large amounts of money when in fact most long distance trains make a profit?
My take on what Mr. Phillips is saying is not that long distance trains actually make a profit. It's that they don't lose as much money as Amtrak says they do. That if costs to the long distance trains were calculated in the same manner that they are for the Acela trains, the LD trains would also show a profit. That the Acela trains without some tweaking of the numbers also actually lose money.
Mr. Phillips isn't the first one to suggest this. There have been a few articles in Trains Mag over the years that have said Amtrak and other entities who want to ditch the LD services, if not all of Amtrak, have played with the numbers to make the LD trains look worse than what they are.
Jeff
Define "misrepresents". Any and all accountants, CPA's and politicians use numbers and statistics as they need...businesses do too, of course. Joe Boardman is well versed in operations of transportation, as well as anyone who has gotten to the position. But he has come up through government agencies from small NY counties transit operations to the State of NY Transportation Department as Commissioner (where he held sway over Amtrak's Empire State services including balking at paying for the Turbos when he deemed them unfit for use and overly expensive) so he has more political savvy than any other Amtrak president. So, I don't think he "misrepresents" the accounting so much as he uses it to his advantage in dealing with politicians who hold the purse strings.
Is it just possible that Mr. Phillips, like Mr. Boardman, also has (like many reporters) his own "agenda" in writing this article? It should be remembered that he writes an opinion column, not straight news reporting, and so the journalistic standards of checked facts don't apply. On the other hand, it is rather facile to dismiss the audited financial statements without any evidence that the numbers are a "misrepresentation" of the realities.
jeffhergertMy take on what Mr. Phillips is saying is not that long distance trains actually make a profit. It's that they don't lose as much money as Amtrak says they do.
Jeff,
Here are Don Phillips' words from his second paragraph: "What's more, long-distance trains are money losers but not big ones. If Amtrak calculated long-distance train financials the same way it counts Acela financials, most long distance trains would be profitable." (emphasis added). You are as able to draw conclusions from that statement as I am.
henry6Define "misrepresents".
Henry,
The word Don Phillips uses for Amtrak's financial descriptions is "misinformation." And he attributes the "misinformation" to "Amtrak officials." And he includes Joe Boardman among those "Amtrak officials." That is in the third paragraph of his article. So I think it is reasonable to say Mr. Phillips alleges Amtrak misrepresents financial information.
Bit I cannot imagine that Joe Boardman or anyone at Amtrak would have any reason to report all long--distance trains loose money if some of them make money nor can I see any reason why lgreater ooses should be claimed than actually happen. Mr. Phillips claims of that leave me wondering what to think of him.
So please understand I was simply trying to accurately report the article. I remain unpersuaded at Mr. Phillips allegations are true.
You cannot say "checked facts don't apply". Checked facts are very important in forming an opinion, especially an informed opinion. Opinion comes from the interpretation of facts and one's experience with the facts, the situation, and the people involved. I understand what Don is saying and why. I don't think he is ignorning facts nor not fact checking but merely interpreting what he sees and telling us what he believes to be. I don't think he'd disagree with what I have said about Boardman but just disagrees with what Boardman has done and how Boardman behaves. I don't know Boardman that well and have not dealt with him in any way in over 30 years. Phillips may or may not be right in his interpretation.
Information regarding Amtrak's depreciation policies and practices can be found on Pages 14 - 16, Notes to Consolidated Financial Statements, of the company's 2012 Consolidated Financial Statements. These are the lastest audited annual financial reports.
Amtrak uses the group method to depreciate classes of capital investment. This means, for example, that all the equipment in a class, i.e. Superliner I sleeping cars, would be depreciated over the same time period at a constant rate even though they may have gone into service over a year. Grouping significant capital assets for depreciation is not unusual.
In reading the notes I noted that Amtrak periodically engages engineering firms to assess its depreciation schedules, i.e. useful lives, fair value, salvage values, rates, etc. Firms that do this work are not likely to sully their reputations by bending their best judgement of Amtrak's depreciation practices to play to management or a special interest audience.
How much depreciation do the long distance trains wear? Without access to Amtrak's detailed property records, it is impossible to say. It is reasonable to conclude, I believe, that the bulk of Amtrak's depreciation is driven by its investments in the NEC. In several of my analysis's I have arbitrarily assigned 80 per cent of the depreciation to the NEC and 10 per cent to each of the other product lines, i.e. short haul corridor trains and long distance trains.
I wrote (real paper and envelope) to Mr. Phillips asking him from whom he got his information regarding Amtrak's cost allocation information. It is important to support the conclusions that he arrived at. I am seeking information regarding the company's depreciation schedules, inasmuch as they could be quite informative. I have not heard from him.
The depreciation expense driven by the long haul trains would be primarily on the locomotives and cars, plus any allocated depreciation when these trains are operating over Amtrak's owned infrastructure and any billed depreciation from the hoist railroads.
Amtrak's depreciation in FY12 was $663.7 million. The long distance trains lost $600.9 million in FY12 before depreciation, interest, and ancillary charges. They wiped out the NEC operating profit without any help from depreciation. Their results are worse after application of depreciation, interest and ancillary charges.
In an analysis that I performed on FY10 numbers year or so ago, I calculated that the fully allocated loss per passenger mile for the NEC was 20.8 cents vs. 16.5 cents for the short haul corridor trains and 23.1 cents for the long distance trains. Again, I had to make some assumptions about depreciation, interest, and ancillary charges.
Phillips and others are correct when they say that the Acela or NEC is not profitable. They had an operating profit of $281.9 million before depreciation, etc. in FY12. However, if my assumption that the NEC wears 80 per cent of Amtrak's depreciation is anywhere near being correct, then the loss on the NEC, which would be skewed onto the Acela because of the capital improvements made to hoist it, would be in the neighborhood of $241.2 million. Again, without access to Amtrak's books, my assumptions could be wrong. The loss could be greater or less.
Assigning the depreciation of the NEC ROW to the NEC is standard accounting practice. However, since most of the rest of Amtrak's operations rent ROW, it gives a misleading conclusion about the comparative inefficiencies of its operations. Given the net profit of revenue over operating expenses there with Acela, and the enormous loss on operations on LD services, it is easy to conclude, as Joe Boardman does, that LD services [if deemed essential] should be separately funded [perhaps like EAS?] rather than be subsidized by Acela.
erikem Ken, Keeping in mind that the goal of the company is to produce net income, I'd first subtract out the incremental cost of moving the car from Council Bluffs to Bloomington, then compare the remainder with the pro-rated costs for moving the car from Bloomington to the destination. If the remainder is less than the pro-rated costs then the branch line is almost certainly a loser, with the exception based on keeping an otherwise profitable customer. You're right in that the is a great deal of subjectivity in cost and revenue allocation. - Erik
That would have been a nice, clean way of doing it. Except....you really cannot "cost out" a carload movement on a diverse, complicated rail network. What you can do is take a bunch of averages, add them together and sort of, kind of, get a inkling of the average cost of moving the car of lumber from Council Bluffs to Bloomington, IL.
It's not like electricity where there is one product moving in one direction from one location (or a very few locations.). Boxcars aren't kilowatts. There is a great diversity of movement on a rail network that is lacking on an electric network. I know, there are all kinds of formulas, computer programs, etc. that purport to provide "The Cost". But they all rely on averages and they don't provide specific information detailed enough to begin to determine the incremental cost. I mean, just what was the incremental cost of taking two or three extra carloads of lumber over the hump at Markham each month? It had to approach $0. Same thing with putting those cars on a Council Bluffs-Markham manifest train. What do you get? Car hire and a very few gallons of fuel?
We could identify the costs of the branch because we could isolate its costs from the network. But when you're dealing with the mainline network it is impossible to isolate costs. They're part of a flow and increasing the flow by a few cars produces zilch in added costs.
However, if you go down this path and manage by those incremental numbers, you'll keep your branches and starve your mainlines. If you decide to keep the branches you've got to spend the money to operate them. What's left for the mainline? Can't spend the money twice.
But, it would be another number to take into consideration on what would eventually and inevitably be a judgment call.
Putting additional business on the mainline using incremental costing as a floor is a whole different can of worms
henry6Phillips may or may not be right in his interpretation.
Certainly many Amtrak watchers believe that Acela is Amtrak's most successful venture. However, Phillips would have us believe that all such people have been deceived by misinformation from Amtrak reported by young and naïve reporters.
greyhounds That would have been a nice, clean way of doing it. Except....you really cannot "cost out" a carload movement on a diverse, complicated rail network. What you can do is take a bunch of averages, add them together and sort of, kind of, get a inkling of the average cost of moving the car of lumber from Council Bluffs to Bloomington, IL.
Understood. I would argue about electricity being easier to cost out than RR freight traffic, especially when intermittent generation is involved.
Subtracting out the incremental costs for the mainline portion of the run is the most favorable analysis for keeping a branch line, if the branch doesn't pass that test, then there almost no way that keeping the line can be justified. A branch line that barely breaks even under this analysis is still a good candidate for abandonment as incremental costs don't include lost opportunity losses.
greyhoundsThat would have been a nice, clean way of doing it. Except....you really cannot "cost out" a carload movement on a diverse, complicated rail network. What you can do is take a bunch of averages, add them together and sort of, kind of, get a inkling of the average cost of moving the car of lumber from Council Bluffs to Bloomington, IL.
Exactly!
The allocation of costs is really squishy business. For example. I have two trains running from A to B. One has two locomotives and 10 cars. One has one locomotive and 7 cars, but those 7 weigh as much as the 10. The first train carries 50% more people than the second, but generates 75% more passenger miles. I have to allocate the cost for the track, crew, train dispatchers, fuel, locomotive dwell between trips. How do I allocate? By train count? Train miles? Passengers? Passenger miles? By time? By distance? By track capacity consumed? How do I divvy up the dwell between trips? Does it belong to where I use the locomotive next? Part of the previous trip? Split the difference?
Depending on how you proceed, you can get radically different...and misleading...answers, none wholly right or wrong.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
erikem greyhounds That would have been a nice, clean way of doing it. Except....you really cannot "cost out" a carload movement on a diverse, complicated rail network. What you can do is take a bunch of averages, add them together and sort of, kind of, get a inkling of the average cost of moving the car of lumber from Council Bluffs to Bloomington, IL. Understood. I would argue about electricity being easier to cost out than RR freight traffic, especially when intermittent generation is involved. Subtracting out the incremental costs for the mainline portion of the run is the most favorable analysis for keeping a branch line, if the branch doesn't pass that test, then there almost no way that keeping the line can be justified. A branch line that barely breaks even under this analysis is still a good candidate for abandonment as incremental costs don't include lost opportunity losses. - Erik
Cost models are terrible "what if" tools. They are good at before/after however.
John WRDo you suggest (as Don Phillips does) that Amtrak misrepresents their long distance trains as loosing large amounts of money when in fact most long distance trains make a profit?
Seems like I recall reading a few years back, that Amtrak was (arbitrarily) shortening the projected life of some of it's equipment, based upon experiences it was having with some equipment. When you do things like that you force the cost to be amortized over fewer customer uses, so it's DEFINITELY possible that games such as those mentioned are being played.
Hypothetical scenario: If properly maintained sleeper cars can expect a 15 year service life, but budgeted maintenance funds are redirected elsewhere, and the cars are allowed to fall in such severe disrepair that they ultimately are scrapped after 8 years, CAUSING a revision to the life expectancy of all cars of it's type, and accounting practices are subsequently revised to amortize the car cost over the new lifespan....couldn't the claimed "cost" of operating the long distance trains can be conveniently inflated to the point that they no longer make economic sense to operate?
I'm not sure how much discretion is allowed in determining depreciation rates since there has to be consistency in this matter. Allocation of costs can be discretionary, those of us with some seniority can remember the discussion in the pre-Amtrak era over "fully allocated" vs. "solely related" costs as related to passenger train contributions to the bottom line.
CSSHEGEWISCHI'm not sure how much discretion is allowed in determining depreciation rates since there has to be consistency in this matter.
It would indeed be informative to know if Amtrak uses the same projected service life that the private railroads used back in the day.
My recall is that the last time I priced sleeper service, the charge appeared way too high. And a few months later I read somewhere (perhaps an item in Trains mag?) that the service life projections were being shortened.
At the time is was just a 'wrinkle the eyebrows" moment for me, but for an expert like Phillips to take notice might be worth pondering.
Ken:I would really enjoy sitting down with you over a diet cola or adult beverage and discussing costing of transportation. My experience in LTL trucking was similar to the carload railroading. At certain points it becomes next to impossible and you just have to go with assumptions. How does one allocate costs for humping 3 extra cars at Markham...or the costs of 3 pallets thru a terminal? I basically figured the LTL peddle run was a fixed cost and tried to throw as much freight onto that truck as possible, both for deliveries and pickups.
I read Phillips' column last night and have this possible explanation for the difference in depreciation between the LD trains and the NE Corridor.
Depreciation for LD and other trains are basically determined by the equipment. Let's say you have a train of 10 cars plus 2 locomotives = investment of $40million (may or may not be accurate). Depreciation schedule - 15 years/ straight line depreciation = $2.67 million per year or $7305 per day.
Now, run that train on the NE Corridor, lets say from Boston to Florida and the depreciation costs are much more. Not only does one allocate the equipment, but also Amtrak owns the NE Corridor. What is the value of NE Corridor? I have no idea, but let's say $2 B. Depreciation of that over 40 years = $50,000,000 per year for property. Divide that by the number of trains and one has significantly higher depreciation rates for the trains running on the NEC. Add in the station costs, etc. and soon you are talking real $$$.
Not an accountant, but I do read annual reports, so I have a little idea of how finances work.
The best method of analyzing profitablity of a company is looking at the Cash Flow statement. Is the company generating positive cash flows yearly? Not much a CFO can do to cook those books.
Ed
MP173 Divide that by the number of trains and one has significantly higher depreciation rates for the trains running on the NEC. Add in the station costs, etc. and soon you are talking real $$$.
As soon as you start allocating, you can't accurately get the true cost of an incremental anything. The increment changes the denominator, but you have no idea what will happen to the numerator.
If you have a hump yard that humps 1000 cars a day and has, maybe, 12 yard jobs to make it happen. What happens if I dump 100 more cars a day in there. Maybe nothing....maybe I need some overtime a bit more often. Maybe I need another job a day? Cost models won't tell you that.
Suppose I have a medium sized flat yard that has a fairly low cost per car handled. A large customer dries up. Now, my cost per car handled go up. Oh, no! Better try to drive traffic to lower cost places! Oh, no! Even less traffic, unit costs rise some more! Better start yelling at the supervisor to get his costs under control! What happened to the traffic you drove away? Some of it is now being handled twice at other "lower unit cost" places. Overall costs go up. Network velocity goes down. All driven by misusing the cost model.
Convicted One CSSHEGEWISCHI'm not sure how much discretion is allowed in determining depreciation rates since there has to be consistency in this matter. It would indeed be informative to know if Amtrak uses the same projected service life that the private railroads used back in the day. My recall is that the last time I priced sleeper service, the charge appeared way too high. And a few months later I read somewhere (perhaps an item in Trains mag?) that the service life projections were being shortened. At the time is was just a 'wrinkle the eyebrows" moment for me, but for an expert like Phillips to take notice might be worth pondering.
I seriously doubt Amtrak's sleeper pricing has anything to do with cost. They can't raise the fares high enough to cover the costs w/o driving away all the traffic. The Superliners and Viewliners are nearly all fully depreciated, anyway. Faster depreciation makes costs in the out years lower, anyway.
oltmanndFaster depreciation makes costs in the out years lower, anyway.
Funny, but I don't recall Amtrak ever lowering ticket prices as the result of completed depreciation cycles.
Nope, it is all (sleeper fares) a matter of supply and demand.
Don, I believe the entire costing model can only be based on historical accounting data. Thus, if your 1000/day yard cost $X, then you divide $X/number of cars handled and factor in inflationary costs and you have your new cost for the year.
I like to know what level of volume is driving a business and for railroads in my area, I listen carefully to the defect detectors which give axle counts. True, it is not a scientific measure, but certain trains typically run certain lengths and axle counts. When that number increases, or the railroad runs X or S trains, one know the volumes are picking up.
Does anyone know what railroads allocate for humping a car? $100? $200? I cannot even get a handle on that cost by guessing.
MP173 Ken:I would really enjoy sitting down with you over a diet cola or adult beverage and discussing costing of transportation. My experience in LTL trucking was similar to the carload railroading. At certain points it becomes next to impossible and you just have to go with assumptions. How does one allocate costs for humping 3 extra cars at Markham...or the costs of 3 pallets thru a terminal? I basically figured the LTL peddle run was a fixed cost and tried to throw as much freight onto that truck as possible, both for deliveries and pickups. Ed
Ed,
I'd sure like to get together over a cold one and talk about transportation costing and pricing. I'm fascinated by those things and, frankly, I don't find too many people I can talk with about the long run average cost curve of a railroad.
If you think your LTL operation was similar to a railroad operation, there's a reason for that. When interstate motor freight was regulated in 1935 a bunch of guys at the ICC went into a room and came out with a design for the US motor freight system.
Now, normal folks would have flinched at such a daunting task. But, unfortunately, these guys plowed ahead. The fact that they knew almost nothing about trucking didn't seem to bother them a bit. What they designed was ludicrous, but we got stuck with it for 45 years.
They created the regular route LTL system in the image of a railroad. A local truck (local train or industry job) would go out and do pick ups and deliveries. Then it would bring the freight back to a terminal (rail yard). Then the LTL would be sorted into line haul trucks (switched into trains). The line haul truck would then move to another terminal (destination rail yard). At the destination terminal (another rail yard) the LTL would be sorted (switched) into local trucks (locals or industry jobs) and delivered.
They greatly restricted the line haul routes allowing almost no deviation. (US Highway 6 west to the junction with US Highway 45, then south to state route 17, etc.)
They literally designed a trucking system in the image of a railroad, because a railroad was what they knew. This denied one of the main economic advantages of a truck, its flexibility. Because of the very restrictive route assignments the highways unnaturally became as restrictive as a rail line in geographic coverage.
This nut bag Federal design greatly increased the cost of moving goods and hurt the economy as well as the American people. It was centralized economic planning. Something that has never worked. But it was all the rage under FDR.
You know what happened after deregulation. More efficient methods of moving the LTL quickly developed and the regular route carriers, the truck lines created in the image of a railroad by the central planners, died like flies. And the country got a better, more efficient, logistics system.
greyhoundsThey greatly restricted the line haul routes allowing almost no deviation. (US Highway 6 west to the junction with US Highway 45, then south to state route 17, etc.)
Thank you for this fascinating explanation of what was wrong with regulating the trucking industry. I hope I may be allowed a question: Exactly how did the ICC enforce their regulations on trucks?
A railroad can only operate on railroad tracks. A truck, however, can operate on any highway except those from which they are legally restricted. And a local truck driver knows his local roads. So what is there to prevent a local truck driver from simply driving from the pick up point to the delivery point despite ICC restrictions? Truck drivers are professionals who know the rules of the road and do not violate them; generally there is no reason for the police to pull over a truck. So what is to stop a truck driver from driving the obviously sensible route?
MP173Does anyone know what railroads allocate for humping a car? $100? $200? I cannot even get a handle on that cost by guessing.
It is location dependent around here. The cost model grinds out a different number for each location every month. Ball-parky: $10-$30 a car, long term variable. Which is what makes folk so cranky about sending cars to the BRC, et. al.
Convicted One oltmanndFaster depreciation makes costs in the out years lower, anyway. Funny, but I don't recall Amtrak ever lowering ticket prices as the result of completed depreciation cycles.
Like I said, the rates have nothing to do with the cost. They'd have to go WAY UP from where they are to get to what it costs to provide the service.
They are set by supply and demand, like Ed said.
MP173Don, I believe the entire costing model can only be based on historical accounting data. Thus, if your 1000/day yard cost $X, then you divide $X/number of cars handled and factor in inflationary costs and you have your new cost for the year.
Yes. But it doesn't tell you what your costs would be if you got 100 additional cars a day or if you shifted 100 cars a day from yard A to yard B. You can't just take the "rate" times the volume. The costs come in "chunks".
As a non accountant all that can be seen is a bucket full of worms.
All the following numbers are arbitrary. I buy 50 sleper cars at $4M per car taking 2 years delivery times. . I could depreciate each one as straight line based on expected miles traveled with a schedule of 20 years for no salvage value. Normal maintenance is an operating cost. Assuming equal mileage on each car after 10 years I then need to make a major life extension overhaul of each car of say $1M.extending life to total of 30 years
Now do I make that a one time maintenance cost or add that to the basis of each car? Do I make the mileage depreciation extend for another 10 years to 30 years or use initial mileage deduction? Extending makes value after overhaul now $3M.That would reduce the mileage depreciation how?. Do I keep same depreciation schedule so at 20 years value would be $1M at 20 year mark or extend value to 30 yrs & drop mileage depreciation to 67& of original ?
Then another overhaul at 20 years can extend life further.
As I see it there are just too many ways to do this and each car will have a different mileage and some may have been wrecked how ? All the methods of depreciation explained earlier in this thread can make it even more complicated and that is only one cost of operating a LD train.
oltmannd They'd have to go WAY UP from where they are to get to what it costs to provide the service. They are set by supply and demand,
They'd have to go WAY UP from where they are to get to what it costs to provide the service.
They are set by supply and demand,
Well if the "demand" is all that stiff, then isn't it more than just a little foolhardy to operate at a loss?
There are two things that can be argued without end -
Accountants and psuedo Accountants arguing how to 'accurately' account a company they have no 'inside' information about
Engineers and psuedo Engineers arguing on the intricacies and application of the various formulae concerning dynamic engineering situations.
Convicted One oltmannd They'd have to go WAY UP from where they are to get to what it costs to provide the service. They are set by supply and demand, Well if the "demand" is all that stiff, then isn't it more than just a little foolhardy to operate at a loss?
Yes, and maybe it isn't quite as stiff as we think it is....
John WR greyhoundsThey greatly restricted the line haul routes allowing almost no deviation. (US Highway 6 west to the junction with US Highway 45, then south to state route 17, etc.) Thank you for this fascinating explanation of what was wrong with regulating the trucking industry. I hope I may be allowed a question: Exactly how did the ICC enforce their regulations on trucks? A railroad can only operate on railroad tracks. A truck, however, can operate on any highway except those from which they are legally restricted. And a local truck driver knows his local roads. So what is there to prevent a local truck driver from simply driving from the pick up point to the delivery point despite ICC restrictions? Truck drivers are professionals who know the rules of the road and do not violate them; generally there is no reason for the police to pull over a truck. So what is to stop a truck driver from driving the obviously sensible route?
"Well the ICC is a checkin' on down the line
I'm a little overweight and my log book's way behind
But nothin' bothers me tonight
I can dodge all the scales all right
Six days on the road and I'm gonna' make it home tonight"
From "Six Days On the Road" sung by the late Dave Dudley
http://www.youtube.com/watch?v=wHbGhEfnh2E
That's from a song about an independent owner operator trucker. Those guys often moved commodities that were never regulated, i.e. lettuce. They worked for themselves and broke (and continue to break) every rule they could get away with breaking. That's not applicable to the regular route carriers, which were the carries I was specifically writing about. The O/O's didn't move a lot of LTL, which was regulated, unless it wasn't, as in the case of lettuce. (All rail movement of lettuce was regulated. No truck movement of lettuce was regulated. Guess who wound up hauling the lettuce.)
The regular route carriers were corporations whose employees were paid by the hour. These employees were almost universally organized by the International Brotherhood of Teamsters. Now there's is a big difference between the motivations of an independent O/O working for himself and an hourly unionized worker.
The unionized worker had no incentive to break rules which promoted inefficiency. He, and his union brothers, benefited from the inefficiency. If he bypassed the terminals he took work away from the dock workers, who were also Teamsters. If he got to his destination sooner he cut his own paycheck.
If an LTL carrier did cheat they were very quickly turned in by the union.
The ICC did have an enforcement division which did go out and check as best it could. But they got a lot of help from people who liked the fact that the system was inefficient and wanted to keep it that way.
But this wasn't "The" problem with motor freight regulation. The problem with the regulation was that it existed at all. There is no possible valid economic reason for regulating truck rates. None. Zero. Zip. Nada. It was done to protect politically connected interests at the expense of the American people.
The government fools (economic illiterates) went along with it because they're always seeking to increase their power over the American people. Government types don't act in the best interest of the population, they act in their own best interest.
So all of the people involved acted in their own best interest. Which is something all human beings do.
BaltACD There are two things that can be argued without end - Accountants and psuedo Accountants arguing how to 'accurately' account a company they have no 'inside' information about Engineers and psuedo Engineers arguing on the intricacies and application of the various formulae concerning dynamic engineering situations.
Spot on! Unless one has access to Amtrak's accounting records they don't know how much depreciation is assigned to any capital investment. All we know from the public information, which as corporations go, Amtrak is pretty forthcoming, is the total depreciation charged to the income statement.
Oltman:$10 to $30 per humped car seems pretty reasonable to me, I anticipated more.
A few years ago I was bored and spent an hour on the Chicago Fort Wayne and Eastern tariff. IIRC properly there was either a $300 or $600 per car fee for cars rolling thru the IHB yard. Granted, there was more done than classification as CFE used IHB trackage rights to Tolleston, but that seemed really excessive.
Why do so many trains go thru BRC? CSX by my count has 9 and NS has 4 (could be incorrect on both of these). Is it due to lack of classification capacity in Chicago?Ed
As most of you know, BRC is a joint subsidiary of the Big 6 Class 1's (BNSF, CN, CP, CSX, NS, UP). If a specific run has not been pre-blocked at an outlying yard like for a specific connection, it's probably easier and cheaper to run it to Clearing and let BRC do the classification.
MP173 Oltman:$10 to $30 per humped car seems pretty reasonable to me, I anticipated more. A few years ago I was bored and spent an hour on the Chicago Fort Wayne and Eastern tariff. IIRC properly there was either a $300 or $600 per car fee for cars rolling thru the IHB yard. Granted, there was more done than classification as CFE used IHB trackage rights to Tolleston, but that seemed really excessive. Why do so many trains go thru BRC? CSX by my count has 9 and NS has 4 (could be incorrect on both of these). Is it due to lack of classification capacity in Chicago?Ed
More due to the lack of capacity just upstream and downstream from Chicago at places like Elkhart and Bellevue and the ability to do enough pre-blocking to move the freight through Chicago. BRC charges 2-3X what it cost to do the classification elsewhere.
You try to build blocks for your interchange partners so they can take the traffic decently deep into their territory, but there are limits to how many blocks you can make, how many they can take and how far those blocks might take the "dribs and drabs" out of their way. There might be more efficiency if each road thought the other wasn't trying to "pull a fast one." All of this conspires to keep the BRC, IHB et. al. in business.
CSSHEGEWISCH As most of you know, BRC is a joint subsidiary of the Big 6 Class 1's (BNSF, CN, CP, CSX, NS, UP). If a specific run has not been pre-blocked at an outlying yard like for a specific connection, it's probably easier and cheaper to run it to Clearing and let BRC do the classification.
Agree. It's not all bad just because it's expensive on a per unit basis.
John WR So all of the people involved acted in their own best interest. Which is something all human beings do.
Have you never seen "Dr. Phil"?
oltmanndHave you never seen "Dr. Phil"?
Yes, I have never seen Dr. Phil. I looked him up on Wiki. I hope to continue never seeing him.
oltmanndYes, and maybe it isn't quite as stiff as we think it is..
Well, if in fact operating cost is in no way a factor used in calculating fares (obligatory mention that I have seen no actual proof of that here, btw) then the true foundation of Amtrak's shortcomings become more obvious
Convicted One oltmanndYes, and maybe it isn't quite as stiff as we think it is.. Well, if in fact operating cost is in no way a factor used in calculating fares (obligatory mention that I have seen no actual proof of that here, btw) then the true foundation of Amtrak's shortcomings become more obvious
Thanks to Chris / CopCarSS for my avatar.
Murphy SidingThe selling price of anything is dependant on what the market will bear, based on supply and demand. For example, my opinions are woth nothing, as opinions are everywhere, and everyone gives them away for free
You make a fascinating observation, Murphy. Do you mean that if I stop offering my opinions her the supply will go to zero. That will push up the demand so I will be able to sell them?
The difference is significant.
In a free will/free market transaction there is a welfare gain by all parties involved. Otherwise, the transaction would not occur.
I'll give a trivial example that demonstrates the point, then expand it to explain why government economic transportation regulation hurts the people. The government types, acting in their own best interest, will seek to expand their power by prohibiting free market transactions. That's how they hurt the people while pursuing their own best interest. This is different from free people pursuing their own best interest by making free will, free market transactions which benefit all involved.
Example:
I really like bi-color fresh picked sweet corn. I go to farmers' markets and buy it when I can. When I make the exchange of my money for the corn I realize a gain in my wellbeing. The corn is worth more to me than the money I have. Otherwise, I wouldn't buy it.
Conversely, the farmer values my money more than he/she does his/her corn. When we freely exchange for a what we know to be a greater value to us we both realize a wellbeing gain. Expand this small transaction out to include all products and services in the US economy and you get a overall net welfare gain for the society as a whole.
By each of us non-government types acting in our own best interest we not only improve our own situation, we improve the overall wellbeing of the nation's people by growing the economy. The wealth of a nation is created by such free will, free market transactions.
End Example.
On the other hand, government types involved in economic regulation seek to pursue their own best interests (gain power) by prohibiting free will/free market transactions. This reduces the wealth of the nation but benefits the government types. While my purchase of the corn benefited all involved, government economic regulation harms people, except for the government types and groups with political connections. Very unlike the free will, free market transaction.
In transportation (rail, truck, air, etc.) the government types were more than willing to embrace the chants of groups seeking economic gain by restricting free market transactions. Why not? The government types wanted power and the public be damned.
Think of what a railroad does. The railroad corporation pursues its own best interest by enabling others to pursue their own best interest. (No one would ship anything on a railroad unless they realized a net benefit in doing so. Kind of like my purchase of the corn.) By using a railroad a Kansas wheat farmer has access to buyers all over the world. He/she can sell to the buyer who will most benefit from the wheat while gaining the most from the sale. This increases the wealth of our nation. Which is a good thing. Without that wealth creation we have no money (wealth) for schools or hospitals.
When the government gets involved it restricts the ability of the railroad (or trucking company, airline, etc.) to enable others to pursue their own best interests. This harms our people.
That's the difference. Government acting in its own best interest is harmful. A free people freely acting in their own economic best interest is beneficial.
Every known society in the history of the world has had government. Government is not going to go away. Not only railroads but also all businesses must live with government. That is simply the way things are.
Government is a great many people on a great many levels engaged in governing. This is what you call regulation. Sometimes people in government make mistakes. Sometimes people in private industry make mistakes. When it comes to American railroads I think people on both sides have at times made mistakes.
Historically, wheat farmers and farmers who raised other grains have not always agreed that they were best served by unregulated railroads. Because of that the Grange movement emerged and that movement was a strong force for the regulation of railroads. The farmers did not regard themselves as worse off because railroads were regulated.
The United States has always had government. We have had railroads for most of our history. At different times there have been different relationships between the government and railroads. While the relationship has not by a long shot been perfect I think it has not been a complete failure either.
Bravo Greyhounds!
Mac
John WR Every known society in the history of the world has had government. Government is not going to go away. Not only railroads but also all businesses must live with government. That is simply the way things are. Government is a great many people on a great many levels engaged in governing. This is what you call regulation. Sometimes people in government make mistakes. Sometimes people in private industry make mistakes. When it comes to American railroads I think people on both sides have at times made mistakes. Historically, wheat farmers and farmers who raised other grains have not always agreed that they were best served by unregulated railroads. Because of that the Grange movement emerged and that movement was a strong force for the regulation of railroads. The farmers did not regard themselves as worse off because railroads were regulated. The United States has always had government. We have had railroads for most of our history. At different times there have been different relationships between the government and railroads. While the relationship has not by a long shot been perfect I think it has not been a complete failure either.
Murphy Siding, the cost is somewhat of a factor,
Well, I finally read Phillip's June article, and there is not a doubt in my mind that he is spot-on about Amtrak's Inclusion of EVERY CONCEIVABLE COST charged against it's long distance trains (including sleeper service) in it's accounting. And it wouldn't surprise me if they were likewise cherry picking their ACELA figures to make their pet project look better than it is.
I used to have an extremely wealthy and cost savy employer. (Iron fisted sole proprietorship), and a large part of my job was to establish working budgets for projects we were contemplating.
And the disparity was amazing just how ruthlessly cost conscious he was (at the 'build-it/pass-on-it' point of consideration) for projects he really wasn't all that interested in, while at the same time reckless to the point of cost negligence for projects he had a personal favor for. In the former he would insist upon charging costs against the project which he was going to have to pay regardless if the project was done or not. While in the latter, he would scoff at my inclusion of the very same costs to be charged against his pet projects.
Since I've "been there, done that", it requires no imagination what so ever on my part to believe Phillips knows what he is talking about here. This will likely be a big part of any consideration whether or not to abolish the long distance services.
Convicted One Well, I finally read Phillip's June article, and there is not a doubt in my mind that he is spot-on about Amtrak's Inclusion of EVERY CONCEIVABLE COST charged against it's long distance trains (including sleeper service) in it's accounting. And it wouldn't surprise me if they were likewise cherry picking their ACELA figures to make their pet project look better than it is. I used to have an extremely wealthy and cost savy employer. (Iron fisted sole proprietorship), and a large part of my job was to establish working budgets for projects we were contemplating.
While your previous employer may have engaged in certain questionable practices it does not follow that Amtrak does. After all, all of us can lie, cheat and steal. But all of us do not do so.
It is hard to understand how the costs of many long distance trains can be charged to Northeast service when many such trains do not come remotely near the Northeast corridor.
Amtrak may we well able to explain its accounting practices. However, Don Phillips never asked Amtrak to respond to his allegations. As a result the article is kind of one sided.
John WR oltmanndHave you never seen "Dr. Phil"? Yes, I have never seen Dr. Phil. I looked him up on Wiki. I hope to continue never seeing him.
There are no shortage of folk who don't think - or at least act - rationally.
John WR it does not follow that Amtrak does. After all, all of us can lie, cheat and steal. But all of us do not do so.
Nor,I might add, is your preferred outlook any assurance that they don't.
And, let me be abundantly clear about this, I am in no way accusing Amtrak of unlawful or illegal conduct. There is ample opportunity to shade the books within the law, while perhaps only skirting issues that touch more on ethics, than law.
Bottom line, if an authority having the final say has the inclination to sift through the books and make creative allocations and slanted amortization schedules to penalize their perceived 'red headed stepchild' segments of their operations, while giving "fair haired son" segments of their operations completely different treatment.....neither your nor my personal preferences are going to be able to do a thing to stop them.
Convicted OneI am in no way accusing Amtrak of unlawful or illegal conduct.
OK. But there is a snag. Based on the information Don Phillips provides, in order to reduce the losses or show a profit on the Acela it is necessary to increase the losses shown for the long distance trains that use those tracks. By increasing the long distance losses the arguments of those who say long distance passenger trains cost too much are supported. And by showing a profit or small loss for Acela you the arguments for those who say it should be sold to the private sector are supported. It seems like a lose -- lose strategy.
A thought occurred to me while I was awaiting your reply. Phillips states that the costs triple once the long distance trains are on home rails.
I wonder if the cost structure that the long distance trains incur once on the NEC varies from that which they must support when running on lines owned by the freight railroads BECAUSE of the nature of the agreement with the freights?
In theory, with more trains using the freight lines, fixed costs are spread over more trains POSSIBLY resulting in the passenger trains having a smaller share to support? Anyone know?
John WR .............. It seems like a loose -- loose strategy.
.............. It seems like a loose -- loose strategy.
Convicted One A thought occurred to me while I was awaiting your reply. Phillips states that the costs triple once the long distance trains are on home rails. I wonder if the cost structure that the long distance trains incur once on the NEC varies from that which they must support when running on lines owned by the freight railroads BECAUSE of the nature of the agreement with the freights? In theory, with more trains using the freight lines, fixed costs are spread over more trains POSSIBLY resulting in the passenger trains having a smaller share to support? Anyone know?
Hey Murphy, that's a very long word.
Murphy SidingI wonder if the cost structure that the long distance trains incur once on the NEC varies from that which they must support when running on lines owned by the freight railroads BECAUSE of the nature of the agreement with the freights?
Yes. Partly. The other part is that 125 mph class 6 ROW is mucho costly to keep. Class 4 track is much simpler.
Three things are happening.
First the LD trains are paying only a small (5-10%) fraction of the market value of the capacity they consume. The freight carriers are subsidizing the LD trains to the tune of hundreds of millions of dollars per year.
Second, since ATK owns the NEC it is faced with the full cost of ownership of the line. No subsidy from the freight carriers.
Third, the commuter carriers are in the same situation as ATK is on the freight carriers, the commuters pay only marginal cost of the capacity they consume. That is far less than full cost so ATK is subsidizing the commuters. As an example assume full cost of ownership is $110,000 per mile. Assume 40 ATK moves per average day and 80 commuter moves per average day. The 80 commuters pay only marginal cost which we will assume to be $10,000 per year, so ATK has net cost of $100,000. For simplicity allocate on basis of train miles, or train count since we are only dealing with 1 mile. Each ATK train is charged $2,500 for this mile per year. If all trains were charged at the full rate. would be $110K/120 or $916.66 per train. Huge subsidy to commuters.
A separate issue is the basis of allocation as between a LD train on NEC and Acela. Different basis will yield different results. We did train miles above. Car miles would charge long trains more than short ones. If I was trying to make Acela look good, and assuming it is lighter than LD trains, then I would allocate on ton-miles, or tons in this case. Choice of allocation method is probably allowed under the accounting rules. Left to myself, I would allocate on train miles since it is best single proxy for use and can be reasonably applied to a variety of expenses like dispatch and supervision. Ton-mile basis makes sense for track maintenance, but not for fixed plant depreciation and not for dispatching and supervision.
Mac McCulloch
The bottom line {pun sort of intended} is that we don't really know the breakout for depreciation for Acela (NEC) vs. LD routes, as sam1 pointed out. And we do not know if Don Phillips is accurate or what his agenda is, just as Joe Boardman undoubtedly has one also.
schlimm The bottom line {pun sort of intended} is that we don't really know the breakout for depreciation for Acela (NEC) vs. LD routes, as sam1 pointed out. And we do not know if Don Phillips is accurate or what his agenda is, just as Joe Boardman undoubtedly has one also.
We know with regard to fixed plant. Anything operating on freight carrier is ZERO depreciation. On NEC ATK is exposed to 100% of the depreciation. ATK can not manipulate those figures. What they can do is choose a basis of allocation that favors one service over another on the NEC.
Mac,
Phillips argues that Amtrak benefits my minimizing Acela losses or even showing an Acela profit while maximizing losses on long distance trains that use the Northeast Corridor. I just don't see how Amtrak benefits.
John,
I do not see how ATK as a whole benefits. I do see how it supports the narrative that ATK needs more Acela train sets.
PNWRMNMI do not see how ATK as a whole benefits. I do see how it supports the narrative that ATK needs more Acela train sets.
I agree, Mac. Amtrak is taking this narrative and running with it. They propose not only to buy more Acela trainsets; they also want to build a whole new rail line between New York and Boston. This line, if built, would be a sort of corridor line that would serve the end points. Under current legislation it should be built by the states it passes through but there is no suggestion here that anyone but the Federal Government would fund it. Of course, Connecticut and Rhode Island might be reluctant to fund it since it would not serve those states. Would New York and Massachusetts fund such a line? Well, Amtrak does not propose that.
But the narrative is still there. And I think it will stay simply because so many people agree with this particular narrative.
PS. Where does this leave Don Phillips' point? If the current Acela has a large but hidden deficit then certainly new Acela service on a whole new rail line would have a much larger deficit. Yet many people -- and I confess to being one of them -- believe northeast rail service must be continued because we simply have run out of space for more roads and planes. So deficit or no we need northeast rail service.
That whole LD cost sharing of the NEC thing is most likely about cost allocation rules within Amtrak.
Remember, now, that the NEC has all this nice class 6 track that cost a bundle to keep in shape for 125+ mph service.
You absolutely have to have this for Acela, and even the conventional service to work.
It's "nice to have" for the commuter operators but it doesn't kill their business not to have it.
The LD trains don't really need it at all. 80 mph up the NEC would only add an hour or so to 20+ hour trips. Nobody's buying tickets because of the speedy trip times. You only need to have class 4 track track for this.
So, how does Amtrak allocate their cost of owning and maintaining this high speed track appropriately? Probably the most straightforward way - linearly by train-mile or car mile since all traffic takes advantage of the high speeds available as best they can.
So, it is "unfair" that those LD trains have to pay for a proportional share of track ownership and maintenance that they don't "need". But, to try to add a factor based on commercial need or, to a lesser extent, exactly which trains are causing the most wear and tear would be a nightmare.
Mac:Great explanation on the depreciation of the NEC and how it effects Amtrak. Owning your own railroad is an expensive proposition.
MP173 Mac:Great explanation on the depreciation of the NEC and how it effects Amtrak. Owning your own railroad is an expensive proposition. Ed
...when you can only charge the tenets your marginal cost for hosting them. That's like a hotel only changing you for the cost to wash your towels and power the TV.
Of course, Amtrak's NEC is like staying at the Plaza for NJT et.al. and like the Taj Mahal for NS!
oltmannd Probably the most straightforward way - linearly by train-mile or car mile since all traffic takes advantage of the high speeds available as best they can. So, it is "unfair" that those LD trains have to pay for a proportional share of track ownership and maintenance that they don't "need". But, to try to add a factor based on commercial need or, to a lesser extent, exactly which trains are causing the most wear and tear would be a nightmare.
Probably the most straightforward way - linearly by train-mile or car mile since all traffic takes advantage of the high speeds available as best they can.
Or perhaps several nightmares. But it is also an opportunity for commenters who want to take a somewhat different position. The obvious reason is that a person has a different political position. But there is another reason. There is a group of people -- some call them the "chattering classes --" who earn their living because of their writing skills and often have limited knowledge of their subject. They need things to write about. No one is going to pay you money for saying "Amtrak is doing all the right things." They have got to charge Amtrak is doing some wrong things if they hope to get attention. So the nightmares can pay off.
John WRNo one is going to pay you money for saying "Amtrak is doing all the right things."
Worse, they might lock you away!
...and we haven't even begun to talk about the opportunity cost of train operation. What if the LD trains didn't operate on the NEC. What is the value of what could fill their slots on the railroad. More NJT commuters? More Acela riders? More trains in generals since the 110 mph LD trains wouldn't be in the way of the 125/135 mph trains. A chance to turn the order for those 125 mph baggage cars into coaches?
John WR PS. Where does this leave Don Phillips' point? If the current Acela has a large but hidden deficit then certainly new Acela service on a whole new rail line would have a much larger deficit. Yet many people -- and I confess to being one of them -- believe northeast rail service must be continued because we simply have run out of space for more roads and planes. So deficit or no we need northeast rail service.
But how do you feel about LD trains such as the California Zephyr, Empire Builder or the Southwest Chief, etc.?
Not wanting to speak for anyone, but I've always thought of Don Phillips as an Amtrak supporter. All of Amtrak, not just the corridor or state sponsored local services. It may be he is afraid that at by showing the LD service as big money losers, Amtrak may be thinking about shedding these trains. Something like the plans of the MILW RD (successful) or the RI (unsuccessful) to shrink down to a "profitable" core system. Or at the very least, Amtrak themselves saying the LD service is a money pit akin to the Grand Canyon, it gives critics who want to shut down most, if not all, of Amtrak fuel for their fire.
I doubt that he's against Acela trains, or even the expansion of them. He just might think all the services should be treated the same when it comes to the way they are accounted for.
jeffhergert John WR PS. Where does this leave Don Phillips' point? If the current Acela has a large but hidden deficit then certainly new Acela service on a whole new rail line would have a much larger deficit. Yet many people -- and I confess to being one of them -- believe northeast rail service must be continued because we simply have run out of space for more roads and planes. So deficit or no we need northeast rail service. But how do you feel about LD trains such as the California Zephyr, Empire Builder or the Southwest Chief, etc.? Not wanting to speak for anyone, but I've always thought of Don Phillips as an Amtrak supporter. All of Amtrak, not just the corridor or state sponsored local services. It may be he is afraid that at by showing the LD service as big money losers, Amtrak may be thinking about shedding these trains. Something like the plans of the MILW RD (successful) or the RI (unsuccessful) to shrink down to a "profitable" core system. Or at the very least, Amtrak themselves saying the LD service is a money pit akin to the Grand Canyon, it gives critics who want to shut down most, if not all, of Amtrak fuel for their fire. I doubt that he's against Acela trains, or even the expansion of them. He just might think all the services should be treated the same when it comes to the way they are accounted for. Jeff
Agree. But, the problem is "treated the same" and "treated fairly" aren't always the same thing and often subject to interpretation. Too often the interpretation depends on the outcome you wish. Both sides know it and are quick to point the finger at the other.
I would bet that the LD trains ARE treated the same at all other Amtrak trains on the NEC - costs allocated per train/car/axle. It's just that some would say that's not fair. Why should the LD trains have to pay for expensive, high speed tracks they don't need?
Amtrak's trains hoisted by other carriers have equipment depreciation. Amtrak depreciates equipment (locomotives and cars) in groups up to 42 years, which probably means that the newer equipment is still incurring some depreciation and embedded interest charges, albeit relatively little.
The hoist carriers may pass some depreciation through to Amtrak in their billings. Again, without being able to look at the books, we simply don't know.
Sam1 The hoist carriers may pass some depreciation through to Amtrak in their billings. Again, without being able to look at the books, we simply don't know.
Sam,
Freight railroads "hosting" ATK can not pass thru their MofW depreciation. All they get is marginal cost, which is next to nothing.
PNWRMNM Sam1 The hoist carriers may pass some depreciation through to Amtrak in their billings. Again, without being able to look at the books, we simply don't know. Sam, Freight railroads "hosting" ATK can not pass thru their MofW depreciation. All they get is marginal cost, which is next to nothing. Mac McCulloch
The freight railroads supposedly bill Amtrak for the cost of hoisting its trains. Included in the hoist railroad's costs would be depreciation. Clearly, any depreciation that flows through to Amtrak would be very small.
How do you know that they don't include a small amount of depreciation in their billings to Amtrak. I know that they cannot flow through any taxes, but I was not aware that they cannot flow through any depreciation.
In another post, I don't remember where it is located, a comment was made that the freight railroads lose hundreds of millions of dollars a year hoisting Amtrak's trains. Unless one has access to all of the freight railroads books, how would one know that?
Sam1 In another post, I don't remember where it is located, a comment was made that the freight railroads lose hundreds of millions of dollars a year hoisting Amtrak's trains. Unless one has access to all of the freight railroads books, how would one know that?
That was probably one of my posts since I seem to be he only one who cares about this issue.
By law the railroad can only bill ATK for marginal costs. Carriers can not bill ATK for delays to freight train incurred meeting ATK and ATK is required to have priority treatment. This is clearly a marginal costs that the carriers can not bill for! Railroading is a high fixed cost business so marginal costs are a small part of revenue and total cost.
One could make a reasonable estimate by getting what ATK pays host railroads per train mile from ATK reports.
One could make reasonable estimate of the value of a train slot by taking average revenue per freight train mile and removing fuel, labor and equipment costs. The remainder would be the value of the slot per train mile. Subtract ATK payment from value and that is what the freight carriers are subsidizing ATK per train mile. Multiply by ATK train miles on freight carriers on an annual basis. See freight carrier's R1 report. ATK probably also has to file an R1 but I have never looked for it. This figure is biased low since it does not include the cost of ATK caused delay to freight trains.
IIRC you were in the utility business. If you were required to wheel power for someone else at marginal cost what costs could you include? Certainly not depreciation on the transmission lines and transformers. I would expect that power wheelage fees are based on average costs, not marginal costs, and I would expect the average costs to include a return on invested capital.
The habit of abusing freight carriers dies hard in the hallowed halls of congress.
PNWRMNM Sam1 In another post, I don't remember where it is located, a comment was made that the freight railroads lose hundreds of millions of dollars a year hoisting Amtrak's trains. Unless one has access to all of the freight railroads books, how would one know that? Sam, That was probably one of my posts since I seem to be he only one who cares about this issue. Mac McCulloch
You are not the only one who cares about the issue. The freight railroads should be able to recover all the costs associated with hoisting Amtrak's trains. Forcing them to hoist Amtrak's trains without being able to recover the full cost of doing so is an expropriation of shareholder wealth. What makes it even worse is that it is a hidden expropriation.
You and I make two.
. The remainder would be the value of the slot per train mile. Subtract ATK payment from value and that is what the freight carriers are subsidizing ATK per train mile.
jeffhergertBut how do you feel about LD trains such as the California Zephyr, Empire Builder or the Southwest Chief, etc.?
I would assume Don Phillips is not talking about these trains since they have nothing to do with the Northeast Corridor.
To answer your broader question, I think that in the long haul there is an advantage to the freight railroads in hauling Amtrak trains. The advantage is that every Amtrak rider gets to see freight operations up close. This is a regular dose of reality about freight railroads made to the rail riding public and I think ultimately freight railroads will benefit from it.
Of course, not all people agree with me. But I will let them speak for themselves.
jeffhergertNot wanting to speak for anyone, but I've always thought of Don Phillips as an Amtrak supporter.
I've only been reading Don Phillips for a short time and I don't want to rush to judgement.
My impression is that he as been reporting on railroads for a long time and his expertise is both deep and broad. Whether or not he supports Amtrak I don't know. However, I think here he is simply reporting the facts as he sees them.
On the issue of ATK paying a fair share to theel that the issue should be re-examined, possibly using Don oltmann's calculus.. If the accounting were done correctly, it would show more dramatically the inefficiency of LD trains. I wonder how much the rents would increase? And then perhaps the fares would need to more accurately reflect the true costs of these trains or else be subsidized by some other funding source, as Joe Boardman has stated.
John WR To answer your broader question, I think that in the long haul there is an advantage to the freight railroads in hauling Amtrak trains. The advantage is that every Amtrak rider gets to see freight operations up close. This is a regular dose of reality about freight railroads made to the rail riding public and I think ultimately freight railroads will benefit from it.
This one reminds me of a line from Dr. Walter E. Williams. (For those not in the know, Dr. Williams is a PhD economist who retired as the head of the economics department at George Mason University.)
Williams once riddled: "Why is a thief preferable to a politician?" The answer: "A thief will simply take your money and be on his way. A politician will take your money and then insist on staying around and telling you why you are better off without your money."
I'm sure that the private sector dolts managing and investing in the railroads just don't realize how much of a favor the government is doing them by seizing the railroad's assets without reasonable, just compensation. They're better off without the revenue from that freight train. They are just are too blame dumb to realize it.
PNWRMNMOne could make reasonable estimate of the value of a train slot by taking average revenue per freight train mile and removing fuel, labor and equipment costs. The remainder would be the value of the slot per train mile. Subtract ATK payment from value and that is what the freight carriers are subsidizing ATK per train mile. Multiply by ATK train miles on freight carriers on an annual basis. See freight carrier's R1 report. ATK probably also has to file an R1 but I have never looked for it. This figure is biased low since it does not include the cost of ATK caused delay to freight trains.
I think that when Amtrak started and there were lots of "unused slots" on nearly every route, this approach would have drawn funny looks.
But, now, it's exactly the right approach. It's the one taken by the UP when they costed out a daily Sunset. They looked at how much infrastructure they'd have to add so that there was zero impact on the line capacity for freight.
The "back of the envelope" calculation would be Amtrak train miles x (Frt RR net revenue/frt RR total train miles). In reality, an Amtrak train can consume more than pro-rata capacity based on train miles. They generally don't "go with the flow". They tend to pass a lot of traffic en route. Railroads would use a modeling tool, probably RTC, to determine exactly how much capacity was being consumed by the Amtrak train.
In some places, Norfolk to Petersburg, for example, there are plenty of "slots" going unused, so small improvements in the route allowed a new passenger train to operate at a reasonable cost. Other, like Cincy to Atlanta are very close to capacity. Adding an Amtrak schedule without harming freight capacity would cost a small fortune.
I just looked at some numbers. Doing the "back of the envelope" calculation, NS made $700M net from railway operations in 2012. The Crescent is about 1% of NS's train miles. That works out to about $9 a train mile, which is about what Amtrak pays, I believe.
oltmannd [I think that when Amtrak started and there were lots of "unused slots" on nearly every route, this approach would have drawn funny looks. But, now, it's exactly the right approach. It's the one taken by the UP when they costed out a daily Sunset. They looked at how much infrastructure they'd have to add so that there was zero impact on the line capacity for freight. They generally don't "go with the flow". They tend to pass a lot of traffic en route. Railroads would use a modeling tool, probably RTC, to determine exactly how much capacity was being consumed by the Amtrak train. In some places, Norfolk to Petersburg, for example, there are plenty of "slots" going unused, so small improvements in the route allowed a new passenger train to operate at a reasonable cost. Other, like Cincy to Atlanta are very close to capacity. Adding an Amtrak schedule without harming freight capacity would cost a small fortune.
[I think that when Amtrak started and there were lots of "unused slots" on nearly every route, this approach would have drawn funny looks.
They generally don't "go with the flow". They tend to pass a lot of traffic en route. Railroads would use a modeling tool, probably RTC, to determine exactly how much capacity was being consumed by the Amtrak train.
John WR jeffhergertBut how do you feel about LD trains such as the California Zephyr, Empire Builder or the Southwest Chief, etc.? I would assume Don Phillips is not talking about these trains since they have nothing to do with the Northeast Corridor. To answer your broader question, I think that in the long haul there is an advantage to the freight railroads in hauling Amtrak trains. The advantage is that every Amtrak rider gets to see freight operations up close. This is a regular dose of reality about freight railroads made to the rail riding public and I think ultimately freight railroads will benefit from it. Of course, not all people agree with me. But I will let them speak for themselves.
When I read his article, I get the impression he is talking about ALL long distance trains, not just those that use the Northeast corridor.
jeffhergertWhen I read his article, I get the impression he is talking about ALL long distance trains, not just those that use the Northeast corridor.
As I recall in the article Don simply refers to long distance trains. But as it goes on he explains that the costs of the Acela are inappropriately allocated to long distance trains that use the Northeast Corridor. The only way that makes sense to me is that he is just writing about those particular ld trains and not all ld trains. Do you understand it differently?
Blue Streak,
I am very familar with the BNSF Transcon as I see it frequently when I travel on I-40, and when I stay at the La Posada in Winslow where crews change. There are several manifest trains each day which are restricted to 60 MPH max, and less when certain commodities are in the consist. There are at times are more than 100 trains a day passing through Winslow and somehow the dispatchers handle #'s 3 and 4 with an excellent on time percentage.
This is accomplished because Santa Fe and later BNSF invested in a super RR with 50MPH crossovers every 6-10 miles which allow the DS to move trains back and forth as needed. There is not, to my knowledge, any comparable operation in the USA over the distance between San Bernardino and Belen; perhaps none for even 200 miles. The UP Sunset line is not being built to that standard and would be very-very expensive to duplicate for AMTRAK to operate daily.
This is a very late reply to an earlier comment by Rail Pundit and his statement about the selling of USTreasury Debt and the number of institutions lined up to purchase this debt.
Bloomberg Radio reported today that 72% of last month's UST debt was purchased by the Fed, as part of the QE3 or as some people refer to it ...QEternity.
John, I get my impression from the paragraph after the one where he specifically talks about LD trains on the NE Corridor. The one that starts "Suppose long-distance trains went away overnight,..."
There have been critics who have said if they can't get rid of Amtrak completely, at least get rid of the LD trains. That the LD trains are the big money losers while the NE Corridor (and maybe other regional services) better cover their losses. There have been others, Don Phillips seems to be one, who have said the LD trains losses aren't as big has reported, nor that the NE Corridor isn't as "profitable" (smaller losses) than reported.
I just feel that, except for one place where he talks about LD trains on the NE Corridor, he's talking about all LD trains.
jeffhergertI just feel that, except for one place where he talks about LD trains on the NE Corridor, he's talking about all LD trains.
Well, perhaps you are right, Jeff.
I think that many or most of the people who argue against long distance trains are not really in good faith. In order for Amtrak to exist it must be a national system; that is the only way to maintain a national consensus to continue it. To the extent that we get rid of long distance trains we also get rid of the national consensus that holds Amtrak together. So those who argue to get rid of long distance trains are really arguing to have Amtrak completely all apart for lack of a national consensus.
I guess then, if Don Phillips can show Acela's true losses, the conclusion must ultimately be that long distance trains don't loose as much as their opponents allege.
John WR I think that many or most of the people who argue against long distance trains are not really in good faith. In order for Amtrak to exist it must be a national system; that is the only way to maintain a national consensus to continue it. To the extent that we get rid of long distance trains we also get rid of the national consensus that holds Amtrak together. So those who argue to get rid of long distance trains are really arguing to have Amtrak completely all apart for lack of a national consensus.
That may be true for some people, though it sounds a lot like some nefarious conspiracy theory. But many of us in these forums believe the only way for Amtrak to really grow as a useful passenger rail system is to minimize the anachronistic long distance routes. Either that or do as Joe Boardman of Amtrak suggests, which is to get them subsidized separately from the rest of Amtrak. So ids Boardman part of that conspiracy, too?
"So those who argue to get rid of long distance trains are really arguing to have Amtrak completely all apart for lack of a national consensus. " That is merely your assertion, but it is a pretty nasty one. Try making a better case for the LD routes, rather than ad hominem attacks, if you can..
In FY12 the long distance trains lost $600.9 million before depreciation, interest, and miscellaneous charges. Assuming the long distance trains wear 10 per cent of Amtrak's annual depreciation and interest charges ($744.5 million), the total loss for the long distance trains would have been approximately $675.4 million.
The NEC had a operating profit of $$281.9 million before depreciation, interest, and miscellaneous charges in FY12. Of this amount $206.5 million or 73.3 per cent was contributed by the Acelas.
What we don't know from Amtrak's operating reports or financials is how much depreciation, interest, and miscellaneous charges are allocable to the NEC. If we assume that the NEC wears 80 per cent of Amtrak's depreciation, etc., then it had a net loss of $313.3 million in FY12, which is less than half of the losses incurred by the long distance trains. Furthermore, if we assume that 73 per cent of the depreciation on the NEC is attributable to the buildout to hoist the Acela trains, their fully allocated loss would have been $228 million, which is much less than the losses run-up by the long distance trains.
In a sense I am contradicting what I said earlier, i.e. without access to Amtrak's books, it is impossible to know how much depreciation, etc. is attributable to the NEC, other corridor trains, and the long distance trains. Nevertheless, it is not too great of a stretch to believe that the long distance trains lose a lot of money and have been doing so for a long time.
Using 2010 numbers as a base, along with the aforementioned assumptions regarding depreciation, etc., if Amtrak had not been saddled with the long distance trains in FY10, it could have covered its operating costs on its two remaining product lines with an average fare increase of $7.41. To cover its fully allocated costs, without the long distance trains, it would have had to raise its fares by an average of $33.23.
Needless to say, my calculations were based on assumptions that cannot be verified unless one has access to Amtrak's books. As far as I know Don Phillips does not have such access. And I can certify that I don't have access to them. But I do have access to Amtrak's audited financial reports. So does everyone else.
Why aren't Amtrak's books a matter of public record?
Sam1 In FY12 the long distance trains lost $600.9 million before depreciation, interest, and miscellaneous charges. Assuming the long distance trains wear 10 per cent of Amtrak's annual depreciation and interest charges ($744.5 million), the total loss for the long distance trains would have been approximately $675.4 million. The NEC had a operating profit of $$281.9 million before depreciation, interest, and miscellaneous charges in FY12. Of this amount $206.5 million or 73.3 per cent was contributed by the Acelas. What we don't know from Amtrak's operating reports or financials is how much depreciation, interest, and miscellaneous charges are allocable to the NEC. If we assume that the NEC wears 80 per cent of Amtrak's depreciation, etc., then it had a net loss of $313.3 million in FY12, which is less than half of the losses incurred by the long distance trains. Furthermore, if we assume that 73 per cent of the depreciation on the NEC is attributable to the buildout to hoist the Acela trains, their fully allocated loss would have been $228 million, which is much less than the losses run-up by the long distance trains. In a sense I am contradicting what I said earlier, i.e. without access to Amtrak's books, it is impossible to know how much depreciation, etc. is attributable to the NEC, other corridor trains, and the long distance trains. Nevertheless, it is not too great of a stretch to believe that the long distance trains lose a lot of money and have been doing so for a long time. Using 2010 numbers as a base, along with the aforementioned assumptions regarding depreciation, etc., if Amtrak had not been saddled with the long distance trains in FY10, it could have covered its operating costs on its two remaining product lines with an average fare increase of $7.41. To cover its fully allocated costs, without the long distance trains, it would have had to raise its fares by an average of $33.23. Needless to say, my calculations were based on assumptions that cannot be verified unless one has access to Amtrak's books. As far as I know Don Phillips does not have such access. And I can certify that I don't have access to them. But I do have access to Amtrak's audited financial reports. So does everyone else.
Murphy Siding Why aren't Amtrak's books a matter of public record?
Compared to most organizations, Amtrak is quite transparent about its accounting policies, procedures, and practices. However, to understand the details of its policies regarding the allocation of depreciation, interest, miscellaneous charges, etc., one would need access to the company's property accounting books and cost allocation models. I don't know of any company that makes these records and models available to the public.
One might be able to gain access to the property accounting records and cost allocation models by filing a Freedom of Information Act request. Amtrak may be able to claim that the information is restricted for competitive reasons. If the FIA request were successful, the person requesting the information would have to pay for the labor and copy costs required to produce the records, since I doubt one would be allowed to physically inspect the books at Amtrak's headquarters.
oltmannd greyhoundsThat would have been a nice, clean way of doing it. Except....you really cannot "cost out" a carload movement on a diverse, complicated rail network. What you can do is take a bunch of averages, add them together and sort of, kind of, get a inkling of the average cost of moving the car of lumber from Council Bluffs to Bloomington, IL. Exactly! The allocation of costs is really squishy business. Depending on how you proceed, you can get radically different...and misleading...answers, none wholly right or wrong.
The allocation of costs is really squishy business.
Don and Greyhounds have it exactly right. I've never done RR cost allocation, but I have tried to allocate overhead costs in a textile factory making several (way too many) different products, each requiring a different level of inputs such as raw material procurement time, warehouse operation, cutting table time, and supervisory staff time. Allocating costs in a textile factory has to be MUCH simpler than allocating costs on a RR network, and well before I was done with the job I would have been ecstatic if I could have paid someone to kill me with a quick, clean, painless .45 round to the head. Once you start making allocations you have departed from the Land of Certainty and are floundering in the Great Dismal Swamp of judgment, estimates and complexity.
Getting back to Don Phillips, he argues that Acela looses large amounts of money and that long distance trains loose far less than Amtrak claims.
OR
Don is clearly a writer with a strong liberal philosophy, who more times than not uses his page in Trains to rant about those who oppose dropping billions of dollars down the Amtrak sink hole. Don seems never to have met a government run passenger train he didn't like, and his article in June was a not very subtle jab at Amtrak intended to tell them to change their accounting methods to make gov't run passenger rail more financially attractive. Or more accurately, make it less financially unattractive.
John WR Getting back to Don Phillips, he argues that Acela looses large amounts of money and that long distance trains loose far less than Amtrak claims.
We never left Don Phillips.
He made an unsubstantiated assertion (not an argument) that Amtrak is under costing the NE Corridor and over costing long distance trains.
Some of us pointed out the great difficulty of "costing" services on rail networks as well as the corresponding difficulty of assigning revenues to match those costs.
I honestly doubt that Phillips knows enough to understand the subjectivity involved. He doesn't like the way the numbers now come out. So, like a child, he cries out to have the numbers changed.
And, naturally, at the end he takes a gratuitous swipe at people like me who see no reason for a Federal subsidy to passenger trains. He says we are "laughable". Well, he can write what he wants. But I see him as ignorant. (I can also write what I want.)
MikeInPlanoDon seems never to have met a government run passenger train he didn't like, and his article in June was a not very subtle jab at Amtrak intended to tell them to change their accounting methods to make gov't run passenger rail more financially attractive. Or more accurately, make it less financially unattractive.
When Don Phillips reports that the Acela in fact looses a lot of money and Amtrak covers up these loses I don't see this as reflecting his liking for the Acela.
Sam1 ...To know how Amtrak allocates its costs, one would have to be an insider or have an insider give him or her access to the company's books. As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards. The implication that Amtrak's officers are unduly influencing the company's accounting procedures and practices, i.e. not following GAAP as well as governmental accounting principles where applicable, is not supported. The further implication that the external auditors from one of the world's most highly regarding accounting firms are turning a blind eye to these accounting irregularities is likewise without foundation. Amtrak follows the same accounting principles as every other stock company in the United States. That is not to say that they don't have some wiggle room in how they interpret and apply accounting standards, especially when it comes to estimates, i.e. depreciation, amortization, retiree benefits, etc., but any estimates that they use must be supported, and they must be consistent.
...To know how Amtrak allocates its costs, one would have to be an insider or have an insider give him or her access to the company's books.
Multiple newspapers recently reported that Starbucks claimed zero profit in the UK for tax purposes by charging its UK operations with a large cost for licensing the Starbucks brand from its Dutch subsidiary and buying raw coffee from its Swiss subsidiary, wiping out what would otherwise have been a substantial profit (see http://latitude.blogs.nytimes.com/2012/12/12/after-avoiding-taxes-for-years-starbucks-has-become-a-target-for-london-protesters/). This defies common sense: does anyone believe that if Starbucks shut down all of its stores in the UK, its total global profit would not decrease? If its MBAs believe so, they should eliminate all those redundant retail outlets, expecting that magically the Dutch and Swiss subsidiaries will still show the same profit as before, even though they will no longer sell any raw coffee or intellectual property to the vanished UK subsidiary.
The motive for this accounting skulduggery is that profits are taxed at a lower rate in Switzerland and the Netherlands. I have seen no suggestion that the accountants have violated any rules, or that the auditors have given Starbucks anything besides a clean report.
This leads me to believe that Amtrak's accountants and auditors are perfectly capable of doing exactly what Phillips claims. I agree that Phillips doesn't give us enough information to judge for ourselves.
ecoli Sam1 ...To know how Amtrak allocates its costs, one would have to be an insider or have an insider give him or her access to the company's books. As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards. The implication that Amtrak's officers are unduly influencing the company's accounting procedures and practices, i.e. not following GAAP as well as governmental accounting principles where applicable, is not supported. The further implication that the external auditors from one of the world's most highly regarding accounting firms are turning a blind eye to these accounting irregularities is likewise without foundation. Amtrak follows the same accounting principles as every other stock company in the United States. That is not to say that they don't have some wiggle room in how they interpret and apply accounting standards, especially when it comes to estimates, i.e. depreciation, amortization, retiree benefits, etc., but any estimates that they use must be supported, and they must be consistent. Multiple newspapers recently reported that Starbucks claimed zero profit in the UK for tax purposes by charging its UK operations with a large cost for licensing the Starbucks brand from its Dutch subsidiary and buying raw coffee from its Swiss subsidiary, wiping out what would otherwise have been a substantial profit (see http://latitude.blogs.nytimes.com/2012/12/12/after-avoiding-taxes-for-years-starbucks-has-become-a-target-for-london-protesters/). This defies common sense: does anyone believe that if Starbucks shut down all of its stores in the UK, its total global profit would not decrease? If its MBAs believe so, they should eliminate all those redundant retail outlets, expecting that magically the Dutch and Swiss subsidiaries will still show the same profit as before, even though they will no longer sell any raw coffee or intellectual property to the vanished UK subsidiary. The motive for this accounting skulduggery is that profits are taxed at a lower rate in Switzerland and the Netherlands. I have seen no suggestion that the accountants have violated any rules, or that the auditors have given Starbucks anything besides a clean report. This leads me to believe that Amtrak's accountants and auditors are perfectly capable of doing exactly what Phillips claims. I agree that Phillips doesn't give us enough information to judge for ourselves.
Starbucks is not breaking any laws. The ability to defer taxes on foreign income or avoid them altogether is sanctioned by America's tax laws and tax treaties with other countries. Whether the laws and treaties are good policy is another issue. By the same token the company's auditors are simply affirming that Starbucks, as well as others taking advantage of the same laws, are complying with them in accordance with the standards of GAAP and the International Accounting Standard Board.
Philips assertions are not supported. I wrote him a letter, as opposed to an email, asking him to tell me his sources and provide me with the accounting information. I have not heard from him.
Sam1 ecoli Sam1 ...To know how Amtrak allocates its costs, one would have to be an insider or have an insider give him or her access to the company's books. As per the external auditor's report, Amtrak keeps its books in accordance with, "accounting principles generally accepted in the United States of America", which is frequently referred to as GAAP. It's standards, which are promulgated by the Financial Accounting Standards Board, are codified in FASB Statements, Interpretations, FASB Staff Positions, Technical Bulletins, and EITF Abstracts. These are the standards that govern Amtrak's accounting, although it may adhere to some government accounting standards. The implication that Amtrak's officers are unduly influencing the company's accounting procedures and practices, i.e. not following GAAP as well as governmental accounting principles where applicable, is not supported. The further implication that the external auditors from one of the world's most highly regarding accounting firms are turning a blind eye to these accounting irregularities is likewise without foundation. Amtrak follows the same accounting principles as every other stock company in the United States. That is not to say that they don't have some wiggle room in how they interpret and apply accounting standards, especially when it comes to estimates, i.e. depreciation, amortization, retiree benefits, etc., but any estimates that they use must be supported, and they must be consistent. Multiple newspapers recently reported that Starbucks claimed zero profit in the UK for tax purposes by charging its UK operations with a large cost for licensing the Starbucks brand from its Dutch subsidiary and buying raw coffee from its Swiss subsidiary, wiping out what would otherwise have been a substantial profit (see http://latitude.blogs.nytimes.com/2012/12/12/after-avoiding-taxes-for-years-starbucks-has-become-a-target-for-london-protesters/). This defies common sense: does anyone believe that if Starbucks shut down all of its stores in the UK, its total global profit would not decrease? If its MBAs believe so, they should eliminate all those redundant retail outlets, expecting that magically the Dutch and Swiss subsidiaries will still show the same profit as before, even though they will no longer sell any raw coffee or intellectual property to the vanished UK subsidiary. The motive for this accounting skulduggery is that profits are taxed at a lower rate in Switzerland and the Netherlands. I have seen no suggestion that the accountants have violated any rules, or that the auditors have given Starbucks anything besides a clean report. This leads me to believe that Amtrak's accountants and auditors are perfectly capable of doing exactly what Phillips claims. I agree that Phillips doesn't give us enough information to judge for ourselves. Starbucks is not breaking any laws. The ability to defer taxes on foreign income or avoid them altogether is sanctioned by America's tax laws and tax treaties with other countries. Whether the laws and treaties are good policy is another issue. By the same token the company's auditors are simply affirming that Starbucks, as well as others taking advantage of the same laws, are complying with them in accordance with the standards of GAAP and the International Accounting Standard Board. Philips assertions are not supported. I wrote him a letter, as opposed to an email, asking him to tell me his sources and provide me with the accounting information. I have not heard from him.
I'll take that as agreement: despite everything you said about FASB, GAAP, the reputations of auditors, etc, it's entirely possible that Amtrak is doing exactly what Phillips alleges. And when you say "not supported", you don't mean "the evidence doesn't support what Phillips says", but rather you mean "in the absence of evidence, it's impossible to judge."
greyhoundsAnd, naturally, at the end he takes a gratuitous swipe at people like me who see no reason for a Federal subsidy to passenger trains. He says we are "laughable". Well, he can write what he wants. But I see him as ignorant. (I can also write what I want.)
I agree with you. You have a right to your opinion. And Don Phillips has a right to his.
It is possible that Amtrak is doing what Philips claims that it is doing regarding the allocation of costs. However, given the oversight controls associated with Amtrak, it is highly improbable. Again, Phillips does not support his view with any data. Absent that all he is offering is an unsupported opinion.
Anyone is entitled to his or her opinion regarding any subject. However, journalists have an ethical standard that requires them to support their views with facts or make it clear that they are offering a simple opinion.
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