Can anyone explain the principle behind the old DRG&W's "Short, Fast and Frequent" Concept??

[jeaton]

For *** or anybody else. I have a question about railroad/shipper contracts. Were there any significant diferences in the provisions between contracts and "public rates" or tarriff publications? If not, what was seen as the benefit of contracts. Was it just the confidential element?

Jay

[MP173]

***:

What was(is) reciprocal switching?

My view of pricing in transportation, post deregulation was this pretty simple. In the airlines, as well as trucking, and possibly carload railroading, carriers had scheduled runs. For airlines it was a flight, for LTL it was either a peddle run or line haul, for carload freight it was the linehaul manifests between terminals.

For the most part, those were pretty much fixed costs. It costs United Airlines so much to fly from Chicago to where ever each day, ditto for running line haul for the truckers or for the railroads. Even peddle runs, or locals for the rails were somewhat "fixed".

What I saw the LTL truckers do in the 80's was to go for volume, filling those line haul runs, expanding those terminal systems, and providing more service points. What they didnt realize was that "volume was vanity and profit was sanity". All logic in pricing went out the door.

I see that happening in rail with the intermodal, or at least it has occured. Now with the truck driver shortage and fuel pricing, perhaps the rates are more stable. Trains magazine covered this well a couple of years ago with the comparison of carload (high margin traffic) vs intermodal.

Great discussion. As a kid, I would collect anything I could get as far as timetables and Official Guides and even a few tariffs. The thought of railroads moving people or products cross country was and still is very intriguing to me.

One more thing...are today's rates published on websites? It would be interesting to see what "the traffic will yield."

ed

[MP173]

Mark:

Thanks for the definition of reciprocal switching. Makes sense now.

You are correct on the assumption of variable costs with little fluxuation.



The entire debate about paying for intrastructure is complex and I dont have the data. But, we all pay for the use of highways. Trucking firms pay dearly. Not as much as if they owned their own roads, but fuel taxes are pretty expensive.

The railroads have always complained about the unfair competitive costing nature of air, water, and trucks, but how many railroads have reduced their operating costs with shared trackage? It usually doesnt occur. Why? I think it is control.

I remember the two part series years ago on the River Wars of the Cotton Belt/MoPac on the joint lines running from St. Louis. Infrastructure is critical in any industry for success, particularly transportation.

Do you think the railroads would want any part of O'Hara or any other airport?

ed

[bobwilcox]

If anyone wants to read more about the development of rate regulation suggest they get a copy of Economics of Transportation by Charles D. Locklynn. Pre Staggers is was the standard textbook for freight rates 101. It is out of print but the used dealers hooked up with Amazon and Barnes and Nobel have copies.

Pre Staggers all of your rates had to be in tariffs. Therefore, your rates could not be undully discrimatory. This would often block a rate adjustment and drive traffic to trucks, etc. As an example, Agrico Chemical had an urea plant at Clinto, IA on the CNW. Lets suppose they came to the CNW and said they have been looking at switching all of their urea traffic terminating within 300 miles to truck unless they get a 10% rate reduction. They CNW is ready to make the reduction on Agrico's 100 cars per year but realizes that other shippers move 1,000 car per year into the same market from location too far away for truck competition. The CNW must cut its rates 10% on all 1,100 or face a suspension by the ICC. We refered to this as a collateral effect-the ICC said you could not engage in undue discrimination.

At the time Staggers was being passed we thought contract rates were going to be limited to situations like the above urea case or projects involving shared capital investment such as a spur into a new coal mine. However, the real world arrived for us in the 90 days between the time Staggers was passed and it went into effect. We, the BN and IC were competing for over head traffic from WY to the Northeast via UP-CNW/BN/IC-CHGO-Connections. The receiver told us we could have all of his traffic if we gave him a contract with the best allowance off the tariff. We won! However, if the next three years, in annual rebids, the CNW saw its margin drop from 100% to 0%. This dive to the bottom is only stopping as the traffic lanes fill up.