Montana fights back against BNSF

[CSSHEGEWISCH]

Somehow I can't envision the State of Montana going into the car leasing business. Since these would be in dedicated grain service, I'm sure that they would spend a good amount of time sitting empty earning no return after the crop has been moved. Also, how much would the farmers (or elevators) pay to lease the cars and what would BNSF charge to move them?

[daveklepper]

StillGrande should be commended for thinkiong "outside the box" and coming up with a new idea. I hope it will be considered seriously.

[StillGrande]

Just a thought that occured and I am now wondering...

Could Montana use the "tax" money from this new BNSF tax to purchase a dedicated fleet of grain cars and storage capacity for the cars (when not needed) for use only by Montana shippers, similar to dedicated Bethgons for coal? It would eliminate the loss of cars to Minnesota shippers during peak demand and keep the turn time to Montana elevators more predictable (and shorter than waiting for Minnesota to finish with them).

The state could easily come up with a plan to get the cars to needed sites on a regular basis to help even out the need. Heck, it could even charge less to Montana shippers to use them (might even generate outside income for the state, who knows).

Not a sermon, just a thought....

Fire away!

[MichaelSol]

QUOTE: Originally posted by MP173

Why is a 100 ton car of wheat worth $17150 in Portland but only $15050 in Duluth?

Depends on who'se buying. As historical Russian wheat production has come back after a century of mismanagement, it is filling historic European orders that used to go through Duluth and other Great Lakes ports. Pacific rim countries are still big buyers of American wheat.

There is a quality element as well; Japanese buyers like Montana wheat for certain processes. However, most of that is purchased in the field and never shows up on the published markets showing its "market" price. Portland is closer to those more active markets and easier for those markets to access from several perspectives.

As I mentioned, at the moment Duluth prices probably don't represent a functioning market since nothing is moving out of Duluth over the Great Lakes.

Best regards, Michael Sol

[MichaelSol]

The price quoted per bushel at the elevator is what the farmer receives. The buyer figues out how to ship it and pays the freight. However, as I mentioned, commodity markets are complex mechanisms and there are big contracts at fixed or negotiated contract prices moving under the surface of what are, in reality, spot market prices we read in the papers. Crops are often sold in the field at a negotiated price. If you watch the oil market; the spot market for that is above, below, and at the contract market price on a regular basis. People make and lose fortunes guessing the timing of commodity markets, the differential of the spot and contract market, and then of course add in "futures." Not a market for the timid or the uninformed.

There is no reason for price per bushel to equalize at Duluth, Portland or anywhere else. It's a market. At the moment its typically a quiet time in the wheat markets; not a lot is moving. Prices reflect less of a genuine market condition than, say, September. Too, Duluth shipping is seasonal, depending on ice on the Great Lakes. If the ships aren't moving and the locks aren't open, the market would be lower. Nothing is moving right now.

Best regards, Michael Sol

[MP173]

Michael:

Ok, bear with me here.

Taking your chart a step further:

The net proceeds for each location is as follows:
Butte $14401 per car or 4.11 per bushel
Havre $12534 per car or 3.58 per bushel
St Paul/Duluth $19389 per car or 5.54 per bushel
St. Paul/PDX $16082 per car or 4.59 per bushel


I assume the PDX means Portland/Export and I assume the St. Paul/Duluth means St. Paul for shipping via Duluth (Great Lakes freighter).

I also assume that Butte and Havre prices above are going to Portland.

If all of my assumptions are correct, then the absolute best deal is for wheat delivered to St. Paul for delivery to Duluth. Correct? Or perhaps to St. Paul for use by one of the huge processors there, thus eliminating the $841 shipping to Duluth.

Now, I am missing something here.

Lets compare lets compare transactions to Portland:

Butte $18130 less freight of 3729 for net of $14401
Havre $15715 less freight of 3181 for net of $12534
St. Paul $20230 less freight of 4148 for net of $16082

What am I missing? Should not the delivered net be if not equal, at least similar? Even if BN said to the good farmers in Havre, we are going to ship your grain today for FREE...their net price would be $15715, or less than $16082 that is quoted for St. Paul.

Are you telling me that St. Paul receives $16082 for a carload of wheat while Havre only receives $12534?

Why is:
A. The Portland wheat buyer paying a premium for St. Paul wheat?
B. Havre not marketing their product better and receiving a better price?

It appears to me, and remember, I am a very simple man with limited resources and abilities, so you will have to explain it extremely slowly and step by step; that the problem for Montana farmers appears to be quite more complex than the BN gouging freight rates.

It appears to me that the prices in St. Paul are much higher than those in Montana? Why would that be? My guess is "demand". There are market forces at work pulling that wheat to St. Paul. Since there are market forces at work in Portland also (primarily water transportation to another country and wheat prices of other producers) the prices of wheat delivered to Portland is less than St. Paul.

Is this more an issue of market forces than BNSF?

Or perhaps the Montana elevators are ... how do I say this...not paying market prices to farmers, but perhaps receiving market prices when delivered?

Looking forward to your reply.

ed

[Junctionfan]

CSX

You know where I stand in terms of alternate to the tax introduction, what would you do in the legislatures potion taking in consideration that the legislature wants to really help the farmers?

Rather than counter attacking from my position which is just my opinion, I would like to hear about yours please.

[Anonymous]

CSX, hope this helps:

Blackmail is when you threaten to expose a crime or some other embarrassment of a person or persons unless they pay you to keep quiet. Please explain how you are using the term "blackmail" to describe what the Montana legislature is doing to BNSF, or vis versa? I think the term you really want is "extortion", but since extortion is defined as "a gross overcharge" it is a term more aptly applied to BNSF's actions over the last three decades than anything the Montana legislature is doing.

I can't speak for the others on this thread, but I am not a farmer, I am an American who is concerned about our nation's ability to compete in the global markets. I am a railfan, but not to the extent of favoring railroads over the job creating segment of the American economy.

You have been given the gift of a free economics lesson that most on this thread are able to understand, yet you call it smoke and mirrors. The case is quite clear that BNSF engages in differential pricing that favors Minnesota and Nebraska grain shippers over Montana grain shippers, even BNSF itself admits in engages in differential pricing as the de facto explanation for why it charges rates that are much higher for Montana grain shippers than the other states. Why are so many of you out on a limb stating that BNSF is just trying to recover its costs when even by BNSF's admission that is not the case? I have yet to see any posts that actually defend the practice of differential pricing, rather some of you are engaged in a denial campaign that differential pricing is not the case/does not exist, but rather it is a cost based price difference that explains BNSF's actions pertaining to Montana grain shipping.

[MichaelSol]

Ed, if everyone had commodity markets figured out, we could all be Cargill.

Costs quoted are the prices received at the point cited. For instance, at Havre, $4.49 per bushel would be the price received for 15% dark northern spring wheat this week, per the following chart of selected prices. As you can see, quality is a key determining factor of price. The elevator then pays the cost of shipping to wherever the elevator has a contract to ship to. Cargill, Continental Grain, Bunge, Peavey, Farmer's Union. All are out there buying wheat in turn to fulfill contracts they have to deliver grain, to somebody somewhere. Transportation costs are obviously part of their cost structure, but they are almost all private companies which disclose little about what they are doing.

US 1 Dark Northern Spring Wheat
13 pct 14 pct 15 pct
Billings Area 3.42 4.22 4.87
Golden Triangle 3.35 4.15 4.75
Great Falls Area 3.58 4.21 4.77
Havre MT 3.14 3.89 4.49
Southeast MT 3.17 3.89 4.49
Southwest Mt 3.48 4.28 5.18
Minneapolis 4.22 5.00 5.78
Portland 4.38 5.20 5.83

Obviously, quality of the wheat is very important to price. Now, if Cargill buys Montana wheat at $4.49/bu, is Cargill receiving $5.83 in Portland? Cargill is probably not reselling the wheat in Portland at the Portland market price, but is filling contracts already made. However, if it did, it would earn an extra profit as the cost of the Havre wheat plus shipping to Portland works out to only $5.40/bu, compared to the market price of $5.83. Somewhere along the line, Cargill makes a profit, in that case, a good one. Generating a table based on today's wheat prices and today's rail rates (this is not a hot wheat season by any stretch):
price/bu. bu/carload rail rate mileage price rcvd
Butte MT 5.18 3500 $3729 784 18130
Havre MT 4.81 3500 $3181 890 15715
St. Paul/duluth 5.78 3500 $ 841 157 20230
stPaul/PDX 5.78 3500 $4148 1793 20230

The farmer selling in St. Paul, as you can see, receives the same rate, regardless of where the wheat goes and how much it costs to get there Butte, MT has a pretty good rate right now for the farmer, but a pretty stiff shipping penalty to get that wheat to Oregon. Have to check the UP rates out of Butte on that one. Not all wheat is export by any stretch. That St Paul wheat is a pretty good price right now considering most of it will be used locally in St. Paul and Minneapolis.

What the farmer receives is what the farmer receives. Generally, shipping charges are factored into what the farmer is paid. High shipping, lower price to the farmer.

Best regards, Michael Sol

[MP173]

Ok, further...

A car of wheat is worth $17150 in Portland.

Minnesota pays $4000 for shipping, netting $13150 to the farmer.

Montana pays $3000 for shipping netting $14150 to the farmer.

What am I missing here and why does my head hurt? Thank goodness tomorrow is Monday and I can return to my capitalistic job of selling custom manufactured products as opposed to commodities and differentiate VALUE instead of COST.

Michael, talk me off the ledge here, because I am confused.

thanks,

ed

[MP173]

Alright, I admit it....

I dont trade wheat.

There, I got it off of my chest. However, I do own land in which wheat, corn, and soy beans are raised and since I do receive a share of the crop, I am interested in this. Also, since my holdings include a rail stock, I am interested in the transportation side also.

Michael, please explain why a bushel of wheat grown in Minnesota is worth $4.30 (fall, 04) vs Montana wheat @ $3.79.

I assume (I have read your post 2 and parts of it 3 times) that the difference is due to the transportation costs to ship to a location.

Where does Minnesota wheat go? I assume Duluth for the most part. So, that would make the value of the wheat $13450 (15050 less 1600 shipping).

Montana wheat goes west and would be worth $13002 (17150 less 4148 shipping).

Why is a 100 ton car of wheat worth $17150 in Portland but only $15050 in Duluth?

Who establishes those prices?

Help me out here.

ed

[MichaelSol]

QUOTE: Originally posted by csxengineer98

i...im done...... you 3 have wasted enough of my time... csx engineer

Das Vedanya!

Best regards, Michael Sol

[csxengineer98]

i asked you 3 point blank..and all i get is smoke and mirrors...or you just ignor my postings... leaves me to belive your tring to push some kind of agenda.... untill i see something that proves that your not...im done...... you 3 have wasted enough of my time... you 3 can keep on posting how BNSF is satin for all i care....since you 3 seem to have no real arugments other then BNSF is evil... its now falling on deaf ears...mine..... and good luck.. with eveything you do in life..becouse your going to need it.....
csx engineer

[MichaelSol]

QUOTE: Originally posted by auburnrails

... I don't understand the Transcon upgrade scenario. BNSF needs to invest in the Transcon corridor. The initial thought would be charge more in this specific corridor to pay for the upgrades. However, the corridor is a competitive one, with the primary traffic source being intermodal, with UP and truckers hot on BNSF's tail. They can't raise rates too much without losing the business that they need the upgrades to handle. To balance this, rates in a less competitive corridor, for example, Montana/Dakotas, are used to pay for these upgrades.

Well, what this suggests is that because of competitive conditions, the rate of return on investment in competitive corridors cannot pay for the upgrades. This may very well explain why railroads today, after a quarter century of deregulation, still cannot do much better than recover their cost of capital, which is not much different than during the regulatory era.

QUOTE: Conversely, I'm sure that Montana benefits disproprtionately by having a much better infrastructure on BNSF (track, power, etc) than the level of business in the state could normally support, as it's "subsidized" by the northern transcon movements, etc. In other words, were each shipper, state, or corridor expected to pay for all of it's own infrastructure, and in turn reap all the rewards of what it produces...

A few years ago, the BN published in one of its annual reports a map of its four primary transcontinental corridors, with the implication that "this is where we make our money." None extended east of the Mississippi River which I thought was interesting. The northern line of the BNSF is not going broke without a subsidy from Montana farmers. How Montana benefits "disproportionately" I am not sure. Because of that line, Montana wheat prices are effectively capped when rates on wheat at Portland "tip" the cost differential in favor of shipping Minnesota wheat West. Montana farmers always ship on that line. Minnesota wheat goes over it only sporadically, when market conditions permit. It is true that Montana wheat farmers are the regular customers who pay the bills, whereas Minnesota wheat farmers are only occassional users, exploiting the line only when it provides a better return than their alternatives.

Most good businesses reward their steady customers.

BNSF penalizes them with differential rates which only screw up everything when they actually generate business from Minnesota. It is an interesting business model.

The overall idea that Montana farmers should subsidize the rail line in order to offer standby service to Minnesota farmers is thought provoking.

In January, 1978 BN President Tom Lamphier objected to the idea of penalizing business in order to offer standby service: "If the government -- state and federal -- is going to assist other transportation modes while insisting that railroads provide standby service at non-compensating rates, there will be more bankruptcies, less rail service, more unemployment and more drain on the federal treasury," [Associated Press, January 20, 1978].

To me, it is the same argument. Montana farmers are required to pay a shipping premium to generate profit for the BNSF, while BNSF provides expensive standby service for Midwestern grain dealers. Differential pricing in this instance is in essence a standby service offered to those Midwestern grain dealers.

BNSF has attempted to rationalize its grain car fleet to maximize usage and profit, and minimize capital consumption. As soon as differential pricing achieves its goal -- movement of Minnesota wheat to Portland -- the grain car fleet instantly becomes undercapitalized, the cycle times more than double, yards clog, revenues plummet, and operating expenses increase.

The profit advantage handed to Minnesota farmers -- as much as $2,000 per 100 ton hopper car over what a Montana farmer receives -- pays a lot of state taxes for good rural roads, builds a lot of high efficiency elevators, and purchases a lot of new farm equipment.

Montana farmers, meanwhile, make do, and go a little deeper in debt each year.

BNSF can't figure out why Montana farmers don't build more of those big high efficiency elevators compared to those folks back east.

Same reason their combines are older.

Best regards, Michael Sol

[bobwilcox]

QUOTE: Originally posted by csxengineer98

i want to know..the 3 of you that put up the most fight on this thread....i have a burning question..... are you 3 farmers? are you directly affected by this? becouse to speak such long drawn out tear jerking comments... you are directly tied to this issue some how...or you just hate corporat amearica so much that you feel compleld to suport it? all i read line after line is how evil BNSF is and how the poor old farm gets the shaft....
so im asking the 3 of you point blank..are you infact farmes....and/or have something on the line that is directly affected by this issue of shipping costs?
i dont want long darwn out page after page of crap that is nothing more then smoke and mirrors.... this is a simple question......give me a reson to give your arugments a second thought..and that your not just some kind of activest with a vendeta....becouse all i see time and time agin is smoke and mirrors and how BNSF needs to not be so such a big meanie to the little old farmer....
csx engineer

My guess is they get money from the Mountana agri-business lobby as it tries to lobby congress.

[Junctionfan]

I have relatives who are farmers. Farmers are important you know; they provide food either by produce, dairy, livestock or grains. Thease farmers do their part to help feed 250 million Americans and other people around the world. They are an important part of the economy because of this. Industries like Pillsbury, ADM, Cargil, Staley, General Mills, Kraft, and so many more require grain and it usually comes from the U.S. Corporate America needs the farmers as they are a primary industry.

Now then, farmers don't usually make alot of money due to crop struggles. The fields are always needing work and sometimes bad things can ruin the field like weather, drought and insects. Unlike a corporate investment company, farmers don't have the luxury of pulling out; they ride the sinking ship if the crop fails. Last but not least, they loose or gain money when economic value goes up or down often down and not giving the farmer a meaningful profit to either upgrade the equipment or worst of all, not being able to plant the fields.

Having said all this, they can't afford some big railroad screwing them around if America wants to use its own wheat from Montana specifically. I think the idea that taxpayers like is lowered taxes, well if darn corporate America stops shafting the agricultural industry, the government would stop having to bail them out when they get in a loop. I find it so stupid for people to say that farmers aren't important; it really makes me wonder if they are that ignorant and stuck in La-La Land or they just simply don't give a care because they are complete butthead.

If BNSF wants to be taxed then they will. Why feel sorry for BNSF? Is their starving BNSF board of directors out there who need that ca***o pay off that Rolls-Royce or that big yaught they bought for the wife? Those poor corporate people.......you also got to feel sorry for the owners of banks then too. Since the wealthy got large tax breaks from Bush and the lower end guys got a drop in the bucket, the Whitehouse must of got a nasty letter from Unicef saying that corporate America is going hungry oh and by the way, let the railroads charge whatever they want because they are a member of starving corporate America........(extreme drama with tears).

[csxengineer98]

i want to know..the 3 of you that put up the most fight on this thread....i have a burning question..... are you 3 farmers? are you directly affected by this? becouse to speak such long drawn out tear jerking comments... you are directly tied to this issue some how...or you just hate corporat amearica so much that you feel compleld to suport it? all i read line after line is how evil BNSF is and how the poor old farm gets the shaft....
so im asking the 3 of you point blank..are you infact farmes....and/or have something on the line that is directly affected by this issue of shipping costs?
i dont want long darwn out page after page of crap that is nothing more then smoke and mirrors.... this is a simple question......give me a reson to give your arugments a second thought..and that your not just some kind of activest with a vendeta....becouse all i see time and time agin is smoke and mirrors and how BNSF needs to not be so such a big meanie to the little old farmer....
csx engineer

[Anonymous]

Michael: Your last post was the best explanation of the fallacies of differential pricing I have ever read. Mark Hemphill, Larry Kaufman, James Blair of Reebee Associates, Roger Nober of the STB, and the rest of Class I oligarchy would do well to rethink their backhanded and shortsighted promotion of out of kilter rates forced upon captive shippers, and the STB should re-evaluate their methodology in calculating revenue adequacy in an inclusive adjunct.

[auburnrails]

I would be very suprised if the money went straight back to the farmers. More than likely, the money would be redistributed, perhaps to farmers, but probably to "programs" that might perport to benefit farmers, but also be an added beauracracy. That's not a defense of any negative BNSF practice, just a comment on government.

<<As far as BNSF pulling up and going away, let them. I'm sure a shortline would love to get their hands on the customers. A rail extension gets you into Alberta where CN and CP interchanges can be done if the shipments have to go to Chicago for a CSX or NS interchange otherwise CN can take it to interchange with KCS.

As far as raising the prices are concerned, it depends on what kind of precendent is set. If Montana is successful in their plan, it means other states can follow suit if neccessary. I don't believe BNSF would be foolish enough to force the other states into doing that. Not to mention that in the U.S, people tend to stop using things when prices get too much in their mind. A few decades ago, the price of coffee went up and up until it was too high and so people stopped drinking coffee until the coffee companies were forced to lower the prices. Now the railroad is a much more complicated thing to embargo but there are other railroads and there are always trucks. That is what happend with CN customers when Tellier was the CEO and Harrison wasn't in the company. Businesses were getting fed up with CN's B.S so they told CN to stick it and used trucking and courier companies. It cost them more but the companies wanted to teach CN a lesson and so they did. CN has started to regain the lost customers as confidence in the company continues to grow.

[MichaelSol]

Montana wheat farmers accept the fact that their costs of production are higher, given their distance from Midwestern supplies. Seed, fertilizer, combines, all cost more shipped to Montana. As an offset, Montana is closer to Portland, and the primary export markets.

However, the pricing policies of the BNSF act to systematically remove that advantage. There is a penalty for both the farmers and the railroad in that pricing system.

One item clear from the postings on this thread is that nobody trades wheat.

So, the opinions are a lot like body parts, everybody has one or two of them.

Firstly, Montana farmers do not receive the same price as Minnesota farners, and so the alleged $1000 or so differential in the shipping costs that supposedly favors Montana farmers does not exist. They don't just "take that profit" and do anything with it; it doesn't exist.

For instance, taking the Fall of 2003 as an example, and it is fairly typical. Minnnesota farmers were receiving $4.06 per bushel for hard spring wheat. Montana farmers were receiving $3.68 per bushel. On a 100 ton covered hopper car, a Minnesota farmer was receiving $14,280 while his Montana counterpart, who was already paying higher operating expenses, received $12,880 for a covered hopper car of hard spring. The difference? $1,400. Any advantage in the absolute price of shipping that wheat was already lost to the market price of the wheat.

In October 2004, the most recent crop year, Minnesota farmers received $4.30 per bushel $15,050 per hopper car, and Montana farmers received $3.79 per bushel, $13,265 per hopper car.. The difference? $1,785 per hopper car.

Yet, the Minnesota farmer, if he was shipping his own wheat, would have to pay only $967 more to ship to Portland than the Montana farmer, a 29% greater cost even though it is nearly a 100% greater distance..

Whether this represents a penalty on Montana farmers, or a subsidy to Minnesota farmers is probably a matter of semantics, but from one perspective, it resembles more of a penalty.

This requires switching gears a little. On a revenue ton mile basis, the BNSF's breakeven point is approximately $.0159 per revenue ton mile. It actually earned approximately $.01798 per revenue ton mile last year, about 13.1% net profit before taxes. Wheat is a very lucrative commodity for the BNSF. The Minnesota rate quoted last week for a 100 car shipment (100T cars) represents a yield of $.023 per revenue ton mile, or about $.007 above the breakeven point., or a profit margin of about 31%, if the Minnesota wheat is shipped to Portland.

The Montana rate is about $.0352 per revenue ton mile, about $.0193 above the breakeven point, or a profit margin of approximately 81%. Using yet another yardstick, the Montana wheat profit margin of $.0193, compared to BNSF's overall profit margin of $.002, represents a profitability of approximately 8-10 times the profitability of the average BNSF overall transportation rate. I guess if it's a railroad, highway robbery is an inappropriate term.

However, transportation costs are already built into the elevator price per bushel. Where things go haywire is the price of wheat at Portland vs. the price of wheat at Duluth.

Ordinarily, the differential is about 60 cents per bushel, in favor of Portland. That is, if wheat is quoted at $4.30 a bushel in Duluth, it is usually quoted about about $4.80-4.90 in Portland. A 100 Ton hopper car of hard spring wheat in Portland is worth $17,150. In Duluth, it is worth $15,050. Naturally, if everyone could, they would prefer to sell their wheat in Portland.

However, the difference of $2,100 in the market price is significant as a tipping point.

The ordinary rate differential between a Minnesota shipper shipping to Duluth or to Portland is usually around $2500. That is, the difference in the shipping cost to Duluth (say, $1600) and the cost to Portland (say, $4148) is about $2500. A Minnesota shipper would have to obtain a price in Portland in excess of that differential, in order to justify shipping to Portland instead of Duluth.

However, the market price differential between a 100 T hopper car between the two markets, and the transportation differential are very close. That is, the price benefit of selling wheat in Porltand ($2100), over the extra cost to ship to Portland ($2500). In this example, the difference is $400. If the spread between Portland and Duluth wheat prices increases from 60 cents to 71 cents or more, then brokers start shipping to Portland from Minnesota. Or, if the BNSF reduces its rates by a similar amount (or a combination of changes), then Minnesota wheat starts to head West. Until then, its goes through Duluth.

The problem for Montana farmers is mutliple. The eastbound rate for Montana wheat is higher, per mile, than the Porltand rate, so BNSF effectively precludes general run Montana wheat from ever competing in Minnesota markets. However, when Minnesota wheat goes West, prices tend to fall for Montana wheat below what they otherwise would be.

Even worse, the cycle times for hopper cars between Minnesota and the West Coast are significantly longer than the cycle times for Montana cars to Portland. Whenever the price/transportation cost differential becomes attractive for Minnesota wheat, the BNSF car fleet cycle times lengthen dramatically.

Well, gee, what happens when the car cycle times lengthen? Car utilization drops significantly. Instead of 800-900 mile grain car cycles, the car fleet [which is vastly undercapitalized to begin with] is trying to accomodate a grain crop 1800 and 2000 miles away. They can't figure out why the cycle time increases from 5 days to 14 or even 18 days. They can't figure out why their revenue decreases, as a result of subsidizing distant producers and penalizing captive shippers.

They have more "demand" but the revenue goes down. because each hopper car gets filled once or twice a month instead of three or four times a month. In addition, overall railroad capacity declines for all products, as a result of market distortions resulting from Minnesota wheat moving to Porltand. As in the Fall, 2003, everything falls apart fairly quickly, revenue streams for everything slows down, cycle times for everything goes up, overtime goes up, and the BNSF can't figure out why it is making less money hauling more wheat, and so they impose a surcharge, on the short cycle time wheat, to subsidize the long cycle time wheat even more.

Well, that is what happens when the railroad attempts to fiddle with "natural" markets by imposing differential pricing to favor shippers located "competitively" and penalize captive shippers.

For Montana farmers, of course, the results are catastrophic. They not only already receive lower wheat prices, now they are paying to store their wheat that the railroad can't ship, and they are paying another month or two worth of interest on their operating loans, or defaulting, because all the grain cars are tied up "somewhere else."

The inverse pricing used by BNSF is harmful to both the ag industry and to the railroad company. Artificial distortion of natural markets usually are. Any price differential which does not reflect natural distance or cost factors has significant market effects. More later.

Best regards, Michael Sol

[Junctionfan]

QUOTE: Originally posted by csxengineer98

QUOTE: Originally posted by Junctionfan

As far as it being blackmail, not really. What has happened is that BNSF provoked conflict and thumbed at Montana particularly the farmers and darn it all, Montana legislature wants to break their thumb in retaliation. That's what is looks like; two entities who can't play nice in the same sandbox with the rest of the children. I'm curious if price negotiation was ever tried first.

At any rate, BNSF can afford it. If that is something that is to be done by the feds which case it will be legal otherwise BNSF has little to be concerned about other than public image and the possibility of loosing business to UP in Montana.

I wouldn't feel too badly for BNSF though. Sometimes big businesses need a kick in the pants just like everybody else on God's green earth for the purpose of not being a jerk.

i dont see how some of you can still think that its not blackmail.... as much as all the heart felt cry me a river postings that you people have done..dose not change the fact that when you try to force someone to do what you want..or face bad actions if you dont..is blackmail.... telling BNSF that if you dont lower your prices we are going to rise your proporty taxes is blackmail..no matter how you try to word it...and no matter how heart felt you feel about the issue....
also...lets say this....BNSF says fine..go head and rase the taxes... we dont care...and they leave the shipping rates the same... who realy won? the farmers didnt...you all said already that the money from the taxes would just go to the states general funds to be spent as the government wants...the farms wouldnt get a smell of it..let alone see any of the money.... and they would just cry some more.... BNSF wins becouse even with the hire tax rates...they just write that all off on their corporate taxs... and what the hey...just raise the shipping prices across the board for eveyone to cover it... or..BNSF could just say..fine...it cost to much for us to pay to keep the tracks to the "little man" and they just roll them up and leave.... now the farmers have NO rail transporation... who won then..not the farms agin.... and BNSF lays off people or they just relocate them to other locations....now you have less tax money comeing in from payroll and income taxes....no matter how you try and cut this... the farms and maybe the railroad workers would be the ones that are going to loss in the long run....
csx engineer

Why should BNSF not be held accountable for indifferent price charges that don't seem to make sense? I don't see why Montana or any other "customer" should tolerate that and I guess they aren't. As far as the taxing is concerned, if BNSF fails to take the hint and change prices, the money could be used as a tax break for the farmers; in fact I wouldn't be surprised if that was what they intended in an event that their prime objective was to get BNSF to charge fairly.

As far as BNSF pulling up and going away, let them. I'm sure a shortline would love to get their hands on the customers. A rail extension gets you into Alberta where CN and CP interchanges can be done if the shipments have to go to Chicago for a CSX or NS interchange otherwise CN can take it to interchange with KCS.

As far as raising the prices are concerned, it depends on what kind of precendent is set. If Montana is successful in their plan, it means other states can follow suit if neccessary. I don't believe BNSF would be foolish enough to force the other states into doing that. Not to mention that in the U.S, people tend to stop using things when prices get too much in their mind. A few decades ago, the price of coffee went up and up until it was too high and so people stopped drinking coffee until the coffee companies were forced to lower the prices. Now the railroad is a much more complicated thing to embargo but there are other railroads and there are always trucks. That is what happend with CN customers when Tellier was the CEO and Harrison wasn't in the company. Businesses were getting fed up with CN's B.S so they told CN to stick it and used trucking and courier companies. It cost them more but the companies wanted to teach CN a lesson and so they did. CN has started to regain the lost customers as confidence in the company continues to grow.

[MP173]

Auburnrails:

Dave, that was one of the most intelligent posts on this thread. I think you cut thru the fog and your questions regarding the Minnesota traffic were so direct and clear that it makes sense.

I believe the Montana folks have a bit of envy due to their geographic location. Quite often, it comes down to location in life. You can have the best BBQ in the world, but if no one drives by your place, you are going to suffer.

I must go to dinner, but let me digest my meal and your thoughts and lets continue this.

ed

[csxengineer98]

QUOTE: Originally posted by Junctionfan

As far as it being blackmail, not really. What has happened is that BNSF provoked conflict and thumbed at Montana particularly the farmers and darn it all, Montana legislature wants to break their thumb in retaliation. That's what is looks like; two entities who can't play nice in the same sandbox with the rest of the children. I'm curious if price negotiation was ever tried first.

At any rate, BNSF can afford it. If that is something that is to be done by the feds which case it will be legal otherwise BNSF has little to be concerned about other than public image and the possibility of loosing business to UP in Montana.

I wouldn't feel too badly for BNSF though. Sometimes big businesses need a kick in the pants just like everybody else on God's green earth for the purpose of not being a jerk.

i dont see how some of you can still think that its not blackmail.... as much as all the heart felt cry me a river postings that you people have done..dose not change the fact that when you try to force someone to do what you want..or face bad actions if you dont..is blackmail.... telling BNSF that if you dont lower your prices we are going to rise your proporty taxes is blackmail..no matter how you try to word it...and no matter how heart felt you feel about the issue....
also...lets say this....BNSF says fine..go head and rase the taxes... we dont care...and they leave the shipping rates the same... who realy won? the farmers didnt...you all said already that the money from the taxes would just go to the states general funds to be spent as the government wants...the farms wouldnt get a smell of it..let alone see any of the money.... and they would just cry some more.... BNSF wins becouse even with the hire tax rates...they just write that all off on their corporate taxs... and what the hey...just raise the shipping prices across the board for eveyone to cover it... or..BNSF could just say..fine...it cost to much for us to pay to keep the tracks to the "little man" and they just roll them up and leave.... now the farmers have NO rail transporation... who won then..not the farms agin.... and BNSF lays off people or they just relocate them to other locations....now you have less tax money comeing in from payroll and income taxes....no matter how you try and cut this... the farms and maybe the railroad workers would be the ones that are going to loss in the long run....
csx engineer

[Junctionfan]

As far as it being blackmail, not really. What has happened is that BNSF provoked conflict and thumbed at Montana particularly the farmers and darn it all, Montana legislature wants to break their thumb in retaliation. That's what is looks like; two entities who can't play nice in the same sandbox with the rest of the children. I'm curious if price negotiation was ever tried first.

At any rate, BNSF can afford it. If that is something that is to be done by the feds which case it will be legal otherwise BNSF has little to be concerned about other than public image and the possibility of loosing business to UP in Montana.

I wouldn't feel too badly for BNSF though. Sometimes big businesses need a kick in the pants just like everybody else on God's green earth for the purpose of not being a jerk.

[csxengineer98]

QUOTE: Originally posted by futuremodal

Jay nailed it on where the tax revenue would go.

As for your other contention, there's a big difference between blackmail and playing hardball with a renegade megacorporation.

ok...first off..show me the how it is not blackmail...and second...since the tax money would not be going to the farmers.... and into the pockets of the state.... how is that not blackmail? if the money would be givin back to the farmers as some sort of farm sub. then you might be able to not say its blackmail..since it would go to help the farms pay for the higher shiping costs...but since this comes down to the government trying to pass a tax hike on a shipper becouse some people dont think its far..and the tax money dosnt go to the people that are crying...sounds like nothing more then blackmail...
like i said befor....you seem to think that blackmail is ok as long as its the government doing it.....blackmail is blackmail..no matter how you look at it...
csx engineer
csx engineer

[auburnrails]

Just curious - which is the argument:
1. That Minnesota, Nebraska, etc pay a reasonable rate and Montana pays a premium; or
2. That Montana pays a reasonable rate and Minnesota, Nebraska, etc pay a discounted rate? Or does it matter?

I really don't understand the law as it relates to railroads versus other forms of transportation, or other types of business for that matter, but I can't understand exactly why BNSF should be required to charge more for a rate in Minnesota than a competitor just so that the Montana farmer has a fair, comparable rate? (Michael Sol, go easy).

In other words, should BNSF forsake the Minnesota business to UP and barges because they cannot discount the rate per mile below what Montana pays? Or is it that if, due to competitive conditions in Minnesota, BNSF wants to lower it's rate, it MUST lower all other rates to comparably match the Minnesota rate, even if no competitive condition exists in those other markets to justify reducing the rate? And if so, doesn't that mean that Montana farmers are really being gouged, not by BNSF, but by BNSF and all it's competitors. And if that's the case, then we shouldn't be talking about BNSF in Montana, but the complete regulatory environment of our transportation (not railroading, but transportation) system. For example, who is UP gouging that allows their Minnesota rate to be lower? Or the barge? Perhaps we should start with regulating COSTS of each transportation provider to ensure a level playing field in each market?

Is re-regulation really what we're talking about here?

Also, I don't understand the Transcon upgrade scenario. BNSF needs to invest in the Transcon corridor. The initial thought would be charge more in this specific corridor to pay for the upgrades. However, the corridor is a competitive one, with the primary traffic source being intermodal, with UP and truckers hot on BNSF's tail. They can't raise rates too much without losing the business that they need the upgrades to handle. To balance this, rates in a less competitive corridor, for example, Montana/Dakotas, are used to pay for these upgrades.

Conversely, I'm sure that Montana benefits disproprtionately by having a much better infrastructure on BNSF (track, power, etc) than the level of business in the state could normally support, as it's "subsidized" by the northern transcon movements, etc. In other words, were each shipper, state, or corridor expected to pay for all of it's own infrastructure, and in turn reap all the rewards of what it produces, I'm curious as to what this "system" could really accomplish. I'm imagining, for example, four main tracks from LA to Needles, then one from Needles to, say, Ft. Madison, then four again to Chicago (all an exaggeration, of course).

It's reminiscent of the on-again-off-again idea of splitting Washington State into two parts. The folks in the east feel that the west side doesn't represent their needs or views, while the folks in the west feel that the east receives more than it pays in of tax benefits (or something like this). In reality, there is a give and take, and there isn't any way to make it fair for everyone all the time. (Michael Sol, go easy again).

Not trying to pick a fight with anyone, and not claiming to be an economist, or even intelligent :-). Just some random thoughts.

- Dave

[Anonymous]

Jay nailed it on where the tax revenue would go.

As for your other contention, there's a big difference between blackmail and playing hardball with a renegade megacorporation.

[garr]

CSX,

I know exactly what you are asking. I imagine the Montana gov't is going to keep the money for their general fund. In a perfect world, if this tax were to pass ( I hope it doesn't) the money should go back to the grain growers. But, the way it looks, the gov't is only looking for a little more income for itself.

Sort of like when I hear the term "class action lawsuit". I think, millions of $'s for the lawyers--coupons for the plantiffs, X dollars off your next purchase from the company that ripped you off in the first place. As if you are mad enough at the company to file a lawsuit , you will turn around and spend more money with that company to claim your "winnings".

Gov't wins off the perceived wrongs in the rate case--what do the grain growers get?
Lawyers win off the perceived wrongs the class action--what do the plantiffs get?

Nothing in either case.

Jay

[Junctionfan]

I would hope the taxes would be added to the general budget for what ever use the state needs or it could be used to as debt reduction or revenue to lower what ever deficit is there.

[csxengineer98]

also... you never told me who would get the money if the legasation is in fact passed aginst the carrier.....meaning...to whom would the taxs benifit?
csx engineer