BNSF shuttle grain trains, Does this mean that BNSF does not want to serve small elevators?

[MichaelSol]

QUOTE: Originally posted by Murphy Siding

BNSF turns down the opportunity to serve smaller elevators simply because they can more money easier somewhere else.

This does not appear to be true. The revenue received from the "smaller" elevators appears to be among the highest revenues received on the BNSF system. These revenues are received where operating costs are among the lowest.

If your thesis is true, where is your proof?

Bobwilcox wants to see "business experience." While I have seen no studies that suggest that "business experience" equates with intelligence or intelligent decision making, I am asking for data to support these "rants" because I think data is important. See footnote 1.

Why is the "easier" money made elsewhere? What is your specific basis for this statement?

Or is it a "rant"? See Footnote 2.

Best regards, Michael Sol

Footnote 1: [See, if you wish, Why Decisions Fail: Avoiding the Blunders and Traps that Lead to Debacles, by Paul McNutt, Berrett-Koehler Publishers, 2002. "Half of business decisions fail because of management blunders," new study finds. "Vast sums of money are spent to make decisons that realize no ultimate value for the organization, and managers make the same mistakes over and over again as they formulate the decisions."]

Footnote 2. [ "Mergers have permitted rail networks to operate more efficiently than previously, but that those mergers have also reduced scale economies by creating firms of larger than efficient size."

The largest modern class I railroads are beyond optimally efficient operating size, and are suffering significant cost penalties as a result of diseconomies of scale which are structurally inherent in transportation organizations of this size. Chapin and Schmidt, "Do Mergers Improve Efficiency?" Journal of Transportation Economics and Policy, 1998, 33:2, 147-62.]

"Business experience" would tell you that these railroads are fundamentally unsound and making unsound decisions. Or is it something besides mere "business experience" that is necessary to understand that?

[CSSHEGEWISCH]

To FM:
If sufficient profit is only one cent above cost, then you don't expect as high a return on investment as most businessmen and investors. If you consider that to be sufficient return, don't expect to remain in business for too long because you're not generating enough capital to keep yourself competitive.

[arbfbe]

The capitalization of the tracks and other facilities to all of these smaller elevators has been paid off long ago. In the example of the elevator at Big Sandy. MT these 'small' elevators are not so small either. So you have the captitalization of the grain hoppers to consider. Grain companies have shown a willingness to invest in their own fleet of cars but when they do the railroads change the rate structure wiping out the shippers investment in short order. You can see this has happpened over and over again. Where are the fleets of cars once owned or leased by Con Agra, CArgill and Pillsbury? The railroads cried underutilized grain car fleets but when the shippers bought their own cars to stand the costs of the downtime themselves the railroads bemoaned the loss of earnings from the use of their cars and cut the discount for shipper supplied cars. Any railroad that tells customers they have grain hoppers idle for most of the year is not telling the truth. The grain market has evolved into a year around shipping season and the railroads know it.

The issues here are not return on investment and cost of service, they are market domination and rail line abandonment. Those goals carry their own financial return which can be substantial.

[MichaelSol]

QUOTE: Originally posted by CSSHEGEWISCH

To FM:
If sufficient profit is only one cent above cost, then you don't expect as high a return on investment as most businessmen and investors. If you consider that to be sufficient return, don't expect to remain in business for too long because you're not generating enough capital to keep yourself competitive.

"...don't exepct to remain ..." . This conclusion is based on what?

One of the most "competitive" industries, retail grocery, routinely has profits in the neighborhood of 0.6-1.5%., this has been so since WWII, and not only is the industry still around, but many of the old names are still there.

Where do these broad generalities and erroneous conclusions come from?

Best regards, Michael Sol

[bobwilcox]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by Murphy Siding

BNSF turns down the opportunity to serve smaller elevators simply because they can more money easier somewhere else.

This does not appear to be true. The revenue received from the "smaller" elevators appears to be among the highest revenues received on the BNSF system. These revenues are received where operating costs are among the lowest.

If your thesis is true, where is your proof?

Bobwilcox wants to see "business experience." While I have seen no studies that suggest that "business experience" equates with intelligence or intelligent decision making, I am asking for data to support these "rants" because I think data is important. See footnote 1.

Why is the "easier" money made elsewhere? What is your specific basis for this statement?

Or is it a "rant"? See Footnote 2.

Best regards, Michael Sol

Footnote 1: [See, if you wish, Why Decisions Fail: Avoiding the Blunders and Traps that Lead to Debacles, by Paul McNutt, Berrett-Koehler Publishers, 2002. "Half of business decisions fail because of management blunders," new study finds. "Vast sums of money are spent to make decisons that realize no ultimate value for the organization, and managers make the same mistakes over and over again as they formulate the decisions."]

Footnote 2. [ "Mergers have permitted rail networks to operate more efficiently than previously, but that those mergers have also reduced scale economies by creating firms of larger than efficient size."

The largest modern class I railroads are beyond optimally efficient operating size, and are suffering significant cost penalties as a result of diseconomies of scale which are structurally inherent in transportation organizations of this size. Chapin and Schmidt, "Do Mergers Improve Efficiency?" Journal of Transportation Economics and Policy, 1998, 33:2, 147-62.]

"Business experience" would tell you that these railroads are fundamentally unsound and making unsound decisions. Or is it something besides mere "business experience" that is necessary to understand that?

Take a deep breath.

[MichaelSol]

QUOTE: Originally posted by arbfbe

The capitalization of the tracks and other facilities to all of these smaller elevators has been paid off long ago. In the example of the elevator at Big Sandy. MT these 'small' elevators are not so small either. So you have the captitalization of the grain hoppers to consider. Grain companies have shown a willingness to invest in their own fleet of cars but when they do the railroads change the rate structure wiping out the shippers investment in short order. You can see this has happpened over and over again. Where are the fleets of cars once owned or leased by Con Agra, CArgill and Pillsbury? The railroads cried underutilized grain car fleets but when the shippers bought their own cars to stand the costs of the downtime themselves the railroads bemoaned the loss of earnings from the use of their cars and cut the discount for shipper supplied cars.

Alan, this sums up the dilemma of dealing with these railroads.

The Railroads complain about this and complain about that, and then as soon as the shippers take positive steps to make their own capital investment to overcome the alleged "problem", the railroads themselves change the rules.

That's not capitalism, that's exploitation.

For the wheat industry, there is no "cooperative" long term planning with the rail industry. The rail industry has shown no inclination to honor any committment, nor make any. How they might then expect farmers and shippers to invest in, or banks to finance, a $30 million shuttle elevator like the one at Shelby, or invest in a private car fleet, is an interesting question.

Is the rail industry, which treats its captive customers like chattel, the cause of its own problems?

The Big Sandy elevator is a good example.

Alan, are you going to the Retired Milw Employee's Picinic August 7 in Deer Lodge? I've got my invite/notice here on the desk. On the one hand, I still enjoy these thngs, but they get more depressing with each passing year, as the old faces grow fewer in number. With Rusty Landers' passing, I guess Allan Peterson will be the only remaining Electrification Dept guy there.

Best regards, Michael Sol

[Murphy Siding]

MishaelSol: I see your point. Let me rephrase that. One presumes BNSF turns down the opportunity to serve small elevators simply because they can make more money somewhere else. I know that is a presumption on my part, but that's how it works in every business that I deal with. Rather than try to get every bit of business out there, nearly every business will try to target the business with the greatest reward. While that may or may not be the end result (or aim for that matter) of BNSF, it is something neither you or I really know . Is BNSF making bad decisions? Quite possibly. Are they "jabbing " some of their customers,simply because they can? Quite .possibly. What would you propose be done to change the situation? If what BNSF is doing is legal,how would you propose getting them to play nicer with others? I believe I've read most every post of yours, going back a long way and respect your opinions. Thanks

[Anonymous]

QUOTE: Originally posted by bobwilcox

QUOTE: Originally posted by futuremodal
[ It is sufficiently profitable to those who deal with real competition each day.

Before you continue with another rant about the evil BNSF how about letting us know exactly what real business competition you personally have ever dealt with. I think the answer is you never have but I look forward to knowing more about your business experience.

1. I do not believe, nor have I ever said, that BNSF or any other railroad is evil. I have stated (and no one has really attempted to refute) that current railroad management/oversight is less than an optimal example of what competent business management should be, and I have good evidence that this is due to railroad management operating in a mostly monopolistic environment. This in turn came about due to the failed policies such as Staggers that allowed the over-mergers and massive ROW retrenchment, with no checks and balances to assure shippers had access to competitive rail services should the current providers fail to serve.

2. As far as my own private business experience, in my younger days I had amply successful experience in the retail and petroleum distibution sectors. Bob, you're obviously a poor judge of human character.

3. I'll say it again, it's only a "rant" to those who either cannot or will not comprehend what is being put forth for debate. Instead of using the easy way out by using the "r" word, why not provide some counter arguments? I promise I will not use the "r" word for your retorts.

[arbfbe]

[Alan, are you going to the Retired Milw Employee's Picinic August 7 in Deer Lodge? I've got my invite/notice here on the desk. On the one hand, I still enjoy these thngs, but they get more depressing with each passing year, as the old faces grow fewer in number. With Rusty Landers' passing, I guess Allan Peterson will be the only remaining Electrification Dept guy there.

Best regards, Michael Sol
/

[jeaton]

Michael Sol

I really find it difficult to accept your statement that single or small multiple car grain shipments can be handled for less than the cost of a grain unit train running directly from a fast loading facility to a single consignee. On the margin, perhaps? That may have been an acceptable strategy when when there were locals running about to pick up and deliver cars containing a variety of other products. However, if it gets down to just grain coming out of country elevators, it's got to be a press to come up with good numbers. That business is still only going to move seasonally and that sure is a condition that will make it more dificult to make good numbers.

I agree with your point that grocery business has existed for decades with profits most often less than 2%. It certainly is not easy to be an ongoing business with that level of profit, and I dare say, a great number of both small and large grocery firms have closed since WWII.

That's just a side comment. I have no doubt that you understand the diffierence between a gross sales margin and a profit, but I think others here may have confused the terms. As you well know, there is no grocery store in the world that could survive with a 2% mark-up. In 2004, the Kroger reported $56 billion in sales and the cost of the merchandise, advertising, warehousing and transportation was at $42 billion or 75% of sales. That leaves a pretty good margin with which to work. I found an interesting statement on there web site where they noted that their target threshold for an investment is an 11.3% after tax return. So here is my point. From personal experience and looking at these numbers, it is clear to me that The Kroger Company is not stocking every grocery item that might make them a "profit". So why should a railroad not have the right to make decisions about the business they want to handle?
No competition? I would buy that if the only option was moving the grain in a horse drawn wagon.

Jay Eaton

[MichaelSol]

QUOTE: Originally posted by jeaton

I really find it difficult to accept your statement that single or small multiple car grain shipments can be handled for less than the cost of a grain unit train running directly from a fast loading facility to a single consignee. On the margin, perhaps?

There are two parts. Cost is only one. The railroads receive 12% less revenue on unit trains. The issue isn't whether they can haul a single carload cheaper, the issue is multifold. I doubt they haul a single carload more cheaply. However, the revenue gained from a carload of wheat, compared to nearly anything else, really renders the matter moot: the railroad makes good money on a carload of wheat.

And, "cost" has little to do with the expenses incurred in actually handling the individual carload. Frankly, that's peanuts compared to the revenue received from that carload. Indeed, I think it looks at it backwards. The railroad gets paid to handle the single carload (and by that I mean reasonable blocks thereof) an amount significantly in excess of the unit train carload. Does the extra revenue exceed the cost of handling? Given that the differential exceeds the total cost of haul on other commodities, I would suggest that it does. Well, that's where profit comes from: revenue exceeding costs.

This is a classic railroading problem -- they will lose a dollar, to save a dime.

"Cost" however, is more significant in the context of the overall railroad.

In the 1970s, unit trains were the response to a perplexing, even deadly, problem for the railroads. Inflation was continually accelerating expenses ahead of rate increases. Trains were labor intensive affairs. Railroads complained that labor was costly. There was plenty of excess capacity. By 1980, the "cost of capital" -- prime rate -- reached 21%.

Unit trains made sense.

That was thirty years ago.

The railroads got all their wishes on the labor "problem." Excess capacity is a memory. Now, long slow trains represent a net cost to the system. The cost is in slower trains everywhere. The cost is inability to provide rapid service. The cost is in higher labor charges to pay train crews to poke along and sit on sidings. The cost is in longer equipment cycle times and higher investment charges, requiring larger, not smaller, car fleets. The cost is in enormously expensive roadbed investment that costs the full amount of a Class IV or Class V installation, but which run average train speeds of Class II or Class III track. Railroads are buying a very high priced physical plant, but can't get the full return on that investment because of congestion.

What is the number one cause of congestion? Long slow trains.

This is a classic networking problem.

And the solution is not more long slow trains that bring in reduced revenue while increasing operating expenses everywhere.

Best regards, Michael Sol

[CSSHEGEWISCH]

Even Rio Grande realized that the short fast train is not the answer to everything. It has its place for handling high-rated traffic but would be quite counter-productive in moving steam coal from on-line mines to power plants. The eventual goal would be optimization, the right size at the right speed for the service required. While moving coal at higher speeds in smaller blocks may be theoretically more efficient, one has to keep in mind that the mines and the power plants are pretty much set up to handle 100+ car blocks and smaller blocks would be a less efficient use of those facilities. Also, the axleloads on either size block would be the same and higher speed would be harder on the track. Mineral freight usually has a 40 MPH speed restriction on most railroads.

John G Kneiling once opined during the regulated era that the branch with almost no traffic was less of a drag on the bottom line then the branch with several small to mid-size shippers. He used the comparison of the PC Joliet Branch with the Kankakee Belt. The Joliet Branch handled almost no traffic and was consequently maintained to a minimal standard, the branch generated little revenue but also little cost. The Kankakee Belt was being touted as a Chicago bypass and had some local freight and a couple of overhead run-through freights. The Kankakee Belt generated some local and some overhead revenue but also generated extra cost because the line had to be maintained to a higher standard to allow higher speeds for two run-through freights per day.

It would be interesting to see what Kneiling or a comparable out-of-the-box thinker would have to say about those who believe that a railroad is leaving money on the table by not going after every last bit of traffic, including that better served by truck.

[daveklepper]

But John, bless his soul for letting me his trolleypole boy as a teenager, did not figure in the savings to the Central for eliminating some congestion and some switching. Like Mineta and land use.

[MichaelSol]

QUOTE: Originally posted by CSSHEGEWISCH

It would be interesting to see what Kneiling or a comparable out-of-the-box thinker would have to say about those who believe that a railroad is leaving money on the table by not going after every last bit of traffic, including that better served by truck.

His first question might be, "who said THAT?"

However, in terms of facilities, the BNSF system has 127 loading shuttle elevators, out of 1525 total grain elevators. I doubt that even Kneiling would argue that serving 92% of the customers who provide over 80% of the company's most profitable traffic is quite the same thing as "going after every little bit of traffic."

That's quite a lot of "little bit."

Best regards, Michael Sol

[bobwilcox]

QUOTE: Originally posted by MichaelSol

However, in terms of facilities, the BNSF system has 148 shuttle elevators, out of 1525 total grain elevators. I doubt that even Kneiling would argue that serving 90% of the customers who provide over 80% of the company's most profitable traffic is quite the same thing as "going after every little bit of traffic."

That's quite a lot of "little bit."

Best regards, Michael Sol

What is the source of your data that the 90% of the BNSF's elevators that are not shuttle elevators supply over 80% of the grain traffic? You say this is the company's "most profitable traffic". What is the source of your data comparing grain to plastics, coal, set-up autos, liquid petro-chemicals, etc. By most profitable are you talking about free cash flow our percentage mark up over operating costs?

[MichaelSol]

Take a deep breath.

See post of June 28.

The average unit/carload of grain on the BNSF system brings $1969. This compares with Consumer Group at $874, with Industrial at $1568, and Coal at $1028. [BNSF Annual Report, 2004].

The 80% figure is from Senate testimony regarding the car shortage in the Fall of 2003. I would give you the cite, but that Binder is at home.

However, BNSF's Steve Bobb made the following remarks to the legislature of North Dakota in March, 2001.

" Mr. Bobb told the Committee that BNSF was hauling 40% of its grain volume in the 5,500 cars dedicated to shuttle train service. The other 20,000 cars picked up the rest. Strege said that much of this efficiency difference is explained by the railroad’s concentration on shuttle service, while leaving other trains and cars sit at the elevators or on sidings or in rail yards so that shuttle trains can be pushed on through. It is the railroad that controls the efficiency. He said if BNSF would spend as much time and effort on working with its current customers, for example co-loading of shuttle trains, as it does on pushing the shuttle concept into areas where it doesn’t make sense, by manipulative rate schemes, the railroad could gain efficiencies and much of the current elevator system could be maintained to service farmers. "

Best regards, Michael Sol

[bobwilcox]

QUOTE: Originally posted by MichaelSol

The average unit/carload of grain on the BNSF system brings $1969. This compares with Consumer Group at $874, with Industrial at $1568, and Coal at $1028.

The 80% figure is from Senate testimony regarding the car shortage in the Fall of 2003. I would give you the cite, but that Binder is at home.

Best regards, Michael Sol

The average unit/carload of ...

This is just revenue, I take it there is no public data on what is left over after the operating expenses. That is not suprising but it is real important.

Due you recall the source of the 80%. The BNSF, a customer group, a Senate staffer? A lot of people get to testify at a hearing but very few do not have an agenda. Of course that is the nature of the process.

[MichaelSol]

QUOTE: Originally posted by bobwilcox

The average unit/carload of ...

This is just revenue, I take it there is no public data on what is left over after the operating expenses. That is not suprising but it is real important.

Due you recall the source of the 80%. The BNSF, a customer group, a Senate staffer? A lot of people get to testify at a hearing but very few do not have an agenda. Of course that is the nature of the process.

Well, it is important, but a little common sense might go a long ways. Other than the occasional inadvertent feeding of the bears at Glacier Park, grain is probably the simplest and most straightforward of all things railroads carry. Loading and unloading is simple and automated, the product doesn't dent or break, the product doesn't bang up the equipment like coal, gathering and distribution is simple and direct and takes place for the most part where vandalism and congestion are at a minimum, compared to any of the other profit center items.

The equipment is rugged and reliable; there are no haz-mat expenses or concerns, and most of the actual handling labor is supplied by the shipper, in marked contrast, say, to intermodal.

If you are making a serious suggestion that grain is more expensive to handle than industrial and consumer, in particular, I would be pleased to hear the reasoning why.

Otherwise, the evidence I see, and have seen for 40 years, suggests that grain incurs probably among the lowest costs of carriage of any product group, while averaging the highest per carload revenue.

Best regards, Michael Sol

[bobwilcox]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by bobwilcox

The average unit/carload of ...

This is just revenue, I take it there is no public data on what is left over after the operating expenses. That is not suprising but it is real important.

Due you recall the source of the 80%. The BNSF, a customer group, a Senate staffer? A lot of people get to testify at a hearing but very few do not have an agenda. Of course that is the nature of the process.

Well, it is important, but a little common sense might go a long ways. Other than the occasional inadvertent feeding of the bears at Glacier Park, grain is probably the simplest and most straightforward of all things railroads carry. Loading and unloading is simple and automated, the product doesn't dent or break, the product doesn't bang up the equipment like coal, gathering and distribution is simple and direct and takes place for the most part where vandalism and congestion are at a minimum, compared to any of the other profit center items.

The equipment is rugged and reliable; there are no haz-mat expenses or concerns, and most of the actual handling labor is supplied by the shipper, in marked contrast, say, to intermodal.

If you are making a serious suggestion that grain is more expensive to handle than industrial and consumer, in particular, I would be pleased to hear the reasoning why.

Otherwise, the evidence I see, and have seen for 40 years, suggests that grain incurs probably among the lowest costs of carriage of any product group., while averaging the highest per carload revenue.

Best regards, Michael Sol

The data I have seen over the last forty years would place grain's r/c ratio somewhere in the middle. Export grain would be somewhat higher but you could never count on it moving. My experience was with the Rock Island, C&NW, Espee and the UP plus a very short stint at the Southern.

I admit I have had an oppurtuinity to look at internal profit data on a weekly basis broken down into 100-300 commodity groups. The trees look a lot different than the forest.

[MichaelSol]

Well, off the top of my head, from internal numbers, the lowest grain rate available on the BNSF system is, if I recall correctly, set at approximately 164% of the variable cost of the service. The highest rate that I recall was something around 267% of the variable cost of the service.

Best regards, Michael Sol

[CSSHEGEWISCH]

The markup provided above looks considerable but even a first-year accounting major would tell you that variable costs aren't the only costs. Any rate also has to cover a proportional share of fixed costs. It may be difficult to calculate the amount of that proportional share, but it does have to be included.
Another posting has implied that the appropriate rate is one cent over costs, without going into any specifics as to which costs are to be included. Not too much return on investment or incentive to go after that business at that rate.

[daveklepper]

A very good argument, but I am one with you that its not just avoidable costs that should be figured. My argument against Kneiling's economics on the Kankikee Belt works both ways, one has to look at both the forest and the trees.

[MichaelSol]

QUOTE: Originally posted by CSSHEGEWISCH

The markup provided above looks considerable but even a first-year accounting major would tell you that variable costs aren't the only costs. Any rate also has to cover a proportional share of fixed costs. It may be difficult to calculate the amount of that proportional share, but it does have to be included.

No.

A company looks at the cost of the service. Fixed costs are irrelevant to that. If the company elects to provide no service at all, the fixed costs are still there. If the fixed costs were reported in the reports that Mr. Wilcox referred to, the reports would be well nigh meaningless for internal management purposes because fixed costs have nothing to do with the specific cost of providing the particular service.

Fixed costs, when allocated proportionately, render meaningless any ability to determine the cost of the service.

The cost equation makes this clear: TC=FC + (VC)*x, x being the unit number produced of the service or product. The "x" is not associated with the FC component.

To do otherwise would lead to the infinitely meaningless exercise of attempting to say that the Industrial group is "responsible" for 30% of the fixed cost, CG 40%, Ag 16%, etc. and then, within those groups, to break down an allocation of fixed cost by service provided, which would be utterly meaningless BECAUSE THE COST IS FIXED. The "x" in the cost equation is not associated with the fixed cost component because that is necessarily borne by the organization as a whole, not by any particular product or service line.

Certainly the rates or tariffs charged have to cumulatively pay for fixed charges. That analysis occurs at a different point in the accounting process and that analysis only occurs under a specific set of decision-making circumstances and that decision making circumstance would not likely be occuring at the profit center level.

Accounting textbooks uniformly warn that absoprtion, or full cost accounting, "can be misleading for decision making. When fixed costs are allocated to each unit, under absorption costing the fixed costs appear as though they are variable. ... cost data that includes fixed costs can be misleading ...".

Of course this is not from first year accounting, but Intermediate Accounting, Third Edition by Spiceland, Sepe, Tomassini, McGraw Hill/Irwin, 2005, p. 301.

Naturally, the first year accounting students wouldn't know that.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by CSSHEGEWISCH

Another posting has implied that the appropriate rate is one cent over costs, without going into any specifics as to which costs are to be included. Not too much return on investment or incentive to go after that business at that rate.

Nice try, but very disingenuous to parse words so blatantly. What was actually said was this (cut and pasted from the previous page on this topic):

"Hey, CSSH....., define "sufficient" profit. Is it 10% above costs? 20%? 100%? The answer is: Exactly one penny above all cost allocations."

There's a big difference between "sufficient profit" and "appropriate rate". The former is clearly open to subjective interpretation, but if you've paid all allocated costs (which should include all salaries, interest payments, and shareholder dividends, basically anything you want to "cost out") and you still have one penny left over, you've just made "sufficient" profit. The same can be said if you made one million over, or anything in between, you've still made "sufficient" profit.

[Murphy Siding]

Future Model: Wow! I understand, and agree completely with something you said. It might be because the post was one of your shortest? Sufficient profit is anything over 1 cent (any profit). The appropriate rate (or appropriate profit for that matter ) is, and should always be determined by the market.

[Anonymous]

A penny of profit is profit. But if, in going after that penny, an intelligent tuppence was lost, well then you don't have very good businessmen.

I don't think the people who run BNSF are inferior businessmen. GIven that railroading has (well, ever since they got built) been considered a conservative discipline, I think the folks at BNSF are doing pretty well with their resources.

[Anonymous]

It would be interesting to define "small elevators". If "small" is defined by the inability to load a full shuttle train, there are a whole lot of "small" guys out there. I find it hard to believe these RR's want to thumb their noses at 25, 50 or even 75 car shipments.

As Mr. Sol pointed out, capacity becomes an issue at some point---there is too much business for them to handle now, why go after anything else? "Let the truckers have it" seems to be their mentality. They just post the fancy sayings on the websites, etc ("We can move your world", "Building America", etc) Barf.

[bobwilcox]

The costs I was refering to were called long run varible costs. The hard part is determining the definition of long term. CSXT has several bridges in MD built before the Civil War! IMHO the proper treatment of these costs is a very important judgement and should be a decision reserved to senior management followed by a reveiw by the board.

This costs are one part of the idea behind marginal pricing. That is, you are willing to take any business that exceeds your varible cost because it will make some contribution to overhead. The other side is you know your market and have maximized your rate. This works untill you run out of capacity. Then you are in the silly position of saying to UPS, "Your next trailer from Chicago to LA maxs out our capcity. Enjoy it because we will need a gazillion dollars for the trailer just after that one"

[Anonymous]

WIth all this talk about the pursuit of profit, I thought I would offer the following verbatim from the Illinois Tool Works' home site (itw dot com):


About 80/20


The birth of ITW's 80/20 process dates back to the early 1980s when a handful of our businesses sought ways to improve manufacturing practices so they could stay competitive in a changing economy.

Today, after more than 20 years of expansion and refinement, ITW has assembled a comprehensive 80/20 body of knowledge which touches all parts of our businesses.

The concept underlying 80/20 is simple: 80 percent of a business' sales are derived from the 20 percent of its product offering being sold to key customers.

Put simply, too often companies do not spend enough time on the critical 20 percent of their key customers and products and spend too much time on the less important 80 percent.

This process is really about simplifying and focusing on the key parts of your business. Simplicity focuses action, while complexity often blurs what is important. In the process of simplification, we view all aspects of the business on an 80/20 basis. This includes finding ways to simplify our product lines, customer and supply base, and business processes and systems. In the end, 80/20 improves quality, productivity, delivery, innovation, market penetration, and ultimately, customer satisfaction.

[Anonymous]

QUOTE: Originally posted by smalling_60626

WIth all this talk about the pursuit of profit, I thought I would offer the following verbatim from the Illinois Tool Works' home site (itw dot com):


About 80/20


The birth of ITW's 80/20 process dates back to the early 1980s when a handful of our businesses sought ways to improve manufacturing practices so they could stay competitive in a changing economy.

Today, after more than 20 years of expansion and refinement, ITW has assembled a comprehensive 80/20 body of knowledge which touches all parts of our businesses.

The concept underlying 80/20 is simple: 80 percent of a business' sales are derived from the 20 percent of its product offering being sold to key customers.

Put simply, too often companies do not spend enough time on the critical 20 percent of their key customers and products and spend too much time on the less important 80 percent.

This process is really about simplifying and focusing on the key parts of your business. Simplicity focuses action, while complexity often blurs what is important. In the process of simplification, we view all aspects of the business on an 80/20 basis. This includes finding ways to simplify our product lines, customer and supply base, and business processes and systems. In the end, 80/20 improves quality, productivity, delivery, innovation, market penetration, and ultimately, customer satisfaction.

It's not quite the same, as manufacturers tend to align themselves with select distributors, and in the large scheme of things, all distributors will have access to some manufacturer. If manufacturer A wants to focus on distributors B and C but does not want to deal with distributors D, E, F, ......., you can bet that other manufacturers will take on those rejected distributors. I don't believe there are any distributors who are captive to any particular manufacturers. As I said before, if one entity doesn't want the business, let another entity get access to that business. Under that open access system, eventually all demand is met with corresponding supply, and the macro economy benefits as a result.