Legislation intoduced to make railroads subject to antitrust laws.

[jeaton]

Michael Sol

I was offline and did not see your "cold, dead" quote, when I did mine. Yours was better.

Jay Eaton

[Anonymous]

jeaton,

1. The cost of going to the STB is high due to the extreme delays in getting a case settled. 17 years and still the McCarty Farms case is in limbo? Maybe the STB needs a God Squad to get these cases expediated.

2. The Highway Trust Fund (and the Waterway Trust Fund) are already raided for non highway/waterway use. Some of this is in the form of intermodal funding, while other is going to transit and such. Those cold dead hands are remarkably pliant for current cross funding!

An Intermodal Trust Fund would legitimize some of the cross funding issues currently going on, and make it that much easier to put the funding for enhancing supply chain logistics on a more optimal keel. I don't think trucking companies would complain too much about intermodal funds going to a rail expansion project if they know they will be able to access the lines themselves under their own operating procedures. All these entities are transportation companies, and it is reasonable to presume that a true transportation company would want to access all modal forms at will wherein that access optimizes their entire supply chain. But you are correct that the independent truckers may complain since they are less likely to utilize the rails to complete their journey.

3. On that political note, what allows monopolies to thrive is government protection. Otherwise the economic theory you cited would act as a natural reponse to monopoly profits. With our government so entrenched in the lobbying way of influence (regardless of party affiliation), the predictable actions of monopolists is to use that power of influence to create a climate that is hostile or at least much more difficult to new entrants. Since it is government that is providing such protection against competitors, it takes on a socialist aspect in principle. Look at Airbus.

4. User fees - both UPS and the Montana farmer would be paying the user fee each time they utilize transportation.

5. Tax credits vs subsidy - Tax credits are moneys you get to keep, while paying taxes then getting a subsidy in return involves the expense and time consumption of having that money transferred from one hand to the other and back. Money in the hand improves cash flow, while having to wait for a tax return can delay cash flow.

6. I would argue that railroads have willingly given up the market share that trucks now own. Railroads were at one time a faster conveyance than highways, then highway design evolved while railroads got slower. Perhaps it was the ICC and the onser of rail regulation in the early 1900's that caused railroads to stop progressing on the speed front, but it happened nonetheless. Look at the history of some trucking companies, and they came about because there was a market opportunity that the railroads weren't covering. It wasn't that the trucking firms came along and booted current rail operations. Remember John Kneiling's example of the banana trade? The railroads lost the banana trade because they would not adapt to consumer demand by increasing train speed and frequency to match the ever evolving consumer demand.

Do you really think truckers can come along today and take over a commodity haul from railroads, terminals and mileage being equal? What kind of truck convoys would it take to haul 10,000 tons of grain from Mocassin to Kalama? How about coal from PRB to Louisiana? How about 250 containers from LA to Chicago? You can bet that truckers would only get those hauls if the railroads gave it up of their own free will. Yet for the grain and containers the railroad is entirely dependent on trucks to get the product from the ship or farm to the rail terminal. Trucks feed the railroads. It makes no sense to consider trucks the competition when they are in fact the life support for railroads.

Do you ever wonder why the people involved with the barge lines don't go around calling trucks the competiton? They know they would be hard pressed for traffic if the trucks didn't bring it to them and deliver it to the final destination for them.

Each transport mode has it's own special characteristic that engenders optimization, if only they would exploit said advantage. Truckers act as the feeder system and final delivery system for all the other modes, and will only go beyond that short haul system when the other modes decline to serve. Airlines move small lots at very high speed. Barges move ultra large lots at very low speed. Railroads in theory should be moving sufficiently large lots at highest possible surface speed, but instead they have focussed on moving ultra large lots at medium low speed. Because of railroad's inability to maximize the limits of the technology and take advantage of their ability to run trains of sufficient size makeup (wherein the units of labor required to move a certain amount of cargo has swung in rail's favor), a whole large market share for trucks was the default creation.

Trucks are the transport mode of last resort for anything over a short haul. Couldn't get that last container on the double stack in time? Well, we'll just ship it by truck then. No rail service between Reno and Las Vegas? Well, we'll just ship it by truck then. The railroad doesn't want to supply a box car at a team track just for three pallets of widgets? Well, we'll just ship it by truck then. BNSF no longer wants to supply car load service to branch line elevators? Well, we'll just ship it by truck then.

Has anyone ever heard of a scenario where something couldn't be shipped by truck for reasons of unresponsiveness or red tape, etc. and as a fall back decided to ship by rail instead?

Railroads have so emasculated themselves with this misguided obsession to maximize train length/tonnage at the expense of speed and service, that I guess the "crumbs off the table" is a bad analogy. It's more like body parts off the operating table.

7. So much car supply today is owned by shippers, that I expect such shippers would form their own transporter companies if a standard transproter declined their business offer. Your ascertion that mergers and subsequent shipper monopolies would result does not play out when you analyze how truckers have dealt with dereg. There is not one place in the U.S. that does not have access to two or more trucking firms. One reason you don't see a loss of trucking firms due to mergers is that even if a trucking merger takes place, pretty soon there's another trucking firm ready to take their place. Getting in and out of the transporter business is easy. It is entry into infrastructure ownership that is difficult. If you open it up, the transporters will come.

8. Not having recieved my Sept TRAINS I cannot comment on the article to which you refer. However, there are a multitude of examples of shared track arrangements in the U.S., and as far as we can tell those arrangements are working well in spite of ownership.

[daveklepper]

You are wrong about trains getting slower. Even with reduced frequency delivery and pick-up times, freight trains are faster than they were in the days before the interstate highways. We read the statistics that average freight trains speeds are about 22-25 mph today. I remember as kid (say around 1946) being astounded by learning that the average freight train speed was not much faster than a NY 42nd Street crosstown streetcar, about 14 mph! Three times and half the speed of walking! And the average single freight car movement visited about three yards en route, and the average dwell time was most of a day. about 20 hours as I recall . Today a lot goes by unit train, without visiting yards, most loose car shipments visit only one or two yards en route, and the average dwell time is about half. But the downside is this is not only the result of improved efficiency and technology, and some is that, but also about deliberately turnning away business, or at least pricing for business that was loosing money before Staggers at a compensatory rate making tucking (either private or common carrier) far mroe competitive.

[jeaton]

Did I miss something? The last I heard there was a company named Boeing in the business of making airplanes. Still, I suppose that the countries involved in the Airbus consortium have decided that one competitor is enough and have put the blocks on more than one up-start willing to invest $50 billion or so to get into the jumbo jet business.

While I doubt very much that railroads could ever match the discreet, individualized service that trucks provide at a cost that would allow them to be price competitive, I will grant you your premise that they could. You have argued that an intelligently managed business would go after anything that makes a profit. I won't dispute that market share is an element of business strategy, but more than a few companies have died on that. Have you not read or heard a Board Chairman or CEO say that the company is going to focus on its "core business" or "strength"? I can cite several cases, and I am sure that there are thousands of cases where this focus resulted in a company pulling out of a profitable market or selling off a profitable operation. Because it happened to be of personal benefit, I know of a very profitable half-billion a year business that was sold off by General Electrical. I think the consensus would be that GE is a pretty well run business. What do you suppose they were thinking?

I'll grant you it is arguable, but I think you are too optomistic that, free of the cost of building infrastructure, new operating companies will rapidly be formed and the railroad freight market will become highly competitive. To say that Open Access would produce a competitive environment similar to the truck market is at least a tad bit of apples to oranges comparison. All it takes is one truck and one man to go after a piece of a truck market. I don't think that a railroad operating company is going to get into a market that cheap.

By the way, since you are consulting for an electric utility, I assume you are working with their fuel/transportation buyers. Just informally, why don't you ask just how interested they would be in setting up a railroad operating company if open access would come to pass?

Jay Eaton

[MichaelSol]

QUOTE: Originally posted by futuremodal
[brAlso, regarding Milwaukee's Gateway conditions, I will stand by my belief that the Milwaukee made a mistake in not including full access rights over the SP&S lines and the entire I-5 corridor, and access to Lewiston ID in addition to the Billings haulage agreement, to fully cover the PNW. I don't know if such inclusions would have made THE difference, but they certainly would have put the Milwaukee on a more even playing field.

Well, it was interesting at the time. No one had asked for conditions like that -- that extensive -- before in a railroad merger case. We now know that Milwaukee could have just about asked for the moon, and gotten it. The long term financial trends for the Northern Lines were very poor. MILW's operating ratio had bettered the NP in 1957, bettered the CBQ in 1965, and the trend line analysis shows it would have bettered the GN in 1972. And these were established long term trends.

And they weren't because MILW was skimping on maintenance to make its OR look better. By 1967, MILW had the fastest route to Omaha, the fastest route to the Twin Cities, and the fastest route to the Pacific Northwest. It had over 1,000 miles of installed 131 pound rail, compared to 79 miles on GN, for instance. MILW could have achieved those results only if it was spending more, per mainline mile on maintenance than any of the Northern Lines. Historically, 1950-1967, it had.

On the PCE, while MILW historically had lower tonnage, it typically had very high revenue freight on very long hauls compared to its competitors. It had significantly lower operating costs, not only because of its electrification which provided higher speeds in mountain territory at lower cost, but MILW had seen the light and fortuitously decided early on to abandon its long haul passenger service, while its competitors continued to labor under that handicap.

Milwaukee's initial response to the Northern Lines Merger proposal was its standard historical response: no way. The perception was that the Northern Lines were very strong and the MILW weak. This is the fine result of public relations when no one actually analyzes the historical financial data. I think Warren Ploeger saw this.

Ploeger was Milwaukee Road's Western General Counsel, in Seattle. He had no operating background in railroading, but was one of those unique few individuals who, in the words of one of Milwaukee's VPO's, "understood railroading better than anyone." He understood that the Northern Lines had to have that merger. It was a matter of survival. You could see that clearly if you graphed the operating revenue vs the operating expenses for the previous 20 years. NP was doomed, sooner rather than later, although with its natural resources, no one expected bankruptcy. But the railroad was going to begin losing money, and there was nothing anyone could do about it. The Q would make it maybe five more years before it began losing money. The GN, maybe ten years.

However, Ploeger was the only one who saw that. So, these Gateway conditions were a big deal, especially Billings and particularly Portland. Could they have gotten more? I think so. Downing and Smith both felt that the conditions were just smoke and Fritz Kahn told me he thought they were mere "window dressing." They grossly misunderstood the impact of those conditions. Ploeger didn't.

But, holy cow. Things took off for the MILW after the BN merger. During the 1960s, MILW averaged about 7 MGT annually between St. Paul and Seattle. By 1977 this had climbed to 10 MGT and but for the dramatic shortfall in equipment ($64 million in unfilled orders), would have carried 13-14 MGT in that year, nearly equaling the GN and with longer hauls. By 1974, MILW had 76% of Port of Seattle traffic, and over 50% of Port of Tacoma traffic. And that was in direct competition with Burlington Northern and Union Pacific.

From 2-4 trains a day, the MILW now had 6-10 trains a day. The additional business carried on the PCE 1970-1977, amounted to nearly $400 million in additional revenue. A good chunk of that resulted from the Burlington Northern merger conditions, although I also think Milwaukee happened to get some very good people in the right places at that time.

As "antitrust conditions," the BN merger conditions were probably the most successful protective conditions ever imposed on a railroad merger. Milwaukee Road's Western lines became enormously profitable for the Company, so much so that Curtiss Crippen would advise Worth Smith in the Spring of 1975 that "that line is the lifeblood of this Company."

Anti-trust policy, in a regulatory context, propelled by the innovative thinking and perception of a key individual, turned out in that instance to provide a far better result than years and years of expensive litigation would have ever been able to provide in a non-regulatory context.

Best regards, Michael Sol

[Anonymous]

Jay,

Regarding railroads' roles in utilizing trucks, is there any reason why a railroad company cannot better utilizing trucking's unique aspects to further buttress the railroad company's bottom line? To keep this short, I believe that under open access you would see a megafold increase in the utilization of bi-modal technolgies. Because of the low modal transfer costs and very quick transfers between modes, bi-modal technology can function in all but the shortest of lanes. The only holdback (aside from the inefficiencies of the closed access system) is that railroads don't maximize their on line rail speeds to compensate for the terminal dwell time.

I also believe that railroads could easily take over the short haul bulk commodity movements if they really wanted to. Short haul shuttle trains simply cannot be matched by anything the truckers do, and the railroads could price the service at just under the trucking rate. With head to head competition there would be some erosion of this monopoly profit, but I doubt it would reach cutthroat levels because these short haul corridors tend to be smaller markets. More than likely you would see co-ops and grain companies run their own shuttle trains under open access. Whatever the outcome, truckers would be relegated to their natural status as feeders to the system.

It is true that it is unlikely a railroad company would go after single truckload shipments, but it is true that you would proably see trucking companies and 3PI's use their consolidation abilities to somehow incorporate that single truckload into a larger consist if the rail lane is available.

GE is an example of a company that has it's interests in so many divergent business opportunities. Like any good business, they will buy low and sell high if the right price comes along. Consolidation and diversification are ever evolving constants, and one of the advantages of going after any business is that you never know when one seemingly small business avenue will suddenly explode in growth.

Regarding my current business obligations, it involves AMR, nothing in transportation.

Daveklepper - I would argue that the massive retrenchment that was well under way before Staggers and premeditated congestion with longer consists was what resulted in trucking taking over so much business from the railroads. I'll say it again; railroads basically gave away the business. The truckers didn't come along and take it from them. Railroads used to run point to point trains at one time even in the smaller lanes, but as the bean counters got their way and it became holy writ that the "best" way to run trains is to consolidate into mile long consists, those smaller market cars suddenly started traveling hundreds of miles out of the way, being shunted and lost in the huge new yards, only to travel another hundred or so miles out of the way to yet another huge yard, and so on and so on. I bet the thought at the time was that the railroads would keep that business anyway so who cares if customers had there orders delayed? I remember one of John Kneiling's stories about the factory owner who sat by his office window day after day and watched his boxcar go by his plant four times before the railroad finally delivered it. It is examples such as this that show that truckers were (are) not the competition so much as they are the bailout option born of shipper frustration. In hindsight it is absolutely inexcusable for the railroads to have done what they did, because it resulted in a loss of the most profitable business opportunities, and I believe such would have never occurred if there had been real head to head competition between railroads for every customer.

[BaltACD]

QUOTE: Originally posted by bobwilcox

QUOTE: Originally posted by gabe

QUOTE: Originally posted by bobwilcox

It is my belief the only area where the anit-trust laws do not apply is with mergers. Anti-trust is certainly an issue when developing marketing strategies.

Do we have any lawyers out there who no of areas besides mergers where anti-trust does not apply?

Baseball, the national defense industry, legalized prostitution, and gambling.

We do have the best Congress money can buy!

I agree....not only Congress but the various State and Local governments are the best that special interest money can buy.

[Anonymous]

QUOTE: CSSHEGEWISCH - most local governments can be made to understand the link between a loss of rail infrastructure and a resultant domino effect on other industries. When presented as an option of either continuing to have viable rail service without being able to assess property taxes on the rail ROW, or losing the rail service and a bunch of local industries with THEIR property tax contributions, then they understand that exempting the railroad ROW from property taxes is the lesser of two tax base erosion scenarios. If anything, a percieved guarantee of long term rail service will result in industrial additions to the tax base in the long run.

How I wi***he local government in Peoria and East Peoria IL would see it that way, they are all for abandoning a viable line to place bike trail. The latter turned down a request to place a large grain to rail facilty in EP because they wanted the tracks removed for more strip malls. Leaving it to the local government may not be such a good idea, with that whole imment-domain stuff in the supreme curts (meant to spell that way:)

I do find this whole Open Access idea facinating though and like both sides arguments.

[daveklepper]

Just like Mineta doesn't seem to want to consider land use in transportation subsidy pricing I was way off the mark on my train speed statement. I was correct about train speeds, yes, but the shipper is not concerned about train speed, he is concerned about timely arrival of his shipment and it is the overall time in transit of the particular car that counts. I had not included that fact and must apologize.

[MP173]

Michael:

Interesting stuff on the Milwaukee Road PCE. I recall reading this about a year ago.

Do you mind discussing what the Gateway conditions were for the merger and how it affected the Milw?

Specifically, was BN required to funnel traffic to the MILW? I do not have the resources to go check on the conditions of the merger and the affect.

perhaps you could point me in the direction of a good reference.

Thanks,

ed

[MichaelSol]

QUOTE: Originally posted by MP173

Do you mind discussing what the Gateway conditions were for the merger and how it affected the Milw?Specifically, was BN required to funnel traffic to the MILW? I do not have the resources to go check on the conditions of the merger and the affect.

Ed, that's quite a subject. I will try and put something together, and put it on the other , Milwaukee Road, thread, but it will probably be this weekend before I get around to it.

Best regards, Michael Sol