OAT : Open Access Thread

[selector]

Michael, you could also have included Peter Senge's "the Fifth Discipline" in your list of references. I am thinking of his unintended consequences when managers fail to think in terms of systems.

[Murphy Siding]

Dave: I'll be the goat here, and ask that you try to explain things a little simpler for some of us common folks. [:)]. I had to go look up some words again.

Thanks

[Anonymous]

Interesting, Michael. I have wondered whether the industry as a whole would be more profitable if the Staggers Bill would have undone the PC merger to create several smaller railroads where "life or death" would have depended on "serving customers well" rather than being "superailroad".

[MichaelSol]

QUOTE: Originally posted by fgrcl

But railroads have BIG economies of scale (sorry, no diseconomies).

Even by 1960, economists were noting that railroad mergers were almost never achieving the cost savings alleged during merger hearings, but rather were incurring additional costs after merger. Healy, The Effects of Scale on the Railroad Industry, Committee on Transportation, Yale University (1961); Borts, "The Estimation of Rail Cost Functions," Econometrics, Volume 28, Number 1 (January, 1960) pp. 108-131.

The ICC Bureau of Economic Research was looking particularly closely at these studies. ICC Hearing Examiners took note of this, for instance, in his "Recommended Report and Order," Chicago, Milwaukee and North Western Transportation Company -- Consolidation -- C&NW Ry. Co. and CMStP&P RR Co., FD 24182, et. al., 12/18/68, Richard Darmstadter, Examiner. p. 61 "... economists have cast doubts on this theory, contending that railroads do not operate under increasing returns [resulting from merger]," specifically citing the two 1960 studies cited above.

Since that time, and the many mergers since then, there has been ample opportunity to study the phenomenon both under a regulatory and a post-regulatory environment.

Paul Fisher (1985), "On the Application of the Williamson Welfare Trade-off to Rail Mergers," Logistics and Transportation Review 21:240-7.

Curtis Grimm (1984), "An Evaluation of Economic Issues in the UP-MP-WP Railroad Merger," Logistics and Transportation Review, 20: 239-257.

S. Khumhakar (1988), "On Estimation of Technical and Allocative Inefficiency Using Stochiastic Frontiers Functions: The Case of US Class I Railroads," International Economic Review 4:727-43.

Ernst Berndt, Ann Friedlaender, Judy Chiang, Christopher Vellturo (1993), "Mergers, Deregulation, and Cost Savings in the US Rail Industry," Journal of Productivity Analysis, 4:127-44.

Russell Pittman examined the Santa Fe/SP merger proposal in 1990 in "Railroads and Competition: The Santa Fe/Southern Pacific Merger Proposal," Journal of Industrial Economics 39:25-46, concluding that deadweight losses would increase significantly in ther merged company, but that other efficiency gains and increased market power would be greater than the inefficiency friction caused by the increased size. In this, the ATSF/SP proposal showing improved efficiency "was not typical" of rail mergers in general.

Alison Chapin and Stephen Schmidt (2001), "Do Mergers Improve Efficiency?" Journal of Transport Economics and Policy 33(2):147-162.

In the latter paper, after studying 14 recent years of financial performance of pre- and post-merger railroads, "we find that mergers .... [have] reduced scale efficiency by creating firms with track networks larger than the optimal size. The efficiency with which rail firms carry traffic over their track networks has increased over the period, but mergers have not contributed to that increase at all.... Our results suggest that market power [not improved efficiency] has been a primary reason why mergers have enhanced railroad profitability since deregulation." At p. 148. "Nearly half of our observations on firms that have experienced mergers find decreasing returns to scale." P. 158. Alleged efficiency gains post-merger were found to result from technical improvements, not organizational efficiency improvements: "Firms which have merged have not improved any more [in this regard] than firms which did not merge." P. 158.

Best regards, Michael Sol

[Anonymous]

up829 - Most of the management, machinery, and labor involved with MOW would be moved from the vertically integrated railroads we have now to the independent infrastructure companies of OA. There is only a transfer of managerial and labor capital from one to the other, not a need to develop new capital. That's what happens when you split an integrated company into separate but logical divisions.

[Anonymous]

QUOTE: Originally posted by Murphy Siding

Stop! You're Killing Me! LOL! Your first paragraph says MWH is FOR OA, but your second paragraph say MWH is AGAINST OA ! [(-D]

Will you guys go out and buy some brain cells for crying out loud?

The first paragraph to which you refer is simply an acknowledgement of what Mark actually said in his sole post on this topic, and from it the implication that he thinks lower rates from OA will lead to industrial flight from within the U.S. There is no allegation being made that accuses Mark of being for OA.

The second is a reference of an assumption on my part that Mark is inherently skeptical of OA based on some of this other writings in this forum.

The dichotomy of which you presume does not exist.

[Anonymous]

Because grain transportation almost never is capable fo load a full train, i do not expect any gain for farmers form OA. They would still have to deal with a single carrier, and there is no reason to believe it will be other than today.

OA makes (a little) sense for trainloads, so big corporations might get something from it, not farmers.

But railroads have BIG economies of scale (sorry, no diseconomies). Why have been so many mergers otherwise?

[Murphy Siding]

nanaimo73: Never work- I was born an introvert.

MichaelSol: Is that $16 B in the trust fund the cash you're talking about? Isn't that like having $16B in the bank while your house is falling down for lack of maintenance?

[MichaelSol]

QUOTE: Originally posted by up829Mergers are done to reduce duplicate expenses and overhead, this would be in effect a reverse merger and I don't see where a reduction in overall real costs is coming from.

While this is often true in many industries, in railroading it generally is not.

Overhead costs increase with increasing railroad size. Railroading is one of the few industries that suffer diseconomies of scale.

For the four largest US Class I railroads, there would be greater economic operating efficiency if there were eight roads in their place. ICC Hearing Examiners, advised by the ICC Bureau of Economic Research, began pointing this out in the 1960s, that railroads were -- already at that time!! -- beginning to exceed the point at which economies of scale no longer existed, and diseconomies of scale were beginning to occur and would occur in most of the then-existing merger proposals.

Best regards, Michael Sol

[nanaimo73]

Hey Murphy,
Why are you selling lumber ? You could be the next Larry King.

[Murphy Siding]

Thanks. I understand now.

[MichaelSol]

The Highway Trust Fund provides for the national highway transportation system. There is a balance of $16 billion in the Highway Trust Fund. These funds are derived solely from user fees as befits an Open Access system.

The Federal Highway Trust Fund was established by the Federal-Aid Highway and the Highway Revenue Acts of 1956 to provide needed revenues to help build and improve the Interstate System and roads and bridges that are eligible for federal aid.

Gasoline is generally taxed at 18.4 cents per gallon, diesel at 24.4 cents per gallon. Truck tires over 40 pounds are taxed by weight, as are heavy vehicles over 55,000 pounds. The truck and trailer sales tax is 12% of the retailer’s sales price.

The Federal Highway Trust Fund consists of a highway account, which receives 15.45 cents per gallon of the gasoline tax, and a mass transit account, which receives 2.85 cents per gallon. The Trust Fund is designed to finance road and bridge and mass transit improvements on a pay-as-you-go basis. Its expenditures by law cannot exceed its income.

U.S. motorists generated about $171.2 billion in revenues for The Federal Highway Trust Fund for the fiscal years 1998-2003.

Best regards, Michael Sol

[Murphy Siding]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by up829

The point about the highway trust fund 'policy' is that it's not based on priorities or need, rather politics, therefore it's loaded with pork barrel projects. Homeland Security funding works the same way, not to mention Amtrak so there's no reason to believe any type of OA rail fund administered from Washington would be any different. IMHO the problem IS Washington where the regulators and policies swing from one extreme to the other with the political tides.Captive shipping rates wouldn't be an issue if the STB was doing it's job.

It is true that the Open Access model generates so much cash, that it leaves plenty of room for everyone's special project.

Which part of that is bad?

Best regards, Michael Sol

Mishael Sol: How does OA generate so much cash? Or are you joking?[%-)]

[TH&B]

You know it might well be that OA will cost more and rates will go up, in fact I beleive this is what is likely to happen. But the thing is that the quality of sevice should go up, wich does cost more but might very well be more benificial for everyone.

By better quality I mean faster service, more reliable service and less damage to shipments, and that might be worth the increase in cost and price and help compete against trucks.

[MichaelSol]

QUOTE: Originally posted by up829

The point about the highway trust fund 'policy' is that it's not based on priorities or need, rather politics, therefore it's loaded with pork barrel projects. Homeland Security funding works the same way, not to mention Amtrak so there's no reason to believe any type of OA rail fund administered from Washington would be any different. IMHO the problem IS Washington where the regulators and policies swing from one extreme to the other with the political tides.Captive shipping rates wouldn't be an issue if the STB was doing it's job.

It is true that the Open Access model generates so much cash, that it leaves plenty of room for everyone's special project.

Which part of that is bad?

Best regards, Michael Sol

[Anonymous]

MichaelSol

The point about the highway trust fund 'policy' is that it's not based on priorities or need, rather politics, therefore it's loaded with pork barrel projects. Homeland Security funding works the same way, not to mention Amtrak so there's no reason to believe any type of OA rail fund administered from Washington would be any different. IMHO the problem IS Washington where the regulators and policies swing from one extreme to the other with the political tides.Captive shipping rates wouldn't be an issue if the STB was doing it's job.

FM
The 'new' company would be the one that owns and maintains the infratructure. In addition to that expense, you've proposed runninng shorter trains faster and more frequently, meaning more maintainence, fuel, and labor costs. You've also said companies would be allowed a decent ROI, which the Class I's are just starting to see now. Mergers are done to reduce duplicate expenses and overhead, this would be in effect a reverse merger and I don't see where a reduction in overall real costs is coming from. If costs go up and everyone gets a decent ROI, then rates need to increase to produce more income.

[edblysard]

In my best Mel Brookes voice...Ah ha!

Ed

[Murphy Siding]

Stop! You're Killing Me! LOL! Your first paragraph says MWH is FOR OA, but your second paragraph say MWH is AGAINST OA ! [(-D]

[Anonymous]

Until and if Mark wants to clarify his statement, there is no other explanation to his statement regarding lower rail rates other than to imply that open access and lower rail rates are intertwined. If he was refering to rate regulation or some other factor as the implied impetus of lower rail rates, then he would have said so. Since this is an open access thread and not a rate regulation thread, the implication of the statement is clear.

So if anything, it is Ed and Murphy who are misrepresenting what Mark said. However, I assume that Mark does not adhere to the idea that there are any tangible benefits of open access, so perhaps his "low rate" statement was just a typo.

[Murphy Siding]

WOW- it turns out that all of us have everything backward-who would have thought?

I did have a reference to a blond joke here, but thought better of it, and eliminated it.[:)]

[Anonymous]

Mr. Hemphill - Could you please explain your recent post in terms of how it relates to the topic at hand, and whether you intended it for this Open Access thread, or some other thread unrelated to open access? Thanks.

jeaton - thanks for the reference. But in terms of the discussion in question you've got Kneiling's theory backwards. He was refering to manufacturer's oubound transport costs going up and how that would affect the decisions of producers in forcing them to locate closer to their primary markets. You have taken that theory and tried to apply it to a situation of transport costs going down, assuming that a reverse action would take place in that situation, e.g. that firms suddenly gifted with lower transport costs would then relocate farther away from the primary consumption market, ostensibly to take advantage of lower input costs elsewhere. However, the cause and affect is misplaced. If firms move their facilities overseas, it is due to the higher input costs here (labor, energy, materials, regulations, inbound transport costs) compared to overseas. It is NOT due to their outbound transportation costs suddenly going down.

The one fact that you and others are missing is the most important point regarding transport costs here in the U.S.: The reality of the U.S. primary consumption markets is that they have had access to competitive inbound transport services since the heydays of railroading, and most primary consumption markets today have access to two or more Class I rail service providers. In other words, the lower import transport costs are already at hand, and have been since the heyday of railroading. Any action that lowers the captive portion of the U.S. rail network would have no added affect on a firm's decision to relocate overseas, but conversely it would have a positive affect on any decision to stay stateside since those higher captive rate segments would disappear.

[edblysard]

Please point my fellow readers to the passage where I claim to speak for Mr. Hemphill...
I trust you are not assuming that he needs me to speak for him as that would be a very silly mistake on your part; he is quite capable of speaking for himself.

What I take exception to is your intentional miss-interpretation of what he had written, you claimed it supported your assertation that OA would lower rates, which it didn’t.

As for Murphy's joke, it was just that, Murphy's...which you altered too...badly, I might add, his was funny, your was not.

And that was not an "attempt" to accuse you of altering other postings; it was a statement of fact.

Besides, if you need someone to tell you what Mark meant, then maybe remedial education is in your near future, after all, its in English, and the statement he made was quite clear to the rest of us, he meant exactly what he wrote.

No one else here feels the need to read anything more into his statement that what he presented...are we to assume that for someone like yourself, who needs to fill out your writing with excess verbiage, a clean, concise, accurate and clearly written statement is rather hard to decipher?

Ed
(and the ilk laughed on into the night)

QUOTE: Originally posted by futuremodal

Two attempts have been made that accuse me of editing other's posts for my benefit.

For Murphy's "joke", I indeed edited the joke to turn it around on him. Because, IT'S A JOKE! If anyone is stupid enough to take Murphy's joke as a serious statement of fact, then the joke is on them.

As for Mark's statement regarding higher rail rates vs lower rail rates, well here we are on an Open Access thread, and one of the beneficial factors of open access espoused by me is that it will provide competitive rail rates to captive shippers, which means the rail rates for those captive shippers will go down, and Mr. Hemphill comes along and makes a point that implies that open access is bad because if rail rates fall captive shippers will shift production to a foreign country. If Mr. Hemphill was not refering to open access when he made that statement, what was he referring to? Come on, Ed, you claim to speak for Mark, tell me what he was really referring to when he brought up the subject of low rail rates?

[jeaton]

John Kneiling once had a train column on what he described as the Balkanization of the American economy. He argued that the high cost and resulting high rates of the then prevalent loose car railroad business would lead to businesses moving closer to the markets as the means to lower transportation costs. Noting that the railroads make more profit on longer hauls, he then argued that his more efficient transport idea would forestall Balkanization.

As was noted cheap transportation will let a business seek out and use the low cost labor locations. There is a comparison related to voice and data transmission. If the transportation rates were still at the levels prevalent three or four decades ago, you would not be getting product information from someone with an Indian accent.

I think your intuition and common sense is failing you.

[Murphy Siding]

OA scenario from you know where: Suppose BNSF and NS each were forced ( yes, I believe forced is the correct word) to sell their infrastructure. The best place for each to invest that new-found windfall would be in something they're familiar with,like a railroad. BNSF could buy a ROW in the east, and NS could buy a ROW in the west. A perfect way for two companies to work together and avoid the "hassles" of a merger? I find if I think too hard about OA theories,my mind wanders to strange places.[}:)]

[Anonymous]

greyhounds - you're splitting hairs. Bitzan himself does not differentiate between what he calls "way and structure" costs and total capital costs, because his theory says it isn't kosher to do so, and admittedly I am not totally clear as to why he frames it that way. But whether the claim is that (a) track maintenance and associated costs would go up, (b) rolling stock and associated costs would go up, or (c) both a and b, there is no evidence of that claim. For one to claim that rolling stock costs would go up, you would have to assume that rolling stock would be functioning at underutilization under OA, but in fact we already know that current rolling stock is underutilized in the current closed access system due to slow transit speeds, yard dwell, and system congestion from long slow consists. If OA resulted in a return to the Milwaukee/D&RGW model of more expedient dispatching, then car utilization would improve, and costs relative to tonnage moved would go down.

[Murphy Siding]

Future Modal: That's my point. WE can only read what's there in the MWH post. You however are trying to read what you think it says, not what is written. He could be thinking of any of a number of things that could make rail rates change. For example, fuel costs? I feel you took it as an endorsement of your theories. I didn't see it that way.

p.s. remember that part about not letting this get your blood pressure up. And-why haven't you posted something on the Heydays vs. Nowadays thread? Surely there's some railroad tracks in your area?[:)]

[Anonymous]

QUOTE:
All Open Access is doing is shifting costs from one group of shippers to another. Because multiple rail companies are involved, that means multiple top management teams, back office functions, a new organization of some sort to regulate usage and acccounting. and of course each will have to make a decent return to remain profitable, so total real rail transportation costs would go up not down.

Why would there be a need for "new" management? Couldn't the current crop of Class I's, the largest truckload carriers, and current intermodal firms handle the new business? And since transporters are unregulated, they can merge with each other down to a handfull of companies (assuming government approval), further reducing managerial overhead. And any new entrants into the transporting market (relatively easy since they now don't have to build their own tracks) would not necessarily be taking capital from other segments of the railroad industry, rather it would more than likely come from outside the industry.

Industry costs under OA would go down, and investment in the industry would go up.

[Anonymous]

Two attempts have been made that accuse me of editing other's posts for my benefit.

For Murphy's "joke", I indeed edited the joke to turn it around on him. Because, IT'S A JOKE! If anyone is stupid enough to take Murphy's joke as a serious statement of fact, then the joke is on them.

As for Mark's statement regarding higher rail rates vs lower rail rates, well here we are on an Open Access thread, and one of the beneficial factors of open access espoused by me is that it will provide competitive rail rates to captive shippers, which means the rail rates for those captive shippers will go down, and Mr. Hemphill comes along and makes a point that implies that open access is bad because if rail rates fall captive shippers will shift production to a foreign country. If Mr. Hemphill was not refering to open access when he made that statement, what was he referring to? Come on, Ed, you claim to speak for Mark, tell me what he was really referring to when he brought up the subject of low rail rates?

[greyhounds]

QUOTE: Originally posted by futuremodal

Murphy - Pull for the shore, 'cause you keep drifting out to sea.


Greyhounds - If you don't comprehend how the relative size of certain segments of the economy affects how those segments process new cash infusions, then.....[banghead]

The fact that the Milwaukee is gone from the PNW has no bearing on whether those ports could handle three or a dozen railroads all at once. Milwaukee's retrenchment had nothing to do with Seattle and Tacoma not being able to handle Milwaukee's traffic, and from what I understand the Milwaukee was the preferred railroad for Seattle and Tacoma.

You also seem to have forgotten that the whole multi-user discussion was regarding the allegation made by Bitzan that multiple user rail lines would have higher capital costs (Bitzan's claim: Up to 40% higher) on a ton for ton basis than single user lines. I say show me the real world evidence of this claim, because the U.S. has plenty of areas where two or more carriers are using a single line. You brought up Chicago-Denver, but (correct me if I'm wrong) I don't think any of the rail corridors between these two points are multi-user since both UP and BNSF have their own lines between Chicago and Denver. What I did bring up is the question of whether BNSF's Portland to Puget Sound line has higher maintenance of way costs on a ton for ton basis than any of BNSF's single user lines. I seriously doubt that is the case, but will grant that foreign users of a single carrier's track will be more apt to publicly/financially complain about deferred maintenance than the home crews.

Nice footwork Dave.

First, you say Bitzan said "capital costs" - and then you alter what you said he said to "track maintenance costs. " I certainly don't see any reason track maintenance costs would go up if more than on company operated the trains. But I do see why capital costs per unit of production would increase.

You refuse (the right word) to understand that railroads must aggregate freight into economical trainload lots. The faster they can do this aggregation, the lower the capital costs associated with aggregation. Spliting available traffic between more operating companies will increase the time needed for each company to aggregate, and the cars will sit in terminals (multiple terminal facilities will also drive up capital costs per unit) longer. Since it costs money to own the equipment whether its rolling or sitting, making it sit longer, as you propose continually, will increase capital costs per shipment.

As for me not understanding how different sectors of the ecnomy handle their money, I'm sure they do. It's just that you have no evidence to support the concept that the money will do more good with one sector than another.

Ken

[edblysard]

Murphy,
Email me..
Ed