NITL's suggestions to STB for rail policy oversight

[Anonymous]

http://www.logisticstoday.com/displayStory.asp?nID=7515

Seems the National Industrial Transportation League's solution to the captive shipper/differential pricing problem is to revert to a form of rate regulation via certain caveats in the Stagger's Act. I told you this would happen, abuses by the Class I's (percieved or otherwise) will always lead to retroactive actions.

[kenneo]

Dave

A real irony here. Had not the railroads sent 90% of its clerical forces and all but 2 crew memeber on trains, think how much higher the transportation bill would really be.

But $$ is only part of the equation. Another major piece is service --- RELIABLE service. This is, of course, a function of attitude. Since what is percieved is 90% of reality, well.

[PNWRMNM]

If NITL is really concerned about service and expanding rail capacity, which they should be, they can not argue for lower rates at the same time. The industry is not yet revenue adequate. Only NS was last year and that is the first year in the past several for them.

Mac

[oltmannd]

What the NITL says is not necessarily what the STB does, is it?

[jeaton]

QUOTE: Originally posted by oltmannd

What the NITL says is not necessarily what the STB does, is it?

The US Congress my not fall in line either.

[CSSHEGEWISCH]

The "captive shipper" issue seems to be a smokescreen for reverting to the bad old days of rate regulation, despite what the NITL says upfront. All modes practice differential pricing to some extent, so full re-regulation of rates over ALL modes would be the only answer to that issue.
The NITL is trying to get cheap rates for its members no matter what they call it.

[Anonymous]

There is a slight difference here between "going back" to rate regulation pre-Staggers and re-regulating under the auspices of Staggers. What the NITL is saying is that there are competition caveats pertaining to Staggers that simply have not been enforced, so why not start to enforce them, especially now that the idea of overcapacity is a thing of the past?

It goes to the heart of the fight for survival our brick and mortar industries face under the threat of global competition. Here we are with a trade deficit, farmers struggling, the steel industry still struggling, the U.S. aluminum industry close to extinction, U.S. car manufacturers facing the possibility of bankruptcy, etc, ect, ect, and what do our U.S. railroads do?!? They charge captive shipper rates to our domestic producers while charging overseas importers cut throat rates, practically subsidizing the importation of Chinese goods on the backs of our domestic goods. Shouldn't it be the other way around, if indeed U.S. railroads are American owned?

[BaltACD]

NITL wants their cake and wants to eat it and the carriers share also.

[jeaton]

futurmodal

I have yet to hear anyone beside you argue that monopoly rail rates are the cause of the exodus of manufacturing from the United States.

What manufacturing that remains here is either fairly well positioned for rail carload service or has TOFC/COFC service and motor carrier service to meet transportation needs. Given that the businesses that provide rail intermodal and direct truck services are in rather vigorous competition, I find it highly unlikely that the rates for this service provide anything close to excessive margins.

Low wage rates, which in this county would not pay for food, no health care costs, no worker safety provisions and no requirements limiting the discharge of anything that causes environmental degradation makes it the cheap place to manufacture goods. In fact, even Mexico is losing business to China.

[Anonymous]

QUOTE: Originally posted by jeaton

futurmodal

I have yet to hear anyone beside you argue that monopoly rail rates are the cause of the exodus of manufacturing from the United States.

Would you go so far as to suggest that captive rail rates have no effect on relative trade imbalance? Or will you admit that most captive rail shippers are indeed domestic producers?

Whether such results in an exodus of manufacturing, or if it simply results in a greater share of domestic production needing some form of government assistance (e.g. we the taxpayers) to stay afloat, the effect is reasonably inductive.

[jeaton]

q1. No but the effect is trivial.
q2. If you are speaking of US shippers only the answer, by definition, is yes. If you are speaking of world wide shippers the answer is no, unless China has opted for open access.

By the way, I and at least 80% of US taxpayers know source of money for government assistance.

[Anonymous]

QUOTE: Originally posted by futuremodal

http://www.logisticstoday.com/displayStory.asp?nID=7515

Seems the National Industrial Transportation League's solution to the captive shipper/differential pricing problem is to revert to a form of rate regulation via certain caveats in the Stagger's Act. I told you this would happen, abuses by the Class I's (percieved or otherwise) will always lead to retroactive actions.

Ahhh. The NIT wits are at it again...

How can we line our pockets at everyone else's expense?? Perhaps we can scream we are "captive", yeeeeah, suuuuure....

Why don't we just ship their stuff for FREE??!! I doubt they'd be happy even with that...

Guess what, the shippers luckily don't get to decide what their rates are. What a concept, huh, FM?

At any rate, given the current congestion, EVERYONES rates are going up and going up A LOT. The demand outweighs the supply and unless railroads are allowed to make money by raising rates there won't be any additional capacity to move more, so those precious shippers will have a choice. Pay higher rates or truck it...if they can find a trucker that they haven't already run out of business through their predatory price cutting demands...

What goes around comes around...re-regulation won't expand capacity. It deserves no consideration in national transportation policy...

LC

[bobwilcox]

QUOTE: Originally posted by futuremodal
They charge captive shipper rates to our domestic producers while charging overseas importers cut throat rates

These are people like Dow Chemical, DuPont, Exxon, Shell and BP who have chemical plants all over the world. When Dow, throught the NIT League, talks about competing with foreign producers they are talking about competing withthemselves.

[Anonymous]

They are also people like Con-Agra, Columbia Grain, GM, Ford, GE, Catapillar, Weyerhouser, LP, Arch Coal, Peabody, Potlatch, Golden Northwest, Seneca, Simplot, Westmorland, Maytag, Nucor, U.S. Steel, et al, et al, et al, who though they may have facilities overseas still have the meat of their production here in the U.S. at least for the time being.

As a nation we need to decide if we want to continue to be an industrialized nation, or if we should just throw in the towell and become a service oriented economy, a glorified banana republic. If it is the former, we need to address the blatant inequalities (export and domestic vs imports) when it comes to surface transportation of bulk commodities. If it is the former, let's all collectively hold our breath waiting for the next dot.com boom to provide us with empoyment and a tax base.

[CSSHEGEWISCH]

As mentioned in other postings, transportation costs are a very small part of the trade imbalance. More important factors are the much lower costs of production overseas, the perceived lack of quality of American products (Japanese v. American autos) and the willingness of financiers to invest heavily in overseas development.

Shippers will always gripe about rates and/or service.

[bobwilcox]

QUOTE: Originally posted by futuremodal

They are also people like Con-Agra, Columbia Grain, GM, Ford, GE, Catapillar, Weyerhouser, LP, Arch Coal, Peabody, Potlatch, Golden Northwest, Seneca, Simplot, Westmorland, Maytag, Nucor, U.S. Steel, et al, et al, et al, who though they may have facilities overseas still have the meat of their production here in the U.S. at least for the time being.

As a nation we need to decide if we want to continue to be an industrialized nation, or if we should just throw in the towell and become a service oriented economy, a glorified banana republic. If it is the former, we need to address the blatant inequalities (export and domestic vs imports) when it comes to surface transportation of bulk commodities. If it is the former, let's all collectively hold our breath waiting for the next dot.com boom to provide us with empoyment and a tax base.

I live in a county with no manufacturing since Con Agra closed their plant and source the products from Mexico. The unemployment rate is 1.3% and the median family income is $65,000 per year. We can stand a lot more of this.

[oltmannd]

QUOTE: Originally posted by futuremodal

They are also people like Con-Agra, Columbia Grain, GM, Ford, GE, Catapillar, Weyerhouser, LP, Arch Coal, Peabody, Potlatch, Golden Northwest, Seneca, Simplot, Westmorland, Maytag, Nucor, U.S. Steel, et al, et al, et al, who though they may have facilities overseas still have the meat of their production here in the U.S. at least for the time being.

As a nation we need to decide if we want to continue to be an industrialized nation, or if we should just throw in the towell and become a service oriented economy, a glorified banana republic. If it is the former, we need to address the blatant inequalities (export and domestic vs imports) when it comes to surface transportation of bulk commodities. If it is the former, let's all collectively hold our breath waiting for the next dot.com boom to provide us with empoyment and a tax base.

In an industrializing global economy, a country doesn't get to "decide" to be industrial or not. Economics do that - unless you prefer the North Korean economic model.....

If you beleive the status quo is untennable in the long run, then there exists only possible outcome, but three paths to get there:

1. If RR pricing is pretadory, then the industry can't compete and will move out and the RR will have no traffic and go belly up.

2. If industry extorts low rates from the RR, then the RR will go belly up and the industry will move out.

3. If RR pricing is fair, but still too high to sustain the industry, then the industry will move out and the RR will go belly up.

The only winning situation is if RRs can sustain profits, on the whole, that are high enough to generate enough capital to keep going AND those rates are low enough to allow industry to be competitive. It's not a sure thing that right now there is an intesection between those two contraints. To do ANYTHING that would reduce RR profits at this point would GUARANTEE no intersection.

The choice is between RRs having a chance or no chance at all.

[Anonymous]

QUOTE: Originally posted by futuremodal

They are also people like Con-Agra, Columbia Grain, GM, Ford, GE, Catapillar, Weyerhouser, LP, Arch Coal, Peabody, Potlatch, Golden Northwest, Seneca, Simplot, Westmorland, Maytag, Nucor, U.S. Steel, et al, et al, et al, who though they may have facilities overseas still have the meat of their production here in the U.S. at least for the time being.

As a nation we need to decide if we want to continue to be an industrialized nation, or if we should just throw in the towell and become a service oriented economy, a glorified banana republic. If it is the former, we need to address the blatant inequalities (export and domestic vs imports) when it comes to surface transportation of bulk commodities. If it is the former, let's all collectively hold our breath waiting for the next dot.com boom to provide us with empoyment and a tax base.

FOFLMAO...

You mean Caterpillar?? Weyerhauser??

Doesn't the market have some say? Or perhaps we should just install bristling barriers of customs tariffs and rules like Europe?

Newsflash. The economy is doing as well as it is now for ONE reason. China and the rise of Asia. If they stop buying T-Bills with the money we spend on their stuff the Depression resulting will make the 1930s look like a summer's day at the beach...

LC

[Anonymous]

oltmannd,

Try this: Take the three valid points you made, and parse them between the rates RR's charge for imported goods and those charged for exported goods (leaving out domestic goods for the moment). What we have is the RR's charging much higher rates to captive U.S. shippers, and using those profits to effectively subsidize the importation of goods from overseas.

What is happening is just as you laid out, except that instead of the "industry moving out", we the taxpayers are keeping these domestic industries alive via subsidies, et al. Look at farm subsidies, and ask yourself the following: If the roles were reversed and we had the RR's charging domestic producers the cutthroat rates while charging importers the captive rates, would we even need to subsidize our farmers? The farm bill is nothing more than an indirect subsidy of the railroads, in that it keeps those farmers alive enough to keep producing the crops that the railroads need to haul (at exorbinate rates) to pay for the upkeep of the import corridors. Same goes for the new energy bill, as it aids in the development of coal which is probably the leading lifeline for the railroads.

Now try this hypothesis: Take away the farm subsidies, take away the energy industry subsidies, take away the steel tariffs, take away the pension bailouts, et al, and what do you think will happen to the railroads? How will they be able to raise import rates in the face of open competition at nearly every import facility, now that the bulk of their revenue sources have dried up?

Our domestic producers have enough trouble competing with protectionism of other countries, obscene environmental regulations, overzealous SEC oversight, etc. The one thing that can be done is to give them a break on the domestic transportation side.

If the skewed transportation market wasn't that much of an impact on the future prospects of domestic producers, they probably wouldn't have bothered to form a coalition to address these inequities in the first place. Yes, transportation rate gouging is a big issue!

[Anonymous]

QUOTE: Originally posted by futuremodal

oltmannd,

Try this: Take the three valid points you made, and parse them between the rates RR's charge for imported goods and those charged for exported goods (leaving out domestic goods for the moment). What we have is the RR's charging much higher rates to captive U.S. shippers, and using those profits to effectively subsidize the importation of goods from overseas.

What is happening is just as you laid out, except that instead of the "industry moving out", we the taxpayers are keeping these domestic industries alive via subsidies, et al. Look at farm subsidies, and ask yourself the following: If the roles were reversed and we had the RR's charging domestic producers the cutthroat rates while charging importers the captive rates, would we even need to subsidize our farmers? The farm bill is nothing more than an indirect subsidy of the railroads, in that it keeps those farmers alive enough to keep producing the crops that the railroads need to haul (at exorbinate rates) to pay for the upkeep of the import corridors. Same goes for the new energy bill, as it aids in the development of coal which is probably the leading lifeline for the railroads.

Now try this hypothesis: Take away the farm subsidies, take away the energy industry subsidies, take away the steel tariffs, take away the pension bailouts, et al, and what do you think will happen to the railroads? How will they be able to raise import rates in the face of open competition at nearly every import facility, now that the bulk of their revenue sources have dried up?

Our domestic producers have enough trouble competing with protectionism of other countries, obscene environmental regulations, overzealous SEC oversight, etc. The one thing that can be done is to give them a break on the domestic transportation side.

If the skewed transportation market wasn't that much of an impact on the future prospects of domestic producers, they probably wouldn't have bothered to form a coalition to address these inequities in the first place. Yes, transportation rate gouging is a big issue!

Typical. A new low. Since we can't screw anybody else, lets screw the railroads...

Nice FM, real nice...glad to see you brought your real position to light...

LC

[oltmannd]

Since when does differential or yield pricing = a subsidy?

Ain't no such thing as a captive shipper - not in the last 50 years, anyway.

There are shippers that only have access to one RR (which is true for the vast majority of carload shippers). But, everyplace has access to highways, some places waterways, too. And capital markets will see to it that other viable alternatives will be funded if the return is there.

Farm, energy and steel subsidies do not effect how much stuff is produced. RRs are just one way of moving stuff from producer to consumer. If stuff is procuded in a different location, then it still has to be transported and the RR will move it when they are the best value for the move.

[CSSHEGEWISCH]

I'm sure that I'm not the only one with this point of view but I find it a little hard to swallow that the industrial decline of the United States can be reversed by open access and the elimination of differential pricing.

[Anonymous]

QUOTE: Originally posted by CSSHEGEWISCH

I'm sure that I'm not the only one with this point of view but I find it a little hard to swallow that the industrial decline of the United States can be reversed by open access and the elimination of differential pricing.

OA wouldn't reverse an industrial decline by itself, but it would go a long way toward ameliorating the global competitiveness of U.S. industries and producers. We would also need some regulatory relief so that U.S. industries can have new capital investments fast tracked to match market evolutions rather than having to wait a decade for environmental lawsuits et al can be rebuffed. It would be quite simple for regulators to allow template designs for new capital investments to be utilized rather than having to write a new EIS every single time they want to expand a facility or build a new one.

[oltmannd]

If OA is the solution, let the capital markets fund it - one way or another. No need to get the gov't involved.

If it is an overall better way, then there will be money enough to go around to all the stakeholders, no?

[Anonymous]

QUOTE: Originally posted by oltmannd

If OA is the solution, let the capital markets fund it - one way or another. No need to get the gov't involved.

If it is an overall better way, then there will be money enough to go around to all the stakeholders, no?

Makes sense. Give the RRs the full value of their property in a buy out if you think OA will work. Let FM put his money where his mouth is...

Of course, no customer really WANTS to run a railroad. AND no investor wants to invest in the uncertainty of a totally new business model where the existing one works fine...So, it won't ever happen...

LC

[Anonymous]

Well, it comes down to what really defines "deregulation", so you guys are just going to love my next post.....[;)]

[MP173]

I have stayed out of this discussion, not because it doesnt interest me (as an "economic railfan" it is quite fascinating), but because I didnt think I had anything to add.

I had a serious case of "cant go back to sleep" at 430am this morning and decided to get up and read. I finished Main Lines by Richard Saunders...second time I have read it. Very good book. I highly recommend it.

Well, on page 353 Saunders points out that between 1984 and 1999 rail rates had fallen 45.3%, adjusted for inflation. The book was published in 2002. It would be interesting to know what has happened since then. No doubt the rates have increased.

Now, for a simple question. Dave, have you ever sold for a living or been involved in the developement and or marketing of a product or service...anything? Not a trick question, nor am I demeaning you. Just trying to get an idea of your mindset. Actually, it would be interesting to know how many of you do actually sell or market. I know some of you are involved in that function, some in the railroad industry.

Before this current position (15 years), I sold transportation service. I understand the mentality of shippers, particularly large shippers. They do not like to negotiate, they basically offer their business at a price they want to pay. That price usually drops each year. That is their mentality. To them transportation is a commodity. Their success as managers is based on delivery (service) and cost, with cost being the most important factor in determining their worth.

The absolute best method of negotiating a favorable outcome is to have a position of strength...no big earthshaking news there folks! Railroads are not going to give up any position of strength at this point in the game. Margins are low, based on comparisons to other industries, but are improving. Productivity is at the highest level in history.

Shippers always have options. What they dont have are cheap options. Coal prices too high...build nuclear. Chemical plant only have access to one rail line? Relocate adjacent to a junction of two lines, with access to both. Grain rates too high to support a prairie lifestyle? Build a bakery or ethanol plant near the grain and add value to the commodity.

But, those investments all require large amounts of capital...and it so much easier to utilize the railroad's capital, particularly if it is being rewarded below the Return on Invested Capital. It is all a game between players with LOTS of cash and invested capital.

Dave, I dont think this economy is losing jobs because the railroads rates dropped 45.3% in real dollars. There are far more factors involved than to make a blanket statement.

And if you really think that running trains on another carrier's lines is all that easy, then let me turn you to a wonderful internet column called Latta Laments, which is about the life of a CP dispatcher in Southern Indiana (south of Terre Haute). To the north his trains must travel the CSX, UP, and IHB lines to reach the Bensenville terminal. To the south CSX controls the Louisville access. Granted these were written in 1998/1999, but the lessons are very clear. Running trains on other people's lines are very difficult.

I dont have answers to economic issues that face the industry or the nation. It is plenty to manage my own economic interests. After reading Saunders excellent history of the last 30+ years, it is very obvious that regulation nearly nationalized a complete industry and that the freedom to actually market a business and run it has allowed the rail industry to at least get back on it's feet.

ed

[Anonymous]

Ed,

You're making a huge mistake in taking "general" inflation-adjusted rail rates and assuming that 45% reduction applies to both captive shippers and non-captive shippers. I have no doubt the rates for importers have fallen in real terms more than 45%. What you need to find out is not the "real" rates for captive shippers (which I doubt have gone down 45%), but the COMPARATIVE rates of captive shippers to non-captive shippers. Say that hypothetically the inflation adjusted rates for captive shippers have actually gone down 25%. The railroads say "See, your rates are going down, you have nothing to complain about." The captive shipper replies "So what if my rates have gone down 25%, the rates for my competitors have gone down twice that much. It does me no good to get a rate reduction if the rates of my competitors have gone down twice as much, because now they have increased their advantage over me, and as such I am in a worse place than before when I was paying higher real rates."

In other words, you're focussing on the wrong numbers. The real numbers to be concerned about is that captive shippers (e.g. domestic producers) are paying rates as high as 235%* of the railroad's variable costs, while non-captive shippers (e.g. Chinese importers) are paying rates that are about 106% of the railroad's variable costs.

*(I'm going by memory here, so the 235% number may vary)

If you are a shipper, it does you absolutely no good to get a token discount if your competitor is getting a huge discount. Compared to your competitor, you have actually accrued a net loss in relative terms. And in global terms, U.S. producers have acrued a net loss in rail rates compared to overseas producers since the passage of Staggers. That's the hard cold fact you have to contemplate.

[bobwilcox]

QUOTE: Originally posted by futuremodal

And in global terms, U.S. producers have acrued a net loss in rail rates compared to overseas producers since the passage of Staggers. That's the hard cold fact you have to contemplate.

Prove it with data.

[Anonymous]

QUOTE: Originally posted by bobwilcox

QUOTE: Originally posted by futuremodal

And in global terms, U.S. producers have acrued a net loss in rail rates compared to overseas producers since the passage of Staggers. That's the hard cold fact you have to contemplate.

Prove it with data.

On average, the four largest U.S. railroads—the BNSF, CSX, Norfolk Southern, and Union Pacific—charged captives rates averaging 237% above their variable costs, while competitive rates average 108% of variable costs. (Revenue adaquacy is determined to be rates that run about 180% above variable costs).

source: STB - 2001 Revenue Shortfall Allocation Methodology Study

From the following, you can clearly see that captive rates for domestic intermodal are over twice the rates for intermodal import rates:

Average revenue/ton for intermodal, captive vs non captive -
CSX - $54.11 captive, $26.18 non captive
NS - $45.42 captive, $20.85 non captive
BNSF - $115.70 captive, $48.88 non captive
UP - $91.42 captive, $40.60 non captive
source: Rail Price Advisory, First Quarter 2003, Vol 12, No. 1


"If railroads don't work with their customers to find a solution, continued economic pressure could end up pushing captive shippers out of the country. It's no secret that manufacturing costs are lower overseas, and for captive shippers, it sometimes is cheaper to ship internationally than it is to move product domestically."

Testimony of Roger Nober, as quoted in Logistics Management, November 1 2003.


Now, if you think you have data that shows the opposite, provide it.

"Prove it with data" - source: Bob Wilcox, TRAINS forum, October 29, 2003