Farmers complain about BNSF rates to STB

[greyhounds]

Ed,

He's probably not gonna' like your math.

Ken

[Anonymous]

now i can see why both kids had to go to the principals office.

what a convoluted and confusing way to point out what the railroads and farmers have been doing to each other for the last 150 years (and don't criticize my math).

when it's all said and done, the farmers will still suffer, and the railroad will get smaller due to public resentment. this is an old story, and i can't believe i wasted the time to read all five pages.

-rrick

[MP173]

I never had to go to the principal's office. I was the one that stayed in the classroom and checked the numbers.

BTW...I sort of see Michaels point. There is a very fine line between maximizing your profit and driving away business. I live that every day.

My point is this...BNSF reacts to market pressures among other things. In other parts of the country there are rivers, lakes, or other railroads. None apparently exist in Montana (dont know, never been there, but I might soon).

In my line of work, my "rate" goes from slightly below our costs to 50% profit, based primarily on market conditions of competition. However, if I am developing business and it needs to be at a certain pricing, more than likely I will shed the fact there is no competition and get the business. However, I dont price all of my customers uniformly, nor do I reduce my margins for all customers when I reduce it for one.

Montana shippers have no alternative. We can talk all we want about inverse pricing, STB, variable costs, 160%, etc. but in this case it comes down very simply to leverage, as I have stated in the past.

Railroads are finally at a point where they are getting pricing power. More power to them. Their returns have been lousy for years...no make that decades...or even centuries. This is not about the family farmer vs Chinese imported plastic goods. A group of managers whose paycheck depends on maximizing profits has found the key to the candy store...nothing different than what Bill Gates, Lee Raymond, or Warren Buffet do. One of the keys to Warren Buffet's success over the years has been to look at a company's franchise and determine whether or not they have economic leverage. He once told his son who was contemplating farming in Central Illinois "Howie, ADM is not going to pay more for your corn, just because you are Howie Buffet." Point well taken, commodities, even oil are priced according to availability.

Check the numbers Michael provide carefully and it is obvious the pitfalls a commodity producer faces. You are completely at the whim of supply and demand. Pricing for wheat has not increased since 1975. If I would take a bit of time and find an inflation chart, we would probably find it has not only not increased, but fallen.

Michael does in fact give the facts of the total economic harvest and adjusts it to 1974 dollars. Capitalism in this country has found a way of eliminating those industries which cant make it. I am not saying that wheat farmers are not important...obviously they are critical.

Ironically they face similar issues of the railroads, lots of assets required and very low returns.

Marketing and pricing is a very complex issue in any industry. It cannot be explained in a few paragraphs.

My point in looking at these numbers in detail was to determine if BNSF is the problem it has been portrayed, or rather a convenient whipping boy. It is very dangerous and unproductive to lash out at your customers who are buying your product at market prices and much easier to attack the messenger, in this case the delivery man.

Farming is a tough, dangerous, often low yielding career. There are enormous benefits to it. The next time I am with my brother in law, who farms about 1500 acres we will have quite a chat...by the way he is also a railfan.

ed

[Anonymous]

QUOTE: Originally posted by rick bonfiglio

now i can see why both kids had to go to the principals office.

what a convoluted and confusing way to point out what the railroads and farmers have been doing to each other for the last 150 years (and don't criticize my math).

when it's all said and done, the farmers will still suffer, and the railroad will get smaller due to public resentment. this is an old story, and i can't believe i wasted the time to read all five pages.

-rrick

What you're missing is that until Staggers, rail rates were regulated to reflect mileage based hauls, and frankly there were more railroads to do business with. The rate differential between Montana grain shipments and Nebraska grain shipments with the same destination and same relative mileage was for all intents and purposes indistinguishable. Since Staggers, you get to the point where the captive shippers like Montana are paying double the rates of the non-captive shippers like Nebraska.

So it's not an analysis of the last 150 years of acrimony between farmers and the multitude of railroads, it's the focus on the last 25 years of acrimony between suddenly captive rail shippers and the immense railroad oligarchy. It's a situation that needs to be rectified before we lose our ag and industrial base to foreign producers.

[greyhounds]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rick bonfiglio

now i can see why both kids had to go to the principals office.

what a convoluted and confusing way to point out what the railroads and farmers have been doing to each other for the last 150 years (and don't criticize my math).

when it's all said and done, the farmers will still suffer, and the railroad will get smaller due to public resentment. this is an old story, and i can't believe i wasted the time to read all five pages.

-rrick

What you're missing is that until Staggers, rail rates were regulated to reflect mileage based hauls, and frankly there were more railroads to do business with. The rate differential between Montana grain shipments and Nebraska grain shipments with the same destination and same relative mileage was for all intents and purposes indistinguishable. Since Staggers, you get to the point where the captive shippers like Montana are paying double the rates of the non-captive shippers like Nebraska.

So it's not an analysis of the last 150 years of acrimony between farmers and the multitude of railroads, it's the focus on the last 25 years of acrimony between suddenly captive rail shippers and the immense railroad oligarchy. It's a situation that needs to be rectified before we lose our ag and industrial base to foreign producers.

No they weren't. Prior to Staggers, we charged less to move a load from New Orleans to Chicago than we did to move a load from Chicago to New Orleans. The miles are obviously the same.

Mileage is only one small factor in rail costs. Line haul miles are one of the cheapest parts of the rail cost structure. It can cost less to move a load 1,000 miles than it does to move a load 750 miles. It depends on a lot of things such as supply, demand, terminal efficiency, etc.

[Anonymous]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rick bonfiglio

now i can see why both kids had to go to the principals office.

what a convoluted and confusing way to point out what the railroads and farmers have been doing to each other for the last 150 years (and don't criticize my math).

when it's all said and done, the farmers will still suffer, and the railroad will get smaller due to public resentment. this is an old story, and i can't believe i wasted the time to read all five pages.

-rrick

What you're missing is that until Staggers, rail rates were regulated to reflect mileage based hauls, and frankly there were more railroads to do business with. The rate differential between Montana grain shipments and Nebraska grain shipments with the same destination and same relative mileage was for all intents and purposes indistinguishable. Since Staggers, you get to the point where the captive shippers like Montana are paying double the rates of the non-captive shippers like Nebraska.

So it's not an analysis of the last 150 years of acrimony between farmers and the multitude of railroads, it's the focus on the last 25 years of acrimony between suddenly captive rail shippers and the immense railroad oligarchy. It's a situation that needs to be rectified before we lose our ag and industrial base to foreign producers.

Oh, boy, here we go again...

I thought I was watching the ad for "Chicken Little" again...

But, no, it's just FM with his usual, "the sky is falling" approach to railroads...

Of course, in the pre-Staggers world many of the granger roads were nearly or really bankrupt. Look at the finances of the CRIP, MILW or CNW and you'll find that all were having a tough go of it.

Also, the dynamics of the grain markets have changed quite a bit over the years with a large shift to western ports for exports rather than domestic use or shipments from the Gulf Ports via the river systems. Last time I checked Montana was pretty challenged in terms of water transport to any deepwater port.

LC

[MichaelSol]

QUOTE: Originally posted by greyhounds

Ed,

He's probably not gonna' like your math.

Ken

The math is fine, the assumptions are wrong, and for that I bear some of the burden.

The average national ton mile rate I used is for all railroad carriage, not just wheat. So, unless you can think in terms of gallons of oil per acre, Hondas per acre, and VCR's per acre, there is no comparability between that national average, and the average rate for wheat, and by the time that analysis gets to rate per acre, the train is pretty far off the track.

My wheat acreage cost of tranportation per acre is derived from an average of all BNSF wheat rates, creating algorithims to permit that average to be derived at any given point (mileage) and then comparing the Montana rate with the average rate. That is, the wheat rate per acre comparison is calculated compared to an average wheat rate per acre, not an average of all railroad transport. That is not the method Ed uses above, and his result is naturally different, and also partly for the reasons below.

My point in comparing the rise in wheat charges to overall carriage rates was to show that while railroads have been able to offer that enormous productivity gains have been obtained, permitting rates to tumble over the past 20 years, the fact that those productivity gains apply as much to grain as to any other item. This is to suggest that Montana grain, which was highly profitable for railroads 30 years ago, cannot be anything but enormously profitable today and that arguments that it is expensive to haul because of distance, which is what Ed suggested at one point, is simply not valid because a key factor, distance, hasn't changed in the intervening 30 years, while the railroads themselves claim that costs have plummeted.

The Montana farm figures, like the Illinois farm figures, can't be used in the fashion that Ed uses them. The stumble is that neither Montana farms nor Illinois farms raise wheat exclusively. The "figures" offered for farms were just that: "all farms." Ed is asserting, unintentionally, that all those farms are wheat acreage, and is attempting an analysis of wheat farm income and transportation cost, by including all farm income in his calculations. This will indeed produce the figures that Ed produced, but they are wrong because those results include hay, barley, oats, sugar beets, mint, potatoes, and a variety of other non-livestock products.

Similarly, Illinois farm income is derived substantially from non-wheat products. Further, the proportion of farm income from wheat -- if that were to be offered as a basis for a comparison -- is entirely different in Illinois than Montana.

While I attempt to identify my figures as to purpose -- and different numbers do indeed offer different comparative purposes, these have to be closely read because the assumptions of one set of figures -- say "Montana farm land" -- cannot be read casually as meaning the same thing as the underlying computation leading to "net profit per acre from Montana wheat acreage" because in fact it does not.

Further, the purpose is to use numbers for illustrative purposes as it is easy to get into numbers and numbers and numbers and make these posts unreadable. Further, I am not inclined to get into publishing my next Doctorate thesis online in railroad forums. However, that is one specific reason that I typically offer citations to source, and if anyone cares to walk through the underlying data that I don't include for the purposes of brevity, they are more than welcome to do so.

In short, looking to find net revenue per acre for wheat production, but using the total Montana farmland acreage in the calculation will indeed offer different numbers than I offered, because you can't use one to find the other, or if you do, the result will simply be wrong. From there, the analysis goes downhill because these underlying assumptions on data are incorrect.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by MP173
2. As of 2003 BNSF engaged in "inverse pricing". I must assume that since the term "as recently as 2003..." that the inverse pricing is not a current issue, nor was it in 2004.

It is an "issue" because the railroad engages in it. Inverse pricing caused enormous problems in 2003 for both farmers and the railroad. It was an incomprehensible policy. The Montana Legislature met in 2004, and rates always get adjusted to be "reasonable" just about the time of the biannual Legislative sessions, along with major announcements along the lines of "We Promise to Be Good."

BNSF offered several "special" tariffs in 2005, and these are usually where inverse pricing shows up. They are usually relatively short term. Since I haven't reviewed any of BNSF's special tariffs for 2005, I couldn't say whether there was or wasn't any inverse pricing. Since I haven't looked at them, the safe and accurate thing to say was "as recently as 2003," without suggesting anything more either way.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by MP173
If, as you say, the Montana wheat is superior to all other wheat, it should be commanding a premium on the market, even as a commodity.

It does.

The premium received, and more, is paid over to the railroad, and so there is no benefit from the farmers for the higher price that Montana wheat receives.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by futuremodal
What you're missing is that until Staggers, rail rates were regulated to reflect mileage based hauls, and frankly there were more railroads to do business with.

No they weren't. Prior to Staggers, we charged less to move a load from New Orleans to Chicago than we did to move a load from Chicago to New Orleans. The miles are obviously the same.

Mileage is only one small factor in rail costs.

Regulated tariffs show an approximately 93% or greater correlation with mileage through linear regression analysis. For a statistician, that's not a "small" factor but very close to a sole determining factor.

Under deregulation, competitive rates are approximately 55-75% correlated with mileage, and non-competitive rates to captive shippers can correlate as high as 97% with mileage.

Best regards, Michael Sol

[MP173]

In my past life I worked in LTL trucking, as a manager of pricing, which included filing of tariffs.

I agree that "tariff rates" published were almost always mileage or distance driven. Exception ratings or commodity rates were developed to meet competitive pressures. When these rates were published it was generally worded to be for a specific shipper, or based on point to point movements. The fact that these rates were published did not mean that all other filed rates were lowered. Hence the general level of rates were preserved.

ed

[greyhounds]

QUOTE: Originally posted by MichaelSol

Regulated tariffs show an approximately 93% or greater correlation with mileage through linear regression analysis. For a statistician, that's not a "small" factor but very close to a sole determining factor.

Under deregulation, competitive rates are approximately 55-75% correlated with mileage, and non-competitive rates to captive shippers can correlate as high as 97% with mileage.

Best regards, Michael Sol

Which regulated tariffs? If you're going to cite a tariff, then name the tariff.

I agree with MP173, when they first tried to "regulate" rates the government attempted to enforce a rate structure that reflected three things:

1) Terminal Costs (which were the same regardless of distance moved)
2) Line haul distance
3) Value of commodity

The LTL rate structure of his motor carrier reflected this because, 1) the truckers basically copied the railroad rate structure when they became regulated in the mid 30's and, 2) the LTL motor carriers had a lot of protection from compitition. The government restricted who could haul the stuff (barrier to entry) and enforced the rates. You couldn't kill a truckline under regulation.

The rail rate structure quickly broke down because it made no allowance for things such as supply, demand, compitition, etc. Hence, the point to point commodity rates that basically resulted from negotiations between shipper and carrier. They moved the vast majority of rail freight.

The inability of the railroads to get out from under the government structured rate plan on LTL played a big hand in moving that traffic to the highway. They did better with their carload business.

The existance of a tariff rate, in itself, means nothing. If the freight wasn't moving on that rate, it's just a piece of paper. You'd have to do your correlation on rates that actually moved business, and 25 years after the fact, I'd be supprised if you can develop that data.

Again, what tariffs are you using?

[Anonymous]

QUOTE: Originally posted by Limitedclear

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rick bonfiglio

now i can see why both kids had to go to the principals office.

what a convoluted and confusing way to point out what the railroads and farmers have been doing to each other for the last 150 years (and don't criticize my math).

when it's all said and done, the farmers will still suffer, and the railroad will get smaller due to public resentment. this is an old story, and i can't believe i wasted the time to read all five pages.

-rrick

What you're missing is that until Staggers, rail rates were regulated to reflect mileage based hauls, and frankly there were more railroads to do business with. The rate differential between Montana grain shipments and Nebraska grain shipments with the same destination and same relative mileage was for all intents and purposes indistinguishable. Since Staggers, you get to the point where the captive shippers like Montana are paying double the rates of the non-captive shippers like Nebraska.

So it's not an analysis of the last 150 years of acrimony between farmers and the multitude of railroads, it's the focus on the last 25 years of acrimony between suddenly captive rail shippers and the immense railroad oligarchy. It's a situation that needs to be rectified before we lose our ag and industrial base to foreign producers.

Oh, boy, here we go again...

I thought I was watching the ad for "Chicken Little" again...

But, no, it's just FM with his usual, "the sky is falling" approach to railroads...

Of course, in the pre-Staggers world many of the granger roads were nearly or really bankrupt. Look at the finances of the CRIP, MILW or CNW and you'll find that all were having a tough go of it.

Also, the dynamics of the grain markets have changed quite a bit over the years with a large shift to western ports for exports rather than domestic use or shipments from the Gulf Ports via the river systems. Last time I checked Montana was pretty challenged in terms of water transport to any deepwater port.

LC

Not real suprised you're a "Chicken Little" fan, when it comes out on VHS you can stick it next to your copy of "The Little Mermaid".

Not overly suprised that your view of grain hauling pre-Staggers is focussed on the granger lines. Of course, what I was refering to is the grain hauling of the current Class I's then vs now. One thing that hasn't changed for the BNSF or UP lines is that they were hauling most of the grain to the Western ports for export under regulation, same as now, and nothing has changed here other than relative rates have doubled for captive shippers.

Montana isn't "challenged" for access to water transport any more than the wheat growing areas of southeast Wyoming, western Nebraska, or Colorado. In fact, Montana is closer to the Pacific ports than all other HRS and HRW wheat growing areas. The big factor of course is that Montana is mostly captive, while Wyoming and Colorado are not.

[MichaelSol]

QUOTE: Originally posted by greyhounds
The existance of a tariff rate, in itself, means nothing. If the freight wasn't moving on that rate, it's just a piece of paper. You'd have to do your correlation on rates that actually moved business, and 25 years after the fact, I'd be supprised if you can develop that data.

In this instance, the data was developed in March of 1979 in preparation for ICC Hearings and most of the data for that was provided by Glenn Reynolds, Milwaukee Road's Director of Pricing.

Best regards, Michael Sol

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
The existance of a tariff rate, in itself, means nothing. If the freight wasn't moving on that rate, it's just a piece of paper. You'd have to do your correlation on rates that actually moved business, and 25 years after the fact, I'd be supprised if you can develop that data.

In this instance, the data was developed in March of 1979 in preparation for ICC Hearings and most of the data for that was provided by Glenn Reynolds, Milwaukee Road's Director of Pricing.

Best regards, Michael Sol

I guess I'd call that meaningless. When you go into a hearing you generally select evidence to support your position. So, again, what tariffs are you citing?

I know we took mileage into consideration, but it was part of a mix and it didn't govern our decisions. And we charged less to move freight north than we did south because the demand for northbound freight was less than the demand for southbound freight. Even if the miles were the same, we charged different rates.

[MichaelSol]

QUOTE: Originally posted by greyhounds
Which regulated tariffs? If you're going to cite a tariff, then name the tariff.

"A" tariff could tell you just about zilch. . A credible linear regression requires as many data points as possible. Which tariff? As many as possible. In this instance, a data set of Milwaukee revenue carloadings including, from actual waybills, distance (from origin and destination) and product.

Statistically, that is the relevant data.

For a linear regression to assess rate/mileage correlation, rate and mileage is extracted from the data set. A citation to a specific tariff is irrelevant at that point because the linear regression doesn't care: it wants actual, real data.

We requested waybill data and that's what we got. Since the purpose of the study was not to determine if Milwaukee waybills matched published tariffs, nor any reason whatsoever to suspect they didn't, there was absolutely no reason whatsoever to be looking for individual tariff numbers in a compilation of thousands of waybills no doubt including hundreds of tariffs.

At that point in time, it was a safe guess that all such rates were regulated and so there was no question that every single combination of price and distance was governed by a regulated rate.

For current pricing on wheat carriage, BNSF Rate Book 4022K was used. Within that rate book are subsets of unregulated and regulated rates, corresponding neatly with competitive and captive shippers.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds
I know we took mileage into consideration, but it was part of a mix and it didn't govern our decisions. And we charged less to move freight north than we did south because the demand for northbound freight was less than the demand for southbound freight. Even if the miles were the same, we charged different rates.

On the way to work, I was wondering what on earth this meant. Why look at the price differential on direction, when there are hundreds of price differentials on the same mileage in the same direction, because a railroad hauls different commodities/products at different prices, even over the same distance. Direction has nothing to do with it. There are simply another set of tariffs over the same mileage.

Chicago to New Orelans has/had hundreds of tariffs at different rates for the same mileage. Does that change the statistical relationship between each tariff and the mileage? Not one bit.

The "standard error" is a different statistical measure than correlation (r-squared). The strength of statisitical analysis is to be able to measure a relationship that may in fact have offsets up or down for a variety of reasons, but for which a specific factor is still the controlling factor in setting a rate.

Greyhounds is discussing a situation which would affect the standard error (in large samples, the standard deviation), not the correlation. The standard error has nothing, or at least little, to do with determining whether or not the rates are set by reference to mileage, only whether or not such rate differentials exist -- which is a completely different measure than correlation.

Over very large data sets, a correlation can be very strong, and still have a relatively large standard error, that is, a variety of different rates over the same distance, and a multiple of such distances, all of which ultimately are set by reference to mileage, will yield a statistical analysis that shows exactly that.

Which is exactly what linear regression analysis is supposed to do.

Best regards, Michael Sol

[arbfbe]

The underlying question remains, how does the BNSF justify charging Montana farmer more $$ to move grain a shorter distance than North Dakota and Minnesota farmers? The crops from the east wil use more fuel, more crews and plug up more terminal facilities than those from Montana. What gives here? The folks in Montana want to know.

It is an interesting note about shipping rates between Chicago and New Orleans and the reverse route. The return charges for the mty grain cars are figured into the loaded rate but what about cotainers from the midwest to the Pacific northwest? The railroad has no containers of their own any more so it is not their problem to balance loads and mtys to keep the equipment where it is going to be needed like they must do with grain cars. The balance component for containers is with the customers. Loads weight more but mtys take the same amount of space on the train. So it would seem there is no benefit to the railroad to charge much less for the mty move and besides, depending upon the time of the year, sometimes it is loads west and mtys east and a few months later it is loads east and mtys west. The railroad does not care about that any more, a box is a box is a box to them. Some are heavier than others but the customer needs to stage them, no longer a railroad pricing problem. They no longer have an incentive to price the move differently in order to give the market an incentive to route the loads and mtys for the benefit of the railroad.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
I know we took mileage into consideration, but it was part of a mix and it didn't govern our decisions. And we charged less to move freight north than we did south because the demand for northbound freight was less than the demand for southbound freight. Even if the miles were the same, we charged different rates.

On the way to work, I was wondering what on earth this meant. Why look at the price differential on direction, when there are hundreds of price differentials on the same mileage in the same direction, because a railroad hauls different commodities/products at different prices, even over the same distance. Direction has nothing to do with it. There are simply another set of tariffs over the same mileage.

Chicago to New Orelans has/had hundreds of tariffs at different rates for the same mileage. Does that change the statistical relationship between each tariff and the mileage? Not one bit.

The "standard error" is a different statistical measure than correlation (r-squared). The strength of statisitical analysis is to be able to measure a relationship that may in fact have offsets up or down for a variety of reasons, but for which a specific factor is still the controlling factor in setting a rate.

Greyhounds is discussing a situation which would affect the standard error (in large samples, the standard deviation), not the correlation. The standard error has nothing, or at least little, to do with determining whether or not the rates are set by reference to mileage, only whether or not such rate differentials exist -- which is a completely different measure than correlation.

Over very large data sets, a correlation can be very strong, and still have a relatively large standard error, that is, a variety of different rates over the same distance, and a multiple of such distances, all of which ultimately are set by reference to mileage, will yield a statistical analysis that shows exactly that.

Which is exactly what linear regression analysis is supposed to do.

Best regards, Michael Sol

No, I'm not.

I'm talking about the fact that the northbound FAK intermodal charges on the ICG, which I put in, were significantly below the corresponding southbound FAK intermodal charges.

This was because the demand for northbound transportation was less than the demand for southbound transportatiion. We charged a different "Per Mile" rate comming north than we did going south. (They were not "mileage" rates as such, but point to point charges.)

If a potential shipper wanted to negotiate a special commodity rate southbound, we pretty much said "No". If a guy had northbound loads the salesman took him out for a round of golf at the country club, got him tickets to whatever game he wanted to see, and asked him how much he'd be willing to pay. It beat dragging the trailers back north empty with $0 revenue.

But it's the same mileage going north or south, we just charged different rates. This was due to things like supply, demand, competitiion, etc.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
Which regulated tariffs? If you're going to cite a tariff, then name the tariff.

"A" tariff could tell you just about zilch. . A credible linear regression requires as many data points as possible. Which tariff? As many as possible. In this instance, a data set of Milwaukee revenue carloadings including, from actual waybills, distance (from origin and destination) and product.

Statistically, that is the relevant data.

For a linear regression to assess rate/mileage correlation, rate and mileage is extracted from the data set. A citation to a specific tariff is irrelevant at that point because the linear regression doesn't care: it wants actual, real data.

We requested waybill data and that's what we got. Since the purpose of the study was not to determine if Milwaukee waybills matched published tariffs, nor any reason whatsoever to suspect they didn't, there was absolutely no reason whatsoever to be looking for individual tariff numbers in a compilation of thousands of waybills no doubt including hundreds of tariffs.

At that point in time, it was a safe guess that all such rates were regulated and so there was no question that every single combination of price and distance was governed by a regulated rate.

For current pricing on wheat carriage, BNSF Rate Book 4022K was used. Within that rate book are subsets of unregulated and regulated rates, corresponding neatly with competitive and captive shippers.

Best regards, Michael Sol

Well, you said "regulated tariffs". I asked "which tariffs" and now you have a waybill study.

We do agree on something. The existance of a tariff rate means nothing.

But you're trying to extend a waybill study of Milwaukee Road traffic to the rest of the rail network, and that's dubious. The Milwaukee was a basket case that went broke. Extending their pricing strategy to the rest of the world through assumption is quite a stretch.

And always remember, correlation does not mean causation.

[MichaelSol]

QUOTE: Originally posted by greyhounds
But you're trying to extend a waybill study of Milwaukee Road traffic to the rest of the rail network, and that's dubious. The Milwaukee was a basket case that went broke. Extending their pricing strategy to the rest of the world through assumption is quite a stretch.

Oddly, the results of that study are very similar to the regulated rates on the BNSF today. Probably just a coincidence that regulated rates show similar characteristics, at different points in time, on different railroads. Of course, if you are contending that therefore BNSF is also a basket case ...

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
I know we took mileage into consideration, but it was part of a mix and it didn't govern our decisions. And we charged less to move freight north than we did south because the demand for northbound freight was less than the demand for southbound freight. Even if the miles were the same, we charged different rates.

On the way to work, I was wondering what on earth this meant. Why look at the price differential on direction, when there are hundreds of price differentials on the same mileage in the same direction, because a railroad hauls different commodities/products at different prices, even over the same distance. Direction has nothing to do with it. There are simply another set of tariffs over the same mileage.

Chicago to New Orelans has/had hundreds of tariffs at different rates for the same mileage. Does that change the statistical relationship between each tariff and the mileage? Not one bit.

The "standard error" is a different statistical measure than correlation (r-squared). The strength of statisitical analysis is to be able to measure a relationship that may in fact have offsets up or down for a variety of reasons, but for which a specific factor is still the controlling factor in setting a rate.

Greyhounds is discussing a situation which would affect the standard error (in large samples, the standard deviation), not the correlation. The standard error has nothing, or at least little, to do with determining whether or not the rates are set by reference to mileage, only whether or not such rate differentials exist -- which is a completely different measure than correlation.

Over very large data sets, a correlation can be very strong, and still have a relatively large standard error, that is, a variety of different rates over the same distance, and a multiple of such distances, all of which ultimately are set by reference to mileage, will yield a statistical analysis that shows exactly that.

Which is exactly what linear regression analysis is supposed to do.

Best regards, Michael Sol

No, I'm not.

I'm talking about the fact that the northbound FAK intermodal charges on the ICG, which I put in, were significantly below the corresponding southbound FAK intermodal charges.

It is clear you do not understand the point that mileage is the primary controlling factor for any rate within the relevant range and that this is statistically provable, whereas your contention has no statistical support which makes it a species of "pretend" economics.

Best regards, Michael Sol

[MP173]

Mileage may be the determining factor for a "rate", but the determining the final "cost" will almost always be based on demand and supply.

You can file all the rates you want, they are starting points for negotiating the final cost. Sometimes, as in Montana or southbound Chicago -NO freight, there is no negotiating. That is traffic imbalance. Happens all the time. Look at airline pricing. It even happens in my field. Got a memo yesterday to the effect that "backlog is very low", take a look at any business out there.

Had I gone and picked up an MBA like some of you I would know if that is elastic or inelastic demand. If you run a business or are in sales you dont need to know the proper name, you just realize the necessity to adjust the throttle.

Seriously, from the LTL days, rates began based on mileage (rate basis which was a form of railroad mileage), but then found the water level mark based on all other factors. Some rate programs I developed did not even factor mileage, but were based on the number of aggregate pickups and deliveries and total tonnage tendered.

Pricing and yield management are very interesting aspects of any transportation company's marketing and are often very much protected within that organization. To say there is no reasoning on a company's pricing is often based on looking at it on a micro economic scale, rather than the big picture.

I have always maintained that if I were negotiating the Montana wheat rates (for the farmers), I would use a method of tying that freight into a much larger pool of traffic. Large agricultural concerns such as Cargil, ADM, etc possibly have, or should have much favorable rates, based on mileage.

Darn, I wish I had gotten my MBA!

ed

[bobwilcox]

Ed-We were always very concerned about the impact of a local chemical shipper turning over their logistics to someone like UPS. Many large rail shippers have contracted their physical distribution management out to UPS and other firms. They can come to the table with a very large portfolio of business to offer; most of which is competitve with other railroads or motor carries.

Also, in the early days (1980s) of deregulation we would bid on a customers entire package of traffic within North America. The only thing the customer wanted to hear was how much we would charge him to move all of his traffic for three to five years. Other distinctions such as the specific commodity or distance became secondary to this primary issue. I can recall cases where the charge from the TX/LA Gulf Coast to California would be lower than the charge to Alabama.

[MichaelSol]

QUOTE: Originally posted by MP173

Mileage may be the determining factor for a "rate", but the determining the final "cost" will almost always be based on demand and supply.

Ed, I was very, very clear that unregulated or deregulated rates are poorly correlated with mileage. and I hope this is not an intentional misreading of my comments just to get a rise. Please reread my comments.

I'm not sure that you are seeing the distinction that the discussion related to regulated rates. Hence the specific date, 1979.

If what you say is true for that era, then the Staggers Act was of no particular use at all.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds
The Milwaukee was a basket case that went broke. Extending their pricing strategy to the rest of the world through assumption is quite a stretch.

ICC Chairman Daniel K. O'Neal testified to the US Senate in January, 1978 that there were four railroad "basket cases," the Rock Island, the Illinois Central Gulf, The Milwaukee Road and the North Western, but that the other railroads were not far behind.

When Milwaukee petitioned for bankruptcy, it had something like $10 million cash on hand and $38 million accoounts payable. When Stanley Hillman left ICG, it had 0 in the cash drawer and $100 million in accounts payable outstanding. Interestingly, as of December, 1977, the Milwaukee Road was not technically bankrupt, and ICG technically was.

Best regards, Michael Sol

[samfp1943]

QUOTE: Originally posted by futuremodal

Yep, just post something about railroad rate gouging, and the ilks will slither up from the cesspool of arrogant idiocy.

Sounds like it must be ilk hunting season in montana, do they use stamps or tags?
Is ilk hunting with howitzers permitted?

[MichaelSol]

QUOTE: Originally posted by MP173

Mileage may be the determining factor for a "rate", but the determining the final "cost" will almost always be based on demand and supply.

Well, these economic platitudes are starting to wear a little thin.

Demand is the greatest where? Supply is the most constricted where?

And the rates are the lowest on those corridors, not the highest.

QUOTE: Originally posted by MP173
...you just realize the necessity to adjust the throttle.

So this explains why rates are lowest where demand is the highest? Well, that is exactly what you are saying. And rates are highest where demand is the lowest because of supply and demand?

I have long been puzzled by these frequent simplistic references to "laws" of supply and demand, because they have made just about zero sense in this context.

The discussion has been about captive and non-captive shippers. The economic fact of life is that supply and demand has nothing to do with it; it is a matter of market share pricing, rather than cost pricing, which leads to plummeting margins for most traffic, especially where demand is the greatest and capacity supply the lowest which is exactly why the railroads are struggling with excessive demand and inadedquate supply -- because they keep lowering the price, not raising it. Except to certain parts of the system where, ironically, there is little congestion and seemingly, lots of supply of train and track capacity.

It does not take an MBA to see that the platitude and the reality are two different things.

Best regards, Michael Sol

[bobwilcox]

CSXT is raising pricessignificantly. The blurg from Train Orders is at http://www.trainorders.com/news/story.php?2900

BNSF, NS and UP should be following.

[MichaelSol]

QUOTE: Originally posted by bobwilcox

CSXT is raising pricessignificantly. The blurg from Train Orders is at http://www.trainorders.com/news/story.php?2900

BNSF, NS and UP should be following.

You're behind on the news.

BNSF already did ... in Montana and North Dakota. We've known that for 25 years.

Best regards, Michael Sol