What happen to Milwaukee Road?

[Murphy Siding]

Dave, Do you trouble understanding the math in Ken's post? I question MichaelSol's math too. Does that make me an idiot? If everything that anyone types on a forum is not to be questioned, there wouldn't be much conversation, now would there?

Oh, and some nice weather we've been having, eh?

[MichaelSol]

The misunderstanding is now piled on top of greyhounds misunderstandings of what the gateway conditions were, and his misunderstanding of their effectiveness in the face of a documented record, compounded by his confusion that the Port of Seattle was the same thing as the entire Pacific Northwest. Added to that his assertion than intermodal trains of the era rarely exceeded 50 cars, even though Milwaukee’s routinely exceeded 100. That a reporting mark was the same thing as a railroad corporation. Then asserting that grain cars were easy to lease, oblivious to the fact that there was a well-known and well-documented grain car shortage due to the well-known and well-documented Russian wheat sales of the era. This is quite a record of outright mischief.

Today's misunderstanding involves the use of inflation indicators.

The expression of a 1974 rate figure in 2005 dollars is only to provide, for the reader, a relevant measure of the purchasing power of the dollar in terms that the reader can relate to directly. As Murphy Siding pointed out, and with which I agreed, that expression says little about the changes in rates, as opposed to a general inflation rate, between 1974 and 2005. And it wasn't meant to.

Strawbridge assumed it did.

My reference to the 1980 figure was because the paper referred to went back only to 1980. It would be interesting to compare the 1974 figures, but, since that data wasn't available to me at the time, I used the available data. Conftronted with inconvenient data, Strawbridge wants to change the subject back to an inflation measure for which there is no corresponding general rate data for comparison. Well, without an appropriate comparator, he can make all the conclusions he cares to -- he usually does -- there is no data on this thread to support it.

The trap is to confuse a current dollars approach, which is simply to measure a dollar figure at a point in time in terms of the current purchasing value of dollars. This is why analysts often prefer to state specific changing econometric data in terms of indexes, rather than dollars. People often confuse the inflation adjusted approach. Ken Strawbridge is Exhibit A.

Succinctly, expressing a 1974 dollar in 2005 dollars has nothing to do with expressing a 1974 rate as an equivalent 2005 rate because rates are a specific, whereas the dollar measure measures inflation as a general measure of price changes throughout an economy. Railroad shipping rates have not changed in synchronization with the general rate of inflation. But dollars have. There is a significant difference.

This is why the paper I referenced, and papers like it, create neutral measures or indexes such as a percentage factor, rather than simply using dollar numbers. The confusing factor, for some, is adjusting the index to the inflation of the dollar. And, if you don't get it, you don't get it.

But what that process does is extract from rate changes the effect of inflation. What is left is the "real" change in railroad rates, based on economic change forces specific to the rate, rather than to the general economy.

In reality, in doing that, what an analyst has done is create an independent inflation (or deflation) index for railroad rates.

Between 1980 and 1997, railroad rates nearly continuously deflated, notwithstanding a moderate rate of inflation in the economy as a whole.

Measured by that index, the average railroad rate declined by 46.4%. Compared to that index captive wheat shippers pay more, relative to the adjusted index rate, than they did in 1980.

Part of the difficulty lies in the fact that we are educated to see these indexes in terms of inflation, not deflation. So, when we say that the price of gasoline in 2005 at $2.30 per gallon is cheaper than the price of gas in 1980 at $1.30 per gallon, we have been educated to understand exactly what that means.

Although railroad rates have deflated, it still seems counterintuitive to say that a railroad rate of $1,000 in 2005 was more expensive than a railroad rate of $1,400 in 1980. That's because of the natural resort to a general inflation index to measure a price structure that did not track the general index but, rather, went the other way.

[Anonymous]

I'll throw this question out, but easy with the flames please:

In this age of rail capacity (or excess capacity), would it be possible (or even feasible) to rebuild? the Milwaukee Road to the northwest? If so, would there be anything substantive to be gained from it?

[nanaimo73]

QUOTE: Originally posted by Harry_Runyon

In this age of rail capacity (or excess capacity), would it be possible (or even feasible) to rebuild? the Milwaukee Road to the northwest?

It would not be possible to rebuild the Milwaukee Road as it was. It is certainly possible to have a replacement Milwaukee Road.
If DME, and their IC&E (Map) got together with the Twin Cities and Western (Map), you would be at Millbank, SD. From there they would need the former CMSP&P line to Terry, MT now owned by BNSF. Trackage rights on BNSF would be needed to reach MRL at Huntley. MRL (Map) gets you to Spokane. From there you would need UP's Spokane line to the Tri Cities, and then BNSF's Stampede Pass line to reach the Puget Sound. The Milwaukee Road's line from Auburn to Chehalis is still in place, owned by UP and Tacoma Rail. Add on the CMSP&P trackage rights up to Canada and down to Portland (and Wisconsin and Southern if you wanted) and you would have a modern Milwaukee Road.
There is no way BNSF would allow this to happen, but it could be done..

QUOTE: If so, would there be anything substantive to be gained from it?

I'll leave that for others.

[n012944]

QUOTE: Originally posted by MichaelSol

Milwaukee's economic strength was as a transcontinental railroad. It served key ports/gateways on the east end, and ran to key ports/gateways on the west end. From a railroad planner's standpoint, it was close to an ideal configuration. The PCE was the part that completed the whole, a 2600 mile mainline from Louisville to Portland. And that part made money, good money. It was the overbuilt, short haul money pit in the middle that sunk the whole thing, and it didn't matter whether that part was called the Milwaukee, The North Western, the Rock Island, the Illinois Central or the Burlington. It was the same money pit. They all suffered the same problems at a key point in time: lack of money to continue operations and lack of capital to regain economic viability.

lack of money to continue operations? Of all the railroads you bring up, only the Rock shut down. The CNW, CBQ, and the IC all did just fine untill they were merged into larger systems. While they did have some issues in the 70's, so did EVERYONE. There has been several posts that said if the PCE was not torn up, the BN would have also declared bankruptcy. I have just one question, if the BN could not make it with all of its coal traffic helping the bottom line, what makes anyone think the MILW would have made it with almost no coal traffic??


Bert

[MichaelSol]

QUOTE: Originally posted by n012944
The CNW, CBQ, and the IC all did just fine ...

Well, if you don't count all the federal money, deferred maintenance exceeding $1.7 billion, and operating losses ....

[MichaelSol]

QUOTE: Originally posted by n012944
I have just one question, if the BN could not make it with all of its coal traffic helping the bottom line, what makes anyone think the MILW would have made it with almost no coal traffic??

No coal traffic? Hmmm.

Both Milwaukee and BN had about the same 250% or so increases in coal traffic between 1972 and 1978. Coal was a big growth item for both railroads. Several big coal projects were underway on Milwaukee lines that were subsequently put on hold when the railroad embargoed.

By 1979, BN's Operating Ratio had deteriorated to 94-96%. Ordinarily, those are bankruptcy numbers. Milwaukee's was about 110%. Both were definitely hurting from something, and were far above their historic ratios.

Traffic doesn't necessarily mean profit.

Company officials from both companies don't support your idea that the coal traffic was "helping the bottom line," but rather the contrary: that due to unexpected costs of coal unit trains -- substantially higher overall costs than estimated when the contracts were made -- the coal traffic nearly sunk one company, and may have been a key factor in the sinking of the other.

[MP173]

In Leaders Count, the author states that BN originally under priced the cost to move the coal from Wyoming and had to come back with substantial price increases.

Michael...why do you think the coal pricing was so damaging in the beginning? I know the simple answer is that it was priced too low...but I am curious as to WHY it was priced too low.

Did the carriers not account for the additional expenses involved with handling the coal? Since new power and track rebuilding would have been capitalized, I would think that there would have been a severe cash crunch, but not necessarily a spike in operating ratios.

Any thoughts?

ed

[n012944]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by n012944
I have just one question, if the BN could not make it with all of its coal traffic helping the bottom line, what makes anyone think the MILW would have made it with almost no coal traffic??

No coal traffic? Hmmm.

Both Milwaukee and BN had about the same 250% or so increases in coal traffic between 1972 and 1978. Coal was a big growth item for both railroads. Several big coal projects were underway on Milwaukee lines that were subsequently put on hold when the railroad embargoed.

By 1979, BN's Operating Ratio had deteriorated to 94-96%. Ordinarily, those are bankruptcy numbers. Milwaukee's was about 110%. Both were definitely hurting from something, and were far above their historic ratios.

Traffic doesn't necessarily mean profit.

Company officials from both companies don't support your idea that the coal traffic was "helping the bottom line," but rather the contrary: that due to unexpected costs of coal unit trains -- substantially higher overall costs than estimated when the contracts were made -- the coal traffic nearly sunk one company, and may have been a key factor in the sinking of the other.

Don't use percentages in an argument, they can be very misleading. If I invested $1 in a company and got a 250% return I now have $2.50. However if I had $100,000 and got a 250% return....... Percentages do not mean a thing without the orginal number. 75% increase from 0 is still 0, but it sounds good. Also, when one has a new very large traffic base, in costs money to be able to handle it. You use the BN's operating ratio and say that it ordinarliy it would be a bankruptsy number, however when you are plowing your profits back into your plant, it makes the ratio not look so good. However once you get caught up with your plant, the number starts to look much better, as it did for the BN in the 80's.


Bert

[n012944]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by n012944
I have just one question, if the BN could not make it with all of its coal traffic helping the bottom line, what makes anyone think the MILW would have made it with almost no coal traffic??

No coal traffic? Hmmm.

Both Milwaukee and BN had about the same 250% or so increases in coal traffic between 1972 and 1978. Coal was a big growth item for both railroads. Several big coal projects were underway on Milwaukee lines that were subsequently put on hold when the railroad embargoed.

Company officials from both companies don't support your idea that the coal traffic was "helping the bottom line," but rather the contrary: that due to unexpected costs of coal unit trains -- substantially higher overall costs than estimated when the contracts were made -- the coal traffic nearly sunk one company, and may have been a key factor in the sinking of the other.

O.K. in 1985 the MILW had 9 to 11 units trains a WEEK, while the BN was kicking out that many in 12 hours. The MILW was bankrupt, the BN was not. Coal had a lot to do with that.


Bert

[Murphy Siding]

QUOTE: Originally posted by n012944


Don't use percentages in an argument, they can be very misleading. If I invested $1 in a company and got a 250% return I now have $250. However if I had $100,000 and got a 250% return....... Percentages do not mean a thing without the orginal number. 75% increase from 0 is still 0, but it sounds good. Also, when one has a new very large traffic base, in costs money to be able to handle it. You use the BN's operating ratio and say that it ordinarliy it would be a bankruptsy number, however when you are plowing your profits back into your plant, it makes the ratio not look so good. However once you get caught up with your plant, the number starts to look much better, as it did for the BN in the 80's.


Bert

Um........ A couple of things jump out at me here:

1) 250% of $1.00 is $2.50

2) I don't think where you put your profits (as in "plowing them back into your plant") makes any difference on your operating ratio.

[Anonymous]

QUOTE: Originally posted by n012944

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by n012944
I have just one question, if the BN could not make it with all of its coal traffic helping the bottom line, what makes anyone think the MILW would have made it with almost no coal traffic??

No coal traffic? Hmmm.

Both Milwaukee and BN had about the same 250% or so increases in coal traffic between 1972 and 1978. Coal was a big growth item for both railroads. Several big coal projects were underway on Milwaukee lines that were subsequently put on hold when the railroad embargoed.

Company officials from both companies don't support your idea that the coal traffic was "helping the bottom line," but rather the contrary: that due to unexpected costs of coal unit trains -- substantially higher overall costs than estimated when the contracts were made -- the coal traffic nearly sunk one company, and may have been a key factor in the sinking of the other.

O.K. in 1985 the MILW had 9 to 11 units trains a WEEK, while the BN was kicking out that many in 12 hours. The MILW was bankrupt, the BN was not. Coal had a lot to do with that.


Bert

Except by 1985 the PCE was no more west of Miles City, and the State of South Dakota owned the Miles City - Milbank portion, so the remnants of the Milwaukee no longer had a connection to the PRB fields. By that measure, it is remarkable the "dead man walking" version of the Milwaukee even hosted 10-ish unit trains per week.

That being said, it would have taken a project similar to the CNW/BN joint line through to the Wyoming coal fields for the Milwaukee to have a similar number of coal trains out of there as BN and CNW/UP.

[Anonymous]

QUOTE: Originally posted by nanaimo73

QUOTE: If so, would there be anything substantive to be gained from it?

I'll leave that for others.

Alright, I'll take it from here.[:D]

If by substantive gain you mean a general macro economic gain, by all means a second Northern Tier Class I would be appreciated by all rail shippers in the area. Three would be ideal (as per triopoly being statistically close to actual dog eat dog competition in terms of shipping rates), but that's a whole 'nother project. Right now, we'd just like a new PCE-ish Class I to relieve us of BNSF's onerous rates and "maybe we'll get around to it someday if we do it at all" type service attitude. As for what that would look like, some have made decent prospective proposals........

QUOTE: Originally posted by Harry_Runyon

In this age of rail capacity (or excess capacity), would it be possible (or even feasible) to rebuild? the Milwaukee Road to the northwest?

It would not be possible to rebuild the Milwaukee Road as it was. It is certainly possible to have a replacement Milwaukee Road.
If DME, and their IC&E (Map) got together with the Twin Cities and Western (Map), you would be at Millbank, SD. From there they would need the former CMSP&P line to Terry, MT now owned by BNSF. Trackage rights on BNSF would be needed to reach MRL at Huntley. MRL (Map) gets you to Spokane. From there you would need UP's Spokane line to the Tri Cities, and then BNSF's Stampede Pass line to reach the Puget Sound. The Milwaukee Road's line from Auburn to Chehalis is still in place, owned by UP and Tacoma Rail. Add on the CMSP&P trackage rights up to Canada and down to Portland (and Wisconsin and Southern if you wanted) and you would have a modern Milwaukee Road.
There is no way BNSF would allow this to happen, but it could be done..

[greyhounds]

QUOTE: Originally posted by MichaelSol

The misunderstanding is now piled on top of greyhounds misunderstandings of what the gateway conditions were, and his misunderstanding of their effectiveness in the face of a documented record, compounded by his confusion that the Port of Seattle was the same thing as the entire Pacific Northwest. Added to that his assertion than intermodal trains of the era rarely exceeded 50 cars, even though Milwaukee’s routinely exceeded 100. That a reporting mark was the same thing as a railroad corporation. Then asserting that grain cars were easy to lease, oblivious to the fact that there was a well-known and well-documented grain car shortage due to the well-known and well-documented Russian wheat sales of the era. This is quite a record of outright mischief.

Today's misunderstanding involves the use of inflation indicators.

The expression of a 1974 rate figure in 2005 dollars is only to provide, for the reader, a relevant measure of the purchasing power of the dollar in terms that the reader can relate to directly. As Murphy Siding pointed out, and with which I agreed, that expression says little about the changes in rates, as opposed to a general inflation rate, between 1974 and 2005. And it wasn't meant to.

Strawbridge assumed it did.

My reference to the 1980 figure was because the paper referred to went back only to 1980. It would be interesting to compare the 1974 figures, but, since that data wasn't available to me at the time, I used the available data. Conftronted with inconvenient data, Strawbridge wants to change the subject back to an inflation measure for which there is no corresponding general rate data for comparison. Well, without an appropriate comparator, he can make all the conclusions he cares to -- he usually does -- there is no data on this thread to support it.

The trap is to confuse a current dollars approach, which is simply to measure a dollar figure at a point in time in terms of the current purchasing value of dollars. This is why analysts often prefer to state specific changing econometric data in terms of indexes, rather than dollars. People often confuse the inflation adjusted approach. Ken Strawbridge is Exhibit A.

Succinctly, expressing a 1974 dollar in 2005 dollars has nothing to do with expressing a 1974 rate as an equivalent 2005 rate because rates are a specific, whereas the dollar measure measures inflation as a general measure of price changes throughout an economy. Railroad shipping rates have not changed in synchronization with the general rate of inflation. But dollars have. There is a significant difference.

This is why the paper I referenced, and papers like it, create neutral measures or indexes such as a percentage factor, rather than simply using dollar numbers. The confusing factor, for some, is adjusting the index to the inflation of the dollar. And, if you don't get it, you don't get it.

But what that process does is extract from rate changes the effect of inflation. What is left is the "real" change in railroad rates, based on economic change forces specific to the rate, rather than to the general economy.

In reality, in doing that, what an analyst has done is create an independent inflation (or deflation) index for railroad rates.

Between 1980 and 1997, railroad rates nearly continuously deflated, notwithstanding a moderate rate of inflation in the economy as a whole.

Measured by that index, the average railroad rate declined by 46.4%. Compared to that index captive wheat shippers pay more, relative to the adjusted index rate, than they did in 1980.

Part of the difficulty lies in the fact that we are educated to see these indexes in terms of inflation, not deflation. So, when we say that the price of gasoline in 2005 at $2.30 per gallon is cheaper than the price of gas in 1980 at $1.30 per gallon, we have been educated to understand exactly what that means.

Although railroad rates have deflated, it still seems counterintuitive to say that a railroad rate of $1,000 in 2005 was more expensive than a railroad rate of $1,400 in 1980. That's because of the natural resort to a general inflation index to measure a price structure that did not track the general index but, rather, went the other way.

Oh cripes!

We started out with this as a comparison between the 1974 rates and the 2005 rates. Now he's moving the years around - keep trying Sol, you won't be able to find any pair of years that don't show that the railroad rates on wheat from Montana to the Portland export terminals are not significantly lower now than they were when the Milwaukee Road was running and the rates were regulated by the ICC.

On May 25, 2006 you said:

QUOTE: Originally posted by MichaelSol

]
In 1974, Montana wheat growers had the natural advantages of a superior product and location to market. At $4.50 a bushel, a carload would bring $15,750, with a shipping cost to Seattle of $1,550 [1974 dollars]. Just about 10% of the gross revenue went to transportation. Yes, that is $6500 in 2005 dollars,

Sol made the inflation adjustment, I didn't. I just used his numbers to show that the current $3,300/carload rate is only 51% of what the rate was in 1974 using constant dollar terms. And constant dollar terms are the only way you can compare dollar amounts in 1974 with dollar amounts in 2005.

That's a huge price reduction, and the people and politicians of Montana should be saying a big time thank you to the BNSF for achieving the operating efficiencies required to get those prices down. And and even bigger thank you to the BNSF for passing along signficant cost savings to its Montana shippers. It was under zero legal obligation to do this.

But there's huge political gain to be made by the Democrat governor of Montana when he blames the BNSF for the farmers' woes. "Vote for me and I'll set you free." It doesn't matter to him, or apparently to Sol, that he's misleading people into financial ruin. I'm convinced Sol has a political agenda, is he hooked up with the politicians here? He don't say.

Sol says economists create indexes. Yes they do. But you have to know what the it's an index of, and Sol don't say. Just some more misleading, incomplete BS.

And another thing, Sol never shows his math. I put mine out here. If you've got nothing to hide and are being honest, you can show the derivation of the figures. I do that. Sol doesn't. Draw your own conclusions.

Sol can not change the fact that, by his own numbers, the rail rates on wheat from Montana to the export terminals have declined significantly (49% from 1974 to 2005) in constant dollar terms.

No reasonable person could expect more from the BNSF than that. But he's a lawyer on a political mission. Don't expect reason.

Ken Strawbridge

[MichaelSol]

QUOTE: Originally posted by greyhounds
We started out with this as a comparison between the 1974 rates and the 2005 rates.

No, we didn't. We expressed 1974 rates in 2005 dollars. The rest of your comment underscores why you don't understand the necessary metrics to have a coherent discussion. Nothing more to be said. Like gateways, like rates, like traffic, and inflation, you simply mix everything into a grab bag of whatever is convenient, and come to pre-ordained conclusions.

Now I see that the Democrat Governor of Montana is leading people to financial ruin.

Good grief. A complete waste of time.

[n012944]

All right, sincemany people on this board are looking at the PCE through 30 years of rose colored glasses, I thought that maybe a couple of quotes from the time will help everyone remember why the PCE is no more. Fom October 1978 TRAINS talking about the building of the PCE, "In retrospect, that venture was mortally flawed. The decision in 1905 to push MILW rails west from Mobridge, S. Dak., west to the Pacific was made in the face of the possibility of a Panama Canal (the first ship passed through its locks in 1914). and in the knowledge that MILW would be sandriched between Harriman's Union Pacific and Hill's Great Northern, not to mention the Northern Pacific. But despit the glomor of an Olympian, and the technology of 656 route-miles' worth of electrification, the Extension was not justified." The artical then quotes MILW trustee Stanley Hillman as saying "Seldom since the Pacific Coast Extension was completed in 1909 has the Milwaukee been able to attract sufficient business to the rout to justify the hundreds of miles of totally unproductive line that are included in it; and never in recent years has it been able to do so." The 1561 route miles west of Butte, Mont., particularly upset the trustee. "Close to 40 per cent of the MILW's route mileage west of Butte gererates only 6 per cent of its revenues west of Butte."


Bert

[Randy Stahl]

All I know is that ALL of the buildings I worked in are gone , the locomotives scattered to the winds , many of my friends , dead... That is the part I miss the most .Say what you will about the Milwaukee, whether it be a money pit or what not , whether you miss it or not . The few remaining survivors will keep the TRUE spirit if the CMStP&P alive at least for a few more years until we too pass on. We were truely America's resourceful railroad.. we had little choice.
Randy

[n012944]

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by n012944


Don't use percentages in an argument, they can be very misleading. If I invested $1 in a company and got a 250% return I now have $250. However if I had $100,000 and got a 250% return....... Percentages do not mean a thing without the orginal number. 75% increase from 0 is still 0, but it sounds good. Also, when one has a new very large traffic base, in costs money to be able to handle it. You use the BN's operating ratio and say that it ordinarliy it would be a bankruptsy number, however when you are plowing your profits back into your plant, it makes the ratio not look so good. However once you get caught up with your plant, the number starts to look much better, as it did for the BN in the 80's.


Bert

Um........ A couple of things jump out at me here:

1) 250% of $1.00 is $2.50.

Oops, sorry about that, just a missplaced decimal point.


Bert

[MP173]

Again, the issue with Montana wheat farmer is the $4.50 per bushel rate is the same as the $4.50 rate in 1974.

Whether or not you expressed 1974 rates in 2005 dollars or 2005 rates in 1974 dollars doesnt matter in this equation. Or if it does matter, please lead me down the path, because I am confused.

I will repeat, you cannot live on the same income in 2005 that you did in 1974. Those commodity rates are based on supply and demand. Better do something to add value, reduce supply or increase demand.


Your argument of 1974 to 2005 falls short. Rethink your process here.

ed

[MichaelSol]

QUOTE: Originally posted by MP173
Michael...why do you think the coal pricing was so damaging in the beginning? I know the simple answer is that it was priced too low...but I am curious as to WHY it was priced too low.

Did the carriers not account for the additional expenses involved with handling the coal? Since new power and track rebuilding would have been capitalized, I would think that there would have been a severe cash crunch, but not necessarily a spike in operating ratios.

Any thoughts?

ed

Well, that's a good question.

My impression is that this was one of those decisions, made based on limited foresight, which represented a somewhat "railroad" methodology of decision making -- that is, focused on today, at the sacrifice of tomorrow.

An analogy can be found in the following analysis of the 100 ton car debacle:

"Fndings of the AAR Panel on 100-ton cars

"n 1981, an AAR panel of distinguished railroad engineers compared the expected impacts of 220,000-pound cars (80-ton loading cars) on well-maintained tangent track with 132-pound continuous welded rail to the expected impacts of 263,000-pound cars (100-ton loading cars) on the same track. The panel concluded that rail life would be 1.5 to 2.1 times greater using the 220,000-pound cars, while tie and ballast lives would be 1.0 to 1.4 times greater under the lighter loads. The panel's report also noted that the impacts of heavier 100-ton cars would be much greater on light rail and poorly-maintained track. However, these effects were not quantified.

"Findings of the Ahlf Study of 100-Ton Cars

"Robert Ahlf (1980) developed an economic-engineering model of maintenance of way and structure (MW&S) costs using reported Class I railroad maintenance expenses and work load measures (such as gross ton miles).9 He classified each MW&S cost element into one of three categories: 1) fixed costs; 2) costs that vary in relation to the mechanical actions of the track under load; and 3) costs that vary with rail life. The costs of ballast, ties, and track surfacing events were included in Category 2 (costs that vary with track mechanical action). Rail deflection was used as an indicator of the mechanical actions of the track under different axle loads and track support conditions.

"Ahlf concluded that: (1) 39 percent of MW&S costs vary with track mechanical action, (2) 17 percent of MW&S costs vary with rail life, and (3) Industry deployment of 100-ton cars will reduce rail service life by about 50 percent (a finding that is consistent with the maximum impact projected by the AAR panel).10 "

9. "Ahlf, Robert E. "The Implications of the 100-Ton Car," Modern Railroads, February, 1980."

10. "His reasoning, in part, was that deployment of 100-ton cars changed the limiting factor in rail life from wear to fatigue-related defects, as discussed in the following passage: Rail head contact stresses, previously of minor importance in determining rail life, are now the dominant factor. These stresses, beyond the elastic limit, are resulting in rapid propagation of fatigue-related defects which are becoming the primary limitation on rail life in tangent track. Depending upon the defect rate which a railroad is willing to live with, tangent rail life is being reduced to less than one-half of what it would otherwise be with lighter cars."

NORTH DAKOTA STRATEGIC FREIGHT ANALYSIS
Item IV. Heavier Loading Rail Cars, Prepared by John D. Bitzan and Denver D. Tolliver, Upper Great Plains Transportation Institute, North Dakota State University, Fargo, North Dakota, October 2001.

[MichaelSol]

QUOTE: Originally posted by MP173
I will repeat, you cannot live on the same income in 2005 that you did in 1974.

Then, how do the railroads live on much less per ton mile than they did in 1974?

You can't confuse an inflation index with a price index.

[Murphy Siding]

QUOTE: Originally posted by MichaelSol

In 1974, Montana wheat growers had the natural advantages of a superior product and location to market. At $4.50 a bushel, a carload would bring $15,750, with a shipping cost to Seattle of $1,550 [1974 dollars]. Yes, that is $6500 in 2005 dollars
That is to say, the $4.50 ($3.50-$4.50) price received then is the same $4.50 price today, notwithstanding the depreciation of the dollar over that time period.

The carload of wheat brings just about the same price today as a result of this. Thirty years later, the farmer still receives $15,550 carload revenue of wheat at Seattle or Portland. But instead of the 1974 shipping cost of $1,550, the shipping charge is now around $3,300 per carload.

In actual, not constant,(HUH?) dollars, the cost of transporation has doubled to Montana wheat farmers, while the actual dollar cost for nearly every other shipper, including wheat shippers, has declined.

[(-D][(-D][(-D] I still contend that you are simply throwing out numbers for the heck of it. Your own numbers seem to contradict your explanations. Care to put all the $ figures in all *1974* or all *2005* terms, so they would actually mean something? As wriiten, your figures are too ambiguous to be clear.

[MichaelSol]

QUOTE: Originally posted by n012944
The artical then quotes MILW trustee Stanley Hillman as saying "Seldom since the Pacific Coast Extension was completed in 1909 has the Milwaukee been able to attract sufficient business to the rout to justify the hundreds of miles of totally unproductive line that are included in it; and never in recent years has it been able to do so." The 1561 route miles west of Butte, Mont., particularly upset the trustee. "Close to 40 per cent of the MILW's route mileage west of Butte gererates only 6 per cent of its revenues west of Butte."

Well, stop, take a deep breath, and consider how much of UP's route mileage between Omaha and Salt Lake generates revenues. You can take close to 40% of any transcontinental, leave out the revenue generated at the terminals, and come up with a ridiculous figure.

Hillman resigned after he saw the real meaning of what he had been talking about.

Trains didn't report that part of the story.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by MP173
I will repeat, you cannot live on the same income in 2005 that you did in 1974.

Then, how do the railroads live on much less per ton mile than they did in 1974?

You can't confuse an inflation index with a price index.

The measure of inflation is a "price index" you lawyer you! How can you go to sleep at night and intentionally mislead people like this. What year did you loose your morality?

I've said it time and again Sol, the wonderful BNSF got more efficient. That's why their prices whent down, big time.

You've got some wierd political agenda against the BNSF. Hope you get the votes and the power you crave while you sell the decent Montana farmers out.

You're in bed with the Democrat politicians who lead the farmers to finiacial ruin for the politician's own benifit. I am going to check out your law firm's donations to the Democrats. If Montanta law alows that.

Ken Strawbridge

[Kevin C. Smith]

QUOTE: Originally posted by MP173

In Leaders Count, the author states that BN originally under priced the cost to move the coal from Wyoming and had to come back with substantial price increases.

Michael...why do you think the coal pricing was so damaging in the beginning? I know the simple answer is that it was priced too low...but I am curious as to WHY it was priced too low.

Did the carriers not account for the additional expenses involved with handling the coal? Since new power and track rebuilding would have been capitalized, I would think that there would have been a severe cash crunch, but not necessarily a spike in operating ratios.

Any thoughts?

ed

If memory serves, the BN rates for PRB area coal was based on coal traffic that was only a part of the general traffic mix. Being far from most large consuming areas, lower rates helped PRB coal to stay competitive since it had to be hauled farther. Once PRB coal became a high demand product (low sulfer, I believe) and volume increased, not only could it bear more of the overhead but with the huge developement of facilities (Gillette-Orin line, engine terminals, yards and don't forget the rebuilding of many miles of connecting lines) those overhead costs skyrocketed. So, PRB coal went from having a bit of a free ride on the backs of the other traffic to being the tail wagging the dog. BN's rates jumped to reflect both the costs and what the traffic would now bear.

It's like a hotel that cuts rates for certain travellers to fill otherwise empty rooms but raises all rates if there is a high demand. The deeper discounted rates will raise the most and if you add onto the building to accomodate a permenent increase, they'll disappear for good.

[MP173]

Michael:

Efficiencies have increased for the railroads dramatically since 1974. Have the same efficiencies occured with the farmers? To a certain degree, farmers are more efficient today than 32 years ago.

Also, I would have to say that the reduction in overall mileage for the railroads (which is also efficiency) has helped. The 1 train per day of 5 cars branch lines are gone.

There is considerable more tons per mile than back in the 70's....OK this is a guess, as I dont have the data. If you can, please pull the data, as you seem to have a never ending supply of data.

Perhaps a better comparison would be to compare:

The revenue for farmer per acre of farmland in 1974 to present and
The revenue per rail mile in 1974 to present.

My guess is that the revenue side of each would tell the story. Farmer's income, based on the $4.50 per bushel, has probably remained extremely level. Perhaps a bit higher as yields per acre might have increased. On the expense side, we all know what has happened.

Compare the farmer's:
Fuel prices 1974 vs 2005
Fixed land costs 1974 vs 2005
Overhead equipment (implements) 1974 vs 2005
Transportation costs 1974 vs 2005
Labor costs 1974 vs 2005
Taxes (!) 1974 vs 2005
Seed 1974 vs 2005
Fertilizer 1974 vs 2005

If possible, Michael, draw up a 1974 and 2005 table of costs for each of the above items, plus any other I am missing. Not "constant" 1974 or 2005 dollars, but real costs per unit in 1974 and 2005.

I repeat my previous comments, the problem is on the top end (revenue) which has not increased.

BTW, for full disclosure...I own a farm and I own shares of transportation companies and I worked in pricing in LTL trucking. I dont have an axe to grind with Montana farmers or anyone else.

ed

[MichaelSol]

Well, data is the problem for 1974, as I mentioned above. The analytical study I cited went back to 1980 for rail rates, hence my preference for 1980 as a comparative year, rather than 1974.

Unfortunately, this thread has diverged into Strawbridge's favorite obsession aside from the Milwaukee PCE -- grain rates and Montana's governor. None of which he knows much about, but has ever strong opinions.

In this case, he is confusing index prices with inflation. Generally, an inflation rate is an aggregate of cost changes over time in specific goods and services. Unfortunately, most references are to the Consumer Price Index which often poorly represents price changes in industry or transportation, but there are specific inflation indexes for producers, etc. The Statistical Abstract of the United States generally compiles such indexes.

The problem occurs when an overall dollar index such as the CPI is used to assess econometric changes in a specific industry. Housing costs, for instance, tends to raise the CPI, whereas industries with deflation occuring tend to pull it down. So, while it useful to say that a 1974 figure means something in 2005 dollars, that is as far as it can go. It does not, cannot, mean that the stating of 1974 dollars in terms of 2005 dollars is the same thing as meaning the cost of the good or service should be that in the year 2005. There is absolutely no connection between stating a prior number in 2005 dollars and the price change in the industry over time.

Housing is a good example. The house next door sold in 1968 for $14,500. That represents $80,228 in 2005 dollars. What does that house currently appraise for? $185,000. The dollar conversion from 1968 into 2005 dollars has zilch to do with the value of the house in 2005. It does tell the value in current dollars of $14,500 in 1968. But that's all. Same with railroad rates. Expressing a 1974 figure in 2005 dollars only states the value of the 1974 dollars in current terms. It has nothing, absolutely nothing, to do with current rates.

Both railroading and agriculture have experienced significant deflation in the past 25 years. The deflation has been both steady and relentless. Strawbridge portrays this as a good thing, an almost benevolent disposition of industrial wealth by the BNSF. But deflation is rarely a positive economic event.

The Japanese have not been wildly celebrating their deflation of the past 15 years, and there weren't too many jubilant celebrants during the Great Depression either. In neither case was the deflation voluntary, and it hasn't been with the railroads or with agriculture either.

If the rail index were representative of the overall CPI or Producer Index, then we would be talking in terms of deflation. The $1500 in 1980 would in fact be cheaper in constant dollars than a $900 rate in 2005. It would be clear that a $1500 rate in 1980 would represent an increase in cost if the the rate in 2005 were $1100, because $1100 in 2005 buys more than $1500 in 1980. That's how deflation works.

The rail index is clearly deflationary. While most shippers in 2005, including wheat, are shipping at about the same relative cost on the index as in 1980, Montana shippers are paying approximately 52% above the index amount. That represents a substantial increase.

Taking into account the separate consideration that agriculture has also been suffering from deflationary pressures, the Montana wheat shipper suffers from the combined effects of both deflationary cycles.

For those industries or users who have not had deflationary pressures, but have rather contributed to the general overall inflationary trend of the economy as a whole, rail transportation rates have become a huge bargain. That just simply isn't true for all shippers however.

[Murphy Siding]

[(-D][(-D] I believe you have just used a whole bunch of numbers to justify your opinion on something, then posted a long explanation about why none of those numbers mean anything. OK. I agree.[;)][(-D][(-D]

[MichaelSol]

It's OK to just say you don't understand it. It's not always the other guy's fault.

[Murphy Siding]

That's why I asked you to explain your numbers. See post at top of this page.[:)]