"Does transportation cost too much?"

[StillGrande]

I'm starting to think that someone could start a topic about the color of ballast and it would turn into an open access, evil railroad argument. The last four topics I have read set off in that direction, with the same 4-5 players.

[spbed]

How many widgets do you think there are in a 45X9'6"X8 container? Then divide that by say $4,000.00 to move that container from Bangkok to NY (9,000 miles) then divide that per widget in the container & you have the cost per unit inside the container. I think you would find the cost per widget is very, very low. [:D]

QUOTE: Originally posted by tiskilwa

In the early 60's there was a Chicago television program entitled, "Does Transportation Cost Too Much?", which featured a panel discussion that included a railroad president, the VP of Quaker Oats, and the NY Herald Tribune business editor. (Source: trade magazine from 1963.)

"Transportation costs too much" was a complaint of rail shippers in the 1960's; it was a complaint of rail shippers 100 years ago; and It is a complaint of rail shippers today.

No doubt as long as there are railroads, it will be the perennial complaint of the rail customer.

[Anonymous]

Some more historical perspective:

Discussion of farmers and railroads is a popular topic here. Read the following passage that describes the situation in the 1870's and 1880's. Doesn't it aptly describe the situation today?

"The same objections which the farmers advanced to the railroads in the seventies were even more applicable in the eighties. Railroads were large foreign corporations, controlled either by eastern or alien captial. Rates were made according to what the traffic would bear and not to the needs of the users. Personal, place, and commodity descriminations were in operation on an increased scale.

"The underlying cause of the trouble between the railroads and the farmers was a lack of sympathy and understandying. The farmers talked about watered stock, excessive reates, and monopoly control, while the railroads feared governmental action and hard times. Neither made any study of the difficulties and consequent viewpoint of the other, and so they continued to work at cross purposes." [The Story of The Western Railroads, Riegel, Robert, 1926]

Indeed, it seems to me that the farmers and the railroads of today (2006) are not "making a study of the difficulties of the other", much like in 1870.

[daveklepper]

It seems to be this is a syllogistic argument. " Value" CAN have MANY meanings. My old shoes that I use as slippers around the apartment are very valuable to me because they are comfortable and keep the cold of the tile bathroom floor from bothering the soals of my feet. But if they were out on the sidewalk and a passerby wanted to keep the neighborhood need they would be thrown into a public garbage can, and I certainly would not show up at any important meeting or event wearing them.

[Tulyar15]

At the present time, despite high fuel prices, I think it can be shown that transportation costs are low in relation to other costs. A friend who works in the milk industry told me of how a processing plant was closed in Hereford (England) with the result that all milk produced by farmers in the county of Hereford has to be trucked to another plant 60 miles away to be processed, and then trucked back. So this suggests that transport costs were cheaper than the other costs associated with keeping the now closed plant running.

[Anonymous]

It's just like anything else.

If you're buying it, it costs too much.

If you're selling it, it doesn't cost enough.

Old Timer

[Kevin C. Smith]

Before we get too far into this-help, please.

I never got much past basic Econ at school (so please make allowances for terminology) but are we talking about an item's cost value vs it's price value? I can see that transportation adds nothing to the cost of making an item (making, not moving). A widget with $100.00 in labor & materials still has the same L&M in it no matter where it falls off the train. But the price that can be had for it will vary depending where it ends up. So, could we say that transportation doesn't add to the value of the item but to the consumer?

It looks like a lot of esoteric (to the layman) economic theories may develop on this thread and before my head starts to hurt any more (like it did in the advanced Econ. classes) I just want to be sure I'm understanding the basics.

Thanks again!

[Anonymous]

QUOTE: Originally posted by Hugh Jampton

I still disagree.
You're using a consumer definition of value, which is not the same as that of a shipper/manufacturer (which is what this thread is about). So, by your premis that a thing has no value until it's in the hands of the consumer, then if I put the widget on a train and it is destroyed in a derailment then the insurance company won't pay out because the widget has no value?

I sure do not see how your second statement follows from the first. Any item only has value if it is of some use to someone, and part of the manufacturing process is delivering the product to that right someone. Any product, no matter how good, is worthless to someone who has no use for it. Likewise if some product costs $10 to produce but is only worth $2 to the consumer then the product is only worth $2. If that item would happen to be in a derailment and is a total loss then the insurance would pay $2, because that is all the manufacturer could expect to get on the market.

If, as you say, transportation adds no value, then why is a can of Coke over $2 in Jamaca? Why is nearly everything so expensive in Alaska? It is because people are willing to pay the higher prices for the VALUE of having the product available locally.

Yes I understand that the Wikipedia article states that according to economic theory transportation adds no value. But that is the opinion of the person who wrote the article fow Wikipedia. Economics has many conflicting theories, so any "hard and fast rule" must be taken with more than a grain of salt.

My question back to you is, if transportation adds no value why does the US Government include domestic transportation in the GDP?

[Anonymous]

QUOTE: Originally posted by cornmaze

QUOTE: Originally posted by MichaelSol
How on earth did you conclude that?

Futuremodal asked rhetorically: "when was the last time anyone heard of a non-captive shipper complaining about rail rates?". His statement suggests that, historically, only "captive shippers" have ever complained about rail rates. Yet, the first post contains documentation of serious debate that took place about rail rates in 1963 -- when regulation prevented railroads from exploiting monopoly positions with regards pricing.

As my user name suggests, I like to focus on the future, not the past.

That being said, yes it is a rhetorical jab. Well, you know what they say about trying to answer a rhetorical question.......[%-)]

However, you seem to be under the impression that there was no competition under railroad regulation, and that's not the case. Railroads did compete with each other for business in those areas where more than one or two Class I's existed. It's just that it wasn't true market competition since the ICC oversaw all rates and services. And that's where a more comprehensive understanding of the rhetorical question comes into play. If you remember from Staggers Act discussions, rate regulation did not automatically benefit shippers, because more often than not the regulated rate was itself out of touch with the shipper's desires for responsiveness in conjuction with his market adjustments. THAT is where shipper complaints originated, aka rate regulation involved a lot of red tape that conjealed shippers' abilities to adjust to ever changing market flucuations.

Thus, under regulation it can be seen that rail shippers, all rail shippers as well as all railroads, were captive to ICC madates, sometimes to their advantage, sometimes to their detriment. After Staggers, those shippers with multiple Class I access were freed of captivity, while those shippers with only one Class I connection simply had their state of captivity shifted from the ICC to their Class I connection.

Again, do you have any examples of a non-captive rail shipper complaining about rail rates post Staggers?

[CSSHEGEWISCH]

Let's assume that a manufacturer of a product is located at Point A has pretty much sated the market for his product there. There is a demand for his product at Point B but the demand isn't enough to justify opening a new plant there. He then steps up production of his product to cover the additional demand at Point B. Without transportation to Point B, his additional production is of minimal value except as inventory since supply at Point A now exceeds demand at Point A. Transportation may not add a quantifiable dollar value to that additional product, but it also expands the market and demand for that product.

[Hugh Jampton]

I still disagree.
You're using a consumer definition of value, which is not the same as that of a shipper/manufacturer (which is what this thread is about). So, by your premis that a thing has no value until it's in the hands of the consumer, then if I put the widget on a train and it is destroyed in a derailment then the insurance company won't pay out because the widget has no value?
Or look at the accounts of any manufacturing company, somewhere in there you will see a line showing the value of any stock on hand and or work in progress. This value is above and beyond the value of the materials in the widget.
A widget in a warehouse/ on a train does have value, and it's value does not really change by the virtue of it being there. So no value is added.

I suggest you re-read the Wikipedia article.

[greyhounds]

QUOTE: Originally posted by rrandb

I must diagree. A products only value is what it can be sold for. Sitting at the plant or in its warehouse it has no value at all. It only has value when it can be delivered to a paying customer. The operative word is delivered. Transportation only cost "too much" when it drives the price above what people are willing to pay. Sitting at the plant no product has any value . Without some one who is willing to buy it and ship it then it is just excess inventory. Other companies sell their products FOB (freight on board). This is the price to pick it up at their dock. The cost of shipping is on top of the cost of the product however you want it shipped. They will arrange shipping for an additional fee. [2c] As always ENJOY.

Yep! I agree with your disagreement.

Unless it's at the place where the cosumer can use it, when then consumer can use it, it has no value. A banana in the Honduras, or a banana that was where I could get it yesterday, has no value to me today.

That what the whole "logistics" thingy is about. 30 years ago, "logistics" was a military term. Out of life and death necessity they came to well understand that a round of ammunition was of absolutely no use to a soldier unless he had it where and when he needed it. There's a saying: "Amatures talk tactics, professionals talk logistics."
Patton was stopped because he didn't have the gasoline where and when he needed it.

Transportation is a part of "logistics". It adds time and plce utility to the product. It does add value.

And there is always a natural conflict between any buyer and seller. i.e. "Shippers Complain". The buyer naturally wants more value for less cost. The supplier naturally was more money for what he/she provides. It's a good thing. I creates a friction in the marketplace than drives efficiency. The customer is always looking for a better supplier and the supplier is always looking for a better customer.

It keeps everybody on their toes.

[Anonymous]

QUOTE: Originally posted by MichaelSol
How on earth did you conclude that?

Futuremodal asked rhetorically: "when was the last time anyone heard of a non-captive shipper complaining about rail rates?". His statement suggests that, historically, only "captive shippers" have ever complained about rail rates. Yet, the first post contains documentation of serious debate that took place about rail rates in 1963 -- when regulation prevented railroads from exploiting monopoly positions with regards pricing.

[MichaelSol]

QUOTE: Originally posted by cornmaze
OK. I will wait for an explanation from futuremodal, then, how all complaints about rail rates in the last 100 years came from a "captive shippers." That was what he asserted in his last sentence that ended with the smiley face.

How on earth did you conclude that?

Here is the post:

QUOTE:
The relevent issue is the comparative costs of transportation, competitive vs noncompetitive. This is the issue that raises the hackles of rail shippers. Captive Shipper A sees Noncaptive Shipper B getting a lower rate, even though Shipper A is closer to market. Like most folks, there is an inherent belief that transportation costs more the longer the distance traveled, and this is based on the logical observation that longer distances require more fuel, time, ect. So why does the longer higher cost corridor result in lower rates than the shorter lower cost corridor?

The only conclusion one could draw from this is that the lack of intramodal competition results in higher rates. That's where the complaints focus, not on a general gripe about transportation.

BTW, when was the last time anyone heard of a non-captive shipper complaining about rail rates?

Maybe we are reading it differently, but the emphasized verbs are present tense verbs.

[Anonymous]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by cornmaze

QUOTE: Originally posted by futuremodal


when was the last time anyone heard of a non-captive shipper complaining about rail rates?[;)]

Futuremodal,
The first post in this thread states that the high cost of rail transportation was the subject of a debate that took place in the year 1963.

Regulation was the order of the day in 1963.

Think that over before you type up another programmed response.

Well, actually reading the first post, the first post actually says this:

QUOTE:
"Transportation costs too much" was a complaint of rail shippers in the 1960's; it was a complaint of rail shippers 100 years ago; and It is a complaint of rail shippers today.

Best regards, Michael Sol

OK. I will wait for an explanation from futuremodal, then, how all complaints about rail rates in the last 100 years came from a "captive shippers." That was what he asserted in his last sentence that ended with the smiley face.

[jeaton]

If England does not currently asses the VAT on transportation, I can understand Hugh's position on the subject. Why give people in the government any ideas for fresh revenue sources. [}:)]

[MichaelSol]

QUOTE: Originally posted by edblysard

So we have established that rail shippers complain.
Got anything that's new?
Ed

Probably on par with railroads complaining about the "excess" train crew employees, subsidized competition from barges and trucks, high fuel prices, property taxes, low rates, high costs of capital, high income taxes, hurricanes, and congestion.

Best regards, Michael Sol

[edblysard]

So we have established that rail shippers complain.
Got anything that's new?
Ed

[MichaelSol]

QUOTE: Originally posted by cornmaze

QUOTE: Originally posted by futuremodal


when was the last time anyone heard of a non-captive shipper complaining about rail rates?[;)]

Futuremodal,
The first post in this thread states that the high cost of rail transportation was the subject of a debate that took place in the year 1963.

Regulation was the order of the day in 1963.

Think that over before you type up another programmed response.

Well, actually reading the first post, the first post actually says this:

QUOTE:
"Transportation costs too much" was a complaint of rail shippers in the 1960's; it was a complaint of rail shippers 100 years ago; and It is a complaint of rail shippers today.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by futuremodal


when was the last time anyone heard of a non-captive shipper complaining about rail rates?[;)]

Futuremodal,
The first post in this thread states that the high cost of rail transportation was the subject of a debate that took place in the year 1963.

Regulation was the order of the day in 1963.

Think that over before you type up another programmed response.

[rrandb]

I must diagree. A products only value is what it can be sold for. Sitting at the plant or in its warehouse it has no value at all. It only has value when it can be delivered to a paying customer. The operative word is delivered. Transportation only cost "too much" when it drives the price above what people are willing to pay. Sitting at the plant no product has any value . Without some one who is willing to buy it and ship it then it is just excess inventory. Other companies sell their products FOB (freight on board). This is the price to pick it up at their dock. The cost of shipping is on top of the cost of the product however you want it shipped. They will arrange shipping for an additional fee. [2c] As always ENJOY.

[Anonymous]

If I may......

The relevent issue is the comparative costs of transportation, competitive vs noncompetitive. This is the issue that raises the hackles of rail shippers. Captive Shipper A sees Noncaptive Shipper B getting a lower rate, even though Shipper A is closer to market. Like most folks, there is an inherent belief that transportation costs more the longer the distance traveled, and this is based on the logical observation that longer distances require more fuel, time, ect. So why does the longer higher cost corridor result in lower rates than the shorter lower cost corridor?

The only conclusion one could draw from this is that the lack of intramodal competition results in higher rates. That's where the complaints focus, not on a general gripe about transportation.

BTW, when was the last time anyone heard of a non-captive shipper complaining about rail rates?[;)]

[BaltACD]

If you have to pay money for it.....it cost's too much.

Everyone wants, what they want at no cost to them. If it costs anything, then it cost too much.

[MP173]

I have always held that utility companies do not charge too much for electricity. That view has always raised a few eyebrows, but my reasoning goes as follows:

1. I cannot produce electricity cheaper than the utility.
2. I cannot distribute my electriciy as efficienty as the utility.
3. I cannot do it safer than the utility.

Hence, I pay my monthly bill and dont complain.

Ditto for transportation. I am choosing this summer to drive 1000 miles, actually 995 miles door to door to North Carolina so I can spend a week listening to the waves break at night and enjoy the surroundings. I could take public transportation and then rent a vehicle...for me the choice is simple, the driving is cheaper and more convenient.

However, going to Arizona for a week in the spring is a no brainer. Fly. The 1800 mile drive (one way) wouldnt be worth it.

So, I guess we all make choices about how we spend our resources.

Does transportation cost too much? If you have to ask the question, then yes, it probably does.

ed

[Murphy Siding]

Back to the original topic-Does transportation cost too much?:
To a shipper, yes. But then, to every businessman, his raw materials, labor,utilities and overhead all cost too much. The only thing that is too low is his competitors selling prices. An old hand salesman taught me a long time ago not to take it personally when a customer tried to beat down a price by complaining that it was "too high". It's simply part of the customer's job, to get as much as he can for as little as he can get by paying for it. We all do it. In a consumer economy, we're all hard-wired to think like that.
Does transportation cost too much? Compared to what?

[Hugh Jampton]

Wikipedia gives the following explanation of what it is to add value;
http://en.wikipedia.org/wiki/Value_added

Transportation, like warehousing, may be a necessary evil, but it does nothing to make a 2 dollar widget worth any more than 2 dollars, although the price may have to go up to 3 dollars to cover the cost of shipping it's still the same 2 dollar widget. So there is no value added.

[Anonymous]

Transportation absolutely does affect the cost of producing a product. Why do you think that so many steel mills were located at Pittsburgh, Birmingham, Bethlehem, etc. It was so that they could be close the the sources of the raw materials needed to produce the steel. It is far less expensive to pay for shipping for one ton of steel than it is to pay for the shipping of twenty tons of ore, five tons of flux, and 5 tons of coke. Those mills that located around the great lakes did so because of very inexpensive shipping available with the lake boats and so elected to be close to the customers.

The same is true for oil refineries. The majority of them are in Texas and Louisiana because that is where much of the crude oil is produced. One gallon of crude makes significanly less than one gallon of gasoline, diesel or any other product. It is less expensive to ship the smaller amounts of the finished product than the crude that went into them. Those refineries that are on the East and West Coasts are either near smaller fields of crude production or are located at deep sea ports to use supertankers which deliver very inexpensively.

Transportation is another consumable just like electricity, natural gas, or waste disposal that must be carefully managed to keep the costs in control. Any manufacturer that does not pay close attention to thier transportation costs will be out of business very quickly.

[jchnhtfd]

Hugh has a rather interesting point -- however, as some of the others have, I beg to differ. But on slightly different grounds.

Value has two components: what is spent to create something, e.g. the materials, labour, and overhead costs which go into a widget (or Ford!) and what the market will pay. The former is presumably a hard number (although one might note that the materials cost is not, in reality, a hard number at all, but a market price). The latter is certainly not a hard number. Transportation of the finished widget does not, it is quite true, add anything to the cost of creating the widget. However, it may make it possible to sell the widget at a higher price, or sell more (or any!) of them at any price.

It is possible to argue that the transportation cost is not value added, in the sense that it does not affect the cost of producing the product. However, since it affects the selling price -- market price -- whether it is value added or not is immaterial.

On the other hand, the transportation cost has to be subtracted (along with a lot of other things) from the market price to arrive at the return to the maker. Since most makers want more money than anything else, most makers are going to complain -- always -- about transportation costs.

[TomDiehl]

Maybe Hugh likes driving all over the country, using $3 a gallon gas, to buy thing directly from the factory. No way he ever foes to K-Mart, Wal-Mart, Sears, etc, they don't have products that were manufactured in the store, just things that were transported there that didn't have any value added to them.