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July TRAINS takes on the captive shipper debate - Best Issue Ever?

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Posted by TomDiehl on Wednesday, June 14, 2006 10:04 PM
QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rrandb

All I'm saying is if Idaho had wanted the truck/barge traffic there IDOT was that hard to work with. If they did roadblock the border it was not for the benift of BNSF. Idaho had asked for 120,000. A reason is at that weight 120,000 we did 8 mph uphill and 4 mph downhill. Granted it was winter and there was 5" of ice and cinders on the road. The point is the damage to the road at those weights is not that much different. Did the Feds do that maybe to help BNSF. I do not think so but it would fit the DC/railroad colusion theory.


It is a generally accepted fact that the rail industry had a major hand in convincing the federal government to cap each state's GVW limits for non-Interstate highways, with each state able to grandfather in their particular weight limit that was in place when the cap was enacted. The Interstate Highway cap has been 80,000 lbs since I can remember.

Most of the grain that was trucked from Montana to Lewiston went via non-Interstate Highways - US Highway 12, Montana Highway 200, etc.


Back to that old "its a railroad conspiracy theory' thing again. Give it a break.


Bert


http://www.aar.org
http://www.cabt.org

Since you seem to know absolutely nothing about the railroad industry, here's a primer. The AAR is the American Association of Rairoads, the lobbying arm of the rail industry. The AAR has a surogate group it uses called the Coalition Against Bigger Trucks, which is predicated soley on opposing increased GVW for trucks. It was CABT that was the major force in getting the federal cap on weight limits imposed.

Now, whether it is a conspiracy or not is up to your imagination.[D)]

Even in this weeks newspapers, there's an article that states the usual knee-jerk opposition to trucks and highways from the rail industry:

http://www.helenair.com/articles/2006/06/14/montana/a08061406_02.txt

Kitzenberg leading caravan for four-lane U.S. Highway 2

Quote of note: "The lone opposition he’s encountered to the “four-for-two” idea has come from BNSF Railway, which Kitzenberg (says) wants to keep its shipping monopoly across the Hi-Line. 'If you’ve got a monopoly and are making money, why would you want competition?' the legislator asked.”


Digging a bit further into the AAR link that YOU provided leads us to:

http://www.aar.org/GetFile.asp?File_ID=281

Most interesting is the third paragraph under "Issue Overview."

You should really read your own links before you post them. The noted paragraph blows your supposed "conspiricy" out of the water. [:o)]
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Posted by Murphy Siding on Wednesday, June 14, 2006 10:05 PM
QUOTE: Originally posted by futuremodal
That's what businesses do, determine prices charged to their consumers based on their costs.

Nope. I take it you've never worked in a business where you had to compete? The selling price is based on market competition, not on your cost.

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Posted by rrandb on Wednesday, June 14, 2006 10:16 PM
WE imported items for a fraction of a cent and sold them for 99 cents. Good profit right. Only if you sell a bunch of them. Had to sell 100 of them to make the same profit on other items we bought for $900 and sold for $1,000. With a huge ratio you still had to sell a bunch. Small margin not so many. It is not the ratio but whether or not your making money.
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Posted by Anonymous on Wednesday, June 14, 2006 11:24 PM
One other significant point that no one has raised is that many farmers are becoming truckers in their own right. They have purchased older semis of their own to move their grain. This may be to a new larger grain elevator on a main line or to a barge port on a river. The family farm is an endangered species in our country, has been for years. The simple fact is that many farmers are corporate and have built the capacity to move their own produce as part of the logistics chain. So, the railroad gets another competitor or at least a customer that is willing to enhance the truck and water transport competition.
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Posted by MichaelSol on Wednesday, June 14, 2006 11:39 PM
QUOTE: Original posted by greyhounds
Oh, boy. I guess Sol is:
1) Trolling, trying to stir up trouble by fabricating a non-existant, never was, rate of $1.40/bushel
...
It's impossible to tell from the chart exactly what the 1981 rate was, but it was at least $0.70/bushel

As I mentioned much earlier, I was drawing from memory on some rates a while back. "By 1980, the last year the Milwaukee was in place, started inching up to about $1600 per carload, but that is just recollection." Greyhounds even quotes the statement a few posts above. He just didn't read it.

I actually qualify things, then correct them when I get better information. Some don't do that. To clarify, I specifically then stated I went to a specific rate that I did have, a station for which we had a 1974 rate, and a current rate. The derivation clearly showed that rates as measured by the Rail Cost portion of the PPI, had increased. Whiteside's study over a much shorter period, 1993-2004, says the same thing occured over that much shorter period.

The point then of greyhound's infatuation with the Whiteside chart? No idea. While I think the methodology of the chart is poor, it doesn't support greyhounds at all. No matter how you read it.

Can't tell what greyhounds is attempting to say about the Whiteside study, even by his interpretation, rates went up, not down as he claims. Simply bizarre. As I also say, I have never relied on the Whiteside study for anything, and as I have also said, they have long needed a good statistician. For instance, what rates are the chart based on? Only the 12/31/04 Rates from Great Falls and Collins MT are specifically identified. Are the rest Montana averages? Perhaps ranges of rates?

Well if so, here's actual numbers, looking at a range of Montana rates and you can see what I am relying on in interpreting Whiteside's chart :
1974, Moore, Montana. $1480 to Portland. Average load, 3336 bushels.

1974 Rate per bushel ... 44 cents.

Today, a Montana rate.
Reserve, Montana.
$4257 to Portland. Fuel surcharge app. .36/mile, 1189 miles

Current Rate per bushel ... $1.41

QUOTE: greyhounds: It's no where near $1.40/bushel

True, Montana rates range up to one cent higher. The "never was" rate as greyhounds alleges, once again, is absolutely false.

The Rail Cost Inflation (PPI) index shows that a 44 cent per bushel rate in 1974 should be 82 cents today. The rate at Moore is in fact at 86 cents per bushel, at the same time that similar wheat rates, benefitting from Staggers' competition and efficiency increases that resulted, the average rate would be closer to 42-45 cents per bushel. That's what other wheat shippers are getting charged.

Now, these represent "ranges" of rates. Those who will remember the conversation before greyhounds attempted to change it, was whether or not there was a competitive influence on rail grain rates as a result of Milwaukee Road. Greyhounds is gleeful that he has a study that shows no data at all relevant to that contention, but a study which relates only to captive shipper rates over time and yet, still shows, that overall, rates increased, even using actual rates, are higher than 1981, and, in a much more limited fashion, shows a RCAFadjusted rate that only dates from 1993. And the 2004 rate is higher, not lower, than than the 1993 rate, notwithstanding greyhounds effort to make people believe, by constant repetition of the lie, that the rate is "much lower."

It simply isn't.

No matter how you read the chart.
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Posted by MichaelSol on Thursday, June 15, 2006 12:03 AM
QUOTE: Originally posted by greyhounds
And yet you and Sol beat this railroad over the head - and both of you ignore the fact that the BNSF has been very, very, good to the Montana farmers.

But rail rates have gone down as the result of Staggers, not up. They have gone down by an average of 47%, not up by 18%. That is because costs have gone way down as the result of vastly increased productivity. The RCAF measures increases in costs, it doesn't measure increases in productivity. The only reason for a rate to have gone up is pure and simple price gouging resulting from a captive market.

Whiteside paper:
"Rail rates in Montana and North Dakota run 250-450+% of variable cost. Those are among the highest freight rates in the nation."
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Posted by MichaelSol on Thursday, June 15, 2006 12:22 AM
QUOTE: Originally posted by Character

One other significant point that no one has raised is that many farmers are becoming truckers in their own right. They have purchased older semis of their own to move their grain. This may be to a new larger grain elevator on a main line or to a barge port on a river. The family farm is an endangered species in our country, has been for years. The simple fact is that many farmers are corporate and have built the capacity to move their own produce as part of the logistics chain. So, the railroad gets another competitor or at least a customer that is willing to enhance the truck and water transport competition.

Except, insofar as the geographical area under discussion is concerned, the amount of grain trucked has gone down over the past twenty years. It is now only 2% of the volume. By an economist's standards, anything that can only command 2% of the market is not a competitive influence in the market.
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Posted by MichaelSol on Thursday, June 15, 2006 12:33 AM
QUOTE: Originally posted by beaulieu
And inspite of this Grain movements through the ports of Duluth and Superior are just half of what they were from the end of WW2 through the '80s. In fact Grain now ranks below Misc. Cargo in the rankings at about 5 percent of the ports volume. They handled 2.8 million tons of Grain for 2005 a tiny fraction above the 5 year average. If the rates were any higher to Duluth-Superior it would dry up completely. BNSF has a lot of spare capacity on the high line west of Brookston, MN all the way to Minot, ND.

Rail rates aren't the issue or the explanation. Historically, Europe relied on the Black Sea grain trade for it's grain. A variety of events interferred with that source of grain, leading up to and especially the 1917 Revolution in Russia. Ultimately, American Midwest (and Canadian) grain replaced the historic Black Sea trade.

This has changed. The steppes are now producing prodigious quantities of grain for the first time in nearly a century. The natural result of abandoning command economics and captive producers and captive buyers. The natural victim: the Great Lakes grain trade.
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Posted by MP173 on Thursday, June 15, 2006 6:36 AM
So, the VC180 rule implies that as a company becomes more efficient, they are legally required to pass entirely all of the productivity gains to the customer and not pocket any of the gains themselves.

So, by investing in higher productivity, a company's net income would be reduced on that segment of the business.

example.

variable costs per car = $1000.
maximum allowable rate = $1800
margin = $800 per car

I am not sure where this is in the income statement, whether it includes interest, taxes, depreciation, etc...but lets keep it simple and just call it margin.

productivity gains of 25% yields
variable costs per car = $750
maximum allowed rate = $1350
margin = $600 per car

Reduction in margin per car = $200.

So, investing in productivity gains results in a lower net income per car under this provision.

Interesting. Once again I find it fascinating that profits can be capped on the top side with no downside provisions. Now I find that not only can profits be capped, but there can be a forced reduction.

ed
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Posted by wallyworld on Thursday, June 15, 2006 8:18 AM
All of this is a tempest in a tea pot. The STB is not going to reregulate rates. It's easy to pick up a rock and throw it, its another thing to actually turn around a situation. As long as reasonable eforts are made to increase capacity are underway, and it appears that they are, eventually this situation of "captive Shippers" will improve. It does'nt happen overnight as it would in more flexible modes of transport. The mood and opinion of shippers are the result of a default of management philosophy that has been inbred and commented on by outsiders for a score of decades. Ignoring a proactive stance in service recovery in terms of relations-communications to their customers and the general public as well, they are discovering for the upteenth time, that good will is not self generating. Ignoring this out of ignorance has the same effect of indifferent or at worst, appearing arrogant. Tom Murray nailed the problem in his Trains column. I cant imagine that on the other side of the coin, the roads are happy with this headache, any more than the shippers are. Here is room for some dialog, and not through a third party like the STB. It's a confederacy of dunces not a conspiracy of intent that is responsible for poor customer relations.

Nothing is more fairly distributed than common sense: no one thinks he needs more of it than he already has.

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Posted by Anonymous on Thursday, June 15, 2006 8:21 AM
QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal
That's what businesses do, determine prices charged to their consumers based on their costs.

Nope. I take it you've never worked in a business where you had to compete? The selling price is based on market competition, not on your cost.


"Compete" is the key word there, alfalfa. If you had taken any economics classes, the first theory they teach you is the old "cost + 10%" rule of thumb which only applies to competitive markets. In monopolistic markets, it's more like "cost + the sky's the limit" because there is no competition there to keep you honest.

If BNSF had any realistic competition in Montana, it's grain rates would have gone down in response to the efficiency adjustment, because that would have been the only way to maintain market share. Otherwise, if they had done what they did, but in a competitive environment, the other competitors would have simply undercut them and they would have lost market share.


Why is this so hard for you to grasp? Everytime you post a reply, it seems you've totally spaced out the major differences between competitive and monopolistic markets. Next time you post a reply, keep the competitive vs monopolistic paradigm in mind.
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Posted by MichaelSol on Thursday, June 15, 2006 8:38 AM
QUOTE: Originally posted by MP173

So, the VC180 rule implies that as a company becomes more efficient, they are legally required to pass entirely all of the productivity gains to the customer and not pocket any of the gains themselves.

Kind of like thinking that it should be illegal to have to compete for business at all. Charge whatever you want, and, of course, make no investment at all, if you "like".

This makes no sense, and it is simply the reducto ad absurdum of market theory and the effort that the Staggers Act made to attempt to protect against monopoly pricing, because it is illegal and contrary to our controlling economic theory.

It is competition that compelled the investment.

Not this bizarre theory that Strawbridge contends drives business: everything they do for the customer is just a favor, and the customer had better well like it.

Is the investment rational? Well, railroads are, fact, doing much better than pre-Staggers. The economy itself no doubt has something to do with that. Perhaps more than meets the eye. But they are doing much better for whatever reasons.

What drove the investment?

Benevolence?

No, competition on price.

That is how it is supposed to work. Your economic theory, that companies make enormous investments and "should be entitled" to pocket all the profits is some strange theory. Only a monopoly can do that, because in "the real world" the other guy is going to be doing the same thing, and cut his price to beat you.

This is where we disagree. I think investment is a competitive tool to be able to continue to earn profit. You believe it invokes a divine right to take uncompetitive profit, or to price gouge. That someone should be able to set it at whatever level they choose and that's that. That is command economy theory. It is ultimately destructive. Cuba still uses that approach to pricing.

Monopolies are not permitted in our economic system. Because of pricing power. Monopoly pricing is anti-capitalism, anti-market. We know, as an empirical fact, that monopoly pricing results in irrational and unproductive investment decision making, as well as imposing efficiency penalties on society as a whole. We don't need to learn that lesson again, or argue that some "special exception" exists for railroads and their captive shippers. But that is really what that argument is about: that railroads are entitled to a special exception, not just from the law, but from our controlling and successful economic theory of pricing.


Railroads got a deal. In return for not, repeat, not having to invest in redundant facilities in order to provide competition, a formula was substituted. Is it perfect? Probably not. Is it better than the alternative of providing redundant facilities? Probably so, in spades. That was the deal, and the railroads got a good one.

Well, then let's go back to that "investment" argument and say that by reneging on the deal, the social contract is broken. The railroads must restore the actual physical plant necessary to provide competition at all points.

Yes there was a trade off from a railroad profit standpoint -- but, that allowed railroads enormous investment benefits. Perhaps they should repay those because of the breach?

Further, how are railroads doing that much better? They have made enormous investments, but where is the profit really coming from?

The "investments" have been made to meet price competition.

Right? We do agree on that, I hope.

Yet, profit appears to be coming from the 20-30% of captive shippers who are paying 200-400% R/VC.

So, is the actual "investment" rational? Is it generating a fair rate of return from the actual business that prompts the investment, and to which the investment is directed? That is, the competitive shippers.

It can't be. They're not the ones paying for the investment.

Not if railroads are just beginning to recover cost of capital, it can only mean that with a high percentage of captive shippers, the price driven investment is being paid for by the captive shippers who do not benefit from their investment [since they are the ones truly footing the bill] which should result in better service and lower prices. The ones who aren't paying -- the competitive shippers -- are receiving the direct benefits of the investment.

This means pricing is not rational. It is not rational to the captive shippers, and it is not rational to the competitive shippers.

Irrational pricing introduces inefficient investment decision-making processes.

It has to.

You think its good. I think its bad.

We disagree.
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Posted by n012944 on Thursday, June 15, 2006 9:46 AM
QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rrandb

All I'm saying is if Idaho had wanted the truck/barge traffic there IDOT was that hard to work with. If they did roadblock the border it was not for the benift of BNSF. Idaho had asked for 120,000. A reason is at that weight 120,000 we did 8 mph uphill and 4 mph downhill. Granted it was winter and there was 5" of ice and cinders on the road. The point is the damage to the road at those weights is not that much different. Did the Feds do that maybe to help BNSF. I do not think so but it would fit the DC/railroad colusion theory.


It is a generally accepted fact that the rail industry had a major hand in convincing the federal government to cap each state's GVW limits for non-Interstate highways, with each state able to grandfather in their particular weight limit that was in place when the cap was enacted. The Interstate Highway cap has been 80,000 lbs since I can remember.

Most of the grain that was trucked from Montana to Lewiston went via non-Interstate Highways - US Highway 12, Montana Highway 200, etc.


Back to that old "its a railroad conspiracy theory' thing again. Give it a break.


Bert


http://www.aar.org
http://www.cabt.org

Since you seem to know absolutely nothing about the railroad industry, here's a primer. The AAR is the American Association of Rairoads, the lobbying arm of the rail industry. The AAR has a surogate group it uses called the Coalition Against Bigger Trucks, which is predicated soley on opposing increased GVW for trucks. It was CABT that was the major force in getting the federal cap on weight limits imposed.

Now, whether it is a conspiracy or not is up to your imagination.[D)]

Even in this weeks newspapers, there's an article that states the usual knee-jerk opposition to trucks and highways from the rail industry:

http://www.helenair.com/articles/2006/06/14/montana/a08061406_02.txt

Kitzenberg leading caravan for four-lane U.S. Highway 2

Quote of note: "The lone opposition he’s encountered to the “four-for-two” idea has come from BNSF Railway, which Kitzenberg (says) wants to keep its shipping monopoly across the Hi-Line. 'If you’ve got a monopoly and are making money, why would you want competition?' the legislator asked.”


Digging a bit further into the AAR link that YOU provided leads us to:

http://www.aar.org/GetFile.asp?File_ID=281

Most interesting is the third paragraph under "Issue Overview."

You should really read your own links before you post them. The noted paragraph blows your supposed "conspiricy" out of the water. [:o)]



Dave,

I really love how you seem to make a habit of acting all smug in your responses, and then have them thrown in your face. Did you read the link? The trucking industy opposed the weight increase. Let me say that again, the TRUCKING industy. Now I know you will put your usual spin on it, the railroads bribed them with all there money. But at the end of the day it shows that YOU are the one that knows nothing about the railroad industry.


Bert

An "expensive model collector"

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Posted by Murphy Siding on Thursday, June 15, 2006 9:48 AM
QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal
That's what businesses do, determine prices charged to their consumers based on their costs.

Nope. I take it you've never worked in a business where you had to compete? The selling price is based on market competition, not on your cost.


"Compete" is the key word there, alfalfa. If you had taken any economics classes, the first theory they teach you is the old "cost + 10%" rule of thumb which only applies to competitive markets. In monopolistic markets, it's more like "cost + the sky's the limit" because there is no competition there to keep you honest.

Why is this so hard for you to grasp?

OK. To be fair, I went back and re-read your post. It still says the same thing, and you're still wrong. If you'd ever worked in a business that had to compete you'd understand why you are wrong. Why is that so hard to grasp?[;)]
If you don't mean what you say, why don't you say what you mean? It's way to hard for those of us with average intelligence to decipher what you *mean*, when it's different than what you *say*.[}:)]

Thanks to Chris / CopCarSS for my avatar.

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Posted by MStLfan on Thursday, June 15, 2006 3:38 PM
I was wondering how that Texas chemical company is doing after it build itself a connection to a second railroad because of the UP+SP merger mess?
Do they get a competitive price compared to their neighbours who don't have a second railroad come calling at there door?
greetings,
Marc Immeker
For whom the Bell Tolls John Donne From Devotions upon Emergent Occasions (1623), XVII: Nunc Lento Sonitu Dicunt, Morieris - PERCHANCE he for whom this bell tolls may be so ill, as that he knows not it tolls for him; and perchance I may think myself so much better than I am, as that they who are about me, and see my state, may have caused it to toll for me, and I know not that.
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Posted by MP173 on Thursday, June 15, 2006 4:46 PM
Dave:

I took econ classes...long ago in a place far away. I dont remember "cost plus 10%" being taught.

I have however, been taught in the real science of selling, as has Murph. What exactly do you mean by "cost plus 10%"?

Not slamming you here, just wanna know so we can dialog.

ed
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Posted by bobwilcox on Thursday, June 15, 2006 7:39 PM
QUOTE: Originally posted by marcimmeker

I was wondering how that Texas chemical company is doing after it build itself a connection to a second railroad because of the UP+SP merger mess?
Do they get a competitive price compared to their neighbours who don't have a second railroad come calling at there door?
greetings,
Marc Immeker


They think they get a competive price.
Bob
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Posted by edblysard on Thursday, June 15, 2006 7:40 PM
QUOTE: Originally posted by bobwilcox

QUOTE: Originally posted by marcimmeker

I was wondering how that Texas chemical company is doing after it build itself a connection to a second railroad because of the UP+SP merger mess?
Do they get a competitive price compared to their neighbours who don't have a second railroad come calling at there door?
greetings,
Marc Immeker


They think they get a competive price.
[;)][;)][;)][;)][;)]

23 17 46 11

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Posted by MichaelSol on Thursday, June 15, 2006 8:12 PM
An older article from Railway Age

October, 1999:

Chemical shippers: Restless captives
Two-thirds must rely on a single rail carrier. Without competition, they say, their service providers have no incentive to improve.

By Lawrence H Kaufman, Contributing Editor

The chemical industry, like many grain and coal customers, is among the few truly captive railroad customers.
...
According to Randy Speight, director-distribution programs at the Chemical Manufacturers Association, CMA members account for 90% of chemical industry productive capacity, and two-thirds are captive to a single rail carrier. Captive plants pay 25% higher rates than those with two or more carrier options, according to CMA surveys, Speight says. "While we don't get the service that is promised [in merger applications], at the same time the majority of our members are paying more for substandard service," he says. "Where there is no competition, there is no incentive to improve."
...
The appearance of an effective monopoly still affects railroads' willingness to give customers what they want. Speight recalls that one chemical company chief executive recently said: "Negotiating with railroads is characterized as plea bargaining."

More recently, from Progressive Railroading

3/10/2006 Legislative Differences
Chemical shippers lobby in D.C. to promote re-regulation bills railroads oppose

The years-long battle between chemical shippers and railroads over rail industry re-regulation wages on. Yesterday, chemical shippers, associations and lobbyists rallied on Capitol Hill to generate support for three re-regulation bills.

The Railroad Competition Improvement and Reauthorization Act of 2005 (H.R. 2047) and Railroad Competition Act of 2005 (S. 919) would improve the Surface Transportation Board’s rate challenge process and eliminate excessive fees for filing rate cases, while the Railroad Antitrust and Competition Act of 2005 (H.R. 3318) would remove the rail industry’s exemptions from antitrust laws, chemical shippers say.

Nearly two-thirds of America’s chemical plants are served by only one railroad, according to the American Chemistry Council (ACC), which represents chemical shippers’ interests. The captive shippers are subject to “exorbitant prices and poor service,” ACC officials said in a prepared statement.

“Monopolies are relics of the past and enemies of an open and free marketplace,” said ACC Managing Director Marty Durbin. “The solution is simple: let the railroads compete for business, like other American companies.”
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Posted by jeaton on Thursday, June 15, 2006 8:28 PM
This is something. Not since the days of Louis Brandeis have we seen such a lecture on the evils of monopolies. (By the way, long before he was appointed to the U.S. Supreme Court, Brandeis successfully argued that the Interstate Commerce Commission should deny the railroads' first request for a general rate increase under the IC Act.) Sharp dude.

I am not going to get into a big argument about economic theory, but I will say that some of the investments I have made for my business were to improve efficiency and reduce costs. I put the savings in my pocket, and I am not a monopoly. In the grand scheme of things, it may be true that that monopolies cause inefficient allocation of capital. However, I sure have seen many capital projects made for the sole purpose of improving efficiency even though no change in business volume or sales revenue was expected.

I know that farming is a tough business. I don't think prices on cash grain have grown at all in the last 30 years, let alone keeping up with the inflation of farming costs. If it weren't for government programs, Ted Turner might be running buffalo all over Montana and food, if not in short supply, might be significantly more expensive.

From the arguements made, you might think that the BNSF rates have put the Montana grain farmers at a crushing disadvantage to other producers of the same grains. On page 16 of the Whiteside paper there is a table that shows the per car charges on 52 car shipments of wheat to the PNW from 7 Montana origins and 9 Nebraska origins. The right most column on the table verifies that the RVC's on the Montana rates are far greater than those from Nebraska. I assume that the Nebraska points were selected because they represent origins that are in competition with Montana farmers for export over the PNW. Interestingly, the column second to the right has the freight cost per bushel. For the Nebraska origins the freight cost per bushel ranges from a low of $1.08 to a high of $1.52. For the Montana rates the range is $.98 to $1.05. If I had a choice, I guess I'd go to Montana.

http://rscc.mt.gov/docs/White_Paper_Meeting_10_05.pdf


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Posted by Anonymous on Thursday, June 15, 2006 8:44 PM
QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal
That's what businesses do, determine prices charged to their consumers based on their costs.

Nope. I take it you've never worked in a business where you had to compete? The selling price is based on market competition, not on your cost.


"Compete" is the key word there, alfalfa. If you had taken any economics classes, the first theory they teach you is the old "cost + 10%" rule of thumb which only applies to competitive markets. In monopolistic markets, it's more like "cost + the sky's the limit" because there is no competition there to keep you honest.

Why is this so hard for you to grasp?

OK. To be fair, I went back and re-read your post. It still says the same thing, and you're still wrong. If you'd ever worked in a business that had to compete you'd understand why you are wrong. Why is that so hard to grasp?[;)]
If you don't mean what you say, why don't you say what you mean? It's way to hard for those of us with average intelligence to decipher what you *mean*, when it's different than what you *say*.[}:)]


The "cost + 10%" is a standard for the retail sector. I worked in a grocery store in my younger years, and got to know this caveat. No, it's not 10% for every item. Rather, it is a rule of thumb to determine a minimumly acceptable profit margin for high volume businesses. It is not set in stone. Some items have higher markups, some have negative markups. But the average markup should be in the 10% range.

What I would like you to do for me Murphy is this: Since you are a seller of lumber, go through the various varieties and configurations of the lumber you sell, and find the average markup on each item. What is your store's average markup for the aggregate product? Is it in the 10% range give or take, is it lower (5%), or is it much higher (say 25%)?

Can it not be argued that railroad transportation services are a high volume business?

I'll stop here and let you catch up.
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Posted by Anonymous on Thursday, June 15, 2006 8:49 PM
QUOTE: Originally posted by n012944

QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rrandb

All I'm saying is if Idaho had wanted the truck/barge traffic there IDOT was that hard to work with. If they did roadblock the border it was not for the benift of BNSF. Idaho had asked for 120,000. A reason is at that weight 120,000 we did 8 mph uphill and 4 mph downhill. Granted it was winter and there was 5" of ice and cinders on the road. The point is the damage to the road at those weights is not that much different. Did the Feds do that maybe to help BNSF. I do not think so but it would fit the DC/railroad colusion theory.


It is a generally accepted fact that the rail industry had a major hand in convincing the federal government to cap each state's GVW limits for non-Interstate highways, with each state able to grandfather in their particular weight limit that was in place when the cap was enacted. The Interstate Highway cap has been 80,000 lbs since I can remember.

Most of the grain that was trucked from Montana to Lewiston went via non-Interstate Highways - US Highway 12, Montana Highway 200, etc.


Back to that old "its a railroad conspiracy theory' thing again. Give it a break.


Bert


http://www.aar.org
http://www.cabt.org

Since you seem to know absolutely nothing about the railroad industry, here's a primer. The AAR is the American Association of Rairoads, the lobbying arm of the rail industry. The AAR has a surogate group it uses called the Coalition Against Bigger Trucks, which is predicated soley on opposing increased GVW for trucks. It was CABT that was the major force in getting the federal cap on weight limits imposed.

Now, whether it is a conspiracy or not is up to your imagination.[D)]

Even in this weeks newspapers, there's an article that states the usual knee-jerk opposition to trucks and highways from the rail industry:

http://www.helenair.com/articles/2006/06/14/montana/a08061406_02.txt

Kitzenberg leading caravan for four-lane U.S. Highway 2

Quote of note: "The lone opposition he’s encountered to the “four-for-two” idea has come from BNSF Railway, which Kitzenberg (says) wants to keep its shipping monopoly across the Hi-Line. 'If you’ve got a monopoly and are making money, why would you want competition?' the legislator asked.”


Digging a bit further into the AAR link that YOU provided leads us to:

http://www.aar.org/GetFile.asp?File_ID=281

Most interesting is the third paragraph under "Issue Overview."

You should really read your own links before you post them. The noted paragraph blows your supposed "conspiricy" out of the water. [:o)]



Dave,

I really love how you seem to make a habit of acting all smug in your responses, and then have them thrown in your face. Did you read the link? The trucking industy opposed the weight increase. Let me say that again, the TRUCKING industy. Now I know you will put your usual spin on it, the railroads bribed them with all there money. But at the end of the day it shows that YOU are the one that knows nothing about the railroad industry.


Bert


Hmmmmm. Quothe Bert "The trucking industy opposed the weight increase. Let me say that again, the TRUCKING industy."

Question for Bert: Who was it then that proposed the GVW increase? C'mon, it is an easy answer, no spin required.

Here's a hint: You are batting 1.000 in eschewing internal polar opposition.
  • Member since
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Posted by Murphy Siding on Thursday, June 15, 2006 8:57 PM
QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal
That's what businesses do, determine prices charged to their consumers based on their costs.

Nope. I take it you've never worked in a business where you had to compete? The selling price is based on market competition, not on your cost.


"Compete" is the key word there, alfalfa. If you had taken any economics classes, the first theory they teach you is the old "cost + 10%" rule of thumb which only applies to competitive markets. In monopolistic markets, it's more like "cost + the sky's the limit" because there is no competition there to keep you honest.

Why is this so hard for you to grasp?

OK. To be fair, I went back and re-read your post. It still says the same thing, and you're still wrong. If you'd ever worked in a business that had to compete you'd understand why you are wrong. Why is that so hard to grasp?[;)]
If you don't mean what you say, why don't you say what you mean? It's way to hard for those of us with average intelligence to decipher what you *mean*, when it's different than what you *say*.[}:)]


The "cost + 10%" is a standard for the retail sector. I worked in a grocery store in my younger years, and got to know this caveat. No, it's not 10% for every item. Rather, it is a rule of thumb to determine a minimumly acceptable profit margin for high volume businesses. It is not set in stone. Some items have higher markups, some have negative markups. But the average markup should be in the 10% range.

What I would like you to do for me Murphy is this: Since you are a seller of lumber, go through the various varieties and configurations of the lumber you sell, and find the average markup on each item. What is your store's average markup for the aggregate product? Is it in the 10% range give or take, is it lower (5%), or is it much higher (say 25%)?

Can it not be argued that railroad transportation services are a high volume business?

I'll stop here and let you catch up.

???? Wow! I wish you were selling lumber in my town.[;)] Off the top of my head, I could tell you the gross margin, the average mark-up, and the net margin for 2005 and YTD2006. In my file drawer at work I have the figures for all 18 years that I've worked for this particular company. All of it is priviledged information, and ,as far as I can tell, somewhat irrelevant to this discussion.[xx(]
The way the real world works, is this: You find out your cost. You find out the selling price in the market. You figure out how to make a profit based on the difference. If you don't make a profit ,you go broke. Fairly straightforward. "Why can't *you people* grasp that"??[;)]

Thanks to Chris / CopCarSS for my avatar.

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Posted by jeaton on Thursday, June 15, 2006 8:57 PM
Furniture at retail has a 100% markup.

"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics

  • Member since
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Posted by MP173 on Thursday, June 15, 2006 9:40 PM
My average margin in 2005 was 22%. That is above "costs" provided me by my employer. I know the "costs" are padded. I can deal with that.

For the most part I compete with companies that attempt to sell solely on price. They generally will be 10% to 35% lower in price than me.

I wrote an order this week with a 48% margin. I also wrote an order at cost.
Pricing is seldom standard. It is varies from account to account.

Basically, I attempt to maximize overall profitability of each order...that is my job.

ed
  • Member since
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Posted by MP173 on Thursday, June 15, 2006 10:18 PM
Michael,

My illustration of V180% pricing leading to lower profits in the face of productivity gains thru investment must have provoked some thinking on your behalf.

I am flattered. Seriously.

Take a good look at what I illustrated and also take a look at my stand on this subject. Earlier I indicated that if V180% is the law...it should be enforced.

I dont know Staggers well enough to debate the wording of the act, nor am I going to even try to, but...I seriously doubt if there is enough there for action against the railroads. If there were, it would have been done long ago.

My point in the lower levels of profit based on investment and productivity gains was to illustrate a point of Staggers which obviously was not considered. What to do about productivity gains made by the rails. Because, if the rules, as I understand them thru this discussion are correct, then the productivity gains would have all passed to the shippers, not the investors. Agree? It is pretty straight forward math.

Lets take a look at a few things here..."reducto ad absurdum of market theory" is well beyond my limited ability to comprehend. I simply cannot respond to something I dont understand.

Investment is generally made to increase return. Plain and simple. How you increase return is part of the puzzle, but at the end of the day (or year) the investment is measured by the return on that investment. Under my scenario, all incremental returns would be passed on to the customer. I am just pointing that out.

Which leads me to my next point...exactly where do I state that investment gives the "devine right" to take uncompetitive profit or to gouge? Where have I stated that? Take a look at my post this evening on my pricing in my own little world, some high,some low but generally fair, otherwise I wouldnt still be doing this after 16 years and wouldnt be posting constantly higher sales.

I have no idea what "command economic theory" is. No comment. I missed that day in econ class, or simply forgot. However, I believe that a party should maximize their return on each piece of business.

I have never said the rails deserve "special exception from the law"...quite the contrary, "if it is the law, then it should be enforced."

I see "investments" the rails are making at this time not to meet competition, but in order to expand capacity.

Shippers dont pay for investment. They pay to have a service provided. The provider "invests" not the shippers. The provider (BNSF) invest's it's returns, plus any debt incurrred to invest in their franchise. And there is the rub. You feel that it is not BNSF that is investing, but shippers.

We do disagree.

It appears at this time the railroads are begining to leverage their strengths in many of lower margin markets, such as intermodal. They must do this. The window is open at this time to maximize returns on that market. The have pricing power. Capacity is nearly filled. Competitive forces are at a disadvantage (trucking) based on a number of factors. At this time the railroads and barge companies are having their day in the sun.

It will change. It always does. The pendulum will swing back the other way. That is the nature of the market, any market.

Again, I will repeat....if V180 is the law, enforce it. Plain and simple.

ed




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Posted by MichaelSol on Thursday, June 15, 2006 10:40 PM
QUOTE: Originally posted by jeaton
The right most column on the table verifies that the RVC's on the Montana rates are far greater than those from Nebraska. I assume that the Nebraska points were selected because they represent origins that are in competition with Montana farmers for export over the PNW. Interestingly, the column second to the right has the freight cost per bushel. For the Nebraska origins the freight cost per bushel ranges from a low of $1.08 to a high of $1.52. For the Montana rates the range is $.98 to $1.05. If I had a choice, I guess I'd go to Montana.

http://rscc.mt.gov/docs/White_Paper_Meeting_10_05.pdf

Montana pays $1.05 per bushel, for the total mileage of 884 miles. Nebraska pays $1.08 per bushel ... to ship 1491 miles.

The Nebraska "high" rate is for a shipment of 2,206 miles.

The average Montana rate is for a shipment of about 900 miles.
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Posted by MichaelSol on Thursday, June 15, 2006 11:06 PM
QUOTE: Originally posted by MP173
What to do about productivity gains made by the rails. Because, if the rules, as I understand them thru this discussion are correct, then the productivity gains would have all passed to the shippers, not the investors. Agree? It is pretty straight forward math.

Well, I prefer these kinds of conversation to the "other" kind.

The earlier comments about the relatively high threshold that 180% represents does, I think, show the great leeway that was granted to railroads to benefit from productivity gains. As I mentioned, 160% was originally considered as a fair mark, and indeed, notwithstanding 26 years of heavy investment, and steady traffic growth, no railroad has reached even that threshold for average rates. That is, 180% is a very liberal profitability standard from the standpoint of benefitting from investment.

BNSF will have an 18.3% return on sales when it reaches that threshold. We are a ways away.

Currently, BNSF averages about 130% R/VC across the spectrum. There is plenty of room to increase profit as the result of investment, before invoking the presumptions inherent in the 180% R/VC threshold.

It has not been the problem that railroads were required to hand over their productivity gains. The fact is, they did so voluntarily. They not only handed over productivity gains, they even threw some additional money into the pot. That is the only way that the average competitive shipper can get a 100.6% R/VC rate.

The problem for the captive shipper is that they were required to pay the cost of the railroads handing over productivity gains, and more, to competitive shippers in order to maintain a market share unwarranted by the rate of return from those shippers benefitting from the investment.
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Posted by jeaton on Thursday, June 15, 2006 11:31 PM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by jeaton
The right most column on the table verifies that the RVC's on the Montana rates are far greater than those from Nebraska. I assume that the Nebraska points were selected because they represent origins that are in competition with Montana farmers for export over the PNW. Interestingly, the column second to the right has the freight cost per bushel. For the Nebraska origins the freight cost per bushel ranges from a low of $1.08 to a high of $1.52. For the Montana rates the range is $.98 to $1.05. If I had a choice, I guess I'd go to Montana.

http://rscc.mt.gov/docs/White_Paper_Meeting_10_05.pdf

Montana pays $1.05 per bushel, for the total mileage of 884 miles. Nebraska pays $1.08 per bushel ... to ship 1491 miles.

The Nebraska "high" rate is for a shipment of 2,206 miles.

The average Montana rate is for a shipment of about 900 miles.

So then there is nothing wrong with a Nebraska farmer getting 3 to 54 cents a bushel less than the Montana farmer selling the same product?

"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics

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Posted by greyhounds on Thursday, June 15, 2006 11:34 PM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by jeaton
The right most column on the table verifies that the RVC's on the Montana rates are far greater than those from Nebraska. I assume that the Nebraska points were selected because they represent origins that are in competition with Montana farmers for export over the PNW. Interestingly, the column second to the right has the freight cost per bushel. For the Nebraska origins the freight cost per bushel ranges from a low of $1.08 to a high of $1.52. For the Montana rates the range is $.98 to $1.05. If I had a choice, I guess I'd go to Montana.

http://rscc.mt.gov/docs/White_Paper_Meeting_10_05.pdf

Montana pays $1.05 per bushel, for the total mileage of 884 miles. Nebraska pays $1.08 per bushel ... to ship 1491 miles.

The Nebraska "high" rate is for a shipment of 2,206 miles.

The average Montana rate is for a shipment of about 900 miles.


The "Nebraska Rate" of $1.08/ bushel is not a BNSF rate. It is a UP rate. Sol usualy leaves some relavent detail like this out. Check page 16 of the Whiateside Study.
(Don't forget that Whiteside made an error in calculating the $ per mile figures. They divided the miles by the dollars instead of the dollars by the miles.)

http://rscc.mt.gov/docs/White_Paper_Meeting_10_05.pdf

The BNSF wheat rates out of Nebraska to the Pacific Northwest are significantly higher than the corresponding UP rates and are in line with their rates from Montana origins. It's interesting that the BNSF, in a competitive situation, can charge more than the UP. That's why the BNSF is doing better than the UP finanacially.

Anyway, the longest Montana origin haul for the BNSF is from "Moccasin", MT, 1,140 miles. Thier shortest Nebraska origin haul is from Alliance, NE, 1,554 miles. The rate from Moccasin, including fuel surcharge is $1.01/bushel/ ($3,391.25/car) The rate from Alliance is $1.39/bushel. ($4,685.20/car).

The BNSF is charging the Nebraska farmers $1,294 more per car to move their wheat an extra 414 miles.. Seems like BNSF is favoring Montana origins.

And the rate out of Alliance is the lowest BNSF rate from Nebraska origins cited by the Whiteside study. The minimum spread on BNSF rates is Alliance, NE vs. Big Sandy/Havre, MT - a spread of $0.34/bushel in Montana' s favor. Other BNSF rates are higher from Nebraska on a per car and a per bushel basis. The Nebraska rates in the study range from $1.48/bushel to $1.52/bushel. The Montana rates range from $0.98/bushel to $1.05/bushel. (all cited figures include fuel surcharges.)

So the Montana wheat farmers enjoy a significant advantage in terms of BNSF wheat rates.
"By many measures, the U.S. freight rail system is the safest, most efficient and cost effective in the world." - Federal Railroad Administration, October, 2009. I'm just your average, everyday, uncivilized howling "anti-government" critic of mass government expenditures for "High Speed Rail" in the US. And I'm gosh darn proud of that.

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