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

[MichaelSol]

QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by MichaelSol
Because we, as an economy and a society, have already done the experiments that prove the theory. Fixed prices, captive prices, monopoly prices all result in inefficient use of resources, market distortions, and ultimately, harm to the company that practices them, and harm to the society that permits them.

All quite possibly true. But nowhere does the above statement support your acertion that railroads take the *extra* made from captive shippers to use to *subsidize* non-captive shippers. That doesn't seem to be market theory, as you decribe it. That seems to be your opinion.

It's not his opinion, it's his political agenda. Facts, reason, logic, honesty and integrity don't matter to him. He's got an ideology and he's going to follow it.

Every fact is interprited by him to support what he already believes. He's a "True Believer". Eric Hoffer wrote a very good book about him.

Ah, the well known "industry propagandist" alleging an "ideology."

Priceless.

Contention: Monopoly prices promote inefficiency. Therefore "Facts, reason, logic, honesty and integrity don't matter to him. He's got an ideology ..." which is the insidious ideology promoted by Free Market advocates that ... monopoly prices promote inefficiency. How dishonest! What a lack of integrity! How illogical -- everyone knows that monopoly prices are reasonable, logical, honest.

What on earth? This is deep end stuff on the part of Strawbridge.

Ever find out how much money I contributed to Brian Schweitzer, in support of my "ideology", as you alleged?

Or did you make that up too?

[MichaelSol]

QUOTE: Originally posted by rrandb

Some rates were artificialy low. Most were not. What is obvoius was the number of miles of track that disappeared when the railroads no longer had to provide service to customers that were unable to afford these services based on the actual cost of rail service. How do you get permission to adandon a line if its making too much money? You can not. Can you abandon a line because it doesn't make enough money to operate it. YES The remarks were about grainger lines that after de-regulation became dirt paths. Was this because the railroads were making too much money NO

Well, your positions change faster than a speeding railroad locomotive. Can't keep up.

[MichaelSol]

QUOTE: Originally posted by Murphy Siding
But nowhere does the above statement support your acertion that railroads take the *extra* made from captive shippers to use to *subsidize* non-captive shippers. That doesn't seem to be market theory, as you decribe it.

That is precisely my contention. It is not market theory.

However, if railroads are not taking the 250, 300 and 400% revenue to variable cost profits and not using them to subsidize other shippers, then that means other shippers are also contributing their fair share, right? And railroads are earning 250%, 300% or 400% of their variable costs, right?

And VC/TC is the current estimated 50%, then railroads, not subsidizing, are not earning 10-15%, but really are earning 125%, 150% or 200% of their gross, right?

!!??!!

I am sorry, but the math does not work for any contention that there is not subsidized traffic, and if there is not subsidized traffic, then railroads must be earning profit in excess of their revenues.

Can't buy it.

[greyhounds]

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by MichaelSol
Because we, as an economy and a society, have already done the experiments that prove the theory. Fixed prices, captive prices, monopoly prices all result in inefficient use of resources, market distortions, and ultimately, harm to the company that practices them, and harm to the society that permits them.

All quite possibly true. But nowhere does the above statement support your acertion that railroads take the *extra* made from captive shippers to use to *subsidize* non-captive shippers. That doesn't seem to be market theory, as you decribe it. That seems to be your opinion.

It's not his opinion, it's his political agenda. Facts, reason, logic, honesty and integrity don't matter to him. He's got an ideology and he's going to follow it.

Every fact is interprited by him to support what he already believes. He's a "True Believer". Eric Hoffer wrote a very good book about him.

[rrandb]

Some rates were artificialy low. Most were not. What is obvoius was the number of miles of track that disappeared when the railroads no longer had to provide service to customers that were unable to afford these services based on the actual cost of rail service. How do you get permission to adandon a line if its making too much money? You can not. Can you abandon a line because it doesn't make enough money to operate it. YES The remarks were about grainger lines that after de-regulation became dirt paths. Was this because the railroads were making too much money NO

[Murphy Siding]

QUOTE: Originally posted by MichaelSol
Because we, as an economy and a society, have already done the experiments that prove the theory. Fixed prices, captive prices, monopoly prices all result in inefficient use of resources, market distortions, and ultimately, harm to the company that practices them, and harm to the society that permits them.

All quite possibly true. But nowhere does the above statement support your acertion that railroads take the *extra* made from captive shippers to use to *subsidize* non-captive shippers. That doesn't seem to be market theory, as you decribe it. That seems to be your opinion.

[MichaelSol]

QUOTE: Originally posted by rrandb

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rrandb

What is destructive is the number of empty grain silo's with abandoned right of ways next to them. The tracks disappeared with the end of regulated rates that were artificialy low.

This is simply bizarre. General rates have dropped by about 50% since the "artificially low" rates of the regulated era. Rates must be really, really "artificially low" now.

Do you really believe that immediatly before deregulation that they were artificially high and railroads wanted to lower the rates because they were too high.That's bizarre. Our market econoimy and improvements in efficency have resulted in today's rates. But then how could rates have gone down in a command and control econimy? [?]. SPIN

Wasn't that the argument in favor of deregulation? That rates would go down? That genuine "market forces" would compel railroads to more efficient allocation of resources, resulting in lower rates?

Do you really think people were arguing that rates were "artificially low" and that America wanted to deregulate so that rates would go higher?

Whew. That would have been an interesting Senate discussion and vote, if even a shred of what you say was true.

Of course, it isn't.

Isn't this all part of your perception that "most shippers are captive", and that "13 trains a day" operate on the BNSF Highline?

[rrandb]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rrandb

What is destructive is the number of empty grain silo's with abandoned right of ways next to them. The tracks disappeared with the end of regulated rates that were artificialy low.

This is simply bizarre. General rates have dropped by about 50% since the "artificially low" rates of the regulated era. Rates must be really, really "artificially low" now.

Do you really believe that immediatly before deregulation that they were artificially high and railroads wanted to lower the rates because they were too high.That's bizarre. Our market econoimy and improvements in efficency have resulted in today's rates. But then how could rates have gone down in a command and control econimy? [?]. SPIN

[TomDiehl]

QUOTE: Originally posted by MichaelSol

Pharmaceutical R&D is a business venture, because the company has to analyze the costs of development (startup costs) with the expected market and profit. The huge costs of R&D have to come from existing business, and is put into what may or may not be a profitable line of business.

Why you might think the analogy is unrelated is, I am sure, based upon your extensive business experience.

Very simple. R&D by a pharmaceutical company to develop new products, then sell them is in no way related to how much a railroad charges two different customers for the transportation services using existing infrastructure. The only way to make this an accurate analogy would be to compare it to a pharmecuetical company expanding their factory to produce more drugs, but that would still be a real stretch. The railroad isn't developing anything new that may or may not sell.

Obviously your "business experience" has blinded you to the obvious.

[MichaelSol]

QUOTE: Originally posted by rrandb

What is destructive is the number of empty grain silo's with abandoned right of ways next to them. The tracks disappeared with the end of regulated rates that were artificialy low.

This is simply bizarre. General rates have dropped by about 50% since the "artificially low" rates of the regulated era. Rates must be really, really "artificially low" now.

[MichaelSol]

Pharmaceutical R&D is a business venture, because the company has to analyze the costs of development (startup costs) with the expected market and profit. The huge costs of R&D have to come from existing business, and is put into what may or may not be a profitable line of business.

Why you might think the analogy is unrelated is, I am sure, based upon your extensive business experience.

[TomDiehl]

QUOTE: Originally posted by rrandb

Market theory is that you charge for your service "as much as the market will bear". If you charge too much you will lose market share. Too little and you are losing income for your stock holders. Is this not what the railroads are doing. Companies chose to ship by rail because it is the most cost effective and efficent way to move their product. There complaint isn't that they are paying too much but that some one else is paying less.

You mean like, "Mommy, his piece of pie is bigger than mine," kind of thing?

[TomDiehl]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
No.

No business manager in his/her right mind would cross subsidize business and '"divert their resources from productive traffice to traffic that does not generate a sufficient rate of return"

Why on earth would any sane person do that? Your statements make no sense.

Pharmaceutical companies do it all the time with enormous R&D expenses, hoping that one in ten might pay off.

IBM did it with PCs for years.

Venture capitalists do it for a living.

Boeing does it with every plane it develops, looking at overall losses for years on the product, until finally they hit (hopefully) the break even point.

In the real world it is fairly common for a variety of reasons, some of them simply being mistakes and business makes a lot of them.

So now you're comparing what a railroad charges two different customers for transportation service to what companies spend on R&D for new products.

Couldn't get much more unrelated than that.

You will have to talk to greyhounds about his generalization into all "business managers." I agree with you since railroad captive shippers are a unique situation, but he made the assertion, and the assertion was, as usual, demonstrably false.

It wasn't Greyhound's generalization I was refering to, just your extremely unrelated "analogy."

[rrandb]

What is destructive is the number of empty grain silo's with abandoned right of ways next to them. The tracks disappeared with the end of regulated rates that were artificialy low. They could no longer provide service when the true cost of shipping became clear. You claim their rates are artificially high. Maybe the railroads should raise the rates for the non-captive shippers. They would need to get together so they could agree one was not making more than the other. Maybe an orginization like OPEC. They would have all the money they needed to improve infastructure. They would be just like the "OIL" companies and we all will pay more.

[TomDiehl]

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by MichaelSol

You tell me.

Okay......because, as far as I can tell, no one in the building materials industry works that way. That's why I wonder why you believe the railroad industry does work that way. And, in order for that to be true, [i]all[i] the railroads would have to work that way, in order for them to be in the same boat, reletively. I think your *theory* doesn't quite hold up in this case.[xx(]

Just follow this thread for a while Murphy. You'll find he has several humorous "beliefs."

[MichaelSol]

Well, you talk about railroads "charging what the market will bear" then say it is somebody else selling their product. Very confused thoughts there.

If "whatever it is you are talking about" is what Staggers was created for, then you automatically concede that Staggers also included a fairly strong protection for captive shippers, because society had agreed, through the legislation, that monopoly rate-setting would be detrimental, unproductive, and ultimately destructive, and that continued regulation of those rates to prevent captive rate setting to be used to offset losses otherwise was necessary.

[rrandb]

The market is where they sell their product. If the railroads raise the rates to the point that they can not sell there product the railroad and the shipper lose business. Its part of a free market economy. It is what Staggers was created for. Thats not what's happening. Does the oil industry claim that it has lost market share because of rail rates?

[MichaelSol]

You miss the point, and it is clear why.

"Market" is the word you use, without understanding its meaning.

There is no "market" if a shipper is captive.

[rrandb]

Market theory is that you charge for your service "as much as the market will bear". If you charge too much you will lose market share. Too little and you are losing income for your stock holders. Is this not what the railroads are doing. Companies chose to ship by rail because it is the most cost effective and efficent way to move their product. There complaint isn't that they are paying too much but that some one else is paying less.

[MichaelSol]

QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
No.

No business manager in his/her right mind would cross subsidize business and '"divert their resources from productive traffice to traffic that does not generate a sufficient rate of return"

Why on earth would any sane person do that? Your statements make no sense.

Pharmaceutical companies do it all the time with enormous R&D expenses, hoping that one in ten might pay off.

IBM did it with PCs for years.

Venture capitalists do it for a living.

Boeing does it with every plane it develops, looking at overall losses for years on the product, until finally they hit (hopefully) the break even point.

In the real world it is fairly common for a variety of reasons, some of them simply being mistakes and business makes a lot of them.

So now you're comparing what a railroad charges two different customers for transportation service to what companies spend on R&D for new products.

Couldn't get much more unrelated than that.

You will have to talk to greyhounds about his generalization into all "business managers." I agree with you since railroad captive shippers are a unique situation, but he made the assertion, and the assertion was, as usual, demonstrably false.

[MichaelSol]

QUOTE: Originally posted by Murphy Siding

Michael: In *theory*, the railroads could take all that *extra* dough from the captive shippers and blow it on booze and strippers too. I see nothing more than your theory to support the fact that they don't.

Wow, businessmen do stuff like that even when they don't have captive shippers. What on earth is the comment supposed to mean. Evidence of something? Does the name "Dennis Kozlowski" ring a bell?

[MichaelSol]

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by MichaelSol

You tell me.

Okay......because, as far as I can tell, no one in the building materials industry works that way. That's why I wonder why you believe the railroad industry does work that way. And, in order for that to be true, [i]all[i] the railroads would have to work that way, in order for them to be in the same boat, reletively. I think your *theory* doesn't quite hold up in this case.[xx(]

Actually, Market Theory is not my theory.

And to disregard 200 years of experience would also disregard the specific reasons that protections for Captive Shippers were specifically written into the Staggers Act.

Because we, as an economy and a society, have already done the experiments that prove the theory. Fixed prices, captive prices, monopoly prices all result in inefficient use of resources, market distortions, and ultimately, harm to the company that practices them, and harm to the society that permits them.

To even suggest that "Market Theory" isn't tested or "doesn't hold up" is I think, profoundly wrong. It's argument for argument's sake, and nothing more.

[Anonymous]

QUOTE: Originally posted by n012944

QUOTE: Originally posted by MichaelSol

National Petrochemical and Refiners Association:

Now if you are going on about price gouging in an industry, why on earth would you use oil companies as an example??? I get it, its the railroads fault that I paid $3.05 a gallon to fill up my car today. 1st it was Katrina, then Rita, then tensions in Iran, and now the railroads. Give me a break.

Bert

Bert,

The reference to the petroleum industry was in the context of it being subjected to captive rates, aka roughly 50% of the industry is captive to one Class I railroad. Whether the oil industry itself also engages in captive pricing or not was not the issue.

However, if you know of ANY locale that only has one oil company offering, please let us know. I know that there are scads of small towns (under 1000 population) that have only one local source of fuel, but of course they are not that far (10 to 15 miles) from larger towns that have several fuel sources. Unless you are walking down to the fuel pumps to fill your gas cans for your lawn mower, most small town residents have no problem filling their tanks at any number of fuel stations.

[Murphy Siding]

QUOTE: Originally posted by MichaelSol

You tell me.

Okay......because, as far as I can tell, no one in the building materials industry works that way. That's why I wonder why you believe the railroad industry does work that way. And, in order for that to be true, [i]all[i] the railroads would have to work that way, in order for them to be in the same boat, reletively. I think your *theory* doesn't quite hold up in this case.[xx(]

[n012944]

QUOTE: Originally posted by MichaelSol

National Petrochemical and Refiners Association:

Now if you are going on about price gouging in an industry, why on earth would you use oil companies as an example??? I get it, its the railroads fault that I paid $3.05 a gallon to fill up my car today. 1st it was Katrina, then Rita, then tensions in Iran, and now the railroads. Give me a break.

Bert

[rrandb]

QUOTE: Originally posted by MichaelSol

National Petrochemical and Refiners Association:

"Legislation to remedy the current lack of access to competitive railroad operations and rates facing “captive shippers” -- including many petrochemical manufacturers -- has been offered in the 109th Congress. S. 919, The Railroad Competition Act of 2005, is co-sponsored by a bi-partisan group of Senators including Conrad Burns (R-MT), John D. Rockefeller IV (D-WV), Max Baucus (D-MT), Byron Dorgan (D-ND), Tim Johnson (D-SD), Mark Dayton (D-MN), Larry Craig (R-ID), John Thune (R-SD) and David Vitter (R-LA). S. 919 proposes to "clarify" national rail policy under the Interstate Commerce Commission (ICC) Termination Act and requires the Surface Transportation Board to "ensure effective competition" among railroads at origins and destinations; enforce reasonable rail rates "in the absence of effective competition," and maintain consistent and efficient rail service for shippers, including timely distribution of rail cars."
...
"NPRA supports a competitive, market-driven, and consumer-oriented North American rail transportation system. The Association favors providing the necessary federal resources to improve rail competition as well as rail infrastructure. Actions must be taken to hold railroads accountable in maintaining or improving service and making operations more efficient. As captive shippers, NPRA members should be protected from lack of competitive rail alternatives and rates. Severe service problems, such as those that resulted from past railroad mergers, must be prevented and/or mitigated though effective remedies. These remedies should include provisions such as performance guarantees, reasonable compensation for unacceptable performance, and guaranteed access to gateways and other railroads."

According to NPRA: Percentage of "Petroleum or Coal Products" captive by revenue percentage: 49.1%

This from an industry that by its own admission has virtually no competitive pricing with in. How much difference is there from one company to the next in the price of gas at the pump. None. These are the guys who when gas was less than a quarter a gallon came up with 9/10's of a cent and still use it todat. When you put one gallon in and ask for 1/10 of a cent back will say there is no such thing.. Who are reaping there largest profits in there history in spite of "gouging " by the railroads. If they did get lower rates what are the odds of them passing the saving along to consumers. I won't holp my breath. It does support my claim that many shippers are "captive". And why would so many railroads have spent so much money for new service to once captvie industries. Why have they actually pusured branches to oil refineries when they knew they would not be the only railraod and reduced the number of "non-captive" shippers. And you claim I know how to spin. Oil Knows how to spin.

[TomDiehl]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
No.

No business manager in his/her right mind would cross subsidize business and '"divert their resources from productive traffice to traffic that does not generate a sufficient rate of return"

Why on earth would any sane person do that? Your statements make no sense.

Pharmaceutical companies do it all the time with enormous R&D expenses, hoping that one in ten might pay off.

IBM did it with PCs for years.

Venture capitalists do it for a living.

Boeing does it with every plane it develops, looking at overall losses for years on the product, until finally they hit (hopefully) the break even point.

In the real world it is fairly common for a variety of reasons, some of them simply being mistakes and business makes a lot of them.

So now you're comparing what a railroad charges two different customers for transportation service to what companies spend on R&D for new products.

Couldn't get much more unrelated than that.

[MichaelSol]

You tell me.

[Murphy Siding]

According to *market theory*, then, the company I work for has some captive customers, for various reasons. Why don't I see our company running out and blowing money unwisely? Or, does this theory only apply to railroads?

[MichaelSol]

Market theory is pretty well established. And understood.