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

[MichaelSol]

Pretty heavy spinning going on there. What do you think Jay meant? That 7000 carloads was too much volume? Sounds like you learned to play the game in D.C. pretty well.

[rrandb]

"most shippers captive" VS "the matter of volume". Your are the only one who used the phrase "not enough volume"? You are good at changing one word and changing the whole meaning. You remind me of when I was in D.C. and delt with highly compensated political lobbiest./lawyers. You could have a futue in such a job. [2c]

[MichaelSol]

QUOTE: Originally posted by jeaton
I suppose if you compare revenue per load "captive" vs. "noncaptive" or even profit per load, the profit per load on the captive shipments might be higher. There is, however, the matter of volume. Maybe 7000 loads a day on the Transcon?

QUOTE: Originally posted by rrandb
Since most rail shippers are " captive " the railroads should be making profits in line with the oil companies.

The problem with discussion on this is that advocates of monopoly pricing pretty much grab any argument, consistency to the wind. Here we see two completely opposite propositions -- "most shippers captive" -- vs -- a "not enough volume" of captive shippers argument.

This is fairly typical. Conclusions precede the evidence.

And no "evidence" is actually offered in support of the proposition, rather, pseudo-evidence that proponents cannot even agree on.

This should, perhaps, suggest the underlying weakness of the argument -- that it's intrinsic merit appears to have such a profoundly weak substantive basis that even its proponents cannot agree on what that factual basis might be and offer instead completely contradictory evidence leading to the identical conclusion.

In other words, the conclusion is arrived at independent of any evidence.

[MichaelSol]

QUOTE: Originally posted by rrandb

Location apparently matters to those who feel others are getting a better rate because of where they are shipping to and from.

?!?

QUOTE: Since most rail shippers are " captive " the railroads should be making profits in line with the oil companies.

Interesting, the rail industry insists there are few captive shippers. I think this is an example of reaching for any wild idea simply to support a pre-conceived conclusion.

Statistically, approximately 31% of shippers are captive under Staggers Act guidelines.

You are right, if all shippers were charged those rates, the profits would be enormous.

They aren't.

Must be because of the effect of "other" rates not generating much profit, or perhaps even none, at all.

I think your math theory is right -- high rates should add up to high profits. The fact that the railroads are not making the extraordinary profits that captive shipper rates suggest, shows clearly the effect of the other equivalent mathematical operator resulting from rates charged to non-captive shippers.

Subtraction.

[jeaton]

I suppose if you compare revenue per load "captive" vs. "noncaptive" or even profit per load, the profit per load on the captive shipments might be higher. There is, however, the matter of volume. Maybe 7000 loads a day on the Transcon? I'd think about giving the northern tier to the Montana wheat shippers and let them do whatever they want.

[MichaelSol]

QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
But to say, as Sol has done, that the railroads are adding capacity that will dimini***heir income is basically silly.

While it is akin to pounding on a poor dead horse to suggest that Strawbridge makes things up to generate controversy, I said nothing about diminishing income. What I did say was that the income was insufficient to justify the investment.

Right here:

QUOTE: Originally posted by MichaelSol




Of course, with this remark, you give up the game. You are conceding that railroads are using revenue from captive shippers to finance capacity expansion for non-captive shippers -- i.e. non-captive shipper revenue that does not generate a sufficient rate of return on its own to finance the additional capacity necessary to carry more of it.

I happen to agree entirely that is exactly the game, and your diagnosis can be nothing but true, for so long as railroads divert their resources from productive traffic to traffic that does not generate a sufficient rate of return to finance the solutions to the congestion problems created by ... low rates and low rates of return.

The old railroad conundrum -- noncompensatory rates -- in a new dress.

Ken Strawbridge

Twice in that post I said "rate of return," not "income".

A "rate of return" has to be on ... income. A "low rate of return" means there has to be income. No income would mean no rate of return at all.

Read.

[rrandb]

Location apparently matters to those who feel others are getting a better rate because of where they are shipping to and from. Since most rail shippers are " captive " the railroads should be making profits in line with the oil companies. They are not. And where on earth did you get the notion that improvements in infrastute only benifit certain shippers. If I have sold X numbers of carloads of grain to be shipped for export based on the ship sailing on a specific date then I need the railroad to have the capacity to get it there in time just as much as any other shipper. The improvements are needed not just on the line that pulls up to my elevator but all the way to the port. While we all will pay for it one way or the other how do you propose that the pie be split.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
But to say, as Sol has done, that the railroads are adding capacity that will dimini***heir income is basically silly.

While it is akin to pounding on a poor dead horse to suggest that Strawbridge makes things up to generate controversy, I said nothing about diminishing income. What I did say was that the income was insufficient to justify the investment.

Right here:

QUOTE: Originally posted by MichaelSol




Of course, with this remark, you give up the game. You are conceding that railroads are using revenue from captive shippers to finance capacity expansion for non-captive shippers -- i.e. non-captive shipper revenue that does not generate a sufficient rate of return on its own to finance the additional capacity necessary to carry more of it.

I happen to agree entirely that is exactly the game, and your diagnosis can be nothing but true, for so long as railroads divert their resources from productive traffic to traffic that does not generate a sufficient rate of return to finance the solutions to the congestion problems created by ... low rates and low rates of return.

The old railroad conundrum -- noncompensatory rates -- in a new dress.

Ken Strawbridge

[MichaelSol]

QUOTE: Originally posted by greyhounds
Which is exactly why capcity declined and they're now playing catch up after years of government opression and government forced diversion of profitable freight to highway.

Deregulation occured 26 years ago, and railroads just "now" decided to play catch-up?

Wow. And which current events are you still blaming on the Civil War?

[MichaelSol]

QUOTE: Originally posted by greyhounds
But to say, as Sol has done, that the railroads are adding capacity that will dimini***heir income is basically silly.

While it is akin to pounding on a poor dead horse to suggest that Strawbridge makes things up to generate controversy, I said nothing about diminishing income. What I did say was that the income was insufficient to justify the investment.

[greyhounds]

QUOTE: Originally posted by MichaelSol

Well, now we know why railroads couldn't earn their cost of capital over the past 80 years. Ken Strawbridge says that "the railroads are not in business to haul freight and run trains. They are in business to increase the wealth of their shareholders."

Of course, it's all so easy and clear. If they had just listened to Strawbridge. All railroads had to do was repeat three times, "we are not in the business to haul freight and run trains" and everything would have been just fine, and will be just fine now.

Which is exactly why capcity declined and they're now playing catch up after years of government opression and government forced diversion of profitable freight to highway.

Ken Strawbridge

[MichaelSol]

Well, now we know why railroads couldn't earn their cost of capital over the past 80 years. Ken Strawbridge says that "the railroads are not in business to haul freight and run trains. They are in business to increase the wealth of their shareholders."

Of course, it's all so easy and clear. If they had just listened to Strawbridge. All railroads had to do was repeat three times, "we are not in the business to haul freight and run trains" and everything would have been just fine, and will be just fine now.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by jeaton
2. The new laws will have the desired effect of lowering rates charged to formerly captive shippers. As a result there will be reductions in railroad revenue and cash flow, which will mean a reduction in the rate of capacity expansion.

Of course, with this remark, you give up the game. You are conceding that railroads are using revenue from captive shippers to finance capacity expansion for non-captive shippers -- i.e. non-captive shipper revenue that does not generate a sufficient rate of return on its own to finance the additional capacity necessary to carry more of it.

I happen to agree entirely that is exactly the game, and your diagnosis can be nothing but true, for so long as railroads divert their resources from productive traffice to traffic that does not generate a sufficient rate of return to finance the solutions to the congestion problems created by ... low rates and low rates of return.

The old railroad conundrum -- noncompensatory rates -- in a new dress.

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.

The railroads are not in business to haul freight and run trains. They are in business to increase the wealth of their shareholders. Sol is saying they **** away their shareholders' wealth so they can run more trains. They're not doing that.

The capacity expansions are analyzed and those studies indicate they will pay for themselves. If they won't they won't be built.

Now sometimes the analysis can be wrong. No one can see the future with certainty. But to say, as Sol has done, that the railroads are adding capacity that will dimini***heir income is basically silly. They don't run trains for the sake of running trains.

Sol is saying railroad management intentionally makes non-productive investments. They don't.

Ken Strawbridge

[MichaelSol]

QUOTE: Originally posted by rrandb

Nice try Micheal. What I said was many companies charge different prices for the same sevices (products). I offered the airlines as an example. Exact same service with dramatically different prices. Happens everyday. Fred can charge more for his JD mower if he's not next door to HD. He can make the same amount or more per mower as HD but he will never sell as many. The majority of rail shippers are captive to the line they built next to. More so in the west than the developed areas of the coast's or mississippi valley. Being served by more than one rail shipper is the exception not the rule. You yourself stated that grain shippers pay the same or less per carload (when adjusted for inflation) today than they did 30 years ago. There complaint is they are paying more than there competitors are who are shipping from a more cost effective location transportation wise.

Well, you are changing what you say so often, it's hard to keep up. Most shippers built when rates were regulated; no basis for your contention that captive shippers were "the rule" suggesting wrongly that different rates were charged to them. Simply false.

I see you are back to the cost basis for rates, and that lower rates means it is a "more cost effective location." Doesn't survive the rate comparison test. A single car is not more cost effective to move than a car in a unit train. Location doesn't matter.

Grain shippers pay less per carload than 30 years ago. I also said that captive shippers pay more, notwithstanding the plummeting of the cost basis for providing the service.

[MichaelSol]

QUOTE: Originally posted by jeaton

Yes, but if the shippers that have pushed for the changes get the lower rates and as a result problems resulting from capacity constraints become worse one might suggest the've shot themsleves in the foot.

The capacity constraints seem to be where the shippers are subsidized ... that is a rational result of overcharging captive shippers to offer lower rates to other shippers ... who aren't paying the bills for their heavy use made possible through subsidized rates.

Try as you might, you can't get away from the rule that markets promote efficiency, and that it is neither a rational market for captive shippers, nor a rational market for subsidized shippers. Consequently, railroads will not, cannot, use their resources efficiently. Perhaps that explains some problems of railroading. That's market economics, not the hokum on these threads that posters try and pass off as profound laws of economics.

[rrandb]

Nice try Micheal. What I said was many companies charge different prices for the same sevices (products). I offered the airlines as an example. Exact same service with dramatically different prices. Happens everyday. Fred can charge more for his JD mower if he's not next door to HD. He can make the same amount or more per mower as HD but he will never sell as many. The majority of rail shippers are captive to the line they built next to. More so in the west than the developed areas of the coast's or mississippi valley. Being served by more than one rail shipper is the exception not the rule. You yourself stated that grain shippers pay the same or less per carload (when adjusted for inflation) today than they did 30 years ago. There complaint is they are paying more than there competitors are who are shipping from a more cost effective location transportation wise.

[jeaton]

Yes, but if the shippers that have pushed for the changes get the lower rates and as a result problems resulting from capacity constraints become worse one might suggest the've shot themsleves in the foot.

[MichaelSol]

QUOTE: Originally posted by jeaton
2. The new laws will have the desired effect of lowering rates charged to formerly captive shippers. As a result there will be reductions in railroad revenue and cash flow, which will mean a reduction in the rate of capacity expansion.

Of course, with this remark, you give up the game. You are conceding that railroads are using revenue from captive shippers to finance capacity expansion for non-captive shippers -- i.e. non-captive shipper revenue that does not generate a sufficient rate of return on its own to finance the additional capacity necessary to carry more of it.

I happen to agree entirely that is exactly the game, and your diagnosis can be nothing but true, for so long as railroads divert their resources from productive traffic to traffic that does not generate a sufficient rate of return to finance the solutions to the congestion problems created by ... low rates and low rates of return.

The old railroad conundrum -- noncompensatory rates -- in a new dress.

[jeaton]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rrandb

Would a return to regulated freight rate be an answer. What ever savings in rates by Montana's farmer's would have to made up by other shippers. How about open access? Could another operator haul it out for less after trackage rights are paid? Many of these shippers are captive because there was not enough year round traffic to support more than one rail line. [2c]

Well, you are back to looking at the "cost" of service argument as justifying the service after just having announced that "cost of service has little to do with the price of service" after having rationalized why it makes perfect sense for Fred's to charge more for a lawnmower than Home Depot, except oops, it also now makes perfect sense for Fred's to charge less than Home Depot.

Well, I guess it really doesn't matter if there is a coherent justifying principle; this manner of quickly changing to opposite positions suggests that this is not the case of a conclusion being justified by a well-understood economic principle, but rather a pre-determined conclusion desperately in search of a principle ... any principle.

My suggestion is that market economics is not going to help you out, but there are two such theories that might. National Socialism supported the idea that industry should be permitted to charge command prices in the name of the state, and Marxism proposed that the state itself should command the price structure. That, in either case, market setting of prices in response to competitive forces was strictly forbidden.

Our market system proposes that only market pricing promotes efficient use of resources. Without it, markets are distorted throughout the economy, which promotes inefficient use of resources. Captive shipper pricing is regulated under the Staggers Act to specifically regulate "command" or monopoly pricing because after 200 years, we don't need any more experiments to learn that command pricing is neither efficient nor effective. It is not capitalism, it is anti-capitalism.

Oh, please spare us. For transportation, the market system of pricing as a means of promoting the efficient use of resources went in the tank the first time transport infrastructure was built and paid for by government entities. I suppose that is irrelevant for anyone that denies that other modes can compete with railroads. The fact is that trucks can haul coal and grain and any other bulk product, and if they can set a rate at or below the rail rate and make a profit on the haul they will come. The obvious fact is that in many circumstances and especially with bulk commodities, a railroad will have a cost advantage that will allow it to set a price that a trucker can't touch.

So anyway, we do have the "captive" shipper. Of course, if it wasn't for the railroad the captive shipper wouldn't be in business at all, but I guess the issue is fairness.
Assuming any of the proposed changes in the law are made before 2009, here is what I think will happen.

1. Being at capacity, railroads will raise rates on the business with the lowest margins even if the business is lost and will not aggressively go after business that becomes available from formerly captive shippers.

2. The new laws will have the desired effect of lowering rates charged to formerly captive shippers. As a result there will be reductions in railroad revenue and cash flow, which will mean a reduction in the rate of capacity expansion.

Take you pick.

[tree68]

I am reminded of the very true tale about a grocer who just happened to own the property where the other grocery store in town, his only major competitor, did business.

The owner decided not to renew the lease, causing the tenant grocery store to close. Most local residents, still wanting to support a local merchant, started shopping at the other store. Prices at the two stores had been comparable. They soon noticed, however, that their average grocery bill had risen substantially...

I know I stopped shopping there.

[MichaelSol]

QUOTE: Originally posted by rrandb

Would a return to regulated freight rate be an answer. What ever savings in rates by Montana's farmer's would have to made up by other shippers. How about open access? Could another operator haul it out for less after trackage rights are paid? Many of these shippers are captive because there was not enough year round traffic to support more than one rail line. [2c]

Well, you are back to looking at the "cost" of service argument as justifying the service after just having announced that "cost of service has little to do with the price of service" after having rationalized why it makes perfect sense for Fred's to charge more for a lawnmower than Home Depot, except oops, it also now makes perfect sense for Fred's to charge less than Home Depot.

Well, I guess it really doesn't matter if there is a coherent justifying principle; this manner of quickly changing to opposite positions suggests that this is not the case of a conclusion being justified by a well-understood economic principle, but rather a pre-determined conclusion desperately in search of a justifying principle ... any principle will do.

My suggestion is that market economics is not going to help you out, but there are two such theories that might. National Socialism supported the idea that industry should be permitted to charge command prices in the name of the state, and Marxism proposed that the state itself should command the price structure. That, in either case, market setting of prices in response to competitive forces was strictly forbidden.

Our market system proposes that only market pricing promotes efficient use of resources. Without it, markets are distorted throughout the economy, which promotes inefficient use of resources. Captive shipper pricing is regulated under the Staggers Act to specifically regulate "command" or monopoly pricing because after 200 years, we don't need any more experiments to learn that command pricing is neither efficient nor effective. It is not capitalism, it is anti-capitalism.

[rrandb]

Would a return to regulated freight rate be an answer. What ever savings in rates by Montana's farmer's would have to made up by other shippers. How about open access? Could another operator haul it out for less after trackage rights are paid? Many of these shippers are captive because there was not enough year round traffic to support more than one rail line. [2c]

[MichaelSol]

QUOTE: Originally posted by rrandb
While it would seem logical that you should get a better price for 100 units than 1. We have already established this is not always so. We also have established that " cost of service " has little to do with the price of service.

Your extremely mixed metaphors, jumbling volume pricing with differential pricing, then confusing it with a competitive environment, backwards no less -- Fred's with Home Depot -- underlies your confusion over the fact that there are no competitors, the cost charged to captive shippers has nothing to do with the cost of service because, in fact, it is a completely uncompetitive situation that does not 1) obey laws of supply and demand, 2) is not affected by competitive influences, 3) is set on a whim rather than an efficient deployment of resources, and 4) has nothing whatsoever to do with free market economics at all.

It is command and control economy pricing, and would be the envy of any Commissar.

[MichaelSol]

QUOTE: Originally posted by rrandb
Do not tell Home Depot that Fred's pays less which would be a different price for the same thing.

Since in the real, non-railroad world, Fred's doesn't pay less than Home Depot, it doesn't, in fact, "happen that way all the time," or at all ... no need.

[rrandb]

Whether you move one unit or 100 units they all move by the same service. The difference is the volume of the service you provide not the service. While it would seem logical that you should get a better price for 100 units than 1. We have already established this is not always so. We also have established that " cost of service " has little to do with the price of service. I asume you have a solution to this conundrum. Once we fix the railroads and appease the wheat farmers maybe we can start on the airlines. What i would love to see are any figures for a second rail line to free these captive shippers? Would there be enough traffic to support a second line.[?] [2c]

[MichaelSol]

Well, if a single car cost is the "same service" as a shuttle train, someone ought to let the accountants know (hint: cost of the service is considerably different).... and the wheat shippers as well.

[rrandb]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rrandb

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rrandb
Why does any company charge more than one price for the same service. [2c]

Actually, that's fairly rare, as arbitrage almost always eliminates the differential.

Happens every day. If you order 5 widgets and I order 10,000 widgets do you think we will get the same price. If I order 1 truck load a week and you have a gauranteed 20 truckloads a day will we get the same price. One car load or a unit train a week should they be the same price. Does Home Depot pay the same price for a John Deere riding mower as Fred's Tractor supply with one on the show room floor. Happens every day. [2c]

Well, then it's not the same service is it?

You've got your metaphors pretty well mixed up here.

Today, shipping a shuttle trainload out of Shelby Montana, 115 cars, the shipper will pay $2,681 per carload at the Shuttle rate. A shipper shipping a slightly longer distance in the Midwest to Duluth will pay $191 dollars less -- $2,490 -- for a single carload, at a single carload rate.

Using your example, if those were lawn tractors, then Fred's Tractor Supply is getting a much better rate than Home Depot.

If that happens "everyday," please show me where.

No, you showed me yourself. The railroad is charging a different price for the exact same service. Ask the passengers on a plane how much each one paid for there tickets to go from the same place at the same time to the same destination the exact same distance. They will not be all the same price for the same service. Now check the price to an airport half the distance but with only one airline serving it. It will be twice the price for half the distance. I know I have seen it happen. Happens everyday. I am not saying it is right but it is nothing new and "It Happens Everyday". It is not just the railroads.[2c] P.S. Do not tell Home Depot that Fred's pays less which would be a different price for the same thing.

[PBenham]

If your employer is in an area where the possibility of a good backhaul is not very good, like mine, then you pay dearly for service of any kind, good, bad or in between! Truckers tend to be very predatory when it comes to spotting a small volume shipper/receiver and gouging them accordingly! Railroads will try to do the same things, depending upon the carrier one is dealing with. They tend to go for the maximum possible return on your business, some will work with you (CN),some will listen, at least (NS),some will tell you politely to go away if you do not want to be served their way at their price (CP,CSX). I was reading the article on the Conrail split, and that was the best business oriented article I've seen in a while. The captive shipper article was, to me, a bunch of big government re-regulation propaganda, but with a bone for the railroads in that it was explained that re-regulation could backfire, with dire to serious problems for all the majors, and more serious problems for the undercapitalized, large and not as large. We cannot afford to return to Big Government manipulating freight rates, let the marketplace, not a bunch of bureaucrats set rates. The "captives" have a very shaky case. They may find themselves without rail service at all if re-regulation comes along!

[MichaelSol]

QUOTE: Originally posted by rrandb

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rrandb
Why does any company charge more than one price for the same service. [2c]

Actually, that's fairly rare, as arbitrage almost always eliminates the differential.

Happens every day. If you order 5 widgets and I order 10,000 widgets do you think we will get the same price. If I order 1 truck load a week and you have a gauranteed 20 truckloads a day will we get the same price. One car load or a unit train a week should they be the same price. Does Home Depot pay the same price for a John Deere riding mower as Fred's Tractor supply with one on the show room floor. Happens every day. [2c]

Well, then it's not the same service is it?

You've got your metaphors pretty well mixed up here.

Today, shipping a shuttle trainload out of Shelby Montana, 115 cars, the shipper will pay $2,681 per carload at the Shuttle rate. A shipper shipping a slightly longer distance in the Midwest to Duluth will pay $191 dollars less -- $2,490 -- for a single carload, at a single carload rate.

Using your example, if those were lawn tractors, then Fred's Tractor Supply is getting a much better rate than Home Depot.

If that happens "everyday," please show me where.

[rrandb]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rrandb
Why does any company charge more than one price for the same service. [2c]

Actually, that's fairly rare, as arbitrage almost always eliminates the differential.

Happens every day. If you order 5 widgets and I order 10,000 widgets do you think we will get the same price. If I order 1 truck load a week and you have a gauranteed 20 truckloads a day will we get the same price. One car load or a unit train a week should they be the same price. Does Home Depot pay the same price for a John Deere riding mower as Fred's Tractor supply with one on the show room floor. Happens every day. [2c]