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

[MichaelSol]

QUOTE: Originally posted by beaulieu

QUOTE: Originally posted by MichaelSol

China's average imports of US grain averaged about $500 million per year, 1987-1995. There was a big year in 1995, $2.5 billion. But, this was about half of China's grain imports compared to the early 1980s. Indeed, as BN hauled a record amount of grain in 1983, 1.2 billion bushels, that was also the year it shut down Stampede Pass as the 2.2% grades were just not made for grain trains. The 1995 spike immediately began to taper off to about $800 million in 1999. Even though 1995 was the big spike, BN began rebuild plans for Stampede in 1994, before the grain spike, but the modifications did not include changing the limitation on grain trains, the 2.2% grades.

Quite Right but the idea was initially more limited. The intent was to take 3 to 4
empties off of the SP&S. The original plan was just tie replacement with minimal replacement of rail. Step two was to enlarge the tunnel for doublestack, followed by step three new CWR and for track upgrades. Stage Four was doubletracking Providence Hill. In the event Bob Krebs did Stage One and a fair amount of Three, which caused much head-shaking amongst the people who planned the project. The original idea was to take each step as traffic justified it. Instead for some reason President Krebs ignored the plan. This is one of the things he was taken to task for when Revenue and Profits failed to justify the expenditures made.

Well, that was interesting.

I always thought it was remarkable that they spent $120 million on a relatively small project at Stampede Pass, then didn't use it much, but that some argued that $51 million to upgrade 1400 miles of Milwaukee PCE to a fast Class IV was a "high" cost and not justified by the 8-10 trains a day.

[daveklepper]

The Montana shipper feels the same way that the self employed businessman who has to make ends meet in his own cottage industry and is flying economy to visit a new prospective client who called the day before for an apointment-- feels when he is sitting next to a collage student who planned his vacation trip months earlier and paid 1/4 the price for his ticket. And brags about it.

[beaulieu]

QUOTE: Originally posted by MichaelSol

China's average imports of US grain averaged about $500 million per year, 1987-1995. There was a big year in 1995, $2.5 billion. But, this was about half of China's grain imports compared to the early 1980s. Indeed, as BN hauled a record amount of grain in 1983, 1.2 billion bushels, that was also the year it shut down Stampede Pass as the 2.2% grades were just not made for grain trains. The 1995 spike immediately began to taper off to about $800 million in 1999. Even though 1995 was the big spike, BN began rebuild plans for Stampede in 1994, before the grain spike, but the modifications did not include changing the limitation on grain trains, the 2.2% grades.

Quite Right but the idea was initially more limited. The intent was to take 3 to 4
empties off of the SP&S. The original plan was just tie replacement with minimal replacement of rail. Step two was to enlarge the tunnel for doublestack, followed by step three new CWR and for track upgrades. Stage Four was doubletracking Providence Hill. In the event Bob Krebs did Stage One and a fair amount of Three, which caused much head-shaking amongst the people who planned the project. The original idea was to take each step as traffic justified it. Instead for some reason President Krebs ignored the plan. This is one of the things he was taken to task for when Revenue and Profits failed to justify the expenditures made.

[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.

[MichaelSol]

QUOTE: Originally posted by beaulieu

The railroad wants nothing of the sort. The railroads wants to maximize its revenues, while minimizing costs, just like all businesses. To achieve that it will use a form of yield management. In the often used Montana Grain Growers example the potential volume is stable within a range determined by growing conditions with slow growth due to improvements in plant genetics, and growing practices. The same rules apply to International Intermodal and Coal, the outlook is different. The railroad goes through the same ROI study for each comodity and route. How much can we charge, how much will it cost, will the capacity expansion pay all costs and provide the required return. The railroads see significant growth potential in both International Intermodal and Coal, although they are watching the DM&E and the scrubbers on Eastern Powerplants as perhaps negative possibilities. As for how a railroad can get burned? Look no further than PNW grain. The BN did a study following the boom in grain purchases by China in the early '90s and concluded that there was an urgent need to expand capacity. Traffic and Engineering studies were done with emphasis on choke points. The routes in Washington State got the hardest look. Schemes were studied looking at improving Stevens Pass, Reopening either Stampede Pass or a hybrid using portions of Snoqualamie Pass. Both Stevens Pass and Snoqualamie Pass were rejected on cost and political reasons with the reopening of Stampede Pass the chosen program. No sooner was Stampede Pass reopened than grain traffic fell off due to China not purchasing grain in the quatities that they had been. The investment in reopening Stampede Pass has not come close to paying for the investment. Once burned by Agriculture twice very shy.

China's average imports of US grain averaged about $500 million per year, 1987-1995. There was a big year in 1995, $2.5 billion. But, this was about half of China's grain imports compared to the early 1980s. Indeed, as BN hauled a record amount of grain in 1983, 1.2 billion bushels, that was also the year it shut down Stampede Pass as the 2.2% grades were just not made for grain trains. The 1995 spike immediately began to taper off to about $800 million in 1999. Even though 1995 was the big spike, BN began rebuild plans for Stampede in 1994, before the grain spike, but the modifications did not include changing the limitation on grain trains, the 2.2% grades.

[Anonymous]

One point of interest - The AAR spokesman is quoted as saying, if paper barriers are outlawed, the Class I's will simply stop selling their branchlines to shortline operators and opt for abandonment instead.

My take - I think the rail shippers are calling the AAR's bluff on this one. For one thing, are there any Class I branchlines left out there that haven't been sold to shortline operators? Most of the branchlines have already been sold, and what's left is probably already captive (e.g. no physical connection with another Class I) and/or produces enough traffic to justify keeping it. Will the Class I's go to the extreme of repurchasing their old interconnected branchlines just so they can scrap them, rather than the slight possibility that the shortline in question might do business with a Class I competitor?

[rrandb]

QUOTE: Originally posted by TRAINMANTOM

To: csshgewisch , maybe the stock holders and bankers and evecutives could take afew dollars each less . Then we could build a whole new railroad

Thats an excellent way for your only source of capital to evaporate. They will simply invest their dollars elsewhere. That would be great way to expand your infrastructure and add the desperatelly need capacity. Why does any company charge more than one price for the same service. [2c] AS always ENJOY

[beaulieu]

The railroad wants nothing of the sort. The railroads wants to maximize its revenues, while minimizing costs, just like all businesses. To achieve that it will use a form of yield management. In the often used Montana Grain Growers example the potential volume is stable within a range determined by growing conditions with slow growth due to improvements in plant genetics, and growing practices. The same rules apply to International Intermodal and Coal, the outlook is different. The railroad goes through the same ROI study for each comodity and route. How much can we charge, how much will it cost, will the capacity expansion pay all costs and provide the required return. The railroads see significant growth potential in both International Intermodal and Coal, although they are watching the DM&E and the scrubbers on Eastern Powerplants as perhaps negative possibilities. As for how a railroad can get burned? Look no further than PNW grain. The BN did a study following the boom in grain purchases by China in the early '90s and concluded that there was an urgent need to expand capacity. Traffic and Engineering studies were done with emphasis on choke points. The routes in Washington State got the hardest look. Schemes were studied looking at improving Stevens Pass, Reopening either Stampede Pass or a hybrid using portions of Snoqualamie Pass. Both Stevens Pass and Snoqualamie Pass were rejected on cost and political reasons with the reopening of Stampede Pass the chosen program. No sooner was Stampede Pass reopened than grain traffic fell off due to China not purchasing grain in the quatities that they had been. The investment in reopening Stampede Pass has not come close to paying for the investment. Once burned by Agriculture twice very shy.

[MichaelSol]

QUOTE: Originally posted by CSSHEGEWISCH

The so-called captive shippers just want a cheaper rate, even if it is to the financial detriment of the carrier. What will the shipper do when the carrier resorts to deferred maintenance when the lower rate charged makes it more difficult to pay the bills?

This would be a good question to pose to the railroads as to why they offer these rates, already, to the non-capitve shippers.

If the proposition offered is true, then the railroads rely on captive shippers to fund maintenance and pay bills, while the non-captive shippers are apparently pay rates -- if the post is true -- that are non-compensatory.

Now, why would the Poster think that the railroads would do that?

[bobwilcox]

QUOTE: Originally posted by CSSHEGEWISCH

What will the shipper do when the carrier resorts to deferred maintenance when the lower rate charged makes it more difficult to pay the bills?

They do not care. The firm only looks at next quarters earnings as they kowtow to Wall Street anaylists. The individual VP Logistics only care about their next promotion. They will be long gone when the chickens come home to roost. The people making the bad government policy decisions in the 1930s, 40s and 50s were not around when the bill came due in the 1980s. That very expensive bill was paid by employees, stockholderes, taxpayers and investors.

[Anonymous]

To: csshgewisch , maybe the stock holders and bankers and evecutives could take afew dollars each less . Then we could build a whole new railroad

[CSSHEGEWISCH]

The so-called captive shippers just want a cheaper rate, even if it is to the financial detriment of the carrier. What will the shipper do when the carrier resorts to deferred maintenance when the lower rate charged makes it more difficult to pay the bills?

[samfp1943]

No complaints, Here. Just a lot of good reading...
So far, I found the major articles worth going back for a closer read,and I thought the jewel, so far was the story about the Chinese Steam coming here,to be of interest, looks like Iowa will have the corner here on Chinese Steam Locomotives in the USA. Whoda thunk that, several years ago?[swg][swg][swg][swg][tup][tup]
Sam

[Anonymous]

And just when I thought TRAINS would forever settle for the strictly railfan genre!

First, an excellent in depth analysis of the captive shipper vs railroads debate by Jason Gallinger.

Then, another thoughful opinion piece by Tom Murray.

Both went right to the heart of the matter - captive shippers simply want rail competition.

Intramodal competition, what a concept!

Your thoughts on the Gallinger and Murray pieces?