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

[Murphy Siding]

QUOTE: Originally posted by MichaelSol

Getting pretty technical there about a small point ...

Yes, I agree with you Michael. You are.

[n012944]

QUOTE: Originally posted by MichaelSol

Interesting. I am wondering what ATA "gets" out of an agreement with AAR, or vice-versa .... Comparing that to ATA's comments previously, does that mean ATA is coming down on the side of more dangerous, rather than less dangerous, trucking regulations?

I did find that interesting, the post that had from the ATA seemed to say that the current way of doing trucking is dangerous. Seemed like an odd argument. Also with trucks interacting with people that are not all that great of drivers, do you really want to see a triple do a panic stop?

Bert

[MichaelSol]

Getting pretty technical there about a small point ...

[n012944]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by n012944

They oppose wholesale changes to size and weight law, meaning they don't want it raised or lowered.

Agreeing not to make it an issue for the time being and saying they "don't want it" raised is probably stretching the meaning a bit.

op·pose
v. op·posed, op·pos·ing, op·pos·es
v. tr.
To be in contention or conflict with: oppose the enemy force.
To be resistant to: opposes new ideas.
To place opposite in contrast or counterbalance.
To place so as to be opposite something else.

v. intr.
To act or be in opposition.

Bert

[MichaelSol]

QUOTE: Originally posted by n012944

They oppose wholesale changes to size and weight law, meaning they don't want it raised or lowered.

Agreeing not to make it an issue for the time being and saying they "don't want it" raised is probably stretching the meaning a bit.

[n012944]

QUOTE: Originally posted by MichaelSol

Interesting. I am wondering what ATA "gets" out of an agreement with AAR, or vice-versa .... Comparing that to ATA's comments previously, does that mean ATA is coming down on the side of more dangerous, rather than less dangerous, trucking regulations? On the other hand, there is nothing there about removing weight restrictions, only that they agree "to join with the trucking and railroad industries in rejecting SHIPA or any other efforts to roll back current size and weight regulations".

Does that mean they have only agreed not to "reduce" weight limits? Well, why would they?

I don't follow trucking so pardon my ignorance here, but is there "less than meets the eye" to that statement?

They oppose wholesale changes to size and weight law, meaning they don't want it raised or lowered.


Bert

[MichaelSol]

Interesting. I am wondering what ATA "gets" out of an agreement with AAR, or vice-versa .... Comparing that to ATA's comments previously, does that mean ATA is coming down on the side of more dangerous, rather than less dangerous, trucking regulations? On the other hand, there is nothing there about removing weight restrictions, only that they agree "to join with the trucking and railroad industries in rejecting SHIPA or any other efforts to roll back current size and weight regulations".

Does that mean they have only agreed not to "reduce" weight limits? Well, why would they?

I don't follow trucking so pardon my ignorance here, but is there "less than meets the eye" to that statement?

[n012944]

From ATA's website:





"As veteran Members of Congress know, truck size and weight is a perennial issue of controversy during highway reauthorization debates. Last year, ATA and the Association of American Railroads (AAR) put our differences on this issue aside and agreed to oppose wholesale changes to size and weight law so that Congress can attend to other important reauthorization matters without the distraction of a size and weight controversy. ATA urges Members to join with the trucking and railroad industries in rejecting SHIPA or any other efforts to roll back current size and weight regulations.
Sincerely,
Jim Whittinghill
Senior Vice President
Legislative Affairs"



Bert

[MichaelSol]

Well, I am not following this thread within a thread about trucking too well. I guess my impression is that the ATA wants to increase weight limits, and remove other restrictions as well, on federal highways. I do recall that the AAR was opposed.

Before the
SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE
COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE
and
SUBCOMMITTEE ON TRANSPORTATION, INFRASTRUCTURE AND NUCLEAR SAFETY ENVIRONMENT AND PUBLIC WORKS COMMITTEE
UNITED STATES SENATE

Statement of
AMERICAN TRUCKING ASSOCIATION, INC.
On FREIGHT TRANSPORTATION
Michael W. Wickham
Chairman and CEO, Roadway Corporation
Akron, OH
September 9, 2002

An effective approach to saving lives, relieving congestion and improving air quality is to reduce the number of trucks on American roads. Given a fixed amount of freight for America’s trucks to move, the only way to reduce the number of trucks is to improve the productivity of the trucks themselves, and of their drivers. This is analogous to carpooling – it increases capacity without increasing the road lane-miles. To improve truck productivity, federal size and weight regulations must be reformed.

Federal law currently limits States’ ability to control size and weight on their own highways. The limits imposed are lower than those mandated by other nations’ governments, including our northern and southern neighbors, who are major trade partners and business competitors. This creates an economic disadvantage for American businesses and it causes additional costs and administrative problems when it comes to moving international freight, including intermodal containers.

There has been no legislative relief to these laws in 20 years, despite considerable improvements in truck safety and better driver training. Decades of experience and volumes of research indicate that more productive vehicles can be safely operated without a detrimental effect on safety or the condition of highways and bridges.[23]

At the request of Congress, the Transportation Research Board (TRB) recently issued a new report on the impacts of federal truck size and weight regulations.[24] Among the report’s conclusions was that the largely static and inflexible system of federal regulation that currently exists “…discourages private- and public-sector innovation aimed at improving highway efficiency and reducing the costs of truck traffic…,” including costs related to accidents involving trucks.[25]

In a nutshell, the TRB report concludes that states should be given greater authority, with strong federal oversight, to make decisions with regard to the size and weight limits of trucks on highways under their jurisdiction. This reflects ATA’s own policy. TRB further recommends that federal regulatory oversight of weight limits should not be extended to the NHS, as H.R. 3132, the Safe Highways and Infrastructure Preservation Act (SHIPA) seeks to do.[26]

There is no doubt that continuing or further restricting current federal size and weight limits will cost lives. While it would not make sense from a safety or economic standpoint to allow larger or heavier trucks to operate on every highway or in every state, Congress cannot continue to ignore the growing body of evidence that supports the fact that opportunities to prevent accidents through size and weight reform are available. Those states that identify these opportunities should be allowed to take advantage of them.

Allowing the expanded operation of more productive trucks would have two safety benefits. First, carriers would need fewer trucks to haul a given amount of freight, reducing accident exposure. Second, studies have consistently found that certain trucks with greater carrying capacity have a much better safety record than trucks that are in common use today. A study sponsored by the Federal Highway Administration found that the accident rate for longer combination vehicles (LCVs) is half that of other trucks.[27]

A recent Canadian study found that LCVs have an accident rate that is five times lower than the rate for tractor-semitrailers.[28] This study also found that during the 10-year period after LCVs were authorized to operate on a large scale in Alberta Province, the number of registered trucks dropped by 19 percent, even though the economy grew and non-truck vehicle registrations grew by 23 percent. The report concluded that increased truck productivity due to expanded LCV use was the most likely reason for this reduction in truck registrations.

In Nevada last year, just .02 percent of vehicles involved in an accident were triples.[29] Of the more than 36,000 accidents in Montana, including 1,326 accidents involving trucks, just one accident involved a triple. The year before, there were two triples accidents in Montana, in 1999 there was one, and in 1998 there were none. [30] In Colorado, of the 4,226 accidents involving trucks in 2000, just nine involved triples; none of the triples accidents involved a fatality.[31]

This data reflects Roadway Corporation’s experience with triple-trailer trucks. Since 1990, Roadway triples have been involved in exactly one fatal accident. That is one fatal accident in over 155 million miles of travel. Last year, there were just five accidents involving Roadway triples, one accident every 2.5 million miles. By comparison, on average, all vehicles nationwide are involved in an accident every 430,000 miles.[32] Triples are by far the safest trucks in our fleet and among the safest vehicles on the highway.

Furthermore, Congress and the States can avoid large investments in pavement maintenance and rehabilitation, as well as capacity expansion, by allowing States to make common-sense changes to their size and weight regulations. Gross weight can increase exponentially and not cause additional pavement damage so long as axle-weight is controlled. This is why, for example, a turnpike double that weighs 126,000 pounds causes half the damage of an 80,000 pound tractor-semitrailer on a ton-mile basis. In addition, if trucks are able to ship the same amount of freight in fewer trucks, the need for capacity expansion could be avoided, fuel use and emissions could be lowered, and costs to American manufacturers and consumers could come down.

[n012944]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by TomDiehl

So what you're saying is the links you offered here refute a link you offered on an earlier post.

Talking in circles again, I see.

More evidence you're not even looking at the links you offer as "proof" of your position.

[(-D]

This is so simple even you should be able to get it.[sigh]

The AAR and CABT links were provided as proof the rail industry has played a major role in lobbying for stricter GVW limits. As part and parcel of this lobbying effort, both AAR and CABT will naturally claim that the trucking industry also supports stricter GVW limits. This refutes Bert's claim that the railroad industry had nothing to do with efforts to enact stricter GVW limits.

However, the ATA refutes this false claim by the AAR and CABT, since the ATA has come out in favor of higher GVW limits. This refutes Bert's subsequent claim that the trucking industry supports stricter GVW limits.

And in conformity with predictable double digit IQ responses, Tom then goes on to claim circular reasoning on my part.

Tom, it is the AAR, not myself, who claims trucking industry support for stricter GVW limits. The ATA site refutes this, ergo it is the AAR that has published a false premise. I am aware of this tendency to falsify information on the part of the AAR, I have commented on it several times in the past.

Let's make a deal: We'll let the AAR speak for the rail industry, and we'll let the ATA speak for the trucking industry. Okay?

The AAR and the ATA had an agreement about there being no increase in the GVW limits right? Then the ATA SUPPORTED that there was to be no increase of the GVW limits.[banghead][banghead][banghead][banghead][banghead][banghead] Let me say this one more time, by entering in an agreement with the AAR, the ATA opposed an increase in GVW limits, just as the AAR oppossed an decrease in GVW limits.[banghead][banghead][banghead][banghead][banghead][banghead][censored]

[MichaelSol]

QUOTE: Originally posted by MP173
Also, it indicates that the inverse pricing has been eliminated but Mr. Rose reserves the right to re-instate those rates. Obviously, if the situation warrents, then Mr. Rose will utilize his assets, rather than sit by.

Reading between the lines...that is my take on the subject.

Drought didn't have much to do with anything on a price received basis. Ordinarily an actual shortage of grain results in higher prices. That wasn't the case, which throws greyhounds whole theory into the crock.

Indeed, the opposite was true. It was a very sluggish market. More so at Duluth -- the traditional destination for Minnesota export wheat, generally receiving between $3.44/bu and $3.59.

Portland wasn't any great shakes either compared to its historical range, and that year varied between $3.97-$4.51 (HRS)/bu. Those are simply not "shortage" prices.

But, the disparity compared to Duluth was signficant. BNSF's "claim" that there was demand in Portland doesn't match with the prices being received.

None of these prices suggest a drought-provoked shortage of wheat. Rather, and especially in Minnesota, you can see famers holding onto their wheat hoping for a better price, all across the Nortthern Tier.

I have to laugh because In competitive days, when this happened, BN was adamant about not dropping rates to get equipment utilized. The policy was, outwait the farmers, let the equipment sit. The Milwaukee would step in, drop the rate 15% for a week, get all the orders it needed to keep its fleet up to full utilization, and BN would scream, then grudgingly go along.

No secret contracts, everyone was treated fairly and equally, the market responded rationally, and everyone was happy.

The problem in 2001 was (if this was greyhounds talking) no one wanted that crappy Midwest wheat, and so nothing was moving back there. So, secret contracts were entered into for cheap rates, to upset a completely different wheat market, put a quality of wheat that the buyers werent' expecting into the supply chain, but there's more.

The whole idea of efficient "markets" is transparency. There is no "market" if there are secret contracts.

Now, how "efficient" is consuming energy and equipment and resources to move wheat 1600-2000 miles -- at half the profit to the railroad -- when there is plenty of wheat at a third the distance, at twice the profit to the railroad. Energy efficiency in all this? Hah! Equipment efficiency -- can you imagine the cycle time stretch on that Minnesota wheat? Think about that one for a minute.

The cycle time increase is perhaps about between 2 and 4:1 compared to Montana wheat.

Fleet utilization? You bet it goes up -- it has to. If a Railroad wants to spend money and wear and tear and fuel, just double, triple, quadruple the cycle time.

Yeah, equipment utilization goes up -- in a very twisted, economically inefficient sort of way. I think this underscores how captive pricing distorts the economic efficiency of the market process, and specifically produces inefficient production costs and specifically creates inefficient use of essential resources. No better example than this one.

Look at an inverse rate on that to Portland.

Today's rates:
Shelby, 781 miles, $2681.
Alberta, MN, 1640 miles, $3863.

To be "inverse" the Alberta rate would have to be less than Shelby's. So, 1640 miles for $2680. Yet the cycle time at Shelby is about 8 days, from Alberta, about 20.

You can put together an interesting R/VC study from earlier posts as to what the railroad might really be earning from charging a much lower rate while incurring hugely extended cycle times, and significanty increased equipment, fuel, and crew costs.

I wouldn't hand the "Order of Lenin" to Matt Rose just yet ....

[bobwilcox]

QUOTE: Originally posted by futuremodal

I looked on the BNSF website but could not find any such mileage based rate offerings. Why is that?

Dave-why don't use the BNSF website to ask them?

[MP173]

It appears, tho I certainly might be wrong, that a couple of things occured that resulted in the inverse rates:

1. Up to that point markets considered "traditional" (Montana & Dakota) had been supplying a large amount of wheat to PNW for export.
2. At some point "traditional" markets either could not supply or would not supply wheat for export markets.
3. Since the grain was not moving (the comment was made to wait for higher prices) BNSF's cars were not being utilized.
4. Obviously, some sharp operator, either being on the supply side or demand side put together a rate to move the wheat to PNW to meet the contracts.
5. BNSF with assets idle moved the wheat.

Otherwise, why would they pass on the higher rate from Montana? If the grain was moving from Montana, then the higher rates would have resulted in higher revenue and possibly higher profits. The grain wasnt moving and someone stepped in and took advantage of the situation.

Further, the use of contract rates on the Minnesota shuttle trains confirms this. Contract rates are between two parties and are not subject to being open. But, the most important aspect of the contract (at least in my mind) would have been as time limit...in other words the contract rates moved the grain for a specific contract.

Also, it indicates that the inverse pricing has been eliminated but Mr. Rose reserves the right to re-instate those rates. Obviously, if the situation warrents, then Mr. Rose will utilize his assets, rather than sit by.

Reading between the lines...that is my take on the subject.

ed

[Anonymous]

Here's a link to a mileage based grain rate system, courtesy DM&E:

http://www.dmerail.com/PDF/DME%204000-B%2020000-SERIES-GRAIN%20MILEAGE.pdf

I looked on the BNSF website but could not find any such mileage based rate offerings. Why is that?

[MichaelSol]

QUOTE: Originally posted by greyhounds
Now they can't basically grow anything but unneeded wheat and some barley in Montana.

Your penchant for simply making up out of thin air conclusions about stuff you know nothing about is by now legendary.

As a matter of fact, we raised corn, sugar beets, wheat and high quality hay that shipped out of state.

USDA ranking by value, Montana crops

Wheat
Hay
Barley
Potatoes
Lentils
Peas
Corn
Flaxseed
Beans
Safflower
Oats
Canola
Peas Austrian Winter
Corn For Silage
Sugarbeets
Beans Pinto
Chickpeas

[MichaelSol]

QUOTE: Originally posted by bobwilcox

QUOTE: Originally posted by MichaelSol
As of today the BNSF has discontinued these inverse rates. But BNSF CEO Matt Rose has left the door open to bringing them back.

If the BNSF has so much market power why did they cut their profits by cancelling these rates?

?

The "inverse pricing" gave a lower rate to selected shuttle elevator operators on westbound grain shipments from Minnesota. Cancelling the lower rate did not "cut profits" on the BNSF, but presumably would have raised them.

Now, maybe I am misunderstanding your response, but I think you have it exactly backwards. The inverse rate is a lower rate. Cancelling it restores a higher rate.

But, it also begs the question, since BNSF is "entitled" to every extra spare nickel, why would BNSF take a cut in profits to "help out" those poor Minnesota Shuttle Elevator operators by offering them a reduced shipment price on westbound grain traffic? Just to wreck the normal wheat market in Portland? Is that their job?

Doesn't fit the greyhounds "theory" at all.

US Senate Testimony
Steve Strege
North Dakota Grain Dealers Assoc.
MARCH 27, 2002

If the Pacific Northwest market actually needed more bushels, then let it bid up the price to get them. This BNSF manipulation of rail rates has a price-depressing effect for farmers and elevators normally serving that market.

We believe there is a more sinister motive at BNSF for its inverse rates. That is to artificially promote the building of shuttle train loading facilities in other parts of this state and western Minnesota, with the eventual goal of closing other grain elevators in those areas and abandoning branch lines and short lines. The process goes as follows: Give a super special rate to a selected few shuttle train loaders in eastern North Dakota and western Minnesota, and prioritize their service. This takes grain volume away from existing elevators, jeopardizing their very future. Then when the volume from those elevators goes down, the railroad will say it can no longer operate the branch line, and so it will be abandoned.

Some elevators will close, some others may exist as receiving stations for the shuttle train loader. The end result is less competition out in the country for the farmers’ grain, longer hauls for everybody, a huge impact on roads and the taxpayers who fund them, and further deterioration in rural communities.

Meanwhile the grain in western North Dakota is held hostage to much higher rates.

DISHARMONY WITH CUSTOMERS AND MARKETS

BNSF is being irresponsible to its present customers. BN encouraged investments in unit train facilities of 26/27 or 52/54-car capacity. The larger ones were the cream of the crop. Now they are second-class citizens because BNSF wants to emphasize shuttles. We are not against shuttles, or reasonable and consistent rate spreads between shipment sizes. What we oppose is the artificial manipulation of incentives and rates to benefit a very few at the expense of the very many.

In round numbers, of the 230-some North Dakota grain elevators served by BNSF and its shortline affiliate the Red River Valley and Western Railroad, about 60 load 52/54-car trains and another 50 load 26/27-car trains. Only nine load shuttle trains. Although the details are kept secret, it is commonly understood in the grain trade that only three of the nine have the special inverse shuttle rate. The BNSF caters to a couple percent of its grain elevator customers, to the disadvantage of all others.

Our domestic milling market is primarily for 26-car trains or less. It is not for the shuttle trains BNSF is pushing. BNSF has said that it will always have single, 26-car and 52-car rates for niche markets. (Niche markets don’t take 52-car trains.) But if BNSF continues to push grain to shuttle train loaders through its discriminatory rates and service priorities, these other elevators can’t exist on the dribblings.

There is sometimes a misconception that the struggle in our state over inverse rates and shuttle train loading is between modern shuttle loading facilities and small dilapidated elevators that have had their day and are no longer useful.

This is not true. Many of the grain elevators being jeopardized by BNSF’s new schemes are huge modern facilities that have kept themselves up to date for not only their own efficiency, but also for the railroad’s. Millions of farmer dollar investments in their local cooperatives will be lost if these are put out of business.

[Anonymous]

I hate to drag this discussion back to a previously posted remark, but since it got lost in the ilk storm........

Paper barriers - The federales are seriously considering eliminating the paper barrier caveats from the shortline contracts. I think is was White from AAR who stated that if such should happen, the railroads would just stop selling branchlines to shortline operators and abandon them instead.

Haven't the railroads squandered that bluff by now? Most if not all branchline sales to shortline operators have already taken place, so there are not too many branchlines left under Class I ownership for the railroads to use as blackmail bait.

I would venture that the feds will go ahead and eliminate the paper barrier constraints from current shortline sales contracts. That's good news for rail shippers on shortlines which have physical connections to more than one Class I but which are captive to the original Class I owner via the restrictive caveats.

[Anonymous]

QUOTE: Originally posted by MichaelSol

This rate action jeopardized our foreign markets by shipping non-traditional grain into them. Wheat from traditional source areas in western North Dakota and Montana mills differently than wheat from spring wheat growing areas several hundred miles to the east. Complaints and concerns have come back from those foreign buyers. Bottom line is that unusual railroad rate actions can damage both shippers and markets.

Question: Can anyone from the pro-BNSF camp show us an example of BNSF using inverse pricing to skew the Asian import markets? Why is this destructive marketing method reserved only for US produced goods?

[MichaelSol]

Well, during the wheat and barley harvest season, that pretty much shoots down the shuttle and unit train concept. I don't think this recognizes that "harvest" is an ongoing process as described above.

QUOTE: Originally posted by bobwilcox
These covered hopper fleets are not just dedicated to grains.

BNSF has a covered hopper car fleet of approximately 34,600 cars.

Out of that BNSF, in fact, maintains a specific "grain car fleet" of approximately 29,000 cars. In fact, they even call it their "grain car fleet."

http://www.bnsf.com/markets/agricultural/ag_news/fleet/fleet.html

For good reason.

[bobwilcox]

QUOTE: Originally posted by greyhounds

Why don't you look up the total grain shipments from Nebraska - I mean those trains can take wheat one trip, beans the next, and corn the third.

These covered hopper fleets are not just dedicated to grains. The railroad looks at using it's cars for anything the will load to cube with a gravity outlet. It may be Phosphates one day and soyabeans the next day. The one caveat is if you will lose utilzation when you need to clean a car between trips. An example would be needed to clean a car coming off an amonium nitrate load for a sweet corn load. You would have to delay the car a have someone clean it. If cars are short the corn loader will often clean the car for the railroad.

[MichaelSol]

(World-Grain.com, May 4, 2004)
by Melissa Alexander

BISMARCK, NORTH DAKOTA, U.S. — The North Dakota Wheat Commission, concerned that pricing tactics by Burlington Northern Santa Fe Railway will damage U.S. hard red spring wheat exports to Asia, has urged the railroad to reconsider its so-called inverse rate policies on grain shipments.
--------------------------------------------------------------------------------
The commission contends that the pricing scheme makes it less expensive for certain grain handling facilities in eastern North Dakota and western Minnesota to ship grain to export outlets such as Portland, Oregon, than for similar facilities in western North Dakota and Montana that actually sit hundreds of miles closer to the U.S. West coast.

"It is our understanding that the pricing scheme went into effect in early March, and some shifts in movements already have taken place," wrote Larry Lee, the commission’s chairman, in the letter to BNSF "Customers in the Asian region are now getting shipments that are likely to express performance characteristics unfamiliar to them."

The commission noted that a shift in pricing of rail shipments could unduly influence the quality of wheat shipped to the West coast.

"Intrinsic quality parameters are vastly different between western and eastern parts of the spring wheat region in each growing season," said Jim Peterson, the commission’s marketing director.

Peterson added that the inverse rates "blunt positive market signals in western parts of the region and threaten to rob all hard red spring wheat producers and shippers of hard-earned markets."

Pat Hiatte, a spokesman with BNSF, said the railroad had defended its position in a response letter to the commission. But he declined to elaborate on the contents of the letter.

The commission, meanwhile, claims the new policy may prove especially damaging considering China’s emergence as a key buyer of spring wheat from Pacific Northwest ports. That country has purchased 11 million bushels of hard red spring wheat due for May delivery and an additional 16 million bushels for delivery in June and beyond.

Similar pricing practices by BNSF in 2001 caused complaints among Asian customers then, Peterson asserted, adding that a period of "damage control" helped restore customer confidence — as did BNSF’s lifting of the inverse rates

[MichaelSol]

BDS REPORT
Prepared by Patrick Nygaard
October 10, 2005

Essentially everybody in the room agreed that the rates were too high, except for the lone BNSF representative. The BNSF rep stated the RR’s don’t make any money off the increased rates because it barely covers fuel costs. The committee members disputed this claim. The main areas of contention is the switch to 110 car trains, increased fuel surcharges, and the inverse rates on grain going west. The BNSF rep also mentioned they are switching to mileage based fuel surcharges and will be using highway miles instead of RR miles.

[bobwilcox]

QUOTE: Originally posted by MichaelSol
As of today the BNSF has discontinued these inverse rates. But BNSF CEO Matt Rose has left the door open to bringing them back.

If the BNSF has so much market power why did they cut their profits by cancelling these rates?

[MichaelSol]

QUOTE: Originally posted by greyhounds
A few years ago, because of extended drought conditions, which were, of course, the fault of a BNSF conspiracy, Montana wheat production took a nose dive.

2000= 149,968,540 bushels
2001= 118,666,464 bushels
2002= 67,732,673 bushels

Except, inverse pricing was imposed in 2001, and taken off in mid-2002, then put back on in 2004, and again in 2005.

[MichaelSol]

Grain Net July 17, 2002:

The differential pricing structure, instituted last summer, raised a considerable hue and cry on the northern Plains by offering significantly lower freight rates to a handful of shuttle-train-loading facilities, primarily in the Red River Valley of Minnesota and North Dakota.

In some cases, those rates were considerably lower than for shuttle loaders located farther west and, therefore, closer to Pacific Northwest export terminals.

The railroad argued that the differential pricing was necessary to offset the trend of smaller wheat crops in Montana and western North Dakota.

NDGDA and others in the region's wheat industry argued that the differential freight rates were discriminatory and threatened to put many of the region's wheat shippers out of business, including some who had made considerable investments in order to be able to load BNSF shuttle trains.

Strege's statement continued: "The BNSF always favors what it calls free markets. It does not want any government interference in its rate or service programs. But with regard to wheat movements to the PNW from the northern Plains, this inverse rate program short-circuited a free grain market.


"If the PNW wanted more wheat, as BNSF says it did, then that market should have been allowed to bid up the price so as to shift its draw territory farther east. Instead, BNSF's inverse rates held down or reduced grain prices to traditional shippers to that market, while favoring only a few shuttle train loaders to the east.


"The distorted grain movements caused by that kind of rate-making also raised quality issues with our hard-won Asian markets.

[MichaelSol]

Steve Strege. Executive Vice President of the North Dakota Grain
Dealers Association.

An example of rail market power in the northern plains started about a year ago when BNSF set up secret inverse contract rates on wheat to the Pacific Northwest (PNW). “Inverse” means the shorter haul pays a higher rate. Western North Dakota and Montana rates to the Pacific Northwest were kept high, while rates for a selected few large 110-car shuttle train loading grain elevators in eastern North Dakota and western Minnesota were lowered. This disadvantaged other grain elevators in areas surrounding the selected few, and westward across North Dakota and Montana, with spillover effects on markets from South Dakota. Of course we support lower rates, but let’s spread the benefit around and be equitable among shippers. This was an exercise in its monopoly power to select grain industry participants that the BNSF wanted to promote, while continuing to milk excessively high rates from more captive shippers and putting in jeopardy the investments of those and many of its other
shippers.

This rate action jeopardized our foreign markets by shipping non-traditional grain into them. Wheat from traditional source areas in western North Dakota and Montana mills differently than wheat from spring wheat growing areas several hundred miles to the east. Complaints and concerns have come back from those foreign buyers. Bottom line is that unusual railroad rate actions can damage both shippers and markets.

Another effect of this BNSF inverse rate action was short-circuiting normal grain market forces. BNSF’s stated reason for the rates was to maintain its market share of PNW exports in the face of drought-reduced crops in Montana. But there were millions of bushels of wheat in storage in Montana and western North Dakota when BNSF took these steps. Instead of the PNW market bidding up the price to get more wheat, the BNSF’s inverse rate scheme held down or reduced grain prices for traditional farmer and country elevator suppliers. This is market manipulation. Meanwhile BNSF advocates free markets and noninterference by anyone in its pricing and practices. This is a double standard. Later in this statement I address the difficulties we encountered when we sought to consider a legal remedy for BNSF’s actions.

These inverse rates distorted normal marketing patterns to the point that a farmer from western North Dakota actually hauled 50,000 bushels of wheat 160 miles east for loading on a train to move back west right past his normal delivery point 20 miles from his farm, that did not have the special rate.

He reported driving approximately 16,000 miles to do this.

As of today the BNSF has discontinued these inverse rates. But BNSF CEO Matt Rose has left the door open to bringing them back.

[TomDiehl]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by TomDiehl

So what you're saying is the links you offered here refute a link you offered on an earlier post.

Talking in circles again, I see.

More evidence you're not even looking at the links you offer as "proof" of your position.

[#wstupid]

[(-D]

This is so simple even you should be able to get it.[sigh]

The AAR and CABT links were provided as proof the rail industry has played a major role in lobbying for stricter GVW limits. As part and parcel of this lobbying effort, both AAR and CABT will naturally claim that the trucking industry also supports stricter GVW limits. This refutes Bert's claim that the railroad industry had nothing to do with efforts to enact stricter GVW limits.

However, the ATA refutes this false claim by the AAR and CABT, since the ATA has come out in favor of higher GVW limits. This refutes Bert's subsequent claim that the trucking industry supports stricter GVW limits.

Ignoring your expected lame attempts at insults here, the quote from the AAR website, which YOU provided in the first place, clearly states that the trucking lobby and the railroad lobby were together on this. I simply highlighted where you missed reading the link YOU posted.

And since I have over a 2 digit IQ, along with an ability to read, which you seem to lack, it brings to question if you DO read things before you post a link to them, especially in view of your missing this obvious contradiction of your tunnel visioned point of view. You've totally ignored the possibility that the ATA changed their position since June 2003 and automatically accuse the ARA of "false claims."

Typical for David, Male, from the Pacific Northwest.

[MichaelSol]

Steve Strege. Executive Vice President of the North Dakota Grain
Dealers Association.

Our primary focus today is on inverse rates, the unusual concept that grain elevators and farmers who ship their grain a shorter distance should pay more than those who ship a longer distance.

Inverse rates distort markets and traditional grain flows, period. They cannot be explained away by calling them “differential pricing.” The BNSF claims no market distortion. It is hard for us to believe that reversing the normal mileage-based rates, to create a disadvantage for western shippers for westbound movements, doesn’t distort markets. It is also hard to believe that changing the crosscountry freight differentials between two elevators from five cents per bushel to around 30 cents per bushel over a distance of 40 miles (Edgeley, ND – Jamestown, ND), or from 15 cents to around 35 cents across a distance of 20 miles (Portland, ND – Alton, ND), doesn’t distort markets. Adversely affected elevators managers can tell you it definitely does.

The BNSF says these inverse rates from eastern locations are necessary to supply needs of the PNW export market. That is simply not true. According to the Montana Grain Growers Association, quoting the Montana Ag Statistics Service, there were 79 million bushels of spring wheat in Montana on December 1, 2001. Millions more bushels are in western North Dakota. But yet these areas are the very ones disadvantaged by BNSF’s inverse rate scheme. If the Pacific Northwest market actually needed more bushels, then let it bid up the price to get them. This BNSF manipulation of rail rates has a price-depressing effect for farmers and elevators normally serving that market.

[MichaelSol]

Commissioner Tony Clark
North Dakota Public Service Commission

Burlington Northern Santa Fe’s inverse rates on wheat shipped from North Dakota to the Pacific Northwest (PNW) make a great deal of sense from the railroad’s perspective – they allow BNSF to maximize profits and shift its costs to the public sector. If this were a competitive market, we likely wouldn’t be here today. But in a non-competitive market, this policy raises great concern, as these are essential services that are being provided.

The BNSF has been able to carry out its plan because shippers in almost all of western North Dakota are captive to BNSF. If there was effective competition in this market, BNSF could not implement this rate structure. Unlike so many other regions of the country, we simply have no alternatives. BNSF is the only rail carrier west of the Missouri River, and is the dominant carrier throughout all of North Dakota. We do not have any direct access to water transportation and trucks are inadequate when it
comes to moving bulk commodities distances of 300 to 1000 miles.

The extent of North Dakota’s captivity is exemplified by the rates that we pay. North Dakota’s rail rates are among the highest and most profitable anywhere. While the Stagger’s Rail Act sets 180 as a reasonable and profitable revenue-to-variable-cost ratio, many of North Dakota’s rates generate ratios of 300 or more. If there was effective
competition in the local transportation marketplace, the railroads would not be able to achieve ratios of this magnitude. We estimate that these excessively high rates cost North Dakota farmers and shippers between $50 and $100 million annually.

BNSF’s inverse rates were implemented about a year ago. At the present time, the 110-car shuttle train rate from southwestern North Dakota to the PNW is about 28 cents per bushel higher than the rate paid by shippers in eastern North Dakota, even though the shippers in western North Dakota are over 250 miles closer to the market.

These preferential rates are available to only a very small number of eastern shuttle train loaders. They put western North Dakota shuttle and non-shuttle shippers at a disadvantage relative to their eastern counterparts, but they have an even greater impact on non-shuttle loaders in eastern North Dakota.

Prior to the implementation of these inverse rates, eastern shuttle loaders had a 15-cent per bushel rate advantage over nearby 52 car loaders. This advantage increased to as much as 38 cents with the implementation of inverse rates.

Grain elevators cannot compete when they are faced with rate disadvantages of this magnitude. In the long run, we believe these unfair rate advantages will result in the closure of many grain elevators, a loss of local competition and farmers being forced to truck their grain to more distant markets. Farm operating costs will increase and branch lines will be abandoned. The railroad’s costs will be shifted to public roadways and state taxpayers. These changes will be forced in ways a competitive market would not allow.

[MichaelSol]

QUOTE: Originally posted by greyhounds
[In 2005, according to the Montana Wheat and Barley Committe, Montana produced only 192,480,000 bushels of wheat and only 39,200,000 bushels of barley. And 2005 was the largest wheat production year since 1995.

At the Committee's load factors of 3,366 bushels per car for wheat and 3,847 bushels per car for barley that would only be 157 cars of wheat per day and 28 cars of barley per day. That's not even two trains per day! Out of the whole state of Montana! This whole Montana rate thing is much ado about very little.

Well, this underscores any doubt that may have existed about Strawbridge's knowledge of any of this.

He averages the crop over the year, pretending that farmers are harvesting and shipping in January, for instance.

Wheat is a crop.

It is harvested.

The harvest begins as far south as Mexico in April, and moves north to Canada in June.

Then the Spring wheat crop matures, and the same cycle begins.

The grain trains are in constant motion from early May to late October, following the crop. Montana wheat is a big part of that. And the trains are numerous and heavy. Not "two" a day.

And its part of the same grain fleet structure that serves Nebraska, Texas, you name it where wheat is grown, and Montana wheat is part of that. What would hurt BNSF is if Montana wheat were not part of it, because then the fleet would get to that part of the harvest cycle when Montana kicks in, and suddenly go idle.

It is absolute baloney to suggest that once a covered hopper car is done carrying Nebraska wheat, it goes on to carry Nebraska beans.

It goes on to carry Montana wheat.

It's part of the same fleet.

Unbelievable.