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

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Posted by MichaelSol on Friday, June 16, 2006 11:41 AM
QUOTE: Originally posted by MP173

I think we are at the point of splitting hairs. The farmer doesnt pay dollars per bushel mile to move wheat, he pays dollars per bushel. That is the economic reality. Nebraska is paying more per bushel to move their wheat to PNW. Slice it, dice it, blend it, chop it, it is still more.
I

The Whiteside paper does not address inverse pricing. It doesn't claim to. Now you are asserting that because it does not address inverse pricing, that the resulting price is somehow "fair."

If you agree so strongly with the Whiteside Paper, then you have to take it as a whole. If you don't, that's cherry picking.

And again, for the umpteenth time, I don't like the way Whiteside presents things, because it can be confusing, and misunderstood. This paper is no exception.

The point -- yes, the apparently inscrutible point -- is that Montana shippers are forced to pay a substantially higher cost per mile of transportation to ship its products to the market, than a shipper a thousand miles further away, even though over the same railroad line.

Now, I see on this thread the innovative idea that shippers only ship bushels, that the heretofore important role of transportation to cover miles is irrelevant. Well, that is interesting. It is the cost per unit per mile that defines whether a market area is viable or not because that is what defines the market area.

The point is the opposite of what you contend. Whitside is not contending that Nebraska shippers are shippng wheat to Portland more cheaply -- what they are contending is by using Nebraska rates as a comparison it is demonstrably true that Montana shippers are charged a much higher rate to move the same commodity over the same rail line to the same destination -- that is, the variable costs of the move should be the same -- for the component of the move that has to do with miles traveled.

That is, the comparison shows that BNSF will indeed charge shippers a much lower rate if those shippers are located in areas of transportation competition. Since the rate charged over the mileage traveled presumably covers costs, Whiteside is attempting to show that the cost of the service -- per mile of service provided -- is considerably lower to other shippers, and that BNSF presumably sets those rates likewise to generate a profit.

Accordingly, that shows why the Revenue to Variable Cost of service ratio is so high to Montana shippers compared to -- for example -- Nebraska shippers. This is why that data is located on the chart before the R/VC data. This is why I don't like the presentations sometimes -- I understand what he is trying to do, but readers who don't, will take it literally to mean that he is suggesting that Nebraska shippers pay less than Montana shippers -- which is an inverse pricing situation -- and which has also existed on BNSF, but is not the point of that particular paper.

Whiteside is attempting to show a statistical basis that evidences the discrimination in rate setting -- and that the rate setting cannot be related to cost of service, but rather purely to price gouging on the service. He uses rates to the same destination to show the relationship between the service offered and the R/VC ratio.

He is not even suggesting that Nebraska shippers ship a carload at a lower price -- but at a much lower rate. It seems odd to have to suggest this on a railroad thread, but even the alleged railroaders here seem to miss the point: price is not the same thing as rate and the interpretations offered on this thread are obviously confusing the two concepts.


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Posted by jeaton on Friday, June 16, 2006 11:38 AM
QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by jeaton
Seems to me the choice is between lower freight charges or better service. I don't think you get both.

Well, if anyone bothers to actually read the paper, and many like it, that's the point, these shippers are paying a higher rate, and getting worse service.

I read the entire paper several days ago and just reread the discussion on car supply. In spite of the fact that the usual harvest peak shipping activity came along with a surge in shipping out of storage, the car supply situation was quite bad. I didn't note any evidence that it was any worse than any other grain origin areas.

My question is how does reducing revenue and cash flow improve that situation?

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Posted by MP173 on Friday, June 16, 2006 11:17 AM
I dont think there is any question, the rail's service is mediocre, at best, on a system wide level.

I think that is just the nature of the industry. Trucking moves (at least in truckload operations) one load at a time and thus can control each movement independently.
Railroads, however are moving multiple loads dependent on each other and thus are subject to the snowball effect that can occur.

It gets back to what I discussed earlier, this is an asset intense industry. There is a tradeoff between capacity and return. It must become frustrating when that is a negetive correlation....sort of like the airline industry.

ed
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Posted by MichaelSol on Friday, June 16, 2006 11:04 AM
QUOTE: Originally posted by jeaton
Seems to me the choice is between lower freight charges or better service. I don't think you get both.

Well, if anyone bothers to actually read the paper, and many like it, that's the point, these shippers are paying a higher rate, and getting worse service.
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Posted by jeaton on Friday, June 16, 2006 10:52 AM
I don't think I "cherry picked" data. I took the data from a table in the Whiteside paper and I acknowledged that the data made the point that that charges fromMontana origins produce a higher RVC.

What I found interesting was that the among the data provided was a column showing that, for the origin points selected, Montana shippers were actually charged less per bushel than Nebraska shippers. Obviously, that is the result of a longer haul and I am sure that there are numerous cases where Montana origins are more remote from other markets and the situation would be reversed.

Seems to me that in the whole scheme of the grain marketing thing, it isn't the markup on the frieght charges or the calculated freight charge to move a thousand bushels of grain one mile, rather it is the cost of getting the grain to the destination.

For all the legal and economic arguements made, there is but one goal and that is to reduce the rail transportation charges assessed against a certain category of shippers. The proposed means to accompli***his include more enforcement of existing regulations to changes in the law. Some would probably like to see the establishment of a permanent independent government commission to sort it all out and perhaps even set prescribed freight charges.

Although my view on the issue obviously leans toward the railroads' side, I confess that I do not have the wisdom to say for certain who is right. However, I do think I am close on the optional outcomes that I stated in previous posts.

In spite of any changes made the railroads, operating at capacity and understanding their resulting pricing power, don't engage in any significant price war and rates remain about the same.

The changes actually accompli***he goal of reducing transportation charges which results in lower revenue and less cash for capacity improvements.

Seems to me the choice is between lower freight charges or better service. I don't think you get both.

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

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Posted by n012944 on Friday, June 16, 2006 10:21 AM
QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rrandb

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


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

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


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


Bert


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

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

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

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

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

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

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


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

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

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

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



Dave,

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


Bert


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

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

Here's a hint: You are batting 1.000 in eschewing internal polar opposition.


He's quoting something from a link YOU originally provided in a vain attempt to prove a conspiricy. The only "spinning" here seems to be yours.


It could have been the constuction industry. They would love the extra work from all the increase in wear the GVW increase would bring. If the trucking industry proposed it, then why switch? Sounds like one of those darn "conspiracy" things again.


Bert

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Posted by edblysard on Friday, June 16, 2006 9:47 AM
QUOTE: Originally posted by MichaelSol

You're playing statistical games now. Why don't you just read the paper, instead of toying with the data.




Is this the kettle calling the pot black, or what!

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Posted by TomDiehl on Friday, June 16, 2006 9:37 AM
QUOTE: Originally posted by edblysard

So, you are saying that because Nebraska is farther from the destination, they should pay an even higher price than they already do?

Or that because Montana is closer, they should get a even bigger break on the price, for the same basic service, (hauling rail cars)?

Looks like Montana is already getting a better price, for even less distance, which should mean they have a faster turnaround, therefore should be able to ship even more product at the lesser rate, faster....which means they should be making more profit than the Nebraska farmers.

Oh, I get it...the guys in Nebraska are willing to pay more, in a effort to encourage the service provider to provide better, more consistent service, and the Montana guys are not willing to pony up the bucks for the same thing, and then feel justified to whine and complain about the lack of a service they are not willing to pay for.

Ok, so I forgot about the nationwide railroad conspiracy....

Let’s see, Montana is closer, already pays less that their competition for the same basic service, and the problem is?


QUOTE: Originally posted by MichaelSol

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

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

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

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

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



The one thing I wondered about was "The Nebraska "high" rate is for a shipment of 2,206 miles."

If you go 2206 miles from Nebraska, you'll be well into the Atlantic or Pacific Ocean, depending if you head east or west. The 1491 miles sounds a bit more believable.
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Posted by edblysard on Friday, June 16, 2006 9:24 AM
So, you are saying that because Nebraska is farther from the destination, they should pay an even higher price than they already do?

Or that because Montana is closer, they should get a even bigger break on the price, for the same basic service, (hauling rail cars)?

Looks like Montana is already getting a better price, for even less distance, which should mean they have a faster turnaround, therefore should be able to ship even more product at the lesser rate, faster....which means they should be making more profit than the Nebraska farmers.

Oh, I get it...the guys in Nebraska are willing to pay more, in a effort to encourage the service provider to provide better, more consistent service, and the Montana guys are not willing to pony up the bucks for the same thing, and then feel justified to whine and complain about the lack of a service they are not willing to pay for.

Ok, so I forgot about the nationwide railroad conspiracy....

Let’s see, Montana is closer, already pays less that their competition for the same basic service, and the problem is?


QUOTE: Originally posted by MichaelSol

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

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

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

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

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

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Posted by MP173 on Friday, June 16, 2006 8:50 AM
I think we are at the point of splitting hairs. The farmer doesnt pay dollars per bushel mile to move wheat, he pays dollars per bushel. That is the economic reality. Nebraska is paying more per bushel to move their wheat to PNW. Slice it, dice it, blend it, chop it, it is still more.

I have a difficult time in analyzing V180% in stand alone terms. Simply because I do not have a clue as to how it compares to the rest of the income statement (costs) and balance sheet (capital structure). V180% may be just fine, but then again, if fixed costs are high (they are) for railroads, it may not be.

It seems to have been an arbitrary number negotiated. Perhaps it is (or was) the "magic number" such as Dave's "10% above cost".

The reality of running a business (or in my case a sales territory) is that there are no set rules in place. By closing your mind to considerations you often close the door on opportunity.

Rails require enormous assets to operate. It is very critical that those assets generate the highest margins possible AND the highest usage (asset turnover) possible. There will be (as in all industries) business that is low margin but makes healthy contributions to the overall costs. It sure seems that is the case in railroads (and airlines and many other industries).

Had the low margin business not been in the mix (and I agree, it would be great if that business could see higher margins) the overall costs to even the captive shippers would have been higher, due to less coverage of fixed costs.

Complex issues, no doubt. I dont pretend to understand nor know all the answers.

ed

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Posted by Anonymous on Friday, June 16, 2006 8:29 AM
QUOTE: Originally posted by jeaton

Furniture at retail has a 100% markup.


High markups are necessary for low volume goods.
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Posted by TomDiehl on Friday, June 16, 2006 6:00 AM
QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rrandb

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


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

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


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


Bert


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

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

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

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

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

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

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


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

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

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

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



Dave,

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


Bert


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

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

Here's a hint: You are batting 1.000 in eschewing internal polar opposition.


He's quoting something from a link YOU originally provided in a vain attempt to prove a conspiricy. The only "spinning" here seems to be yours.
Smile, it makes people wonder what you're up to. Chief of Sanitation; Clowntown
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Posted by MichaelSol on Friday, June 16, 2006 12:06 AM
You're playing statistical games now. Why don't you just read the paper, instead of toying with the data.

Here's the data, in a standard, cost per 1,000 bushels per mile.

Billings .. $0.97
Conrad.. $1.21
Fort Benton..$1.10
Great Falls..$1.12
Havre.. $1.19
Moccasin..$0.88

Alliance..$0.90
Beatrice..$0.70
Crete..$0.70
Fremont..$0.69
Grand Island..$0.70
Lincoln..$0.70
North Platte..$0.72
Omaha..$0.69
Superior..$0.71

However, the Staggers Act is written in terms of R/VC.

Billings .. 376% R/VC
Conrad.. 321%
Fort Benton..393%
Great Falls..359%
Havre.. 388%
Moccasin..392%

Alliance..298%
Beatrice..217%
Crete..235%
Fremont..231%
Grand Island..218%
Lincoln..233%
North Platte..225%
Omaha..231%
Superior..238%

Cherry picking and misrepresenting the meaning of data is easy if you are looking to mislead. And of course, you are misrepresenting the fundamental meaning of "rate." Were you looking for "inverse pricing", where it actually cost less per carload, to ship 2000 miles, than it did to cost to ship a carload 900 miles? Well, yes, BNSF has done that too. It's not in the Whiteside study. Too bad since that seems to have become the "standard," mainly by not actually reading it of course.

However, we have a Staggers Act that was supposed to defined the parameters -- perfect or not -- of how we assess the data. When railroads advocated its passage, they advocated the use of those measures.
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Posted by MichaelSol on Thursday, June 15, 2006 11:39 PM
QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by MichaelSol

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

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

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

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

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


The "Nebraska Rate" of $1.08/ bushel is not a BNSF rate. It is a UP rate. Sol usualy leaves some relavent detail like this out. Check page 16 of the Whiateside Study.

Actually, Jay made the comparison, not me. I am sure you will make the correction.
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Posted by greyhounds on Thursday, June 15, 2006 11:34 PM
QUOTE: Originally posted by MichaelSol

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

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

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

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

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


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

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

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

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

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

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

So the Montana wheat farmers enjoy a significant advantage in terms of BNSF wheat rates.
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Posted by jeaton on Thursday, June 15, 2006 11:31 PM
QUOTE: Originally posted by MichaelSol

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

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

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

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

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

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

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

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

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

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

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

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

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

The problem for the captive shipper is that they were required to pay the cost of the railroads handing over productivity gains, and more, to competitive shippers in order to maintain a market share unwarranted by the rate of return from those shippers benefitting from the investment.
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Posted by MichaelSol on Thursday, June 15, 2006 10:40 PM
QUOTE: Originally posted by jeaton
The right most column on the table verifies that the RVC's on the Montana rates are far greater than those from Nebraska. I assume that the Nebraska points were selected because they represent origins that are in competition with Montana farmers for export over the PNW. Interestingly, the column second to the right has the freight cost per bushel. For the Nebraska origins the freight cost per bushel ranges from a low of $1.08 to a high of $1.52. For the Montana rates the range is $.98 to $1.05. If I had a choice, I guess I'd go to Montana.

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

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

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

The average Montana rate is for a shipment of about 900 miles.
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Posted by MP173 on Thursday, June 15, 2006 10:18 PM
Michael,

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

I am flattered. Seriously.

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

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

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

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

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

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

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

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

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

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

We do disagree.

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

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

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

ed




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

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

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

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

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

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

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Posted by Murphy Siding on Thursday, June 15, 2006 8:57 PM
QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Murphy Siding

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

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


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

Why is this so hard for you to grasp?

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


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

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

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

I'll stop here and let you catch up.

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

Thanks to Chris / CopCarSS for my avatar.

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Posted by Anonymous on Thursday, June 15, 2006 8:49 PM
QUOTE: Originally posted by n012944

QUOTE: Originally posted by TomDiehl

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by n012944

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by rrandb

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


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

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


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


Bert


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

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

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

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

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

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

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


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

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

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

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



Dave,

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


Bert


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

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

Here's a hint: You are batting 1.000 in eschewing internal polar opposition.
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Posted by Anonymous on Thursday, June 15, 2006 8:44 PM
QUOTE: Originally posted by Murphy Siding

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by Murphy Siding

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

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


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

Why is this so hard for you to grasp?

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


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

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

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

I'll stop here and let you catch up.
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Posted by jeaton on Thursday, June 15, 2006 8:28 PM
This is something. Not since the days of Louis Brandeis have we seen such a lecture on the evils of monopolies. (By the way, long before he was appointed to the U.S. Supreme Court, Brandeis successfully argued that the Interstate Commerce Commission should deny the railroads' first request for a general rate increase under the IC Act.) Sharp dude.

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

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

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

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


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

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

October, 1999:

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

By Lawrence H Kaufman, Contributing Editor

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

More recently, from Progressive Railroading

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

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

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

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

“Monopolies are relics of the past and enemies of an open and free marketplace,” said ACC Managing Director Marty Durbin. “The solution is simple: let the railroads compete for business, like other American companies.”
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Posted by edblysard on Thursday, June 15, 2006 7:40 PM
QUOTE: Originally posted by bobwilcox

QUOTE: Originally posted by marcimmeker

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


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

23 17 46 11

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

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


They think they get a competive price.
Bob
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Posted by MP173 on Thursday, June 15, 2006 4:46 PM
Dave:

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

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

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

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

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