"Open Access" and regulation of railroad freight rates.

[Datafever]

I would more or less agree with your statement, but I would also like to clarify something - separation of infrastructure from operations is only one of many open access proposals that have been put forth.  In most proposals, this is not an issue at all.

     Hmmm......I've never really heard of an open access scenario that doesn't involve seperation.  Tell me more, please.

Why does that not surprise me?  Ah, well...

Are you familiar with how interchange works?  I don't.  But I do know that it is a mechanism by which freight that originates with one railroad ends up being shipped over another railroad.  A shipper connected to railroad A can ship product to a receiver connected to railroad B.  Railroads A and B (and any connecting railroads) must have a mechanism in place that would allow this to happen.  One proposal (as I see it) kind of expands on this.  It would allow the shipper to negotiate a shipping price with railroad B (instead of railroad A which it is directly connected to).  Railroad B pays railroad A for switching fees and standard interchange.  But this increases competition because now the shipper can negotiate with either railroad in order to achieve the best possible rate.

     I must not be following this correctly.  Suppose a Montana wheat shipper doesn't like the rates that BNSF is offering.  He could then get a *better* rate from UP?  Only problem is, UP has to pay BNSF for use of the track(?)  I can't picture BNSF giving UP any kind of a bargain rate price.  Therefore, UP won't be abale to price any less than BNSF.  If BNSF is *forced* to give UP a sweetheart price, that isn't open access.  It's simply re-regulation.  As it stands now, there's probably nothing stopping BNSF from renting track to another railroad, other than: 1) They don't want to, and 2) They would set the price high enough to at least match what they would make if they were hauling the freight. Wouldn't you?

As near as I can tell, all forms of open access that I have seen proposed comprise some form of regulation to force railroads to be more competitive.  Some shippers will theoretically benefit from rate decreases.  Where does this money come from?  Other shippers (which must as a consequence suffer rate hikes), railroad profits (which will bankrupt marginal railroads), or the taxpayers (in the form of some kind of subsidy).

I would like to point out that there may very well be terminal areas that BNSF might be willing to sell.  If so, it is likely that they have not been able to find a buyer who is willing to agree to the necessary terms and conditions.  And I would not be surprised if those terms and conditions were such that the shippers received no rate breaks anyways, and could possibly even have rate hikes.

[Murphy Siding]

I would more or less agree with your statement, but I would also like to clarify something - separation of infrastructure from operations is only one of many open access proposals that have been put forth.  In most proposals, this is not an issue at all.

     Hmmm......I've never really heard of an open access scenario that doesn't involve seperation.  Tell me more, please.

Why does that not surprise me?  Ah, well...

Are you familiar with how interchange works?  I don't.  But I do know that it is a mechanism by which freight that originates with one railroad ends up being shipped over another railroad.  A shipper connected to railroad A can ship product to a receiver connected to railroad B.  Railroads A and B (and any connecting railroads) must have a mechanism in place that would allow this to happen.  One proposal (as I see it) kind of expands on this.  It would allow the shipper to negotiate a shipping price with railroad B (instead of railroad A which it is directly connected to).  Railroad B pays railroad A for switching fees and standard interchange.  But this increases competition because now the shipper can negotiate with either railroad in order to achieve the best possible rate.

     I must not be following this correctly.  Suppose a Montana wheat shipper doesn't like the rates that BNSF is offering.  He could then get a *better* rate from UP?  Only problem is, UP has to pay BNSF for use of the track(?)  I can't picture BNSF giving UP any kind of a bargain rate price.  Therefore, UP won't be abale to price any less than BNSF.  If BNSF is *forced* to give UP a sweetheart price, that isn't open access.  It's simply re-regulation.  As it stands now, there's probably nothing stopping BNSF from renting track to another railroad, other than: 1) They don't want to, and 2) They would set the price high enough to at least match what they would make if they were hauling the freight. Wouldn't you?

[Datafever]

I would more or less agree with your statement, but I would also like to clarify something - separation of infrastructure from operations is only one of many open access proposals that have been put forth.  In most proposals, this is not an issue at all.

     Hmmm......I've never really heard of an open access scenario that doesn't involve seperation.  Tell me more, please.

Why does that not surprise me?  Ah, well...

Are you familiar with how interchange works?  I don't.  But I do know that it is a mechanism by which freight that originates with one railroad ends up being shipped over another railroad.  A shipper connected to railroad A can ship product to a receiver connected to railroad B.  Railroads A and B (and any connecting railroads) must have a mechanism in place that would allow this to happen.  One proposal (as I see it) kind of expands on this.  It would allow the shipper to negotiate a shipping price with railroad B (instead of railroad A which it is directly connected to).  Railroad B pays railroad A for switching fees and standard interchange.  But this increases competition because now the shipper can negotiate with either railroad in order to achieve the best possible rate.

If I understand railroad operations correctly, railroad territories are broken into trackage areas called terminals or terminal areas.  A terminal area could have only one shipper, or it could have quite few.  Some shortline railroads handle only one terminal area, which connects to another railroad's mainline.  Other railroads have many terminal areas, which connect to their own mainline.  There are various proposals that would require railroad A to allow railroad B to provide terminal service or switching service.  What I don't really understand about these proposals is that the STB already has the authority to require that railroads grant trackage rights (which would include terminal service) or reciprocal switching rights in cases where it has identified anti-competitive conduct.

In the majority of cases, the origin and destination are served by a single railroad.  In addition, there are many such cases where a second railroad services a portion of the route.  Normally, a railroad will transport from origin to destination unless there are overriding factors.  Some proposals would allow the shipper to determine if railroad A is to be used for the entire transport, or if railroad must hand off the shipment to railroad B at a designated transfer point.  This again allows for competition as railroad B now gets a portion of the pie.

These are but some open access proposals that I have seen.  Quite frankly, I think that the only place I've seen the implementation that requires infrastructure separation is here on this forum.

[Murphy Siding]

I would more or less agree with your statement, but I would also like to clarify something - separation of infrastructure from operations is only one of many open access proposals that have been put forth.  In most proposals, this is not an issue at all.

     Hmmm......I've never really heard of an open access scenario that doesn't involve seperation.  Tell me more, please.

[Datafever]

To seperate the railroads from the infrastructure is social engineering, redistributing the wealth, and punishing the railroads for making a profit.

I would more or less agree with your statement, but I would also like to clarify something - separation of infrastructure from operations is only one of many open access proposals that have been put forth.  In most proposals, this is not an issue at all.

I suspect that what most people on this forum object to isn't open access per se, but the particular implementation that requires infrastructure separation (and regulation).  I dare say that there are some people who are completely unaware that most open access proposals do not require infrastructure separation.  The only reason that I say this is that I have never seen any other open access implementations discussed on this forum.

Would you feel better about supporting an open access proposal that did not require infrastructure separation, nor reduce the ability of railroads to make profits?

[Murphy Siding]

     Datafever:  I learned a lot from all the discussion of open access.  For better or worse, here is my take on the subject: Open access is really just a way for some shippers to lower their shipping costs, by forcing their railroad connection to lower their profits on the shipments.  Most of the complaints from the shippers come off like little kids, whining "it's not fair", because someone else got a bigger piece of pie.  I always respond to my kids, when they say that, that life isn't fair.  The railroads, on the other hand, charge what they charge, simply because they can.  They are in it to make a profit, and their stockholders wouldn't have it any other way.  To seperate the railroads from the infrastructure is social engineering, redistributing the wealth, and punishing the railroads for making a profit.  These 3 goals seems almost "Anti-American".  Especially, when you admit that the only group that can raise the funds to buy out the infrastructure would be Uncle Sam-a prospect that I doubt would ever get through Congress.

     Are some suppliers getting jabbed?  Probably.  Are some railroads making some big bucks off certain shippers?  Certainly.  Is open access the cure-all for this? No.  It almost appears that pushing for the most extreme*fix* (open access) is thought to be a way to bring the railroads to some sort agreement to lower *some* rates.  I doubt it.  At this point, it would seem that the most likely improvement would come from the threat of re-regulation of some type, forcing the railroads to play by the rules of the already existing rate laws.

( You may fire when you ready Mr. futuremodal)

[greyhounds]

[

Bad conclusion, Ken.  There is nothing implicit about a second rail carrier "increasing costs" to serve the plant.  There would be a shift of revenues from the one rail carrier to the new rail carrier, assuming they both use the same trackage.  Loss of revenue does not equate to increasing costs.

What might happen with rail on rail competition is a shift in the plant's production to products more prone to rail carriage if they are now afforded more reasonable rates and rail service offerings.

Another faulty premise.  Who says the plant or a 3rd party contractor can't handle the switching for both carriers?  All the Class I's have to do is leave the inbounds and take out the outbounds.  You know, like Ed's railroad.

.

Yes, the second rail carrier will increase cost.  At a minimum you'll be using two crews to do what one crew does very well now.  And you'll double the train frequency needed to handle the same traffic.

And yes, you could put a "3rd Party contractor" in there to do the switching.  But then you'd have three crews doing the work now done by one crew.  Open access will increase the cost of providing rail service.  There is no doubt about it.

That's why railroads are "Natural Monopolies".  Now try to understand that that doesn't mean that there is no competition - there is.  But that competition comes from trucks, barges, etc.  Not from putting multiple railroads in service on a line.

[Anonymous]

Every so-called transportation economist (Gallamore, Bitzen, et al) purporting to have an "unbiased" analysis of the effects of open access on the US rail system should be forced to use this cutting edge tool in all their railroad studies.  .

Emphasis added by me.

I find it hard to believe FM actually said this.  I don't find it impossible to believe he said this, but it's so totalitarian and it so flies in the face of thought that it's hard to believe that anyone raised in an open society such as the US of A would say that some academics should be forced to think in any specific way.

Zeta Tech is basically Randy Reesor.  I went to grad school with Randy.  He's a decent guy and he knows his stuff.  But he's not the Alpha and Omega of thought.  And he doesn't have the credentials or experience of Bob Gallamore.

For FM to say that Gallamore should be forced to think in terms that Zeta Tech (Reesor) lays down is an insane travisty.  As is "Open Access".

Nice try at spin, Poindexter.  "Forced to use" as I said and stand by, is not even close to being the same as "forced to think" which you have subsequently attributed to me.  Like I've said before, once the antagonists of industrial evolution start spinning and throwing out such dracocian Big Brother spectors, they have all but admitted that they have lost the argument.   

If an academic recieves federal money for his/her work, or is submitting research opinion as fodder for influencing public policy, said academics should be responsible enough not to omit reference works which are major variables in the subsequent discussion.  When they do, they should be forced to return any taxpayer funds used to support their research, and should be subsequently disqualified from making public policy suggestions. 

It is a major flaw in all these rail studies that support the continuation of the anachronistic transportation system known as the "integrated railroad", that they leave out any discussion of track use cost analysis.  Applying something like the TrackShare program to an analysis of the presumed "efficiencies" of monopoly rail markets would probably blow away their hypothesis, especially when you consider the revenue potential to track owners of multiple users vs one user (even for a constant quantity of freight).

[Datafever]

What are the goals of open access?  The answer that I have heard is to remove the disparity caused by differential pricing.  Are there other goals?  Possibly, but I can't think of any that aren't related.

Okay, from another thread, I have another viewpoint on the goal behind open access:

it's true the infrastructure company won't do any acual train running, that's the whole point behind OA.

On the other hand, I don't even consider separation of infrastructure and train running to be necessary.  As near as I can tell, it would only be "the whole point" if the goal is to reregulate the railroads, but limit that regulation to the part that is a "monopoly".

P.S. Sometimes I see open access abbreviated as OA, but sometimes I also see the abbreviation OE in contexts that appear as though it means open access.  What does OE stand for?

[bobwilcox]

Shippers are forcing "open access" as they seek ways to reduce their logistics costs.   Virtually all of my shippers served by one railroad took action to gain access to another railroad or used the threat of gaining access ...

So, any idea how they are "forcing" open access?

Was it by connecting an industrial area to another railroad, or were they able to somehow coerce the railroad to allow another road to service an otherwise "captive" spur? 
Were some seeking legislative help...and how did it come out?

Is there something they did that a shipper in the plains states, who may be as much as 150 or more miles from a competitors rails, might be able to use?

 
Yes.

Yes, It helped to be in Tom DeLay's district.

Yes, have a logistics manager such as UPS negotiate your rates for you as a package deal with their other clients.

[JSGreen]

I am sitting here, wondering if I really want to discuss open access on this forum.  I acknowledge that there are only a handful of forum readers that have participated in these discussions.  Perhaps there are quite a few more that read and learn without participating, I don't know.  But I do know this - there is not a lot of "fun" in discussing a topic when all of the participants agree with each other.  Not much learning either.

Well, I am a little slow but I fianally figured out I can choose not to rise to the bait or follow folks into a flame war.  It doesnt take long to decide who wants to discuss things and actually exchange ideas, and who wants to intimidate or abuse others into their way of view.  So I can skim those posts and try to gleam if there is anything of value, while watching for other serious questions and opinions.  Or, just skip it entirely, and wait for something useful.  Yes, I might miss an occasional usefull tidbit doing that, but I am willing to risk that.

I for one am glad you decided to express your ideas, and look forward to reading, learning, and possibly participating with an ocassional question or insight...(hey...I am still due to have at least one this year...)

[JSGreen]

Shippers are forcing "open access" as they seek ways to reduce their logistics costs.   Virtually all of my shippers served by one railroad took action to gain access to another railroad or used the threat of gaining access ...

So, any idea how they are "forcing" open access?

Was it by connecting an industrial area to another railroad, or were they able to somehow coerce the railroad to allow another road to service an otherwise "captive" spur? 
Were some seeking legislative help...and how did it come out?

Is there something they did that a shipper in the plains states, who may be as much as 150 or more miles from a competitors rails, might be able to use?

[bobwilcox]

... I was hoping to learn to what extent railroads are moving in the direction of open access by mutual consents....

Shippers are forcing "open access" as they seek ways to reduce their logistics costs.   Virtually all of my shippers served by one railroad took action to gain access to another railroad or used the threat of gaining access to reduce their rail rates over the years since Staggers became law in 1980. My experience was  marketing rail service for the CNW, SP and UP to industrial chemical shippers for 23 years after Staggers.  My customers included firms such as ExxonMobil, BP, Chevron, Shell, DuPont, FMC, Bayer, Hoechst-Celanese, Dow, Novacor, PCS and their competitors.

[Datafever]

     At the risk of starting a *discussion*, what is your point of view on open access?

That is a very risky question.  Let me start by saying that I support free-market economics.  Open access as I have seen it put forth on this forum is not a free-market solution as regulation of the infrastructure is required.  However not all open access proponents support a regulated infrastructure.  There are many ways to achieve open access goals.  But the first question to be answered is: What are the goals of open access?  The answer that I have heard is to remove the disparity caused by differential pricing.  Are there other goals?  Possibly, but I can't think of any that aren't related.

Can open access work?  Of course it can.  Railroads practice a limited form of open access already - trackage rights, haulage rights, switching rights, etc.  On my "Interchange" thread, I would like to learn a little more about how some of this works in today's world.  To the extent that railroads can benefit from open acess, they will do so by mutual cooperation, without government interference.  On the "Where are we heading" thread, I was hoping to learn to what extent railroads are moving in the direction of open access by mutual consent, but maybe I stated my opening salvo a little too obtusely as no one responded.  Will the railroads have migrated to a quasi-open access solution ten years from now?

A limited form of open access will benefit the rail industry as a whole.  Are there shippers that will benefit?  Probably, but I doubt it would be the level that some propose.  In fact, let me go out on a limb here - shippers overall would not benefit from open access.  Why not?  If shippers overall are going to benefit, someone has to lose.  That loss can come from the railroads' excess profits.  What?  Railroads aren't making billions in excess profits, you say?  If railroads are not making excess profits, then it would come from their ordinary profits.  And that means that marginal railroads go bye-bye, which would reduce competition, which would allow the remaining railroads to keep rates sufficiently high as to maintain profitability.  If the loss isn't going to come from the railroads, then it can only come from John Q. Public in the form of subsidies.  Whether those subsidies go to the owner of a regulated railroad infrastructure or to the shipper (read producer aka farmer), it is still taxpayer money.

Well, I think that I have stuck my neck out far enough.  Suffice it to say that I am not one to back down from a discussion, although I may withdraw if I feel that said discussion is becoming meaningless.

[Murphy Siding]

     Datafever:  I like this forum, because I can learn a lot of stuff about things that interest me, and things I didn't even know interested me.  These things can be as diverse as open access, or the curvature of the earth.  All of it can be discussed in a mature, thoughtful way. (In a perfect world, at least).  A few subjects do bring out the most passionate responces from some posters.  For example,The Milwaukee Road, Montana Wheat farming, Steam vs. Diesel, graffitti,Open Access,EMD vs. GE, and labor unions.  All those topics bring out the *best* and the *worst* in all of us.  The open access thread is the first time (maybe the only time(?) ) that I was called an *idiot* for having a differing opinion.  I think it also marked the first time I was called a *scoundrel* by a certain poster.  But then, most of us have been called a scoundrel by that poster, so at least I know I'm in good company.

     At the risk of starting a *discussion*, what is your point of view on open access?

[Datafever]

      Datafever:  Not to discourage discussion on this thread, but....There is an extensive thread from back a ways, all about open acccess.  It would give you the background of the idea, and of the views and personality conflicts on this forum involving discussion of open access.

http://www.trains.com/trccs/forums/534818/ShowPost.aspx

Thanks for the pointer.  I have begun reading through it, but I am only on page three and already I have more questions.  Maybe some will get answered.

What's your take?  Is it preferable to begin a new thread, or is it better to resurrect an old thread?

     Either/Or.  The old thread will give you some background on the discussion.  It's kind of like having a better understanding of a movie sequel, if you've seen the original movie first.

 

     One good thing that did come out of that thread, is that it sort of spawned the British Railways thread that I enjoy.  It has a fair discussion at the beginning about open access in Britain:http://www.trains.com/trccs/forums/531254/ShowPost.aspx

Reading the old thread has been like reading a soap opera.  I'm only about 1/3 of the way through the thread.  What a hodge-podge.  Some very good points are made (on both sides).  Some very ridiculous arguments are made (on both sides).  In some cases, points are not supported as well as they could have been, and in other cases, points are not countered as well as they could have been.

Let me say this:  Open access is not the panacea that has been put forth by some, nor is it the demon that others have tried to paint it. 

I am sitting here, wondering if I really want to discuss open access on this forum.  I acknowledge that there are only a handful of forum readers that have participated in these discussions.  Perhaps there are quite a few more that read and learn without participating, I don't know.  But I do know this - there is not a lot of "fun" in discussing a topic when all of the participants agree with each other.  Not much learning either.

Of course, that would not be a problem for me, as I don't think that there is anyone on this forum that has my point of view on open access.  I guess that I just see things a different way, but that also means that I get to do a lot of learning, and I really enjoy that!

[greyhounds]

Every so-called transportation economist (Gallamore, Bitzen, et al) purporting to have an "unbiased" analysis of the effects of open access on the US rail system should be forced to use this cutting edge tool in all their railroad studies.  .

Emphasis added by me.

I find it hard to believe FM actually said this.  I don't find it impossible to believe he said this, but it's so totalitarian and it so flies in the face of thought that it's hard to believe that anyone raised in an open society such as the US of A would say that some academics should be forced to think in any specific way.

Zeta Tech is basically Randy Reesor.  I went to grad school with Randy.  He's a decent guy and he knows his stuff.  But he's not the Alpha and Omega of thought.  And he doesn't have the credentials or experience of Bob Gallamore.

For FM to say that Gallamore should be forced to think in terms that Zeta Tech (Reesor) lays down is an insane travisty.  As is "Open Access".

 

[jeaton]

It means what it says, that a railroad is a monopoly for what it hauls best

 

   And a truck is a monopoly for what it hauls best?......and a pipeline?.....and a barge?........and an alen spacecraft?.......   I think you just took another trip to the definition outlet mall.  Just because a definition is on sale, doesn't mean it's a good one.

Horshack, go write 100 times on the blackboard "Trucks and barges have intramodal competition" so you can remember what we've already studied last year.  When you've done that, you can return to the discussion.

FM  Nice diversion of the point.  You are saying that there are certain things that a mode "does best" and if there is only a single carrier of that mode in a particular market, then there is a monopoly.  Your notion that there is no competition between modes is really dumb and as long as you persist with the idea that freight is "inherently" truck freight or rail freight or pipeline freight or whatever, I guess you are going to be stuck in dumb.

Jay,

If the best you can do is flame, then that shows you have no understanding of the issues.  I'll tell you one more time - it's product differentiation.  Until you can show me that you at least grasp an elementary understanding of how product differentiation dictates modal preferences, please keep your typical liberal insult barrage to yourself.

I was trying to think of a product that can't be loaded and hauled in at least two modes.  Maybe you can specify a product characteristic that allows movement by only one mode. If you are going to tell me that the volume of product shipped is a relavant differentation that dictates a modal preference don't you suppose that may be just because of cost differences?  Trucks can haul coal, but railroads usually get the higher volume because they have lower costs and can set a lower price for the hauls. 

 

[jeaton]

Zeta-Tech has developed a very nice program to quite accurately calculate variable track expenses based on real world conditions.  That is something any track owner would want to know before moving a new train (of any ownership) over a segment of track.  I agree that would be an essential tool for any open access program.

The link to their release includes the following statement.

"TRACKSHARE is applied only to those components directly affected by the passage of trains (rail, ties, and ballast).  These variable expenses typically comprise about one half of total permanent way maintenance costs.  The remaining 50% of track maintenance costs do not vary directly with traffic."  (Italics mine)

If the only railroad trackage between point A and point B is of one ownership, a natural monopoly still exists and that condition will still drive the pricing for the use of those rails.  Of course, that part alone can be subject to regulation. History shows that government regulation doesn't do a very good job of getting to economic efficiency.  Futuremodal suggest that since railroad infrastructure is just a small part of the fully integrated railroad industry, the problem is simplified.  With half the maintenance cost fixed, and the other unallocable cost for manageing the business, it is hard to claim that Trackshare will solve the pricing problem or that any regulation established to control pricing will actually make everybody happy.

[Anonymous]

You and Jay should get together and contrive a response to this little factiod:  Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*?  If, as you both contend, trucks are competition for railroads (and since trucks are everywhere), why do these economists seemingly ignore the nationwide saturation of trucks in defining railroads as monopolies?

Here is a little "factoid" for you.

"Natural monopoly: A market that has high natural barriers to entry (usually because of increasing returns to scale) is referred to as a natural monopoly because such a market has a tendency to become a monopoly. Indeed, in the presence of increasing returns to scale, a market that consists of a single large producer is the most economically efficient."

Answer to your question:  Maybe there are conditions where a railroad may meet the defination of a "natural monopoly".  I don't see anything that says a natural monopoly always exist when only one railroad serves a shipper.

Note the first underlined phrase.  A market being called a "natural monopoly" is called that because condition exist that can lead to a monopoly AND NOT because it is a monopoly.

The key part of the defination "A market that has high natural barriers to entry" is a natural monopoly.  So if it only takes a truck to get into a market, obviously that market does not have a high natural barrier to entry and is not a natural monopoly.

Your view that competition in the transportation can only exist on an intramodal basis presumes that for the movement of frieght there are "railroad markets", "truck markets", "pipeline markets", "barge markets", etc.  Is there a divine decree that makes this so?

People who are in charge of getting a shipper's freight moved from point to another are going to select the mode or method that gets the needed level of service at the lowest cost.  For the right price and availability, alien spacecraft can work.

Thought the last sentence in the defination was rather interesting.

You are right, and yet so wrong, and it's because you cannot separate the track from the rolling stock in your mind's definition.  Railroads are only restricted in entry because of the physical constraints of laying tracks.  That same entry restriction is not contingent upon the rolling stock.  Thus, when you separate infrastructure from transporter operations (e.g. the implementation of open access, e.g. busting the integration), the axiom of efficiency due to high natural barriers no longer applies to the transporter segment.  In this case, the infrastructure owner retains the natural monopoly, but the transporter no longer is afforded that same monopoly, aka intramodal competition is introduced.   

That's why busting the integration model embodies the introduction of more economic efficiencies, since the ever present societal need to regulate the monopoly (something that is now hard-wired in our Western version of free market capitalism) is reduced to regulating the infrastructural aspects (aka the utility aspect of railroading), rather than regulating the entire genre from head to toe as was done pre-Staggers.

I can very well separate the track from the rolling stock. 

Prove it.  You have shown no ability whatsoever to do just that, as you continue to use economic anachronisms that all lump railroad analysis into the integrated model.  I'll say it one more time - the "natural monopoly" of railroads and the subsequent barriers to entry lies with the infrastructure.  It is in no way, shape, or form embodied in transporter services, other than the fact that we've forced a shotgun marriage of infrastructure and transporter services.  When we regulated railroads pre-Staggers, it was the whole shebang, and that was the problem with regulation - it brought economic inefficiencies to the transporter services sector, e.g. on the supply side.  When we partially deregulated the railroads post-Staggers, it was basically the same deal in reverse - now the transporter services are deregulated as they should be, but the natural monopoly was also deregulated, which predictably brought on the subsequent economic inefficiencies (aka monopolistic rate abuses) we have today, e.g. on the demand side.

I and many others have already gone over this. Open access may reduce rates for some shippers, but it is never going to be the utopia of your dreams.  That is the point of Gallamore's paper, which you have chosen to simply dismiss with the argument  "their wrong".  However, so long as you define economic efficiency with reduced rates or prices, I guess the arguements will be somewhat beyond you.

I didn't say "they're wrong", I said they are using the established but anachronistic economic analysis structure based on integration dating back 150 years.  Gallamore et al make no attempt to prescribe an analysis of cost recovery of infrastructure via usage, something that would be light years more useful as an economic tool for analysis than what they are building on now, and something that would be quite easy to assess right now even with the integrated model for making a more intellegent determination of the effects of an open access policy.

You should note, there is at least one such model that I know of - TrackShare from ZetaTech.  (Yes, I've posted this before, but here it is again for posterity's sake) -

http://www.zetatech.com/CORPQIII44.htm

Every so-called transportation economist (Gallamore, Bitzen, et al) purporting to have an "unbiased" analysis of the effects of open access on the US rail system should be forced to use this cutting edge tool in all their railroad studies.  Of course, if they did, they'd have their 150 year body of work completely blown up, and if we've learned anything from the global warming hyperboholics, they do not take kindly to being shown up by newer more relavent data.

[Anonymous]

It means what it says, that a railroad is a monopoly for what it hauls best

 

   And a truck is a monopoly for what it hauls best?......and a pipeline?.....and a barge?........and an alen spacecraft?.......   I think you just took another trip to the definition outlet mall.  Just because a definition is on sale, doesn't mean it's a good one.

Horshack, go write 100 times on the blackboard "Trucks and barges have intramodal competition" so you can remember what we've already studied last year.  When you've done that, you can return to the discussion.

FM  Nice diversion of the point.  You are saying that there are certain things that a mode "does best" and if there is only a single carrier of that mode in a particular market, then there is a monopoly.  Your notion that there is no competition between modes is really dumb and as long as you persist with the idea that freight is "inherently" truck freight or rail freight or pipeline freight or whatever, I guess you are going to be stuck in dumb.

Jay,

If the best you can do is flame, then that shows you have no understanding of the issues.  I'll tell you one more time - it's product differentiation.  Until you can show me that you at least grasp an elementary understanding of how product differentiation dictates modal preferences, please keep your typical liberal insult barrage to yourself.

[Murphy Siding]

      Datafever:  Not to discourage discussion on this thread, but....There is an extensive thread from back a ways, all about open acccess.  It would give you the background of the idea, and of the views and personality conflicts on this forum involving discussion of open access.

http://www.trains.com/trccs/forums/534818/ShowPost.aspx

Thanks for the pointer.  I have begun reading through it, but I am only on page three and already I have more questions.  Maybe some will get answered.

What's your take?  Is it preferable to begin a new thread, or is it better to resurrect an old thread?

     Either/Or.  The old thread will give you some background on the discussion.  It's kind of like having a better understanding of a movie sequel, if you've seen the original movie first.

 

     One good thing that did come out of that thread, is that it sort of spawned the British Railways thread that I enjoy.  It has a fair discussion at the beginning about open access in Britain:http://www.trains.com/trccs/forums/531254/ShowPost.aspx

[Datafever]

      Datafever:  Not to discourage discussion on this thread, but....There is an extensive thread from back a ways, all about open acccess.  It would give you the background of the idea, and of the views and personality conflicts on this forum involving discussion of open access.

http://www.trains.com/trccs/forums/534818/ShowPost.aspx

Thanks for the pointer.  I have begun reading through it, but I am only on page three and already I have more questions.  Maybe some will get answered.

What's your take?  Is it preferable to begin a new thread, or is it better to resurrect an old thread?

[Murphy Siding]

      Datafever:  Not to discourage discussion on this thread, but....There is an extensive thread from back a ways, all about open acccess.  It would give you the background of the idea, and of the views and personality conflicts on this forum involving discussion of open access.

http://www.trains.com/trccs/forums/534818/ShowPost.aspx

[Datafever]

Ed, thank you for your excellent post.  It is well thought out, easy to understand, provides meaningful examples and comes to a non-contradictory conclusion.  You may not see yourself as an expert on these matters, but you are every bit as much of an expert as anyone else who posts here.

I myself am not an expert on any of these matters.  But I am a free-market proponent.  Unfortunately, I do not always see clearly how free-market economics are capable of solving some of the tricky aspects of cost containment.  On the plus side, I am willing to listen to anyone (and I do mean anyone) who is willing to put forth their views in a clear, understandable manner.  I am also aware that there are situations in which free-market economics fail, at least in the short term.

It is my objective to avoid the flame wars and engage the members of this forum in discussions that allow each of us to come to a better understanding of the problems facing us and facing this country as regards the railroad industry.  If nothing else, we will become more knowledgeable voters and that can't be a bad thing no matter which side of an issue we are on.

[edblysard]

Data,

I agree, you are correct in stating that wheat grows in selected places, un like a manufacturing facility, wheat production is limited geographically.

But the business of farming is evolving, based in no small part on better methods, both in the ag business and in the transportation business.

What I was getting at is the forced evolution of one business by the evolution of another business, or a component of that business, in this case, the evolution of railroading from an artificially priced “public” utility into a competitive, market driven business, which is forcing its customers, in this case, Montana wheat growers, to follow suit.

 

What that leaves us is the choice between a government controlled economic situation, and a market driven one.

Sure, back in the day the Montana guys had a choice between GN and NP, but the rates both charged were artificial in the first place.

The only real difference was routing…which, depending on the carrier, could be efficient, or not.

 

One look at the worlds most controlled economy, the Soviet Union, should point out the major flaws in that…

Efficient production there was not really required, because it really didn’t matter if you produce the product for less or were efficient, you still got the same return regardless.

That system collapsed under its own bureaucratic weight.

The rail industry pre Staggers suffered the same problem; its bureaucratic requirements and government controlled rates were killing it.

Yes, mergers did limit the name on the side of the locomotive, but in the end, it is still a train.

Yes, routes that failed to generate enough “profit” to encourage BNSF to continue service have been, and will continue to be abandoned or closed.

Business sense dictates that, as do shareholders meetings.

 

Which leaves the growers in a quandary…either find a way to get the crop to a point where BNSF will serve, create an alternative mode of transportation, and therefore charge more for their product to cover the additional transportation cost, or somehow entice the railroad to provide service to their area, and lastly build/buy their own railroad.

 

In reality, they do have service…BNSF will haul all the unit grain trains you offer them…it is building the unit trains that causes the growers a problem.

 

What has happened is that the growers allowed themselves to get trapped into the “business as usual” routine, short hauling their product to all the Mom and Pop elevators…places where the railroads were forced to provide service whether it made them money or not…no skin off the farmers nose, he could care less if it was “fair” to the railroads, right?

 

Well, now the Montana growers are being forced to compete with the growers who are closer to mega elevators…a market driven economy will force them to either adapt or close.

If they close, bet your bottom dollar that companies like ADM will move in, and because of the economy of scale, be able to build the type of elevators BNSF will haul from, those who can load out 120 car unit trains as fast as BNSF can deliver the empties.

 

Trust me, they will not stop growing wheat in Montana…but who is growing the wheat most likely will change, from the family farm, with all the inefficiencies a small business has inherent in its operation, into mega growers…Super Ags if you will, that can and do exert enough economic clout that they can entice a railroad to possibly build new tracks and or open closed lines.

They will build mega elevators in strategic locations, and develop a system to transport the wheat to these elevators, as long as it is economically profitably for them to do so.

 

Fact is we currently grow enough wheat to satisfy our domestic needs, and have a large enough surplus to export an amount that feeds quite a few other countries.

 

Imagine the domestic consumer cost if those who grow wheat become even more efficient?

Of course, you do run the risk of becoming so efficient you end up with a product that has little or such a small value it becomes worthless.

 

Elimination of the small family farm…is this good or bad?

 

Depends if you are the family who owns the farm or not…but in reality, most of us don’t own farms, and could care less if ADM or Mom and Pop grow the wheat, so long as the cost to us in the supermarket remains constant.

 

Every industry has gone through this process…look at domestic automobile production…50 years ago, you had over a dozen domestic builders, remember Nash, Studebaker, Hudson, those guys?

Yet today, the three left standing, Ford, Chrysler and GM are in a crunch because they failed to adapt to a market driven economy.

Consumers wanted four wheel disc brakes, decent gas mileage, CD players and a little flair…the Big Three gave us boxes on wheels with such poor quality they devalued almost the instant they were sold to the consumer.

Enter companies who did offer the consumer what they wanted, at a price the consumer was willing to pay, and guess who now owns Chrysler?

 

Well, the wheat growers in Montana are in the same situation, adapt their methods, or fail.

It is not that the growers do not have alternatives; it is that the alternatives require a change in their methods of production and transportation, which they are naturally trying to avoid.

 

Coal is an excellent example here.

Used to be every holler and valley east of the big muddy had a coal mine, black lung was a Kentucky plague…and the majority of these mines moved their product via rail.

All the small mines are pretty much gone in favor of the mega producers, with Powder river Basin as a good example.

 

Why spend the money gathering up and moving small car loadings of coal from hundreds of mines all over the place when you can haul twice the volume out of a single location at less cost?

Very generalized of course, but you see the point.

 

Back to wheat, is this process “fair” to the Montana wheat growers?

Again, depends if you own a farm there…but if they succeed, you will see the cost of a loaf of bread increase, and that you will care about.

Because one of the “truisms” of business is that, in the end, the consumer will pick up any additional cost in the production process, be it a loaf of bread, or a new Chevy, when the industries involved pass along the additional cost to you through higher initial production cost and higher transportation cost, which you end up paying for.

[jeaton]

You and Jay should get together and contrive a response to this little factiod:  Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*?  If, as you both contend, trucks are competition for railroads (and since trucks are everywhere), why do these economists seemingly ignore the nationwide saturation of trucks in defining railroads as monopolies?

Here is a little "factoid" for you.

"Natural monopoly: A market that has high natural barriers to entry (usually because of increasing returns to scale) is referred to as a natural monopoly because such a market has a tendency to become a monopoly. Indeed, in the presence of increasing returns to scale, a market that consists of a single large producer is the most economically efficient."

Answer to your question:  Maybe there are conditions where a railroad may meet the defination of a "natural monopoly".  I don't see anything that says a natural monopoly always exist when only one railroad serves a shipper.

Note the first underlined phrase.  A market being called a "natural monopoly" is called that because condition exist that can lead to a monopoly AND NOT because it is a monopoly.

The key part of the defination "A market that has high natural barriers to entry" is a natural monopoly.  So if it only takes a truck to get into a market, obviously that market does not have a high natural barrier to entry and is not a natural monopoly.

Your view that competition in the transportation can only exist on an intramodal basis presumes that for the movement of frieght there are "railroad markets", "truck markets", "pipeline markets", "barge markets", etc.  Is there a divine decree that makes this so?

People who are in charge of getting a shipper's freight moved from point to another are going to select the mode or method that gets the needed level of service at the lowest cost.  For the right price and availability, alien spacecraft can work.

Thought the last sentence in the defination was rather interesting.

You are right, and yet so wrong, and it's because you cannot separate the track from the rolling stock in your mind's definition.  Railroads are only restricted in entry because of the physical constraints of laying tracks.  That same entry restriction is not contingent upon the rolling stock.  Thus, when you separate infrastructure from transporter operations (e.g. the implementation of open access, e.g. busting the integration), the axiom of efficiency due to high natural barriers no longer applies to the transporter segment.  In this case, the infrastructure owner retains the natural monopoly, but the transporter no longer is afforded that same monopoly, aka intramodal competition is introduced.   

That's why busting the integration model embodies the introduction of more economic efficiencies, since the ever present societal need to regulate the monopoly (something that is now hard-wired in our Western version of free market capitalism) is reduced to regulating the infrastructural aspects (aka the utility aspect of railroading), rather than regulating the entire genre from head to toe as was done pre-Staggers.

I can very well separate the track from the rolling stock.  I and many others have already gone over this. Open access may reduce rates for some shippers, but it is never going to be the utopia of your dreams.  That is the point of Gallamore's paper, which you have chosen to simply dismiss with the argument  "their wrong".  However, so long as you define economic efficiency with reduced rates or prices, I guess the arguements will be somewhat beyond you.

 

[Murphy Siding]

It means what it says, that a railroad is a monopoly for what it hauls best

 

   And a truck is a monopoly for what it hauls best?......and a pipeline?.....and a barge?........and an alen spacecraft?.......   I think you just took another trip to the definition outlet mall.  Just because a definition is on sale, doesn't mean it's a good one.

Horshack, go write 100 times on the blackboard "Trucks and barges have intramodal competition" so you can remember what we've already studied last year.  When you've done that, you can return to the discussion.

FM  Nice diversion of the point.  You are saying that there are certain things that a mode "does best" and if there is only a single carrier of that mode in a particular market, then there is a monopoly.  Your notion that there is no competition between modes is really dumb and as long as you persist with the idea that freight is "inherently" truck freight or rail freight or pipeline freight or whatever, I guess you are going to be stuck in dumb.

     jeaton:  It's all in the definitions my friend.

[jeaton]

It means what it says, that a railroad is a monopoly for what it hauls best

 

   And a truck is a monopoly for what it hauls best?......and a pipeline?.....and a barge?........and an alen spacecraft?.......   I think you just took another trip to the definition outlet mall.  Just because a definition is on sale, doesn't mean it's a good one.

Horshack, go write 100 times on the blackboard "Trucks and barges have intramodal competition" so you can remember what we've already studied last year.  When you've done that, you can return to the discussion.

FM  Nice diversion of the point.  You are saying that there are certain things that a mode "does best" and if there is only a single carrier of that mode in a particular market, then there is a monopoly.  Your notion that there is no competition between modes is really dumb and as long as you persist with the idea that freight is "inherently" truck freight or rail freight or pipeline freight or whatever, I guess you are going to be stuck in dumb.

[Anonymous]

You and Jay should get together and contrive a response to this little factiod:  Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*?  If, as you both contend, trucks are competition for railroads (and since trucks are everywhere), why do these economists seemingly ignore the nationwide saturation of trucks in defining railroads as monopolies?

Here is a little "factoid" for you.

"Natural monopoly: A market that has high natural barriers to entry (usually because of increasing returns to scale) is referred to as a natural monopoly because such a market has a tendency to become a monopoly. Indeed, in the presence of increasing returns to scale, a market that consists of a single large producer is the most economically efficient."

Answer to your question:  Maybe there are conditions where a railroad may meet the defination of a "natural monopoly".  I don't see anything that says a natural monopoly always exist when only one railroad serves a shipper.

Note the first underlined phrase.  A market being called a "natural monopoly" is called that because condition exist that can lead to a monopoly AND NOT because it is a monopoly.

The key part of the defination "A market that has high natural barriers to entry" is a natural monopoly.  So if it only takes a truck to get into a market, obviously that market does not have a high natural barrier to entry and is not a natural monopoly.

Your view that competition in the transportation can only exist on an intramodal basis presumes that for the movement of frieght there are "railroad markets", "truck markets", "pipeline markets", "barge markets", etc.  Is there a divine decree that makes this so?

People who are in charge of getting a shipper's freight moved from point to another are going to select the mode or method that gets the needed level of service at the lowest cost.  For the right price and availability, alien spacecraft can work.

Thought the last sentence in the defination was rather interesting.

You are right, and yet so wrong, and it's because you cannot separate the track from the rolling stock in your mind's definition.  Railroads are only restricted in entry because of the physical constraints of laying tracks.  That same entry restriction is not contingent upon the rolling stock.  Thus, when you separate infrastructure from transporter operations (e.g. the implementation of open access, e.g. busting the integration), the axiom of efficiency due to high natural barriers no longer applies to the transporter segment.  In this case, the infrastructure owner retains the natural monopoly, but the transporter no longer is afforded that same monopoly, aka intramodal competition is introduced.   

That's why busting the integration model embodies the introduction of more economic efficiencies, since the ever present societal need to regulate the monopoly (something that is now hard-wired in our Western version of free market capitalism) is reduced to regulating the infrastructural aspects (aka the utility aspect of railroading), rather than regulating the entire genre from head to toe as was done pre-Staggers.