TimChgo9 wrote: Let me see if I understand this right....well, the "captive shipper" part of it. Let us just say, that there is an industry, with a spur or two to serve it off of a main rail line, the only rail line through the area. (For fun, let's make it a Class 1) Now, let us imagine that this company makes a product that is so large, heavy, or bulky, that it can only go by flat car. But, some components can go by truck, but not the main product itself. So, does this make the company a "captive shipper"... after all, trucks can handle some of freight, but not all of it... and certainly not the main product, made by this company.
Let me see if I understand this right....well, the "captive shipper" part of it.
Let us just say, that there is an industry, with a spur or two to serve it off of a main rail line, the only rail line through the area. (For fun, let's make it a Class 1) Now, let us imagine that this company makes a product that is so large, heavy, or bulky, that it can only go by flat car. But, some components can go by truck, but not the main product itself. So, does this make the company a "captive shipper"... after all, trucks can handle some of freight, but not all of it... and certainly not the main product, made by this company.
You are exactly right, Ed's counter example notwithstanding. In Ed's synopsis, the load in question is inbound from a port. As I explained a while back, there are no captive sea-to-dock importers. Any product that is brought to port by ship usually has a choice of ports, and that slate of ports (at least the larger ones) also offers usually at least two Class I connections.
Now, take Ed's example and reverse the shipping direction. Say it's a factory in Indiana with only one Class I connection that makes these components, and they need to ship one overseas. In spite of the fact that they can play one port against the other and one shipping line against the other, they cannot hedge that initial transportation cost out of the plant. And that's where they lose out to foreign competitors who suffer no similar captive rate offering.
And of course, saying that "it's their fault for locating the plant on a single Class I rail line" is rather disingenuous, since most such factories were sited pre-Staggers under regulated mileage based rates. Who in their right mind could have foreseen that their so-called representative government would suddenly enslave them to a government sanctioned monopoly via Staggers?
Murphy Siding wrote: futuremodal wrote: 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.
futuremodal wrote: It means what it says, that a railroad is a monopoly for what it hauls best
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.
Okay, Ed... thanks. I posted that because I am just trying to understand all of this. I suppose my post was not thought out all of the way, but the main question was answered. I think I understand things better at this point.
Tim,
Yes and no…for the most part no.
The idea that a company might design something, lets say a catalytic cracking unit, and only then, once the unit is built, go looking for a way to transport it doesn’t work.
Most of the “large” or oversized items you see transported by rail are specifically designed for this type of transportation system.
See the photo below, where the refinery tower was designed to be moved in this manner…the pivot points for the attachment to the flats is an integral part of the tower…not a add on as you go item.
See the Schnabel car and the SunCo. refinery tower shown.
Again, the attachment points, and the overall design incorporate the concept that it will move only by rail.
Does this make the shipper captive?
No, if they choose to, they could design and build these items to specifications that would allow them to travel in sections on trucks, and do the final assembly on site.
But the refinery may not have the capability to do the final assembly, or the owner may not want the added expense of shipping several different parts and then re-assembling them on site.
If you are in the business of making such items, then the shipping cost and system is part of your products overall design, and becomes part of your final bid on the contract…so it is a choice the builder makes, not an elimination of options.
In your hypothetical situation, the builder does have options.
If his product can only be shipped complete, and is so large it has to move by rail, one of the options is to locate the plant near competing rail lines.
If you in the business of making things of this nature, then plant site/fabrication location is a high consideration, one that dictates where you locate you facility in the first place.
You don’t find places that build things like this in the middle of Montana wheat country.
But you do find them in heavily industrialized places like Houston, Detroit, Pittsburg…you get the idea…
Were either of the shippers in these photos captive?
No, both items arrived via ship, and the owners could have docked in Louisiana, or Mississippi, and shipped via CSX or NS if they chose to.
Your looking at two modes of transportation, ship and rail…there was a third option, they could have loaded either item onto a barge, and sent it via the Intracostal water way, up the Mississippi, and then via rail to the final destination, so you have three modes to decide on.
But for the shipper’s purpose, and the final cost, it was cheaper to dock in Houston, and send the completed items via BNSF to their final destinations…an economic choice, not a physical constraint.
As for building a additional spur to a competing railroad, as you suggested, unless your shipping volume justifies it, the other railroad will most likely require you to build the spur out of your pocket…and require you to build to their specifications.
Once that is done, then you might find you have built yourself into a corner, so to speak.
In that, again, unless you ship such a large volume as to attract a competitive pricing from either railroad, you might find them both deciding your business isn’t worth the bother.
After all, if you ship only one of these items every six months, then the railroads might decide that the cost of moving your product doesn’t generate enough profit for them, and they will price their service to reflect that.
Your shipping cost might increase.
The idea that both of the railroads will compete, and low bid each other to get your business works only if you ship enough volume to justify it to the carrier.
On the other hand, if you have only one carrier to deal with, the odds are they will want your business, because they “run there” already, and they will offer a price you can live with.
Part of the natural monopoly explored further up in this thread.
23 17 46 11
Now, to further muddy the question.... Let us say, that about 200 yards to the north of this facility, a regional line services another industry, and there is a spur off of the regional, to the other business. Now, lets say this manufacturer of the bulky, by-flatcar-shippable-only product, wants a better freight rate, and proposes, expanding the regional line's spur to his factory. ( for simplification purposes, let's assume the regional line's spur, and manufacturer's spur can be connected with very little fuss, ) so, perhaps he can negotiate a better freight rate, with either the regional, or the Class 1. Also, regional does have connections to a Class 1, and that Class 1 also goes to the same cities as the railroad that ships for the manufacturer.... Some questions.
Who pays for the extension of the spur? The manufacturer, or the regional, or do they split the cost?
Who pays for the maintenance of the spur?
Also, even though there would be "competition" if the regional was allowed to connect, is not this shipper still "captive"? Even though he would have the possibility of another railroad servicing his plant? After all, he can only ship his product by rail, trucks can handle only a small percentage of "accessories" for lack of a better word, that go with this main product. What if, the regional charged him less, but not by much. For argument's sake, let's say the Class 1 is charging this company at 260% R/VC, and the regional comes in at 255% R/VC (don't know if those are realistic numbers, but try to follow me here), and since he would be sending his wares via, another railroad (regional to Class 1 connection) would the shipping rates be higher? OR, would the Manufacturer, using his other connection as leverage, beable to negotiate a lower rate with the Regional, and the Class 1, OR, would the rate be higher, because the cars would have to be dropped by the regional and then picked up by the other Class 1? (Also, for argument's sake, this shipper sends a regular amount of cars out a week) Since, this shipper can only ship by rail, is he not still captive, even though truck can handle "some" of his other products, and there is the potential for competition from another railroad? Just thought I would throw this out there.
(The reason behind this: I was coming home last night from a wake, and I noticed a train on the BNSF, there were 3 flat cars with rather large loads (some kind of large storage tank) , and that got me to thinking)
Thanks to Chris / CopCarSS for my avatar.
greyhounds wrote: futuremodal wrote: I did not say the refinery won't ship some product by truck, or pipeline, or barge. Yes you did. Here's exactly what you said: futuremodal wrote: Barges are limited to waterways, so anything bound for non-waterway locales must go by rail or pipeline. To you it's barge, pipe or rail. You totally left out trucks
futuremodal wrote: I did not say the refinery won't ship some product by truck, or pipeline, or barge.
I did not say the refinery won't ship some product by truck, or pipeline, or barge.
Yes you did. Here's exactly what you said:
futuremodal wrote: Barges are limited to waterways, so anything bound for non-waterway locales must go by rail or pipeline.
Barges are limited to waterways, so anything bound for non-waterway locales must go by rail or pipeline.
To you it's barge, pipe or rail. You totally left out trucks
Well la de da. For what it's worth, trucks were infered, if not actually mentioned that one time. I guess from now on we have to type all available modes, or someone has an out of context hissy fit.
futuremodal wrote: 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? You really don't understand that trucking companies and railroads compete for freight?
futuremodal wrote: 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?
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?
You really don't understand that trucking companies and railroads compete for freight?
You really don't understand product differentiation, do you? To you it's all homogenous, and therein lies the error of your ways.
Try to understand the definition of "Natural Monopoly" that Jay posted. It's got nothing to do with your concept of what a monopoly is. It doesn't mean that the customer has only the one transportation producing firm to buy from, or that he can't shift freight between modes.
It means what it says, that a railroad is a monopoly for what it hauls best, e.g. that "efficiency" reference. Again, product differentiation, Ken.
It means that the low cost method of handling railcar freight to and from facilities such as the ExxonMobile refinery generally involves only one rail firm. Introducing a second rail carrier into the situation would increase the cost of rail service to the plant. This cost increase would shift freight from rail to other modes, such as trucks. Bad idea Dave.
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.
On the simplest of levels, instead of sending in one crew to switch out the plant, you'd now have two crews. (who would probably get in each other's way and P/O each other even if they didn't by the way each left things for the other.) So unless the volume doubled, which it couldn't do unless there was a modal shift (and you falsely maintain there is no modal competition), each crew switching the plant would handle fewer cars (maybe by as much as half) than the one crew would.
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.
This will increase the per unit and overall rail cost of switching the facility. Increasing the rail cost and diverting freight to truck movement is no way to go through life Dave. (Other rail cost will also go up with the introduction of a second serving railroad.)
See above....
The low cost method of providing railcar service to the facility is through one single railroad firm. That's what they mean by "Natural Monopoly".
That definition assumes no multiple track users. Another faulty assumption by monopoly apologists.
bobwilcox wrote: greyhounds wrote: It is, in no way "captive" to rail. The idea of the ExxonMobil being captive at Joliet or any one of their facilities would make their transportation vendors fall down on the ground with laughter. Quiz : Who has the larger market capitalization? EM or the entire North American Railroad industry?
greyhounds wrote: It is, in no way "captive" to rail.
It is, in no way "captive" to rail.
Hey! I have an idea! Since rail seems to be so much more efficient in some lanes with some commodities such that trucks have a hard time competing, lets fix the problem. We could require RRs to be less efficient. We could set up a gov't oversight agency to help decrease that efficiency. They could mandate circuitous routing, allow extra car handling, and force rates to make RRs always give up traffic to waterways. Then, if the RRs happen to make too much money, they could always confiscate those "excess profits".
Now, all we have to do is come up with a name for it. How about, the Intricate Commodity Commitee? No? How about, the Inefficient Coffee Consumers? No, that's no good either. Inane Commision of Complication? I guess not.
Any suggestions?
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
A railroad "Natural Monopoly" does not mean the Joliet refinery can't put a load of gas in a semi and send it to Rockford. The refinery has many transport options. It is, in no way "captive" to rail. But the most efficient way to provide rail service to the facility is by concentrating the business with a single railroad. That is what they mean by "Natural Monopoly".
futuremodal wrote: 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?
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.
"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
Murphy Siding wrote: futuremodal wrote: Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*? Ooooh! Ooooh! I know this one!! It's because they get to make up their own definitions to fit their pre-conceived ideas!
futuremodal wrote: Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*?
Ooooh! Ooooh! I know this one!! It's because they get to make up their own definitions to fit their pre-conceived ideas!
oltmannd wrote: Murphy Siding wrote: futuremodal wrote: Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*? Ooooh! Ooooh! I know this one!! It's because they get to make up their own definitions to fit their pre-conceived ideas! And exactly who are these "transportation economists"
And exactly who are these "transportation economists"
Check the first post of this thread. Some of them are in the very article Ken so cavalierly posted.
Data,
What you just described is in fact going on now.
Although the Class 1s still provide a lot of local switching and intermediate service, for the most part they concentrate on the yard to yard, unit and bulk trains like containers.
One of the reason you are seeing a slight resurgence in the Class 2 and 3 markets is simply due to the fact that the Class 1s have found in quite a few instances it is cheaper to do the long haul themselves and leave the short haul and local work to the rest.
My railroad receives at least two trains daily that are nothing but mixed or “junk” freight, one from Little Rock and one from Tulsa.
We switch out, block and classify over half of the Little Rock train for UP…the other half is for our customers.
We do this because it is cheaper for UP to drag the mix to us, let us switch it, and then have their local yard to yard job run it out of our yard to their customer.
Even with the additional switch charges, it still works out better for the customer, in that it is faster and still cheaper than UP dragging it to their major yard, then have to hump it, re block it, classify it, and then, when they get the chance, dig it out of the bowl and take it to the customer.
Now, I doubt that UP, BNSF or KCS, CSX and NS will get out of the short haul/local work altogether, but they are realizing that taking the cars to a local, regional or short line and leaving the switching, along with the actual working of the customers facilities to these guys is often is cheaper overall for the Class 1, and better for the customer.
For a better idea, take a look at how the Conrail Shared Asset group works.
Datafever wrote:It is my belief that if open access were to become a reality, most of this nation's railroads would be out of business within ten years. The small lines that survive would be railroads that serve areas that have economic disadvantages. And in those cases the small lines would mostly be providing service from shipper/receiver to a larger railroad. Small railroads that have a nice profitable niche now would find their best customers wooed away by the big guys who could give lower rates and be a one-stop solution no matter where the destination happened to be.I suspect that we would end up with a handful of class ones providing national service and no class twos at all.Alternatively, the railroads could eventually break down into various types of service. Class ones might basically decide to handle only the long-haul freight (such as intermodal facility to port) and unit trains - trains that run point to point with very little overhead (the cream of the crop, so to speak), leaving class twos to handle "junk" trains that would require switching and handling of small numbers of cars per shipper/receiver.What I am not convinced of - one way or the other - is whether this would be good or bad for the railroad industry overall, and whether it would be good or bad for shippers overall.
For those who may wonder, here is at least one defination of natural monopoly as found in the glossary of the recent Microsoft Anti-Trust case.
(While I hardly did in depth research on the subject, the term was being bounced around in the Nineteenth Century.)
jeaton wrote: Murphy Siding wrote: futuremodal wrote: Why do transportation economists refer to railroads as "natural monopolies" if indeed any available mode should be counted as *competition*? Ooooh! Ooooh! I know this one!! It's because they get to make up their own definitions to fit their pre-conceived ideas! Also so they wouldn't be confused with "unnatural" or worse yet "supernatural" monopolies.
Also so they wouldn't be confused with "unnatural" or worse yet "supernatural" monopolies.
Only the E(e)rie was allowed a supernatural monopoly.
And exactly who are these "transportation economists" and exactly what is their definition of "natural monopoly" as it relates to 21st century RRing?
Tail wagging the dog, perhaps?
greyhounds wrote: futuremodal wrote: Anyone with more than a double digit IQ could see that those different modes ship different products from that refinery for the most part, and those products are all bound for different places. Barges are limited to waterways, so anything bound for non-waterway locales must go by rail or pipeline. Pipelines can only carry certain bulk items, not the speciality items. Thus for specific products, the refinery near Joliet is a captive situation if it only has one Class I rail connection. Gee, we went over this a while back, when the double digit crowd erroneously claimed that pipelines and railroads carry the same things to the same places. Either Ken forgot, or he just couldn't grasp it. So yes, Ken, you are what you typed. Does anyone have a clue as to why FM is of the absolute certainty that the refinery can not ship and receive by truck? Does anyone have a clue as to why he is of the equal certainty that the refinery would be captive if it was served by the EJ&E and a Class 1 railroad.? Anticipating his response - they can receive the crude oil by pipeline and barge. They can distribute the refined product to the nearby Chicago area by truck (or pipe to distirbution terminals). They've got a lot of options. They are in no way "captive" to any rail service.
futuremodal wrote: Anyone with more than a double digit IQ could see that those different modes ship different products from that refinery for the most part, and those products are all bound for different places. Barges are limited to waterways, so anything bound for non-waterway locales must go by rail or pipeline. Pipelines can only carry certain bulk items, not the speciality items. Thus for specific products, the refinery near Joliet is a captive situation if it only has one Class I rail connection. Gee, we went over this a while back, when the double digit crowd erroneously claimed that pipelines and railroads carry the same things to the same places. Either Ken forgot, or he just couldn't grasp it. So yes, Ken, you are what you typed.
Anyone with more than a double digit IQ could see that those different modes ship different products from that refinery for the most part, and those products are all bound for different places. Barges are limited to waterways, so anything bound for non-waterway locales must go by rail or pipeline. Pipelines can only carry certain bulk items, not the speciality items. Thus for specific products, the refinery near Joliet is a captive situation if it only has one Class I rail connection.
Gee, we went over this a while back, when the double digit crowd erroneously claimed that pipelines and railroads carry the same things to the same places. Either Ken forgot, or he just couldn't grasp it.
So yes, Ken, you are what you typed.
Does anyone have a clue as to why FM is of the absolute certainty that the refinery can not ship and receive by truck?
Does anyone have a clue as to why he is of the equal certainty that the refinery would be captive if it was served by the EJ&E and a Class 1 railroad.?
Anticipating his response - they can receive the crude oil by pipeline and barge. They can distribute the refined product to the nearby Chicago area by truck (or pipe to distirbution terminals). They've got a lot of options. They are in no way "captive" to any rail service.
I did not say the refinery won't ship some product by truck, or pipeline, or barge. But there will be certain products bound for certain areas that are:
1. Not on a waterway
2. Not near a pipeline
3. A long haul distance away
4. Too volumous for truck
You seem to think that the inputs and outputs of refineries are in a homogenous market. You forget both product specificity and the available transportation options of certain destinations.
We went over this in the coal mine/power plant examples a while back. We have two Class I' out of the PRB, yet most power plants that use PRB coal have only one physical connection to a Class I, thus they can only receive the needed quantities of coal from that one Class I connection, even if there is a second Class I a few miles away.. Clearly, the coal deliveries are captive, even though the GAO counts PRB coal transportation as not captive "since both UP and BNSF serve the PRB".
Greyhounds
Maybe this will help. Two companies of different modes, say one truck and one rail, do the same thing, i.e., moving freight from one place to another. Since one or the other can do the job offering better service at less cost there can't be any competition between the two.
But, if you have two carriers of the same mode and one carrier can do the job offering better service at less cost then there can be competition between the two.
How could I be so dumb as to not understand this.
futuremodal wrote: Murphy Siding wrote: Datafever wrote:Well, then, there is nothing left to discuss, is there? If you insist on using your own definitions - no matter how generally unaccepted they are -, then "by definition", you can't be wrong in anything that you say. Methinks the same type of definition contortions could be used to prove that the sky is, or isn't blue. Well, the definition I use is quite straightforward, e.g. no gray area, no arbitrary R/VC standards, etc. Either you have one physical connection to one Class I railroad, or you don't.
Murphy Siding wrote: Datafever wrote:Well, then, there is nothing left to discuss, is there? If you insist on using your own definitions - no matter how generally unaccepted they are -, then "by definition", you can't be wrong in anything that you say. Methinks the same type of definition contortions could be used to prove that the sky is, or isn't blue.
Datafever wrote:Well, then, there is nothing left to discuss, is there? If you insist on using your own definitions - no matter how generally unaccepted they are -, then "by definition", you can't be wrong in anything that you say.
Methinks the same type of definition contortions could be used to prove that the sky is, or isn't blue.
Well, the definition I use is quite straightforward, e.g. no gray area, no arbitrary R/VC standards, etc. Either you have one physical connection to one Class I railroad, or you don't.
futuremodal wrote: Well, the definition I use is quite straightforward, e.g. no gray area, no arbitrary R/VC standards, etc.
Well, the definition I use is quite straightforward, e.g. no gray area, no arbitrary R/VC standards, etc.
Also usless, immaterial, etc.
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