From something I read, it took BN 10 years or so after the PRB coal boom started to make any money from it, because of all the new track and locomotives they had to buy to handle the traffic. Worse, they got trapped in low-profit long-term contracts with utilities who were willing to buy coal cars, because BN couldn’t afford to buy them.
Yes, too much of a good thing can kill, or come close to it. It isn’t like BN had a crystal ball at the beginning of the boom, to see how things would end up.
Railroads, all of them, have been hard press to generate sufficient earnings to cover the cost of capital to enhance the physcial plant. For years and years, the only thing the railroads heard from the Capital Markets (Wall Street) was that the railroads had too much physical plant for their traffic levels and the physical plant had to be pruned if the railroads were to gain financing for their needs. The railroads listened and pruned the ‘excess capacity’ in order to gain the capital the needed to survive.
But let’s remember one thing about both railroads and financial wizards…Figures lie and Liars figure. Wading through the lies is critical to survival as the lies come from all directions dressed in enough truth for the lie to be sold. Wall Street has sold lies. The Railroads have sold lies. And now we have the present where the demand for rail transportation is outstriping the imagination of both Wall Street and Rail Management.
For their employed lifetimes, both Wall Street and Rail Managment have had only one business model…CUT CUT CUT. Now they are having to develop a new business model the includes capacity enhancements, not cuts. It’s a Brave New World and it is also a scary world for both Wall Street and Rail Management.
It’s an old argument: “cutting their way to prosperity.”
Never did work.
Blame Wall Street, but for most of this period, railroads weren’t raising funds by selling stock. Brock Adams – a Congressman turned bureaucrat – started this talk about “rationalization.”. Then it became a carrot/stick to receive 4R funding, notwithstanding Warren Magnuson’s [Chairman, Senate ICC Committee] thundering retort that it wasn’t the place of DOT and the FRA to set national rail policy by setting capacity standards. Congress meant to help all the railroads, under the theory that the ICC, and ultimately Congress, bore a good share of the blame for the predicament facing railroads in 1976.
Well, the bureaucrats got their way, so effectively that three years after 4R, something like only 6% of funds allocated had been distributed. A “big help” for what Congress had determined was a national rail “crisis.” An entire industry was held hostage to a bureaucrat’s idea of how the industry should be organized.
The bureaucrats got their way.
And all the industry sycophants bobbed their heads up and down and said, yup, excess capacity, “THAT’S the problem” because Brock Adams required them to say so as a condition for receiving federal funds.
The only railroader that ever made sense at the time was Tom Lamphier, president at BN: “Excess capacity is necessary, even desireable, in a competitive rail environment.”
Words you don’t hear from self-aggrandizing managements along the way.
The problem was never excess capacity; it was the lack of a reasonable rate of return at any level.
Best regards, Michael Sol
Boy, I’d sure like to know what the VPO really said. You know, like a quote or something. It is not credible that he said they went broke because they had too much business. It is credible to me that you don’t understand what he said and are interpreting it in a way that supports your ideology.
As to your false claim that inelastic supply/demand doesn’t influence price, you’re wrong again. In economics elasticity is the measurement of the change in in quantity sold vs the change in price. If a good or service experiences a 5% reduction in sales on a 10% increase in price it will have an elasticty of 0.5 (5%/10%). Conversely, it a good or service has a 10% reduction in sales on a 5% price increase it will have an elasticity of 2. (10%/5%).
Any ratio below 1 is defined as inelastic. Elasticity can vary with time or the position on the supply/demand curve. It can be expressed in an equation involving the slope of the supply or demand curve.
So for you to say that supply and demand have no effect once the ratio drops below 1, which is exactly what you said, is ridiculous. You’re claiming, falsely, that they have an effect above a ratio of 1, but then magically stop having an effect below that level.
Michael,
Whatever happened to Tom Lamphier? He sounds like someone who actually had the logical perception missing from this current crop of rail industry advocates.
As a life long Northwesterner, I agree
Talk about the tail wagging the dog. The Feds didn’t care that much about PNW railroads in the 1970s. They cared a great deal about the railroads in the Northeast and Midwest. Con Rail, the 4R Act, the Madison Hotel Meeting ( ie. No CR for CRIP), and down the road the Staggers Act were to meet the needs of those regions.
You keep attempting to bring this stuff up, and you were answered quite some time ago, with citations. Now it is just a pretend game for you. Your charge that I stated that supply and demand has nothing to do with price was 1) not something I originally said as a general economic rule, and 2) “inelastic” is the description used to describe 100% inelastic, i.e. no change. There are many degrees of elasticity or inelasticity. And they all have a relevant range. As many as you want in between elastic and inelastic. You had attempted to argue earlier that all supply and demand curves were elastic. Now that you’ve looked it up on the internet, you’ve changed your tune to a technical argument regarding “degrees” of elasticity. And here you are on a thread where this is not only not credible, but not relevant. Move on.
A wise man once said cutting costs in an organization was like squeezing water out of a sponge. The important thing is not how much you get, but what is done to that which remains. And it would seem railroads, dancing to the tune of Wall Street, have cut into the bone - deeply.
I agree about the Northeast and to a lesser extent the Midwest being the driving issues politically back then. Consider how much went into Conrail. I think it’s also worth remembering that Communist China was the ‘enemy’ and our last president was loudly criticized for allowing a Chinese businessman a sleep over at the White House. The Republican party was(and still is) divided and many conservatives such as Pat Buchanan wanted tough trade and monetary restrictions on China. The neo-cons are largely pro-business, but I’m not sure anyone forsaw the degree to which we have sold out to the Chinese. The flood of imports could have just as easily come from Russia or India.
In the Trains article on BNSF Reborn, I recall it was mentioned that at the time, nobody was really sure they wanted the SF transcon. Likewise, PRB coal became desirable after changes in the Clean Air act. The point is that radical shifts in traffic patterns can occur rapidly due to external factors such as legislation, foreign policy shifts, etc.and because of the expense and time involved rail can’t react overnight. Banking ROW’s is a great idea IMO, but operating redundant lines just in case, is a loosing proposition and just leads to more Conrails. Pundits and Consultants, some well known in Trains, have advocated downsizing and hauling only bulk commodities for almost as long as I’ve been reading the magazine. Why is CSX such a mess and what are they saying should be done about it?
Regarding the PNW, I wi***he governor luck, but wonder what he’s been smoking. The dominant school of economics for the past 30 years has favored de-regulation, privatization, and little or no interference in pricing or profits. The powers that be have shown no interest in controlling prices of prescription drugs or imposing price caps or profits taxes on oil. The state of California with many times the population and GDP of Montana sued the FERC over electric rates and the Adminstration and Justice sided with the FERC and California lost t
Of course, the KEY difference is that when you deregulate a market that has multiple players, you get the public benefit of increased competition and subsequent investment (at least in theory). But when you deregulate a monopoly, you get absolutely no public benefit. Ergo, lobbying efforts to enact Staggers was a con game foisted upon the public by a naive Congress who simply have no perception of what is embodied in natural monopolies such as railroads.
Do you really think Congress had any idea that the output of Staggers would result in massive retrenchment, industrial consolidation into a handful of Class I giants, paper barriers that prevent shortlines from effectively competing for online business, bottleneck rate gouging that prevents logical line hauls from Point A to Point B, or that differential pricing would result in 400% R/VC rates for domestic rail shippers while importers would be gifted rates of 106% R/VC?
Of course not, which is proof of the con game.
The California situation was different, because (1) there were multiple utilities and energy firms involved, thus it can be argued that the pric
So the consensus of the experts here is that because Bnsf needs more capacity at this moment that they should have planned for it 35 years ago by keeping extra lines on hand. And because of that blunder those execs are now as guilty as former Third Reich officials. Uhh-huuuuh.
Yep.
They should have invested in a better crystal ball.
And used it for collateral for the big loans to build up the capacity back then.
While helping out the Montana wheat growers by building free sidings and double tracking those lines just in case…oh, and improving, (for free) the yards and loaders at all the small mom and pop grain elevators…you know, planning for the future and all…
Ed[:D]
Ed:
Maybe we ought to let the big brainwashed fool have his one day. Today appropriately.[:D]
Ya know, I think you hit the nail on the head!
Ed
Yeah we need to let Futremodal have his day. LOL
Well, this thread went downhill fast. The usual suspects showed up …
Here’s how good of a “crystal ball” was needed.
The net ton miles on Class I railways in the US increased between 1960 and 1980 approximately 160.57%.
The Staggers Act was supposed to improve the position of US Railways to be competitive with other forms of traffic, while at the same time permitting elimination of allegedly “redundant” rail lines.
What would Grayson et.al. have been entitled to assume from a simple trend line analysis that the requirements of railroads would be in the future? Contrary to myth, post War the trend was almost always up. That 160% increase in the 20 years pre-Staggers, during a period of relatively flat U.S. economic growth would have, at the minimum provided a basis for predicting capacity needs in the future. Staggers said the growth should get even better.
So, what would Grayson’s corporate planning people have been telling him, had to have been telling him?
That by 2004, US railroads would be carrying 1,838,027,584 ton miles of freight. Get ready.
That’s what the “crystal ball” had to have said, at a minimum.
The actual results: 1,660,535,032 ton miles.
Ironically, post-Staggers growth has been slightly slower than the pre-Staggers growth that occured during the “boom” times of the 50s and 60s. Tongue firmly in cheek. That the growth is not only slower, but during a time of unprecedented overall economic growth is one of the odd results of Staggers you don’t see much comment on.
Current “congestion” results from traffic that is only 90% of any reasonable minimum prediction that would have made twenty years ago. There should have been no surprises.
The results reflect on both results of the Staggers Act and on what passed for corporate planning in some departments.
Michael I never have attacked you at all it is just certain people think what they learned in school applies here in the real world 99% of the time it does not.
Railroads have been building new lines to meet new traffic for 170 years. Most of what I recall hearing about in the era 1970-1980 was nothing but coal, coal, coal, and intermodal too. As mentioned earilier, MILW and BN coal traffic from that region increased by over 250% prior to 1980.
Speaking of corporate planning, Milwaukee engaged Bechtel Corp. to jointly design special cars, and ordered covered hopper cars to control the fines in transit, BN didn’t. James Schlesinger, the pipe-smoking Secretary of Energy in the late 1970s, informed railroad investors that the Powder River basin would account for nearly all railroad growth over the next twenty years.
It isn’t that railroads missed the clues. The question is how could they have missed virtually every reasonable indicator that said that the traffic of today would exist in nearly the form that it does. Recall, we are not talking about too slow building of capacity, we are talking about rail managements scrapping double track on BN, IC, CP/SOO/MILW, creating instant operating slowdowns at the time, guaranteed to compel a crisis as rail traffic inevitably grew., even as wholly useful, profitable and viable single trackage was eliminated upon some theory which still escapes me today.
This idea that laymen need to offer excuses for professional rail managment is just not something I find useful. The very good managers on the one hand – Lamphier, Downing, Krebs – who argued one direction contrast dramatically with a bunch of misfits at high salaries who did the
I have a cold, and I always recheck my work in any case.