As I understand it, when rates were heavily regulated, the freight rate would be the same between 2 cities, regardless of which railroad or route the freight took. It seems the railroads competed on the plushness of the train and the speed of the trip to get passenger business . How did they differentiate themselves to get the freight business from the competition?
The railroad would get business based on the personal relationship between its salesmen and the traffic manager. Lets suppose a shipper had 100 cars per year from City A to City B
and they were served by railroads Y and Z. Contracts wer not permitted and the shipper had the absolute right to route his traffic anyway he wished. Since both railroads had the same price and service he wanted to keep both of them happy for the day he needed a favor. In my experice Railroad Y would get about 40 cars and railroad Z would get about 40 cars. The last 20 cars would be up for grabs. Usually he would “award” this traffic in return for something his firm needed from one of the railroads. He might need an extra switch at his plant or help getting a rate established. He also might base it on who took him to lunch last or which salesmen was the best at all round kissing up.
reminds me of the day back in the 80’s when I was with an LTL trucking company and I walked into the shipping department of a customer with a box of donuts.
The shipping clerk had a bill of lading in his hand routed one of our competitors. He took his pencil and scratched out the carrier and changed it to our company.
Sad, but true.
ed
And then, you would get carriers like the ROCK (Chicago, Rock Island and Pacific or CRIP) who would file a rate just a penny or two lower then the competition even when they had to spend much more then the transportation charges to haul the car. That was one of the big reasons they went belly up. There were other reasons, to be sure.
The ICC was “forced” (please note the quotation marks) to permit such rates due to the “Granger Attitude” on freight rates even through the ICC law, as ammended and as originally passed, required all rates to be fully compensatory.
Rates between specific city pairs were not required to be the same, but usually were for what were percieved as compettitive reasons. The financial health of the company seldom was taken into account. The company with the “economically sound” route would set a rate at cost plus the markup the ICC would permit, and not make very much at that rate. That “forced” the other roads to match that rate which, of course, would mean tiney amount to the bottom line - nothing at all - or - a loss on the shipment.
To be sure, the $$$ spent on transportation is important – very important. But do not be misled, the most important factor is service reliability. Think not? Truck is more expensive than rail. The truck hauls the valuable goods - the ones that gain the highest transportation charge. The truck is much better about service reliability than the railroad. The traffic department will put with a surly-mouthed truck driver, but not a late one.
It was mostly service. The most reliable service has always been single line, that is both origin and destination on the same railroad. If your plant was on railroad A and your customer was on railroad A you would use A for service reasons 99 time out of 100. If plant was on A and desination on B, and A and B both served both points, you could switch to B at origin, short hauling A, or to B at destination. Railroad A would encourage you to give him the long haul by quicker transit time, better car supply, nice lunches, or whatever else worked, and it usually did work. You would be amazed how poor cross town switching service could be.
You can go on and on with examples, and when there were 100 Class I railroads routing and switching was very complicated. Both Railroads and Custormers gamed the system. In general though, the fewer interchanges, including reciprocal switches, the better the service was likely to be.
Mac
The more interesting question is this: Are equal rates over unequal routes an indication of a competitive or non-competitive situation?
Mac
Keep in mind that before Staggers all of these rates were made by the railroad’s answer to OPEC-the rate bureaus. In the US there were seven major bureaus-Official(Northeast), Southern Freight Association(Southeast), Western Trunk Line(West North Central), Southwestern Trunk Line (West South Central),Pacific South Coast (Pacific Southwest), Pacific North Coast( Pacific Northwest)and the Transcontinental Freight Bureau. In theory a shipper was treated fairly by these cartels because any bureau action could be protested to the ICC.
When a carrier came to the bureau with a proposal for a new rate it was not, repeat not, based on some markup above cost. It was based on what the demand for the service(aka what the traffic will bear). That is why you would see markups between 1% and 200% on commodities moving mainly by rail.
When I was involved with rates at the CRIP and CNW in the 60s and 70s the Rock Island would try to get traffic by promissing to lead the way on a rate reduction. Their problem was they could not get a contractual committment from the customer and all to their competitors knew about the reduced rate 30-90 days before it went into effect. You just meet the rate and think about setting up a meeting with the Western RR at the Madison Hotel to carve up the Rock Island.
This is generally true-that is why railoads only get 15-20% of the money spent on intercity frieght transportation. However, the shipper does not care about reliability-he cares
about his profitability as driven by his sales and cost figures. If I want to ship 1,000,000 tons of coal per year from WY to GA I know a truck is more reliable but I do not care. I want that cheap unreliable rail service.