So for long distances (a few hundred miles or more) RR shipping is cheaper than trucking…
It is my understanding that back in the day most railroads weren’t too concerned about customer service, as far as freight customers were concerned. If that’s the case, it provides some justification why a lot of stuff went to trucking in the 60’s and 70’s.
There are facilities all over the place that have old sidings, rail access, etc, but they just do all their shipping by truck. If I were a salesperson for the railroad, I’d contact these companies that are already sitting next to the train tracks, figure out what they ship and to whom, and see if the other party on the receiving end is also next to a railroad. Now if both shipper and receiver are next to a railroad and the distance is a few hundred miles or more, my guess is that the railroad could probably get it there cheaper.
Now are railroads actually doing that? Actively soliciting companies already located along rail lines to get business back from trucking? Or is it pretty much a “sit and wait for our phone to ring” type industry? Or is there another reason why that isn’t being done, and I’m completely missing something here?
Where did you get this idea that railways ignored customer service? That’s a myth. In the regulated era, railways could compete only on service. And they did. Today railways can compete on cost and service. And they do. What railfans see as “poor service” is a railway telling a customer, “Sir, you don’t pay enough to cover our costs to serve you, and you will never be able to pay enough to cover our costs to serve you, so you will get service only after we serve the customers who can and do pay enough to cover our costs.” Funny how that is acceptable to so many people in their own businesses, but railways are supposed to subsidize the foolish, the poorly located, the inefficient, and the money-losing.
No, poor service is not why customers went to truck – and they did it beginning in the 1920s, not the 1960s or 1970s. They went to truck because national transportation policy, general economic conditions, national and state tax policy, and general transformation in the nature of the nation’s economy gave them lucrative financial incentives to do so. Railways could have bankrupted themselves offering gold-plated service and it would not have budged the needle 0.1%. Indeed, many of them bankrupted themselves just trying to give bare-bones service.
No, there are not facilities located all over the place with old sidings, rail access, etc., that could return to truck. That’s another myth. Virtually all that can be captured by rail, all have already been captured by rail. 99% of those facilities to which you see idle track fall into one or more of the following categories (1) are too small to develop enough volume to economically use rail service (2) do not have enough land area to develop a facility big enough to economically use rail service (3) were built for industries or business lines that no longer have any business, and never will again, but are too small or in the wrong place to be converted to any
Define “service”. Now you’re into a long discription, interpretation, history, histronics, hyperobole, and rants, some with and others without merit. There was a bad time on some roads in in the waning years of railroad solvencies after WWII that did lead to some complacency and poor morale. However, from the top, it was known that the customer had to be satisfied or else he went elsewhere. For every bad story of customer service, there are many more stories of local drills whose conductors and crews went way out of thier way to assure that customers in their charge were more than adqeuately serviced. As far as marketing, hands were tied by antiquated and restrictive ICC rules and regulations. What sale departments looked at were on line siting for a captive load, bridge traffic to shorten a route at a lower cost, and harbor or other terminal operations. LCL was dwindling both on the roads themselves and from forwarders especially as the interstate highway system took hold. Harbors closed on the east coast as the St. Lawrence Seaway opened and the Panama Canal enlarged. Manufacturers closed shop in the north and northeast, for instance, and moved south and west, thus fewer to sell to. And dispite what I said about morale above, even in the lowest of morales I saw crews concerned with the company and it’s customers’ needs because they knew it was thier job that was on the line. One of the hardest things to understand is how different things were before our time. I didn’t live through the Roaring Twenties nor the Great Depression and I barely understood what was going on at the time as I witnessed railroading after WWII as I was born in 1943. In the late 40’s the $1.00 an hour wage, and 5 day 40 hour work week changed so much of our living patterns even living through it is confusing as to how much different it was for me than for my parents. Today’s railroading (read: US economics, business, manufacturing, industry
What level of business (carloads, tonnage, etc) makes it worthwhile today for a railroad to service a customer?
Understandably, each situation differs, based on location of customer, location of servicing terminal, origin/destination, freight rates, etc, but generally…what is the breakeven point for serving a new customer on a mainline? 5 cars per day? $5000 of originated revenue per day?
It is easy to see why the shortlines and regionals often do the assembly/distribution leg of single car shipments. Those are expensive aspects.
I realize you cannot give me specifics as each differs, but a general rule of thumb would be appreciated. In my business, there is a threshold that in normal economic cycles that are followed. The past year, those rules were adjusted to accept just about any type and amount of business.
Let’s try some examples because as you surmise it’s complicated. I’m going with minimums here:
A double-track main line, with 40-70 trains per day, and you want to locate out in the middle of nowhere with no existing local train service. Minimum volume might be a unit train every other week, unless you wanted to pay the equivalent of a unit train revenue for your less than unit train volume. But who would want to do that. You’d have to build an acceleration/deceleration track. This could run you $8-10 million before you even start building your own tracks.
Same main line, but now inside a city with other adjacent rail served customers already served by a tramp, wayfreight, local, dodger, etc. So long as your spur comes off a switching lead, you could probably be as little as 25 cars per year so long as they were high revenue cars, and you didn’t mind service more frequent than once or twice weekly. If you were not in a place you could be reached by an existing lead, and the local had to crossover the main tracks to reach you, you might have to buy a power crossover and signal improvements. This could also run you $8-10 million just to get to your property line.
Single-track main line, 4 trains per day, plus a long-local. 25 cars per year might be enough so long as you didn’t mind service except on the days the local ran, but it had better be high-revenue stuff like LPG. Probably could insert the turnout and a short spur for as little as $750,000 for the switch, if there’s no wayside or grade signaling, drainage structures, roadway crossings, extensive grading involved.
Double-track main line, high train volume, lots of passenger trains. You might have to be a unit train a day or better. Actually you’d be better off finding a different location.
Revenue-wise, around $0.02-$0.04/ton-mile for unit train, $0.05-$0.10/ton-mile for loose car.
The NS comes to town 5 days weekly from Ft Wayne (100 miles) to switch a couple of industries. They are usually here at least an hour, and usually more. Part of that time is running around the train to return. No idea of how many cars are brought in (inbound service only), but there are usually 10-15 tank cars in one industry and the other has plastic pellets, with 10-20 cars on the siding.
On the other hand, NS runs a second daily turn from Ft Wayne to Van Loon to pickup cars off the old EJE. This is a daily run and consists of coil cars of steel heading back east. That train can be 10 cars, or as many as 75. Typically it is 15 - 20 cars in this economic climate and 25 - 40 in the good old days of the mid decade. Rumor has it that train is destined for a steel slitting/service company just across the Ohio border (cant recall the company or town).
That seems like a very interesting piece of business, great work for short haul class 1 railroading. Their service is like clockwork, at least here on the west end. Westbound to Van Loon around 1pm and return around 3 - 4pm. Every day.
So, to say railroads dont give great service is obviously going to depend on your definition of service. They sure are not going to pay attention to me if I call NS marketing and want a load of corn picked up at a team track in my hometown. ADM gets their attention.
It is very difficult to be everything to everyone. If you can figure out what you want to be when you grow up and have a plan, it has a great chance of working out. Same with railroading, trucking, etc.
RWM, thanks for the general info…any thoughts on that NS local and the NS steel turn?
edit: The last sentence above is not worded very well.
Take a short line or branch line as another example where an additional car or two every month or so just adds to the overall picture sometimes in big ways.
RWM: You mentioned high-value loads, so I’m guessing there are also low-value loads. I thought a railcar was a railcar, regardless of what’s in it? What exactly makes a load high value or low value?
I am going to jump in on this, even tho not in the industry.
Rates for freight are developed based on a number of factors, one of which is the value of the cargo. Transportation managers have argued successfully over the years that value of what is being carried should have an impact on the rates charged.
Consider the liability a carrier assumes for two loads. One load being a hopper car of gravel or other aggregate and the second a tank car of specialty chemical. The gravel might have a value of say $10,000 while the chemicals a value many times that.
That is not to confuse the issue of hazardous materials, which carry a very high liability of cleanup costs. Often, the highest rated freight carried today is haz mat chemicals.
One can see the differences in rates by looking at any of the railroad’s tariffs. These are “rate books” if you will that list the charges for handling carloads (and multiple carloads) between points. By looking at these rates and then superimposing a dollar figure onto a train which passes, one begins to understand the true economics of railroading.
Now, how do the economics change going from a Class I to Class II’s and then shortlines… are shortlines able to serve smaller customers and still make a profit in a case where a Class I couldn’t? Why or why not?
While the railways may not have ignored customer service, I think it would be fair to say they fumbled at times, especially as management got more and more centralized. I am aware of one case of very regular loads of limestone, perhaps 5-10 a week, with a 240 mile haul across two secondary subdivisions. But instead of assigning a small group of cars to the service, as soon as they were empty they disappeared into the general pool. Obviously you want to jump when a large volume customer cries for cars, but the result is that the little guy who was giving you steady, easily handled business, is forced to use highway transport. And when the high-volume customer’s peak is over for the year, that other business is gone too.
One of the most common shipper complaints seems to be inconsistency of transit time, with variations of weeks sometimes cited. This would seem to be a lose-lose situation. The railway’s assets are being wasted by the railway itself by leaving the car buried for days in some yard en-route.
One really can’t generalize customer service levels by mode, at least not in any way that might be accurate and meaningful. Even in the bad old days of the 60s and 70s when the very continued existence of rail was questioned by some, there were some shining stars…Santa Fe for example…with their Super C service…is just one that comes to mind.
It would probably be fairer to say that there are excellent and poor performers in all modes…the truckers certainly don’t have the market cornered on service.
One positive outcome of deregulation that is rarely mentioned is that deregulation allowed transportation carriers to become much more flexible, thereby offering services that the shippers truly were looking for all along. For example, the trucker who prior to deregulation could only offer truckload service between Albany and Syracuse could now offer shippers service nationwide or even international service. Over the last 20 years or so we’ve seen alot more emphasis on logistics and supply chain management… and as a result there is less competition between the modes. Logistics people aren’t trying to sell one mode over another…i…e.they aren’t trucking people trying to sell trucking service and they aren’t rail people trying to sell rail service. Instead they MARKET their service to shippers and put together a customized transportation solution that may involve any one or all of the modes. Trucks and trains are, after all, just tools of the transportation trade… you wouldn’t expect a saw to do the work of a hammer and vice versa… and so it is with the transportation modes…each has its place.
To understand railroad pricing you need to understand Ramsey “Inverse Elasticity” pricing. Here’s an explination with an emphasis on rail pricing in the regulated era (Itch, Yetch, Terrible.)
The railroads have cost characteristics similar to a “Natural Monopoly” in that their unit cost of production falls as their volume increases. (Like everything else, this has its limits.) But they are not a monopoly because most of the stuff they move can be hauled by truck. In other cases more complex forms of competition exist. i.e. If they charge too much to move coal out of the Powder River Basin, the utility will switch to natural gas or imported coal.
But their customers do have different proclivities to seek alternatives. Similar to other businesses in other lines of trade (and tax collectors) they will charge more to the customers who are less likely to “Go Away”. This is a good and necessary pricing system that produces the maximum benifit for society. The guys getting charged the higher rates will complain loud and long, but that’s just the way things have to be. Rail transportaiton is not financially viable otherwise. And if rail isn’t financially viable, then the people complaining the loudest will be hurt the most.
Adam Smith actually wrote about this in his 1776 publication of “The Wealth of Nations.” He observed
Here’s another ‘data point’, similar to the plastic pellets above:
NS - Reading Line - about MP 32 - 2 tracks, apparently signaled for 1 direction only, but often used in the opposite direction; 33 trains per day, no passenger. Filmtech Corp. plastics plant - http://www.alpha-industries.com/ft.cfm - often has 9 or 10 covered hoppers on their single-track siding, which has a pneumatic unloading line running along the siding for about 6 or 7 of the car spots closest to the building. Couple/ three times a week the daily NS afternoon local eastbound stops and drops or picks-up a car or two, at most - takes from 1/2 hour to an hour, depending on how deep the pick-up or drop-off is wanted to be in that string. Part of that is that the last 4 or 5 cars are usually spotted on a pretty steep grade - 2 % plus - and so a lot of handbrakes often have to be knocked off before they are moved, and those tha
Wince… In the regulated era, better service wouldn’t get you a better rate, so you only had to do the bare minimum to hang on to the traffic. If the competition had a significantly worse route, that bare minimum might not be much service at all. What RRs did concentrate most of their energy on was the cost side of things. Given you couldn’t charge more for better service, the best route to a higher margin was to cut the costs as low as possible. Since crew costs were the biggest piece of the pie, that meant trying for the highest crew productivity possible - i.e. building long trains. A lot of road train railroading was done on a tonnage basis. The train wouldn’t run until the tonnage was over a set limit. If that meant cars sat for a couple of days, so be it. In the era of surplus capacity, no one had to worry too much if that would clog up the terminal or cause a bunching of traffic over the road. Got tonnage? Run train.
If Airtran’s 7PM flight from Atlantic City to Atlanta last night was only 50% full and the airline needs 80% full flights to make a profit, was that particular flight profitable? Why would they operate it then? What are the consequences if they don’t . Think through that one and then think about that one car train and tell me what you discover.
The local might be either on its way to pickup cars or may be done with deliveries. You are looking at a snapshot of one period of time during a day’s work.
I had similar thoughts earlier in this thread about an NS local, but after thinking about it came to realize there are times, such as now, when you have to continue offering service, regardless of the daily situation.
What interests me is the long term view and how those decisions are made.