I keep reading that the excess capacity is a thing of the past. Judging from news about backed up trains and construction on busy lines, that seems to be true. What will lack of capacity on the busy lines mean to the not so busy lines?
The mantra of the Class I carrirers during the 80’s the most of the 90’s was plant rationalization. Paring down the physical plant and spinning off marginal branch lines into Short Lines. Once the carriere got their plant pared down to the bone a funny thing happened…the demand for rail traffic began to soar.
Senior Rail management listened too closely to Wall Street who believed that railroads and rail transportation were a relic of another generation and would eventually cease to exist. Shows how much Wall Street knows!
My sense is that the process started when the DOT and FRA adopted a purely academic perception that the root cause of railroad financial distress was “overcapacity”. The forceful proponent of this was Rob Gallamore at FRA, an academic who had done a doctorate thesis on the subject of railroad consolidation and, without the benefit of practical experience, was the driving force behind the diversion of 4R rehabilitation money to selected lines to eliminate “excess capacity”. So, whether or not anybody agreed, if a railroad wanted the funds, they agreed with the philosophy even as other roads were denied the funds, based on the philosphy.
The blueprint on this approach was the “Final Standards, Classification, and Designation of Lines of Class I Railroads in the United States”, DOT, January 19, 1977. Contrary to the intent of Congress, this set out DOTs “national rail policy” of distributing funds. The delay in funding projects through the 4R Act, long delayed by DOT’s bureaucratic need to develop its own national policy, infuriated Congress since the intent of the legislation had been on an “emergency” basis and not “when you get around to it”. DOT’s actions exacerbated the rail crisis of the 1970s.
The problem was, as one railroad official testifed to Congress, “Economic capacity of rail lines is far lower than the physical capacity,” [Brodsky, MILW] and another testified that the so-called “excess capacity” was not just desireable, but neces
If we accept that in the 1970’s the most economic point in single line capacity came between 7 and 11 MGT (let’s call it 10), what changes have occured in the industry since then that would change it?
The two that come to my mind are 1) longer trains, which I presume are more efficient and would thus tend to raise it, and 2) substantial increases in single commodity shipments (think coal or petrochemicals) which would decrease it as the cars must return to the point of shipment empty, generating few GMT’s.
I have a map of the UP (source unknown except drawn by EK in August of '04), that indicates the UP is running 60 MGT between Gibbon NE and Fremont in 2003, to take one example. That is double track. Missouri Valley to the Chicago area is shown as 50 MGT, also double track. I believe Trains magazine has published similiar maps, although I’m at a loss to name which specific issue.
If the map is correct, either the UP has raised its economic efficiency or is operating substantially above the optimum point. Has the point moved?
The UP mainline across Iowa is used by about 180 million tons per mile acording to Iowa DOT, not 50. Could you be reading yor map incorrectly?
I believe we must diminish the significance of miles of road (as distinguished from miles of track) and MGT and rely more upon the number of revenue producing car loads and their origin-destination specifics. Todays railroad managers (several of whom come from a trucking background) have identified what works with current demands for transportation. They have convinced stockholders to spend for capacity enhancement which meets those current and future demands and at the same time allows for flexibility as the maket conditions may change.
It is evident that todays RR’s are handling more carloads and doing so more efficiently than was the situation in 1970-1980-1990. And their customers are more satisfied because of the technological methods in place which permit customers to interface with the RR’s data to find their shipments location and expected delivery. Many shippers now use the RR’s as their warehouse on wheels.
Capicity is now measured differently and will change again as market conditions dictate.
Interesting discussion.
Michael, I think you emailed me a copy of the model a couple of years ago. I found it interesting but cannot recall the structure of it. Wasnt it based on asset utilization (car costs)?
I am also curious as to what, if anything has changed regarding the capacity/costs issues. I want to see if I can find that model before responding further.
ed
The economic optimum is defined by laws of mathematics – numbers of meets – and those are tough to change. You can play with econometric models of line capacity all day long, changing parameters all over the place, and the economic optimum remains the same. The economic optimum is identical to the mathematical minimum of fixed costs plus variable costs which are time functions in capacity or network modeling, F(x) + F(y). The minimum is always reached at 9 trains per day, although the Total Cost curve is relatively flat at that point and the differences, while measurable, are negligble between 7 and 11 trains per day. Very high fixed costs, above those assumed by BN and designed into the model, could move that point, but I am not sure what might might justify changing the assumptions on fixed costs.
Physical capacity, on the other hand, is highly sensitive to such changes. Longer trains tend to reduce maximum physical capacity, but that effect can be mitigated by closer spacing of sidings, etc., and so while the economic optimum is rigidly fixed by immutable mathematical laws, maximum capacity on a single track mainline can vary from 16 to 45 trains per day, and less or more with unusual configurations.
At or near capacity, the “long train”, as a strategy, gets tricky. Adding 40 cars to an 80 car train may slow that train enough in and out of sidings that
That was a derivative of a Burlington Northern Stand Alone Cost (SAC) model, built around the Poole formulas for estimating track capacity. It was based on asset and operating costs as of 2002 with a RCAF adjustment for any year since then. I can’t recall if I sent you the version that contained self-generating graphs, but the graphic representations were a useful addition because they showed the effects of various changes in cost and train variables instantaneously throughout a matrix of 1-60 trains and that was where that “economic optimum” really had a visual confirmation.
Nanaimo, after I saw your comment I realized previously I had downloaded a copy of the Iowa DOT’s tonage map of 2004, and it indicates UP route is indeed about 180 MGT (on double track). I stand corrected, thanks.
Hindsight beeing 20/20 vision, did the people who made those decisions have any information at the time, that would have given them a belief that those weren’t the right decisions?
Michael:
Could you please distinguish between “economic and physical” capacities. I think “economic capacity” as you stated, refers to the point of maximum return on investment. If so, would “economic capacity” be the proper term here? Perhaps I am splitting hairs here on the definition and use of the term.
I am having a difficult time picturing 12mgt being the highest ROI. I am not arguing it…I just dont see. Is that 12mgt based on typical carload freight? How would heavy unit train operations such as coal or grain affect that data point? Also, how would lighter freight such as intermodal or auto racks affect it?
Perhaps one of the reasons I am not “seeing” this concept is that I am sitting here next to and listening in on the NS’s NKP line from Chicago - Ft Wayne. It sees a variety of movements daily from Triple Crown (very light) to intermodal to general manifests and also a few unit coal trains and empties. Total trains is around 30 per day. Tonnage is in the 30-40mgt, if memory serves me. It moves fairly smoothly on the CTC single track with sidings every 8 miles or so.
A few years ago they purchased the parallel Conrail (ex PRR) line from Ft Wayne to Hobart. At that time the NS line was seeing 35-40 trains daily and the PRR line was used as a double track, if you will. Yet, they seemed to run only about 5 trains daily. Certainly that was due in part to a lack of siding capacity and signals, but still, one would have thought the lines could have been used a bit differently. From that standpoint, I “see” the use of the single track, CTC as being more efficient than using the two lines combined at volumes of 30 trains daily. At the higher volumes of 35+ the line seemed to really slow down and thus the PRR line was an effective overflow.
Granted, I dont have the economic or operating data on the line, only very
Well, I am quoting Brodsky on that, and I probably wouldn’t have used the term “economic capacity” myself, as the term “economic optimum” seems more apropos to me. But he had the engineering background up that alley, whereas my engineering background was different and so I deferred to his use of the term, but it does seem less intuitively useful.
ROI and ROS go in different directions on this. ROI will as a general rule increase with increasing use of capacity. However, the “investment” used in the ROI term is an accounting tool whose purpose is to separate out investment assets from operating assets. ROI measures the efficiency of investment assets. ROS measures the efficiency of use of operating assets. Neither one is a “perfect” measure of “management success” but ROS is the historical measure of “profitability” as measuring the most efficient deployment of all resources, including operating resources.
ROI, however, will always improve with increasing use of railroad line capacity if the ROS is positive, even as ROS will decline above 12 trains a day. However, and it is a big “however”, ROI will instantly turn negative if ROS is negative, and the lower the ROS, the greater the risk that will happen, even as ROI might look pretty good compared to ROS. ROS controls ROI, not the other way around, and, too, ROI is mostly a creature of depreciation schedules and measures them more so than actual company performance. ROI automatically looks better each January 1 because of the depreciation adjustment on Dec
The obvious should be noted here: The capacity in any definition of a double-track line is not twice that of a single track line but more like four to ten times the capacity of a single-track line.
That might be a little high but not by much.
In 1977, according to the FRA, the following represented capacity on the Chicago/Twin Cities mainlines, of which MILW’s was the only double track:
Rock Island: 17 MGT
BN: 70 MGT
Soo Line: 38 MGT
C&NW: 46 MGT
MILW: 135 MGT
Michael,
Could you recommend a good book on the topic? I thought I remembered you once mentioning something by Ernest Poole, but he appears to be stubbornly resistant to every means of online discovery I have tried to employ.
Greetings, Mr. Sol -
Great discussion - I’m glad this topic is back, after last being here a couple of months ago (the Poole text reference - sonce then I’ve acquired a copy).
One (dumb) question: What does “ROS” stand for - “Return Of or On _____” ? (“ROI” is Return On Investment, of course.)
OT - totally unrelated trivia for those of us who also have an interest in World War II history: Burlington Northern’s Lamphier - mentioned in one of the earlier posts above - was Thomas G. Lamphier, who eventually became President of the company for a few years, and also piloted one of the Lockheed P-38 Lightnings that shot down Japanese Admiral Isoroku Yamamoto on April 18, 1943 over the Solomon Islands (Lamphier’s granddaughter was in many classes with me, Grades 1 -12).
- Paul North.
Ernest C. Poole, “Costs: a Tool for Railroad Management,” Simmons-Boardman Publishing, NY 1962. Probably wasn’t a big seller and I would imagine its hard to come by, but it was useful for me, cites a large number of studies and examples on railroad costs and pricing models in general, and was my introduction to capacity calculations and modeling.
The Journal of Transportation Science is an ongoing source of modern studies, although it falls to the jargon temptation, whereas Poole wrote in a clear, understandable style. I would imagine there are good books out there today that someone might be able to reference. I just don’t keep up on that stuff anymore. I did get one last year, published 2006 and it seemed pretty thorough – much more of an engineering emphasis; the author had a Russian-sounding name, but for some reason I can’t put my hands on it today or recall the specifics.
Return on Sales. Not really intuitive since railroading historically doesn’t talk so much in terms of “sales” but revenue. Just to confuse it a little more, that’s the inverse of the “Operating Ratio” traditionally used in railroading.
Good grief, that’s interesting about Thomas Lamphier. I never knew that. Stanley Hillman (ICG, MILW, Conrail) was a Japanese prisoner of war, met his wife in prison camp. That generation of business leaders had some very interesting backgrounds and experiences, and I am glad to know that about Lamphier.
MidlandPacific (and anyone else who is interested) -
It is (from my copy):
COSTS - A TOOL FOR RAILROAD MANAGEMENT, by Ernest C. Poole, Carmel, California, Consulting Transportation Engineer, formerly Manager (now retired) Bureau of Transportation Research, Southern Pacific Company, published and copyright 1962 by SIMMONS-BOARDMAN PUBLISHING CORPORATION - NEW YORK, Library of COngress Catalog Card Number 62-12021, xviii + 175 = 193 pp. total.
I was able to borrow a copy in May 2007 through an “Inter-Library Loan” (“ILL”), which my local library obtained from the Altoona (PA !) Area Public Library, which classified it under the Dewey Decimal System as: NF (non-fiction) 385.1 POO cl
On of the Internet’s more amusing limitations - which keeps 50+ somethings like me usefully employed - is that it often doesn’t recognize things or methods of research that pre-date it. I forget how I first found this book - probably through a search of a broad on-line library catalog of some kind. Hopefully, with this information you’ll be able to find one a little quicker.
Hope this is helpful. Good Luck with it !
- Paul North.