One of the potential responses to monpolistic practices by BNSF is for legislation to allow larger, longer trucks on the highways as a way to force more competitive rates from BNSF. As basic econ theory predicts!
The allegation that the profits from every third crop goes to BNSF, if indeed it is credible, would suggest that these monopolistic practices will eventually force these farmers out of business, as such a skewing of the economic fundamentals is not sustainable.
Legislature will face grain shipping woes, other railroad issues
By KAREN OGDEN
Tribune Regional Editor
If the state of Montana were a Monopoly game, one player #8212; the Burlington Northern Santa Fe Railway #8212; would own almost all the railroad cards.
BNSF operates 90 percent of the railroad miles in Montana.
And a coalition of lawmakers, mostly from northcentral Montana, says the railroad has an unfair advantage.
Consider this from a new state study on Montana’s lack of railroad competition:
Freight rates for Montana shippers often are 50 percent higher than those in states with railroad competition.
That translates into an extra $60 million a year and devalues Montana’s wheat-producing land by $1 billion a year, according to the state study, which was commissioned under a Senate bill sponsored last session by Sen. Trudi Schmidt, D-Great Falls.
In simpler terms, “it costs more to ship (grain) from Minnesota to the West Coast than from Montana,” said Sen. Jerry Black, R-Shelby.
Meanwhile, BNSF has made moves to abandon branch lines that link small-town grain elevators to export markets on the West Coast.
BNSF has been frank about its vision for the future, and that vision includes the huge shuttle loaders that are moving into the state. This fall, a BNSF spokesman said, "Our vision and our approach is to focus on what we do best, and we think that i
This sounds like an open invitation for the discussion of the merits between the freedom of commerce and expression vs. responsibility and rights in an open society within a democratic republic. ANY TAKERS?
The common concern here in Montana is BNSF is taking advantage of it’s monopoly position and charging a higher rate than it could if there was an alterntive railroad to use. The higher rate for a lower distance is taken as fact amongst the natives out here. Perhaps the hearings in this winter’s legislature will bring out the truth of the matter. Maybe you can get an invite to come and testify for one side or the other, Helena is a nice place to be in February, NOT!
The BNSF is very protective of their position and has the ability to influence the location of new flood elevators in Montana. They will destroy millions of dollars in investment in elevators already in service in this state and increase the market concentration of the largest players in the grain marketing game. That will reduce the alternatives to the producers for selling their products. This is probably not good for the family farmer and will prove to be fatal to every branch line in the state. In order to save the branchlines such as the former line between Havre (Pacific Jct) and Great Falls which is now truncated between Big Sandy and Ft Benton someone will have to build a flood elevator for shuttle grain trains on each remaining segment. That could be pretty risky when it’s rate will likely be higher than a similar elevator on the BNSF main.
I wonder if the McCarty Farms case will come up or if those plaintiffs will be invited to add their experience to the record.
Not trying to be a smart a$%, but isn’t that the whole reason why companies merge in the first place? I know all of us little people are supposed to believe they don’t. Yes, I know… They make a bunch of empty promises about how they won’t control the market, and won’t take advantage of their power, blah blah blah… The feds wave their finger at them and say they’ll get in big trouble if they do, which everybody knows they won’t… Then they sign off on the whole deal and turn a blind eye. Sounds like business as usual to me. And speaking as a guy that comes from a family of Midwest farmers, there’s certainly nothing new about the family farmer getting screwed either. The smart ones realized years ago that the only way to survive, would be to start merging land, creating agriculture corporations, and then they play the same games as all the other mega mergers. So now guys that use to make a living off their own land, get to drive a tractor for some company… If they’re lucky.
In my opinion… We as a nation have lost our collective morality. Everything is always someone else’s fault, or someone else’s problem. Nobody want’s to take responsibility for anything. Companies like Walmart help lower the quality of middle American living… But the people that buy stuff from them? Well, that’s not their problem… They just shop there. The guy doing the underhanded accounting at Acme Corp… Well, it’s not his fault…
Monopoly? US rails market share of the Domestic Intercity Traffic Revenue: 9.5%
Trucks: 80.4% Data from Association of American Railroads 2001.
I find the numbers upsetting. Trucks are the monopoly.
tom
May I ask why should Minnesota ship to the west coast anyway? I am betting there is the railroads to the east coast and perhaps even the St. Lawrence Seaway. (I may be wrong here)
I dont see the balance between Minnesota and Montana… to me these are two different regions of the United States.
The term “monopoly” here is related to regional dominance of large volume bulk commodities (e.g. cargo ideally moved by rail or barge) by a single railroad, with no competing railroad or waterway in the vicinity, and where the only other alternative is transport by truck. Just because trucking dominates domestic intercity freight doesn’t mean it is a monopoly. Only having the ability to price above a competitive rate gives an entity monopolistic powers.
Mark: The railroad market share numbers are horrible. Yes intercity market share is 9.5% but the the US railroad share of all freight revenue is just a meager 6.3 percent. And it will decline even further as trucks grow their business exponentially and railroads continue their slow growth model. Doubles and tripples are going to be sharing the highways with all of us in the near future!
What is happening in Montana is no different than what happened here on the East Coast. As industry shrinks, dies and moves off line the rails are pulled up. Trucks can easily out perform rail transport on the short haul. And bulk commodities are not a problem. No law requires a business to provide service at less than cost. And that is what BNSF is facing on many rural lines. Why should they spend millions to upgrade and maintain a rail line than produces little revenue? Revenue is spent on lines that produce traffic.
In the grain states many of the branches have not seen a new tie or ballast in years just for that reason. As the old grain elevators give way to the mega operators traffic decreases to the point where revenue doesn’t cover the cost of maintaining each little branch. And many times there is no other traffic to contribute revenue.
The legislators can easily take some of their highway money and get into the railroad business if they want to maintain the staus quo. The Canadian government has helped their agri business. Why not here?
tom
thank you. i had never heard the term. appreciate the explanation.
highiron2003ar,
“May I ask why should Minnesota ship to the west coast anyway? I am betting there is the railroads to the east coast and perhaps even the St. Lawrence Seaway. (I may be wrong here)”
generally speaking, only western minnesota and the dakotas hard red spring and durum wheat will actually have a choice in south, east or west movement.
depending on ocean vessel availability the “spread” between PNW freight to asia and NOL freight to corresponding destinations can vary from even money to more than $10 PNW premium. these “pacific” and “gulf” rates also compete with open season lake shipping and grain cost (vis a vis canadian wheat) to europe via the st. lawrence.
no one really cares what the grain cost is per se. the ultimate question for the foreign customer is the final “landed cost” at his port. this is a package price…origin country grain, domestic transport to origin country port, export transport to final destination. these three pieces move independently of eachother and in competition with various country offers (aus’la, usa, canada) and various regional bids ( eu, asia). depending on which seller can offer the best “package delivered” value to the buyer bidding the highest “package delivered” price, there will be routing choices directing traffic east through the lakes (in season), west across the PNW or south to the gulf.
edited note: i had not read the entire thread when i made this entry. i offer my apologies to earlier writers who have already quite fully answered this question.
regarding the potential for monopolistic pricing or bnsf’s grain business, i would point out for discussion that the u.s.a.'s hard red spring wheat belt is in direct competition with the canadian prairie’s dark northern spring wheat crop. this gives the american farmer a very capable north american advisary for foreign markets both in europe and asia. the canadian rail system runs parallel trackage to the west coast, ie, vancover and prince rupert, as well as to the east at both lake superior and the st. lawrence. this wheat/rail alternative in canada is supported by further competition from the mississippi barge system to the gulf and the lake transport system out to the st. lawrence. once canadian dark northern spring and american hard red spring wheat are placed in f.o.b. position at any of the pacific or gulf ports they meet further competition from australian hard wheat originating from the east coast at brisbane, geelong et al. on the face of the situation bnsf has an awful lot of competition in their task of making american grain price competitive in the world export arena. there may be no other rail competitor in some reaches of the minnesota/oregon region, but when considering the full reach of the global and regional marketing competition for the export transportation of wheat bnsf is not in the position of a monopoly price setter.
the railroad’s job is to charge what the “traffic will bear”. in the classic literature on rates and regulation this is not treated as a pejorative phrase, rather it is intended to explain that the railroad is to charge as much or as little as it will take to position the cargo in the end user’s hands with enough profit still accruing to the seller/producer to encourage the producer to continue fully utilizing the railroad’s capacity.
it is further context for the discussion of bnsf’s market position on the northern tier to point out that spring wheat acres have suffered a 20% decline over the last ten years due to farmer disappointment with fusarium (
Dont know if this means much or not, but BNSF is buying 4000 grain covered hopper cars from Trinity. I really dont know if that is a considerable number or just replacement.
Railroad monopoly pricing is one of the great myths used by lobbying groups to obtain money from railroad workers and stockholders. These groups’ lobbyists think if they reapeat the myth often enough it will become true. They forget were not in 1905 anymore-Todo.
Those 4000 cars means someone is going to be making employment for a infrastructure needed to build em. Who cares if they are replacement? That order is going to be someone’s food on the table for some time this year! =)
Looking at this thread and some observations made about “monopoly” in other threads leads me to think that this might be more of an issue of big vs. small businesses. In the area we are discussing here that would be the high storage capacity elevators with flood loading capacities for the 100 car shuttle trains vs. country elevators. In my mind the “bigs” evolve as a result economies of scale. Our general embrace of free enterprise capitalism argues that the most efficient should reap the rewards of higher profits. Starting at a point not later than Henry Ford’s development of the assembly line, big has been the generally accepted way to go.
As far as railroad transportation of grain is concerned, we are actually looking at the end game of something that started in 1967 when the Illinois Central Railroad published what I think was the first unit train rate on corn from Illinois to Gulf Ports for export. This may come as a surprise to some, but this first grain unit train offering was not the result of the railroad just putting out the rate to see what would happen. In fact a major grain merchant, already a big player in the international trade, sought to buy corn from growers beyond the range of the truck-barge sources. After doing the math, the railroad told the shipper that if you can load a cut of about 100 cars in 20 hours or so, we can get your grain to the gulf at a rate competitive with truck-barge routing.
Do you know what might be defined as monopolistic pricing? Refusing to offer any rate lower than the single car rate, no matter how large the consignment.
Who is “we”? Certainly not most of us in the mainsteam. You repeat the talking points of left-of-center academia, who view the world through Keynesian-colored glasses.
What “we” want is for our representative government to maintain a business environment which encourages competition while protecting us from the tendancy toward monopoly. Thus, the government is charged with the dichotomy of providing sustenance when business failures that may affect economic security come to fruition, while at the same time preventing or breaking up monopoly by either regulation or anti-trust action.
What is happening in the railroad genre is that very tendancy toward monopoly empowerment thanks to the shortsightedness of the STB, and this monopolistic action is causing a loss of important infrastructure in large sections of the nation. Thus, the feds have failed us on two fronts, and it’s apparent that it will be the states who have to take up the slack in preventing more degradation of the infrastructure, but the states are not as empowered to employ either re-regulation or anti-trust breakup, something that is badly needed and will eventually be forced upon the feds in due time as the complaints amass to a level that cannot be ignored.
What the railroads are doing by raiding and looting their portion of the nation’s infrastructure is eventually shooting themselves in the proverbial foot. Railroad management are way to attuned to the “here and now” concerns of the bean counters, while ingoring the intangibles that do not make it into the ledger. No one up there has any foresight to know that you keep and grow your customer base even if it means conducting business at less than the bean-counter-prescribed minimun profit margins. You do not just lop off all but the richest customer connections.
You are the greatest source of economic claptrap I have seen on this forum, but the above post rises you to new heights of inconsistent generalizations unsupported by any fact.
By the way, I love my BNSF Kool Aid. It keeps me strong against the confused.
" that no customer should have an advantage over any other, not for size, not for efficiency, not for volume, and often, not even for geographic location. "
favoring one shipper over another expressly to harm one while helping another is a basic violation of fair business conduct, however, discriminatory pricing based on openly disclosed considerations of volume seems to be a reasonable seller/buyer response. why did / does it meet such opposition? what was / is the regulatory theory behind opposing discriminating on volume basis?
" Our general embrace of free enterprise capitalism argues that the most efficient should reap the rewards of higher profits. Starting at a point not later than Henry Ford’s development of the assembly line, big has been the generally accepted way to go.’
source: jeaton
you are quite right in mentioning “not later than henry ford…”
before civil war textiles worked on volume effeciencies. in fact prior to the rail roads textiles were the big business. rail followed the expand to succeed theory next , then steel under carniege, who was raised under the cost accounting tutelege of tom scott (prr). ford had came much later and even adam smith mentioned assembly line theories one hundred years earlier.
for those of us who occasionally dream of a more pastoral past, we should try to imagine just how much productive good has come from the inborn drive to succeed which is evidenced by the startling rise of “big business” in the last 175 years. i for one would not want to spend much more than one winter afternoon in michigan circa 1830.