We’ve kicked these issues around a lot out here with a lot of emotion. The authors were faculty members (economics) at Northwestern University. I know that at least one, Gallamore, has retired. He was the Director of the Tansportation Center at NU. They bring some cold, hard, informed, analysis to the subject. And:
“We conclude that constrained market pricing under ICC and SB supervision has been the correct policy, and more radical measures such as ‘Open Access’ are not warranted.”
“…importantly, the governing regulatory authority finds no firm evidence of a widening gap between exclusively-served and other rail shippers since 1984.”
Unfortunately, this 2004 “study” has been upended both as out of date, and probably poorly researched, by the recent GAO report:
Washington Insight: GAO Finds Disparities in Rail Freight Rates
From Ag Commentary, by Jim Wiesemeyer, 10/17/2006:
Members of Congress asked GAO to review changes in the railroad industry since the Staggers Rail Act was signed in 1980, including changes in rates and competition. They also requested that GAO review actions taken by the Surface Transportation Board to address shippers’ concerns, for a projection of future freight demand and capacity, and for potential federal policy responses to the projected changes.
Status of industry: According to the report, since the enactment of Staggers, the railroad industry’s financial health improved substantially as it cut costs, boosted productivity and “right-sized” its networks. Rail rates generally have declined since 1985 for certain commodity groups and routes, but rates have not declined uniformly, and some commodities are paying significantly higher rates than others, says GAO. For example, from 1985 through 2004, coal rates declined 35 percent while grain rates increased 9 percent.
GAO notes lingering concerns about competition and captivity (dependence upon one railroad) in the industry because traffic is concentrated in fewer railroads. “It is difficult to determine precisely how many shippers are captive to one railroad,” says GAO. "Nevertheless, our analysis indicates that the extent of
“Unfortunately, this 2004 “study” has been upended both as out of date, and probably poorly researched, by the recent GAO report:” (From above)
So you are saying that the GAO report is a model of exemplary research? Bet you the entire group of GAO staffers doing their study wouldn’t come close to matching the credentials of either of the authors orf the NU study.
You really are great at picking out statements you claim to make your point. The line you quote from the NU report says: “…importantly, the governing regulatory authority finds no firm evidence of a widening gap between exclusively-served and other rail shippers since 1984.” You can argue that the governing regulatory authority is wrong with this view, but it is, in fact their view. Should the paper state that the regulatory authority has a different view?
Unless there is much more in the full report by the GAO, it appears that they have just presented examples of the railroad’s differential pricing-a condition few will dispute. The NU study undertakes to address “Open Access” as a solution to any differential pricing conditions that may exist. They accept that differentials may go away, but seem to make a good case that open access would significantly erode the ability of the railroads to maintain or expand the service with a consequent impact on the quality or availability of the service for shippers.
Seems to me that any comparison of the two studies is like comparing coal and grain.
Conrail should have been made into open access instead of being split into CSX and NS. Then every class 1 railroad would have had access to the North East. We would have found out if OA can work… but too late now.
I do not comment on the open access portion of the paper. However, the authors do note that, regarding differential pricing “it is important to note …” and they offer nothing to disagree with the STB position as it existed prior to 2004. I simply take them at their word that they t
Ignoring the caution of the second quote in my signature, I will predict that the STB will find that there are some conditions of market dominance. ( For the benefit of others who might look at these posts, “market dominance” is the condition that must be proven and the existance of a rate over 180% of variable cost or even a much greater ratio of rate to variable cost does not automaticly prove that the market dominance condition exists.)
Having made my prediction, I will also predict that relief will come on the basis of existing laws and regulations, and not on some big revision of the law. And further, the relief will fall far short of the level some hope for.
By the way, the fact that the number of shippers (not number of shipments) subject to rates over 300% of variable costs has increased from 4% to 6% does not prove that their is a growing gap between rates paid by “non-captive” and “captive” shippers. Can you come back with numbers showing that “non-captive” shippers are being subject to rates with less, more or the same revenue to variable costs ratios as in the past. Seems to me that to argue a growing gap of some kind has to show an increasing spread between the high and low. Otherwise it is comparing apples to nothing.
My favorite part: “locomotives are larger than electrons and trains are harder to switch than electricity.”
(in a quote of literature relavent to their study, by Marc Ivaldi and Gerard J. McCullough, “Density and Integration Effects on Class I U.S. Freight Railroads,” Journal of Regulatory Economics, 19:2 (2001), pp. 161-182)
Gotta like academics who dont ignore the real world!
It’s a safe prediction since the captive shippers have, themselves, only asked for enforcement of the existing law. I don’t think there is effective support for a major revision by anyone. Interpretation and enforcement has been the topic of the essential debate, not the law itself.
This is pretty shaky reasoning.
If more shippers are paying over the 300% R/VC rate, and since variable costs have increased over the past five years, then revenue from captive shippers paying over the 300% R/VC rate will be 1) higher, 2) lower, 3) the same?
Those shippers will be paying 1) the same, 2) less, 3) more than they were paying before their rates went over the 300% level?
If shippers are paying more to transport their wheat than they were ten years ago, but most other rates are lower than they were ten years ago, is the rate spread between wheat and general rates 1) the same, 2) wider, 3) narrower?
The quiz will be graded.
[quote]
Can you come back with numbers showing that “non-captive” shippers are being subject to rates with less, m
So Ken, you’re in favor of reregulation of rates, rather than implementing intramodal competition combined with public/private support for infrastructure?
Let me explain something to you to put this and other such studies into perspective. An econ study you get today is based on past econ studies, which themselves are based on further past econ studies that are responsible for constructing the template of analysis. All our academic studies of the US rail system is based on over 100 years of studying an integrated private system. All the terms used in analysis (aka “natural monopoly”) is based on this integrated model. Trying to construct a brand new template for the analysis of competitive access is subsequently difficult for these academics - they just can’t seem to imagine a rail system where infrastructure operations are separated from transporter operations, such as we have with our highway and waterway transportation systems:
The Ivaldi and McCollough study mentions the open access analogy to telecommunictions and utilties as being not apt, yet they make no similar comparative analogy to highways and waterways! Hmmmmmmm…
This same study does mention the returns to density of an infrastructure owner as being the key to track owning profitability - with separation and subsequent transparency of cost accounting, you will find that profits are related to hosted volume. “(Open) Access proponents might argue…that the newcomer’s aggresive marketing would result in more economies of density.” It is suprising that these same economists do not take more time to study the relationship between integration and intra-operational market skewing, as dispatchers push for reduced maintenance windows while trackmen push for more maintenance windows. I guess we’ll leave it to more government regulation to force more track inspections via the FRA…
Quoting Michael Sol: “In fact, captive shippers being charged over 300% R/VC have increased from 4% to 6%. Whatever you want to call it, I call it a “widening gap.””
As I said, if you are going to suggest that some sort of gap is widening, in making your point it is useful to identify the two points which are separated by a gap.
Beyond that, it might be a good idea to drop the suggestion that the increase relates to the number of captive shippers. The 4 to 6 percent numbers actually is reported in Figure 17: Percentage of Tonnage by R/VC, 1984 and 2004. In that the following is presented:
1985
% of total tons moving at R/VC greater than 300: (1985) 4 (2004) 6
% of total tons moving at R/VC between 180 & 300 (1985) 36 (2004) 25
% of total tons moving at R/VC less than 180 (1985) 60 (2004) 69
Now you can make some comparisons between then and now if you want, but first it should be well to note that the table reflects all tonnage, not just tonnage from captive shippers.
In fact, if one moves on to Table 20 of the report there is some indication that some area served by more than one rail carrier may have seen increases in tonnage moving at rates with a R/VC exceeding 300%
Even the GAO report notes an uncertainty about the number of captive shippers. From Page 19 of the report:
"Concerns about competition and captivity in the railroad industry remain because traffic is concentrated in fewer railroads, although there is disagreement on the state of competition in the industry. It is difficult to determine the number of captive shippers, because proxy measures can overstate or understate captivity, but our analysis of available measures indicates that the extent of captivity is dropping. At the same time, the percentage of all industry traffic running substantially over the statutory threshold for rat
In addition to that one should also pay attention to the posting of FM as he has an undergraduate degree in economics from some school that doesn’t even show on the charts and a certified genius IQ.
You might want to differentiate between the growth in import intermodal and the loss of domestic production when you analyze those “reductions” in the less than 300% R/VC rail rates. Import intermodal has no captivity, and has been the largest volume growth sector for railroads - shouldn’t suprise you that the 180% R/VC and below catagory has grown.
But of course, leave it to Jay to start with the flame war, even after an explicit request not to do so.
Difficult? Sure, if one is too lazy to go out and make a physical count of all the rail shippers who have physical access to only one railroad. I think if those beauracrats would get off their fat **** and make the physical counts, we’d find actual captive shippers to be much, much more than what the GAO is willing to admit.
Memo to GAO: It’s easy to find an actual count of captive rail shippers- any rail shipper with only one physical connection to a Class I rail service provider is captive. Doesn’t matter if they “can” ship by truck or barge, or use multiple modes, or not, or if they can modify production to fit the lack of desired rail service, or not. Having only one physical connection is captive, period.
Take a look at the gist of the Gallamore et al study, namely the example of the “stylized rail network” (p 18). In this example, the authors try to recreate the nuances of a captive shipper using various options for attaining some aspect of competition (e.g. SARR, et al). Their example shows two parallel railroads between Points B and C, and a captive customer of Railroad A on a line connecting Point A with Point B. With this example they make the point of Railroad A “needing” to charge captive rates to cover not only incremental costs of the line from Point A to Point B, but also the fixed cost of maintaining the line from Point A to Point B.
Make sense…
Except for the fact that most captive customers are actually located on active mainlines, which have plenty of traffic density to cover the network’s fixed costs. A more appropriate example then of a captive shipper would be one located on one of the two railroads’ mainlines between Point B and Point C. Therefore, there are no added fixed costs for serving the captive shipper. So why do these apologist economists allow for captive rates if the captive shipper in question does not add anything more in costs other than incrementalism?
That’s the gist of the Montana problem - BNSF has two busy mainlines through Montana, yet because of the government sanctioned fiefdom, BNSF is allowed to charge those 300%+ rates without a corresponding justification for covering fixed costs, because there are no added fixed costs of shipping products in and out of Montana. All Montana rail shipments add nothing more than incremental costs to the system, yet those Montana rates seem meant for covering incremental and fixed costs of maintaining the BNSF rail network across Montana. Correspondingly, rates of the import intermodal traffic passing right through Montana are not even covering the incremental costs (e.g. <180% R/VC).
It is this market skewing, unmentioned in any such eco
Ah yes, I see it now. Big fence around the plant with the only gate located where the tracks enter the property, railroad police prohibiting trucks from approaching, phone and data lines going only to the railroad offices, transportation buyer confined to his office. Maybe that is why one can find so many places where the rail siding has been torn out. Just got tired of being held captive by the railroad.
Your narrow minded defination of captive shipper, i.e. physical connection to only one railroad, could very well cover the vast majority of rail shippers and receivers. In the matter of making a determination of market dominance, such a defination is about as useless as certain appendages on a boar hog. Kind of reminds me of the days when the Interstate Commerce Commision thought the only possible competition for one railroad was another railroad.
Not entirely accurate. Back in the 60’s/70’s, many grain elevators switched from rail transportation to truck transportation. The rail service could not compete with trucking rates.
