I have some questions about rail rates. for example,if I have a short line railroad, say 200 miles long, with connections at the oposite end on the line with a class One for interchange, and another interchange in the middle for another Class One railroad. I own my own cars or the cars are shipper owned, and they will be interchanged with both lines. What determines my cut of the rate? Do I make the rates and get the lions share of it? Have I just opened a huge bag of worms? Thanks in advance!
See the lates Trains Magazine for great answer as to the several different ways it is done.
Re: Freight rates - Also thank your lucky stars you aren’t growing up in the ICC era! - a.s.
Almost all short-line railroads have handling-line agreements with their Class 1 connections instead of interline rates. The Class 1 handles the marketing, car supply, customer service, billing, collections, and service problems. The short line simply receives the load and delivers it to the receiver and pulls the empty when released by the shipper to the Class 1 (the Class 1 notifies the short line electronically), or receives the empty spots it, and picks it up when released. The short line invoices the Class 1 each month for the cars it handled broken down by shipper and by commodity, and each shipper/commodity is paid for by the Class 1 to the short line according to a schedule that the Class 1 and the short line negotiate. Usually the schedule is renegotiated annually, unless a new shipper or commodity appears in the meantime.
The Class 1 then sells the service to the shipper according to either a public tariff rate or a contract rate. The short line handling charge is absorbed by the Class 1 and not separately quoted to the shipper.
If there are two short lines, one Class 1, participating in the move, then both get a handling charge according to the schedule. If there are two short lines, two Class 1s participating in the move, then the two Class 1s figure out how much to price the service and the split each will get, and each settles independently with its own short line. Many moves
Why? If you were a shipper, you had very predictible rates, and you knew what rate all your competitors were paying, too. It was very easy. You looked it up in a book, and away you went. If you were a railroad, you could compete even if your line was inferior, on an equal-price basis. I know, everyone says “regulation is awful” but for more than 100 years people in this country thought it was wonderful. Do you think all those people were lying? Regulation had some bad effects. It had some good effects. We have a lot of people on this forum who always put it into the category “stupid” which makes those people about as useful to me in my career and in my life as the people who always put it into the category “wonderful.” Regulation is just a tool. It’s how it’s used that matters.
RWM
Rates were not predictable, just filed. If your commodity was not on file the railroad had to petition the ICC for a rate based on the railroad’s calculations which might or might not be granted by the ICC depending on truck, water, or other railroad competition. Sometimes by the time the ICC granted the rate, the deal was off the table and the traffic never materialized. Tariffs and rates were bureaucracy at its consumate level! Thats why roads had tariff and rate bureaus because it was impossible for any local agent to have all the information at hand. A regulatory environment created by the ICC did not allow for contracts, bulk contracts, long term contracts, etc. without such negotiations being reviewed and allowed by the ICC. If a railroad found it could move a commodity between any two points at a rate less than an existing trucking company rate, the railroad would not necessarily be granted the rate request. There were too many complications, allowed challenges, paper work and politics involved for it to work in the favor of the shipper. Today’s bulk and unit rates, individual service contracts, and the like, have given the shipper a better chance of a good rate and desired service level by being able to deal directly with the transportation supplier. When railroads had a monopoly on such services, up to say the mid or end of the 1920’s, the ICC worked ok for all. Once the truckers entered the picture, the system stopped working and became cumbersome. WWII allowed time for the rails to get some unchalleged income because there was so much traffic. But after the War, the railroad bottom lines suffered and the regulatory practice had to me changed if not eliminated. It took into the 1980s for it really to change.
That’s very interesting but not my experience in the industry. Every shipper I work with today wishes they had regulation (rightly or wrongly), excep
No, unlike you I have never worked for a railroad. It is apparent I have either read history differently than you or entirely misread it. Sorry if I have stepped on your toe. But if the system was so great, how come it was willingly scrapped or allowed to be scrapped in favor of less restrictive, free market offering and charging of services. Isn’t that what America is all about: the free enterprise system in an unbridled market of supply and demand?
To ask if it was “great” requires placing ourselves into a specific point in time. If we turn the wayback machine to 1980, we’d find a lot of people who thought regulation wasn’t working and we needed change. If we spin the dial to 1900, we’d find a lot of people who thought regulation’s only problem was that we didn’t have enough of it. Regulation was an experience that persisted for a century. That’s a very long time considering that industrialization is only 200 years since its invention and its only been 70 years since this country has been more of an industrial country than a farming country. The definition of “free enterprise” is not constant, and the value this country places upon it is likewise dynamic.
RWM
I’d disagree with that take on it. Free enterprise has to be more like supply and demand, tempered by some amount of regulation. Your idea of how much is some would neccesarily be determined by whether the regulation favored you or not. Most people feel it’s the other guy in the equation that needs more regulation.
Well, I’m the guy who keeps referring to economic regulation of transportation as “Stupid”.
I’m convinced that “stupid” is the correct and appropriate word for regulatory decisions such as In the Matter of Container Service, the Big John grain rate case, etc. They were literally stupid decisions. I’ll ask for some examples of “Good” results from regulation.
The cited example of a railroad with an inferior line being able to compete on an equal price basis is false. The Rock Island couldn’t compete with the CB&Q. It kept going bankrupt trying to do so. The Rock never made it to deregulation. Same thing with other weak railroads. The Milwaukee kept going broke trying to compete with the Hill Lines. The CGW, C&EI etc, were perpetual basket cases. The list is lengthy.
Did regulation preserve rail service to shippers and communities that would have otherwise lost it? Yes, it did. I do not regard this as “Good”. Regulatory preserved service existed only becau
Greyhounds, not a problem for me. You’ve always to me clearly stated your belief on the proper role of citizens to regulate each other’s behavior in any society or setting. I appreciate a man who is definite – it’s honest.
RWM
The history of rate regulation is grounded in agriculture when farmers clamored for help agains the giant railroads. Thus the ICC appeared to be more empowered to regulate rates to protect shippers than to benefit railroads, competing railroads, and orther forms of competing transportation. Eventually it appeared to be protecting other forms of transportation from railroad incursions. The stupidity of the control was that the rate approval process took so long, rails would have lost the business because they could not accept the traffic until the ICC ruled. It was a cumbersome process which no longer protected or helped anybody in the long run exept the ICC bureaucrats!
Just to make sure it’s clear…
I support all kinds of regulation of citizen behavior. No country or society could function without such regulations. Clear examples are: 1) driving on the right side of the road, 2) proper disposal of sewage, honoring contracts, etc. These may seem trivial and obvious, but they are examples of necessary regulation of behavior.
What I object to is the imposition of an economic claim by one person on another person. i.e. “You have to pay more for your rail service so I can pay less for mine. I’ll get the government to make you do it.” To me, that’s a form of slavery.
Creating such cross subsidies to benifit politcally connected entities is the only reason for economic regulation of transportation. Same for insurance regulation. Cross subsidies are the reason for government involvement in the housing market. They do not work. The people paying extra will seek and find alternatives, or, if no alternative is possible the cross subsidies will eventually produce widespread hardship. (As in the housing market.)
Well, I might as well respond to this one too.
For twenty years after partial deregulation rail rates fell. (Despite what Michael Blaszak wrote on page 36 of April Trains, grain rates were included in thiis decline. They fell in constant dollar terms. This is the only realistic way to compare prices over time.) In the first decade of the 21st Century this decline ceased and prices began to go up. It was totally unrealistic to expect rail rates to continue to decline indefinitely. The railroads “hit the wall” with regards to capacity and used price increases to ration the available capacity. That is the best way to ration a scarce economic resource such as rail capacity since it: 1) directs its use to the most valuable purpose and, 2) pays for the addition of more capacity. But no customer likes a price increase.
Today, the logistics people at any firm anywhere are under significant pressure to get their costs down. They very much want lower rail rates. I imagine more than one logistics manager has heard “If you can’t get those costs down, we’ll find someone who can.”
Conversely, railroad pricing people are under significant pressure to maintain prices at their current level and increase them whenever possible. The railroads have seen 1/4th of their volume go away. The last thing they want to see is the revenue decline on what they’ve got left. So they’re natually resisting shippers who want lower rates.