UP is not only raising their rates in Phoenix but they’re even encouraging their customers to find other modes of transportation. I know there’s been many discussions here about UP’s business practices, but is this due to UP’s mismanagement, unforeseen economic growth, or other factors?
It’s due solely to the free market. Basic supply-demand. Free capacity is used up, and now the customers are getting to bid on the slots, just like you sell your home to the highest bidder. I have to give credit to the reporter: he reported it factually, unemotionally, and with a solid grounding in basic business. To their credit, the shippers that were quoted understand reality, too.
As rail rates are still non-compensatory for long-run costs, and railroads still can’t compete in capital markets for the investor’s dollar, a shipper can complain all he wants, but it won’t do them a bit of good; the investor isn’t going to start feeling bad for them and turn into a charity for shippers. The best the shipper who can’t pay the true costs of doing business can hope for is that the public decides that shippers need a subsidy, takes over railroads, and makes up the capital shortfall out of tax revenues.
The mismanagement and lack of predictive ability you suggest in your question might be a factor, but even if they were substantial, they would be very, very small in their effects. The basic economics are far more powerful.
Wow,
A reporter that followed the who, what , when, where and why of basic reporting…guess he was way too qualified to work for the NY Times…
and a fairly interesting story to boot…
The reporter is neither PC, nor is he particularly inquisitive. Nor is this a case of the free market at work, rather it is a case of the monopolist’s market at work. There is only one rail service provider in southern Arizona, has been for the most part since railroading started along the border. The economic recovery has been going on for at least two years now. The only question I have is why did it take two years for UP to take advantage of their monopoly in thise economic good times? Eat, drink, and be merry, for tommorrow…
The copper producer mentioned in the article will probably shut down their Arizona operation, shift the focus of their operations to copper mines in other nations where the rail system is not choked by the anachronistic owner-operator system. Just another of the thousand of slices that is killing any chance of reversing the U.S. trade deficit and maintaining production jobs in the U.S. I wonder how a 100% rate increase will be of benefit to the fortunes of the U.S. except for the UP stockholder.
Isn’t it ironic how on the one hand the AAR is bragging about railroads taking trucks off our nation’s highways, while at the same time the railroads are forcing their shippers onto the highways? How the AAR can have any lobbying credibility in DC at this point is beyond reason.
Interesting article. It’s been five years since I was in Phoenix. Seems to me that UP isn’t the only railroad in town- BNSF had a lot of traffic along the Grand Avenue area (the south end of the “Peavine”, I believe). I used to watch a lot of new cars being offloaded in the Peoria area.
Is the line west of town still “abandoned”? There was plenty of industry to service to the west of Phoenix… and a lot of line for storage.
Erik: UP is reactivating the Phoenix Line for local traffic. I believe the plan is to have it back in service this spring for 2 to 4 train movements per day. It will take a little pressure off the main line, not for through movements, but to get local traffic moving between Phoenix and points farther west off the main line at Wellton instead of advancing it up to Picacho.
Ed;
Your response is appropriate and imaginatively phrased. The rise in rates is not based on monopolistic practices but a lack of capacity, as pointed out by OS. If the owner-operator system is so anachronistic, why is it a system being kept in place by Queensland Railways or Indian Railways? Copper traffic is subject to truck competition, so the monopoly isn’t there. Open access wouldn’t solve the so-called rate problem here since it wouldn’t add capacity.
Paul