Clerks vs. Shippers: Who Decided Routing?

[Minneapolitan]

"Be Specific - Ship Union Pacific"
"Route Superior Gateway for Superior Service"
"Money-Saver Service"
"Links East & West"

We all know the slogans seen on infinite boxcars from the old days. What's implied in the advertising is that people of the general public used to have some say in how their shipments were routed. But on the flipside, we hear about how railroads would have preferred interchange partners at different terminals - Nickle Plate and Lackawanna at Buffalo for example.

Let's say I'm Joe Blow in Minneapolis and I've got a tool factory served by CGW. I've got a buyer in Newark for a full load of hammers.

But what happens next?

I've seen pictures of old railroad waybills filled out by someone that specifies a particular routing for a boxcar, such as CGW>NKP>LV>CNJ, and that waybill instructs conductors and clerks from thereon how to route the car to its final destination. But if railroads had common interchange partners, or preferred partners at specific points, then what does the shipper have to do with it? And all those advertisements targeting me and my tool factory?

I'm still unclear on this - and the 'old heads' at work never really cared to learn either.

[BAR]

I took a transportation course in college a while back and at that time we learned that shippers had the "routing privilege" which allowed them to specify the route their shipment took. That is why railroads had sales/marketing departments in and out of their territories to try to generate routings over their respective railroads and why boxcars carried slogans promoting their owners routes.

[Cowford]

BAR is correct. Routing was (and still is) dictated by the shipper. In the pre-deregulation days before contracts, tariffs would dictate the rates and approved routes, along with how the shipping charges would be divvied up among the participating carriers (each portion being called a "division" of revenue). It's a lot less complicated now that so few carriers remain. On your hammer example, there are only two logical options today: UP-cgo NS or UP-cgo CSXT, with Conrail making the delivery in NJ.

While shippers dictate routing, railroads can influence routing. Railroads will typically try to maximize their length of haul or funnel freight to a favored interchange, using the pricing lever to do so. Whichever railroad has more bargaining power in a combination move will likely prevail. (An example is the hammer case, where UP gets the business regardless of whether NS or CSXT routing.)

[ExCon90]

Also, in the days before deregulation, some shippers would merely choose the originating carrier and leave the routing beyond to that railroad (while, as BAR stated, the shipper by law had the absolute right to designate any route published in a tariff, some didn't feel up to deciding between 2 or 3 faraway railroads they knew little about, and in such cases the decision as to connections defaulted to the originating railroad, which often meant the local freight agent). Off-line railroad sales representatives were aware of that and were careful to cultivate good relationships with freight agents in their territory. Typically, sales reps from the Minneapolis offices of the DL&W, Erie, Lehigh Valley, New York Central, and Pennsylvania would all be regular callers on the CGW in Minneapolis, as well as the other railroads in the area. (Trivia note: After the Pennsylvania discontinued its large wall calendars in the 1950's, freight stations all over New England had a large rectangle of pale green on the wall, surrounded by a darker green, indicating where PRR calendars had hung for decades, the PRR sales reps having personally delivered a calendar on their next visit after the calendars were received.)

[Minneapolitan]

While shippers dictate routing, railroads can influence routing. Railroads will typically try to maximize their length of haul or funnel freight to a favored interchange, using the pricing lever to do so. Whichever railroad has more bargaining power in a combination move will likely prevail. (An example is the hammer case, where UP gets the business regardless of whether NS or CSXT routing.)

I think I follow. But if it were the old days and it wasn't UP who gets the load regardless, but rather a competition between MILW, C&NW, CGW, etc., then how would this "pricing lever" work? Also, how did this tariff book work? Was it a neutral publication listing price per mile by each carrier and between certain terminals? How would Joe Blow at the tool factory figure the cheapest way to ship without relying on salesmen?

Also, in the days before deregulation, some shippers would merely choose the originating carrier and leave the routing beyond to that railroad...

Ah, see THIS clears it up a bit. It's what I suspected but there isn't much written on the issue. Anyone have insight as to, generally speaking, what the typical ratio was for shippers between being specific about the routing and just letting the originating railroad decide?

I should say I find little more fascinating in railroading than the old days and how so many different railroads interacted with each other - and this seems central. The sheer geography of railroads should matter tremendously but it never quite seems to follow conventional wisdom.

[ExCon90]

While shippers dictate routing, railroads can influence routing. Railroads will typically try to maximize their length of haul or funnel freight to a favored interchange, using the pricing lever to do so. Whichever railroad has more bargaining power in a combination move will likely prevail. (An example is the hammer case, where UP gets the business regardless of whether NS or CSXT routing.)

I think I follow. But if it were the old days and it wasn't UP who gets the load regardless, but rather a competition between MILW, C&NW, CGW, etc., then how would this "pricing lever" work? Also, how did this tariff book work? Was it a neutral publication listing price per mile by each carrier and between certain terminals? How would Joe Blow at the tool factory figure the cheapest way to ship without relying on salesmen?

Also, in the days before deregulation, some shippers would merely choose the originating carrier and leave the routing beyond to that railroad...

Ah, see THIS clears it up a bit. It's what I suspected but there isn't much written on the issue. Anyone have insight as to, generally speaking, what the typical ratio was for shippers between being specific about the routing and just letting the originating railroad decide?

I should say I find little more fascinating in railroading than the old days and how so many different railroads interacted with each other - and this seems central. The sheer geography of railroads should matter tremendously but it never quite seems to follow conventional wisdom.

I don't think there are any firm numbers about how many shippers left some or part of the routing to the originating railroad, but from my observations I would say that the larger the company the more its traffic department would be on top of things and thoroughly informed about the various railroads. Many of the big ones hired rate clerks from the Class I's for their knowledge and experience--"back in the day" it was felt that any railroad rate clerk who got a job offer from U. S. Steel or Bethlehem had it made. The perplexing problem for the railroads was to figure out who in the company made the actual decision on how to route the shipment(s). The guy the salesman talked to might have to run his decision by someone higher, and maybe defend it, or might have specific instructions from the boss on what routings to use. Periodic reorganizations didn't help--maybe until last year all decisions were made by corporate headquarters; this year routing authority has devolved to local plant managers, a situation which will last until a new broom comes in and says no--it's more efficient to have everything decided by corporate.
The whole tariff system was incredibly complex. Railroads were members of rate bureaus which established rates in general, as well as routes which they all agreed on; these were known as "agency tariffs." Individual railroads also published their own tariffs for movements originating on their own line, generally more specific than the agency tariffs, and it was necessary to check both. For example, there might be a rate on "canned goods named in Item xxxx from points named in Item yyyy to destinations named in Item zzzz,"--already your hand is running out of fingers--in an agency tariff, while a railroad party to that rate would also have a rate in its own tariff on "tomato paste from Point A to Points B, C, D, and E which would be cheaper, having been put in after negotiation with the shipper at Point A (this after shippers of tomato paste at Points J, K, and L had been following this and determined that the rate was in line with what they had and a protest to the ICC would probably go nowhere). A professor I once had in a traffic course used to say, tongue in cheek, that checking a rate was a two-step process: 1) find the right tariff; 2) find the right rate. Railroad (and no doubt shippers') rate rooms had literally shelves of tariffs covering entire walls (they were actually referred to as tariff libraries, and it was no exaggeration).
Deregulation under the Staggers Act in 1980 was a breath of fresh air--a whole new world.

[Minneapolitan]

The whole tariff system was incredibly complex. Railroads were members of rate bureaus which established rates in general, as well as routes which they all agreed on...

Bureaus? As in...plural? How many rate bureaus were there and what was their legitimacy? This part is still foreign to me. Again, not much written on the matter.

In the pre-deregulation days before contracts, tariffs would dictate the rates and approved routes, along with how the shipping charges would be divvied up...

The "approved routes" thing seems crucial here and I'm still a little confused. If the shipper had total right to route freight how they wanted, or in lieu of this the first railroad had the right to forward as they saw fit, then how does approved routing come into play?

I've read a fair number of books on corporate histories of specific railroads (such as The Tootin' Louie by Don Hofsommer and Follow the Flag by H. Roger Grant - the former is absolutely superb). At best, they only briefly mention these matters. I don't really understand why there would be differences in price over the type of freight shipped, but I suspect there's good reasons that aren't really relevant here - based on weight perhaps? A full boxcar of televisions holds much more value then a boxcar of wheat, so I figure the tariffs were created to take advantage of the load's value and legitimize charging more money. Either way, pricing by commodity isn't so much the mystery as tariffs dictating routing.

On another note, how would the receiver fit into all of this? If my tool factory doesn't specify routing and CGW hands it off to PRR, how does PRR know that the buyer is served by LV? I'm assuming that somewhere in the transaction's discussion someone would have the good sense to say, "Oh by the way, our Newark warehouse is switched by Lehigh Valley," and my tool factory would know to write CGW>LV on the waybill and let CGW figure out how to get it to the LV. But again, not much written about these things.

[ExCon90]

I can't say off the top of my head how many rate bureaus there were, but here are some:
New England--rates within New England;
Trunk Line--generally Buffalo and Pittsburgh and east, including New England;
Central Freight Association--Buffalo-Pittsburgh and west to Chicago-St. Louis;
Official Territory--Between Trunk Line and CFA:
Southern--within the South;
Transcontinental--self-explanatory;
Illinois Freight Association--within Illinois (they used to publish a detailed map of the Chicago Switching District, showing all railroads as well as the boundaries of the switching district, which precisely defined the territory to which rates to and from "Chicago" applied. It unfolded to about the size of a card table, and if you ever see one at a train show it would be worth considering).
There were some more, and many railroads belonged to several, according to the territory they served.
As to their legitimacy, it's kind of an interesting story, at least as stories about freight rates and tariffs go--there's a reason you don't find much written about them. For many years after the establishment of the Interstate Commerce Commission in 1887 the rate bureaus just existed as a matter of course. Sometime in the 20th century, years after the antitrust laws were enacted, someone said wait a minute--aren't rate bureaus a violation? Legislation was passed (the Reed-Bullwinkle Amendment) to legitimize rate bureaus and exempt them from the antitrust laws but was vetoed by Harry Truman, then enacted over his veto. The problem was that the Interstate Commerce Act required that joint through rates be provided from every station to every other station in the U. S., regardless of how many railroads might be involved in the route, and without the rate being broken down by junction points. No one ever figured out how the railroads were supposed to do that without talking to each other. The legislation was incorporated into the Interstate Commerce Act as Section 5a (the Act has since been recodified, and I don't know what it became). Today, since the Staggers Act of 1980, the railroads are subject to antitrust laws and shippers generally negotiate with each individual railroad; it's a blessing there are are fewer railroads today. Negotiations with short lines are something I'm not familiar with, but things have obviously been worked out.

The shipper's "right to route" meant the right to choose among whatever routes were provided in connection with the rate in the tariff. The customer would undoubtedly specify what railroad had to be the delivering carrier--if he didn't, the vendor would certainly ask. Otherwise a car could easily arrive on the wrong railroad, and if reciprocal switching was not provided (and it often wasn't, east of Buffalo and Pittsburgh) somebody would have to straighten it out. That sort of error was normally made only by infrequent or inexperienced shippers--the business of rates and tariffs was a whole subset of specialized knowledge which most shippers were familiar with.

The question of different rates for different commodities was another whole subset, which I'll try to get to tomorrow.

[ExCon90]

As to rates varying according to commodity, there were several factors, known as "transportation characteristics," which had a bearing on rates for different commodities. I can't remember them all now, but the 3 most important were 1) density, 2) fragility, and 3) value--not necessarily in that order, but all had to be considered. Density was important because rates on manufactured goods were generally published in cents per 100 lbs., so the lighter a commodity was in relation to its volume, the higher the rate needed to be to produce adequate revenue per car. Fragility and value were important because the railroad was effectively the insurer of the freight; if loss or damage occurred, the shipper did not have to prove negligence, and due care and reasonable precautions by the railroad were not a defense--if something was broken or missing, it was the railroad's responsibility (the Staggers Act of 1980 makes it clear that these conditions have not changed, deregulation notwithstanding), so an element of insurance premium had to be built into the rate. Value was of even greater importance because of a regulatory principle going way back when that the cost of shipping goods should not exceed more than a small proportion of the goods' value. Thus, anything cheap (sand, gravel, cotton factory sweepings) would have a very low rate, while valuable goods (refrigerators, washing machines, whiskey) could have a fairly high rate which would still be quite low in relation to the value. Thus, a railroad lost money on this, made money on that, and it all evened out by the end of the year--and the ICC kept track to make sure the railroads were not prospering unduly. (As an example, the rates were higher on cotton piece goods than on cotton factory sweepings--the tariff name for the cotton waste which made the operation of steam locomotives possible--leading at least one shipper into temptation. A boxcar was damaged in a fire, and the shipper injudiciously filed a claim for cotton piece goods, but the only bill of lading he could produce was for cotton factory sweepings. Since misdescribing freight was a Federal offense, and the statute of limitations for over- and undercharges was 3 years, we were able to go back and successfully bill him for the balance due on 3 years' worth of shipments of piece goods.) The principle of making up on the high-rated traffic what you lost on the low began to come apart with the rise of the trucking industry from the 1930's on--truckers were easily able to capture the high-rated traffic with lower rates, and no trucker in his right mind would undercut the rail rate to get the low-rated stuff--but the regulatory principle remained unchanged.

[BR&P]

I'm a bit late to the party but do have one thing to add. The waybill would have a small box wherein was entered "S" for Shipper's routing, or "A" for Agent's routing.

It is hard to over-emphasize how much headache and red tape the railroads were finally able to escape when deregulation finally arrived. Rate making and interline freight divisions were so cumbersome that even those who worked with it daily were challenged to offer explanations - as ExCon90 can attest! It seems so simple today, when Railroad A can say we want X dollars, and Railroad B says we want Y dollars, and the sum total is what it costs. Commodity descriptions, weights, minimum weights and "over" rates, gateways, division percentages, waybill abstracts, statements of difference, and SO much more. It used to be a VERY cumbersome and inefficient way of doing business.

[ExCon90]

True--I forgot all about showing shipper's vs. agent's routing. I often thought about what it was costing the railroads to comply with everything BR&P mentioned above. On Conrail prior to 1980 there were several attorneys in the Law Department who dealt with rate cases before the ICC, and there were four people in Marketing and Sales who worked exclusively on preparing voluminous exhibits for shipment to Washington in connection with rate matters before the ICC. In complicated cases the list of attorneys representing railroads and shippers would often take a whole page and maybe spill over onto the next.

[Engineer Spike]

There is a two volume set of books about the Boston and Maine, which were written by Robert Wiloughby Jones. The forman has some sections with interviews of former employees. One section was about a rate clerk, who became a salesman. He talked about encouraging the shipper to route via the Rotterdam Junction, or Mechanicville gateways, which produced the highest line haul. He described how the New Haven, CV/CN/GT, CPR, and NYC also had sales forces in the area. This man's territory was New Hampshire. Most of the state was captive to B&M, so the goal was to get the line haul, and not let the other salesmen convince the customer to short haul B&M. Obviously, B&M wouldn't make as much if the customer requested the car go to New Haven at Lowell, Worcester, Fitchburg, or Springfield, if New Haven was awarded the route via Maybrook. The same thing would happen with cars which had been routed via a Canadian road, at White River Junction, or the NYC/B&A.

[Minneapolitan]

In the pre-deregulation days before contracts, tariffs would dictate the rates and approved routes, along with how the shipping charges would be divvied up...

The "approved routes" thing seems crucial here and I'm still a little confused. If the shipper had total right to route freight how they wanted, or in lieu of this the first railroad had the right to forward as they saw fit, then how does approved routing come into play?

Using my original example of a boxcar of hammers from a manufacturer in Minneapolis to a buyer in Newark, does the purpose of tariffs that dictate "approved routes" exist to prevent CGW from shipping my boxcar from Minneapolis to Kansas City before going east (oh I dunno...on Wabash?) in order to increase its "division of revenue"?

[ExCon90]

Approved routes were those agreed to by railroads wishing to participate in the traffic, with junctions between the railroads specified in the tariff. The shipper had the right to choose from among the routes published in the tariff, and the originating carrier was required to comply with the shipper's choice. If he omitted to choose a route, the originating railroad could choose whichever route gave it the most revenue (in the case of a CGW origin at Minneapolis, the junction in the tariff would be Chicago), and revenue divisions east and west of Chicago were prescribed by the ICC. The CGW would gain nothing by increasing its internal mileage since its revenue would be the established division over Chicago, so the incentive would be to pick the shortest existing route.

[Engineer Spike]

I’d say that part of the bag of tricks was to know about the efficiency of different junction points. Having the fewest interchanges might be most efficient, and have the least chance of the car being lost. With the hammer example, if the car started on Great Western, and the endpoint was Newark, on the CNJ, the possibilities were endless. In the book that I mentioned, there was explanation that Canada had cheaper rates. Great Western could have turned the car to GTW in Chicago, then CN. At Buffalo, the PRR, B&O, NYC, Erie, Lackawanna, LV were all viable routes.
With the B&O ownership of Reading and CNJ, it might have been a virtual single line move east of Chicago.