Hey freight trains dont make money either...

[QB 52.32]

Cowford- Excellant explanation of what railroad management and marketing folks are looking at in their evaluation of whether a particular move or aggregated business by customer, lane, commodity, industry, etc. etc. contributes to fixed costs. Of course, railroad costing is an art to a degree, and generation of "good" costing information is an important challenge. In instances where traffic requires close scrutiny, a range of costs can be utilized: total cost (includes fixed costs); long-term variable (your example); modified long-term variable (essentially the "direct" costs to add the business under scrutiny); and, the specificity of a cost study for the particular traffic, infrastucture, line-of-business, etc. in question.

In a general sense, railroad profitability increases with higher revenues tied to higher volume, higher weight, longer distances and "ease of handling" (ie., damage, number of sales contacts, etc.) and/or lower costs with minimized switching, higher crew and power utilization and productivity, higher equipment productivity and/or utilization and maximizing the utilization of train capacity (like hitch utilization in intermodal). All of this within the demands and economics of the marketplace, the flows of freight for various equipment and the variances in volumes day-to-day, week-to-week, and month-to-month. Who could ever claim that the commercial side of railroading isn't interesting?

An example of how a line-of-business has been managed to profitabilty would be the shifting of domestic merchandise traffic moving in railroad-owned intermodal equipment from the midwest to east coast markets with a haul of 700-800 (competitive highway) miles earning a 1.0 ratio into domestic doublestack containers owned by private parties stacked in high-clearance doublestack lanes for somewhere around a 1.5 ratio. While revenues declined to account for the private containers, equipment ownership costs shifted away from the railroads and train capacity greatly increased, reducing costs to a much larger degree . Such an improvement takes a line-of-business from close to breakeven and not worth re-investment as equipment wears out, etc., to a healthy contribution that attracts the capital of re-/investment in the business. And, of course, there are all kinds of examples post WWII, and especially since deregulation, where railroads have acted to improve their profitability through network, equipment, operations, and marketing levers.

[Cowford]

Thanks QB, and you're absolutely right about costing being somewhat of an art form. Most of the traffic that's not paying its way got on the railroad through the use of "creative" costing because the road was trying to fill up its trains, or it was an ego battle ("We ain't gonna lose that business to brand X"), or somesuch thing. And to your point on the intermodal side, I doubt you'll ever see a railroad buy a or lease a new container again. Focus on the track and locomotives, and leave the cars to TTX and containers/chassis to the customers.

One thing that I failed to mention is how volume plays a part in pricing decisions. Each railroad has a finite capacity for business and and there's a profitability tipping point: when the road goes over the magic % of capacity utilization, it just starts printing money. In 2004-07, most had that wonderful problem and the pricing leverage was incredible because a) shippers were able to absorb the increases, and b) the roads were actually happy to less profitable business in trying to maintain service fluidity. When they start dropping much below the magic %, the total volume of business can be hard-pressed to meet fixed costs... and that's when the price wars start. Fortunately, that hasn't happened... yet.

[QB 52.32]

That's so true, Cowford...railroads, with their high fixed costs, are volume-oriented and leveraged businesses. When the going's good, it's real good, but when it's bad, things can hemorrage real fast. I always thought that that was one very important economic advantage the trucking industry has over railroading (in times of downturn) with a pay-as-you-go, unowned highway infrastructure. When things go "south", much of the trucking industry has the flexibility to adjust more effectively than the railroad industry without the (degree of) fixed cost burdens the railroad industry faces.

Besides being an artform, one other complaint from the sales/marketing side of railroad management, can be that costing can be historical in nature, looking backwards based upon a "snapshot" of what was during a given past period, without reflecting the addition of new traffic that may be under consideration. Ie., unable to account for marginal increases in revenue vs. marginal increases in cost. But, in all fairness, especially on the carload side, it can be complex, and, on the intermodal side, unable to reflect the up and down cycles by day, week or month.

To a large degree, railroads (and their costs and financial success), like airlines, are tied to how well they fill each individual train (plane) with revenue (or the empties for moves which remain profitable with empty returns)...and we see how the airline industry has moved since deregulation to price by each unique flight(s) which has worked to increase utilization and smoothe demand out over each day of the week. IIRC, some of the large rail carriers have looked at pricing/demand/reservation systems like American's Sabre System, but, I believe the complexities of the business (and arguably, the marketplace) have made them shy away. Of course, CN is the one that hasn't and has pursued capacity management with an industry-leading operating ratio, but, if the most recent Trains magazine is accurate, with a negative image amongst its customers.

[Littleredcaboose]

My inquiry at a shareholders meeting to the sales dep. manager at CSX told me that railroad sales people dont get paid commissions. There is no incentive to get any traffic other then keep there jobs. Truck and ship brokers like HUB city are high intensity and high pressure sales jobs who are into hand holding the customer and "stealing freight" from the competition. I believe when RR lines get abandoned it not because a lack of freight....It is because a lack of motivation on the sales department. Also add to the fact that short lines who originate and terminate a good chunk of traffic are limited in there budget to hire quality sales people.

[pablo]

I'm very happy that I bounced this thread out of the Amtrak forum where it started. This thread is filled with nonsense and with people who really don't know what they are talking about. Let me clarify: not everyone here is daft, but just enough.

My inquiry at a shareholders meeting to the sales dep. manager at CSX told me that railroad sales people dont get paid commissions. There is no incentive to get any traffic other then keep there jobs. Truck and ship brokers like HUB city are high intensity and high pressure sales jobs who are into hand holding the customer and "stealing freight" from the competition.

It sounds like that's a pretty good incentive to keep your job. Prove you can earn? Imagine that. As far as "stealing freight", there are countless shortlines that do just that, that work very hard to get what they can and keep it.

I believe when RR lines get abandoned it not because a lack of freight....It is because a lack of motivation on the sales department.

Name one. This is not true. Most abandonments happen because traffic has dried up over time...or quickly.

Also add to the fact that short lines who originate and terminate a good chunk of traffic are limited in there budget to hire quality sales people.

This is hardly limited to shortline railroading, and respectfully, you're not correct. Show me a shortline doing a poor job beating the bushes, and I'll show you a shortline that's closed or on the way out.

Besides being an artform, one other complaint from the sales/marketing side of railroad management, can be that costing can be historical in nature, looking backwards based upon a "snapshot" of what was during a given past period, without reflecting the addition of new traffic that may be under consideration. Ie., unable to account for marginal increases in revenue vs. marginal increases in cost.

Not incorrect at all...but also something seen in lots of other places. Think retail. Think education.

Not sure if I understand the logic of the original statement about coal trains being the only profitable trains running.

That's because it doesn't make any sense. The knowledgeable people are banging their heads against the wall here.

Dave Becker

[Littleredcaboose]

Coal Trains- One Customer, One Bill, Point A-B. Intermodal even though it might be one customer as in APL there are dozens of pissed off costumers if the train is late or even lost.
One of the most profitable trains in the whole railroad system is was the Bessemer & Lake Erie--Coal North to Docks and Power Plant and Iron Ore South to the Mills, Why do you think the BLE was sold to CN?
The complaint about passenger service that the AAR had in the 1960s was that it was cross subsidized by freight. Well....Does that mean that a money losing mixed local on branch line is being cross subsidized by a money making coal or intermodal? Howabout the fact that Grain Service was subsidized by the Canadian Government to serve all the farmers instead of just Big Ag like the American Railroads want to do now. The Grainger Movement was about fairness for the small farmer. Now it seems that since ADM and UP play at the Same Golf Club they want to just serve them and force the forclosure of small farms who had shipped by the country elevator to the super loaders.

[Cowford]

huh?

[pablo]

Exactly. How long will this thread go without a lock?

Dave Becker

[QB 52.32]

Besides being an artform, one other complaint from the sales/marketing side of railroad management, can be that costing can be historical in nature, looking backwards based upon a "snapshot" of what was during a given past period, without reflecting the addition of new traffic that may be under consideration. Ie., unable to account for marginal increases in revenue vs. marginal increases in cost.

Not incorrect at all...but also something seen in lots of other places. Think retail. Think education.

Yeah, OK, so every sales and marketing type has a gripe about costing. I'd have to say, however, that costing systems used to evaluate class 1s' carload network commercial decisions for new business, for example, are a heck of a lot more complicated, and, therefore, subject to greater challenges in reflecting the true marginal economic impact, than those costing systems used to evaluate new business in either education or retail.

[QB 52.32]

Coal Trains- One Customer, One Bill, Point A-B. Intermodal even though it might be one customer as in APL there are dozens of pissed off costumers if the train is late or even lost.
One of the most profitable trains in the whole railroad system is was the Bessemer & Lake Erie--Coal North to Docks and Power Plant and Iron Ore South to the Mills, Why do you think the BLE was sold to CN?
The complaint about passenger service that the AAR had in the 1960s was that it was cross subsidized by freight. Well....Does that mean that a money losing mixed local on branch line is being cross subsidized by a money making coal or intermodal? Howabout the fact that Grain Service was subsidized by the Canadian Government to serve all the farmers instead of just Big Ag like the American Railroads want to do now. The Grainger Movement was about fairness for the small farmer. Now it seems that since ADM and UP play at the Same Golf Club they want to just serve them and force the forclosure of small farms who had shipped by the country elevator to the super loaders.

Yeah, coal networks are amongst the most profitable in railroading, but, there are other networks that can make the kinds of returns that attract capital for re/investment, and, in many cases the coal network (especially at the distribution end of the network) shares the infrastructure with those other networks. I'd guess that over the past decade, if you look at what networks are generating overall North American railroad profitability, it would be something like 1/3 attributed to coal; 1/3 attributed to carload merchandise; and 1/3 attributed to auto/intermodal (give or take 5 or 10 percentage points amongst the 3 networks). Lastly, railroads, like any form of transportation, can be used to promote a government's goals, even if their goal is not transportation-specific, but since deregulation beginning in the late 1970's, railroads have been given the marketing freedom to manage themselves to the goal of earning profits and returns meeting or exceeding the cost of capital. And, the sign that they have achieved that goal is that they are now attractive to Wall Street and capital markets. All you'd have to do would be to get in a time machine back to the 1970's and you'd see that the deregulation and management of the past 31 years has been a very good thing!

[2nd trick op]

littleredcaboose wrote:

I believe when RR lines get abandoned it not because a lack of freight....It is because a lack of motivation on the sales department.

and

Railroads have become a very specialized form of transportation . My local scrap yard has a siding but has not used it this year because the railroad prefers that they truck there scrap to a larger scrap yard in the Port of Albany. Same goes with lumber and steel beams. The lumber Yard gets there lumber trucked in from Weihouser who gets 10 car packs of lumber and the steel mills ship to a steel service center who then trucks it to smaller contract yards. The days of loose car railroads serving small towns are numbered. Look whats happening out west with BNSF grain and they only want to pick up from super silos.

Agan, Mr littleredcaboose seems to be stranded in the days of private sidings, team tracks (How's that for an outdated term!) and "peddler" freights. For purposes of local pick-up and delivery, this arrangement probably began to wane as early as the late 1940's. The rigidity built into the system by the crew districts and work rules of that day drove costs up, and as trucking took the more-valuable and better-paying freight, the lower-priority moves were left to cover the same overhead (fixed cost), increasing per-pickup/setout costs. This was of no consequence to the crews involved (unless the last industries sustaining a small barnch-line operation dried up), so the unions and their political allies fought the USRA "rationalization" plan of the mid-1970's, in the name of "preserving jobs".

In the days of economic regulation, BTW, the same rationale applied to small common-carrier truckers who dominated markets in sparsely-settled areas. Once the Roadways and Yellows were free to deal with the domionant shippers, the Friedmans (Wilkes-Barre), Follmers (Sunbury) and Noerrs (Lewistown) couldn't compete, but non-common-carrier alternatives developed where justified.

Under the conditions which began to emerge after 1980, responsibility for consolidating and "breaking bulk" shifted to a smaller number of facilities concentrated aroound the major markets. The center-sill car for lumber replaced the bulkhead flatcar, which replaced the 44-foot boxcar. The number of moves (and the associated costs) went down but the total volume of freight (and the revenue it generated) went up. With the per-car cost of local service rising rapidly, there aren't as many opportunies to solicit new business, especially for a short-line or regional serving a handful of potential shippers/receivers.

With perishable and hugh-value items, reliability and predictability are also a major factor. Business at the major rail-served produce terminals at places like Hunt's Point in the South Bronx fell off drastically in the early 1970's, in large part because the rapidly deteriorating condition of major rail lines in both the Eastern Trunk Line territory and the Upper Miwdest rendered them uncompetitive. Tht's not the obstacle it once was, but it's much easier to commit to a delivery by truck from a Railex-served warehouse near Albany than to commit a crew to unload a reefer from a siding in a rough neighborhood, which may not even get there on time to begin with.

Finally, as Trains columnist Don Phillips pointed out in a column published in the January, 2003 issue, the major rail freight carriers began to make money post-1990 becuse for the first time in many years, they had service to sell that somebody actually preferred to use over the other alternatives. As Mr Cowford points out:

Each railroad has a finite capacity for business and and there's a profitability tipping point: when the road goes over the magic % of capacity utilization, it just starts printing money. In 2004-07, most had that wonderful problem and the pricing leverage was incredible because a) shippers were able to absorb the increases, and b) the roads were actually happy to (decline?) less profitable business in trying to maintain service fluidity.

That's just an open economy at work; it's a harsh system, but an efficient one. In the process, old standards sometimes get swept aside quickly, with painful consequences for some people dependent upon them. But harsh though it is, it's an improvement over what came before, and it isn't fair to the taxpayer to subsidize someone else's advantage just because they were here first.

[Will_S]

I will have to inquire of my container expert, but several groups in Kansas were looking into shipping hay to Japan using containers. The challange of course, was the moisture content of the hay in a sealed container with a plastic liner. No matter how it is compressed, molds and mildews loves such places.

they ship buttercup pumpkins from NZ to Japan by container . they take one door off , and have wood slats between them .
hay would be a different matter . perhaps a door off and wrap it in chicken wire ???

Here in north central Illinois, some grain elevator operators noticed the stacks of containers sitting idle in Chicago because it's more cost effective to build new ones in Asia than to send them back empty. The past couple years have also produced record corn crops, so in an effort to move more grain a number of elevators, especially those without rail access, have taken to filling containers with corn to ship off to Asia. The containers are filled much in the manner described by Mr. Benton, with one door remaining closed, and wooden planks being placed across the rear of the container. Corn is then pumped in to about 2/3 capacity. The containers are then trucked to the BNSF intermodal facility at the old Joliet Arsenal. Elevator managers like it because they can move more grain and BNSF likes it because they can move some loaded containers back to the West Coast. Right now BNSF is the only rail company that takes these containers in the area, but CSX is building an intermodal facility in Grundy County, and this may make the process more popular in the area. I would not be surprised to find out that similar practices occur elsewhere in the corn belt.

[BR&P]

I believe when RR lines get abandoned it not because a lack of freight....It is because a lack of motivation on the sales department.

I presume the poster works outside, not inside, the railroad industry. There are two points (at least) which disprove that theory.

First is that the sales department does not operate in a vacuum. There are countless stories of sales having a potential move, and other factors such as operating patterns or whatever result in a decision from higher up that they just don't want that traffic. I have known sales reps to vent great frustration about some move they could have had but some other department put the block on it.

The other is that in most cases, it IS a lack of freight. I used to think that if a railroad gave good dependable reasonably-priced service, the business would grow. I long ago learned that is not always the case. One short line I was involved with lost several hundred cars a year due to a new technology at the customer which rendered the raw material we were moving unnecessary. Another customer (same railroad) was in a dispute with the local town about some infrastructure and taxation issues and moved off line, costing us another 150 cars a year. A storage company lost the contract they had, and another one which received many carloads of government "handout" goods lost that when the giveaway program ended. This all added up to an incredible loss of volume for the shortline, and each of these cases was due to factors the railroad had no control over.

Tossing out random statements like the original post may be a good way to start what has turned into a very interesting and informative discussion, but the way it was worded (as a statement, not a question) suggests a desire to start a bunch of BS. And as Mr. Becker suggests, that is trolling.

[Cowford]

Not that this is on-topic, but I thought I'd mention it anyway because it does relate to costs...deregulation has created a challenge to the industry with respect to rail equipment. Two examples: Intermodal and box car: The Feds set length and weight limits on over-the-road tractor/semi-trailer combinations in the mid-50s. The standard trailer that emerged was the 40' dry van. This was the standard for over 20 years... until deregulation of interstate trucking. In the early 80s, shortly after dereg, trailer lengths expanded to 45', then 48', and then 53'. (Can't recall when the 53' box came into being - pre 1990?) The trucking companies easily justified a quick conversion to the higher capacity equipment due to pricing differentiation and the relatively low cost/short depreciation life of trailers. The rail industry, on the other hand, continues to play "catch-up." When the 45's came, 45' rail platforms were built; when 48' came to be, 48' rail platforms were built. In 2009, 45' and 48' boxes are about as popular as ants at a picnic. But the 45' and 48' rail intermodal platforms built in the 80s remain. What seems to make sense- namely scrapping- is complicated by accounting/depreciation issues. Add to that the fact that the industry has been migrating from trailers to containers at the same time, which generally drives a push from conventional to double-stack, and you can imagine the challenge equipment managers/providers have in sourcing the right equipment. Similar issue with box cars. The standard box for years was the plate B or C 70-ton, 50' RUF box car. Then came dereg: post dereg economics and the general push in both the trucking and rail industries for greater per-unit lading capacity has largely driven this car type out of style in favor of newer plate F high-cube 100-ton 50' and 60' CUF boxes. However, masses of plain-jane 70-ton boxes were made in the late 70s/early 80s, so the industry is stuck with them for a while longer.

[QB 52.32]

Fortunately, domestic container doublestack came on the scene just as the trucking industry reached its plateau of existing trailer length and configuration regulations. I think it mitigated the impact of this mismatch of equipment cycles and innovation on the intermodal side, though not on the boxcar side, as it provided economic returns that could support large investment in a new generation of flatcars. I'm amazed at TTX's creativity in dealing with this issue, and, I believe that they learned from that period of rapid change as they have worked to make equipment as flexible as possible and with anticipation of further change (I believe most recent generation of ds flats can handle 57-foot containers, if not throughout, on at least a couple of platforms). But, you are dead-on, Cowford...its a structural weakness in rail vs. highway competitiveness and will surely play an important role again in the future. BTW, all those 50' plain boxcars are from the ICC's incentive per diem program which gave incentives to 3rd party leasing companies to introduce this car type into the rail system as the supply of these cars owned by the Class 1's were rapidly dwindling by the mid-70's. I guess its a case of shorter-term thinking without the benefit of understanding what would transpire during the next 10-15 years...not such a good thing when the equipment lasts for so long!