Why some railroads don't really care?

I've always wondered, at times more than others, how some railroads *cough* par *cough* can stay in buisness and really not compete for customers. You would think railroads would be trying to compete for small and medium sized buisness accounts.

With gas prices hovering and poised to go up, I would, if I was in charge of a railroad, be competing with medium sized businesses for accounts, especially in New England and the Mid-Atlantic.

It's hard to beat trucking for these kinds of accounts. It's what contributed to the demise of much railroading in New England to begin with.

However, don't underestimate the shortlines that are there now who might be aggressively seeking business, much more than their predecessors. (Although they only own part of the entire haul and the Class I's don't seem to be terribly interested in single or a few cars at a time either.)

My sense is that "they ran the numbers" and they didn't show a positive return on investment. True, it's "their numbers" which can turn out in lots of different ways...

gprimr1 wrote:I've always wondered, at times more than others, how some railroads *cough* par *cough* can stay in buisness and really not compete for customers. You would think railroads would be trying to compete for small and medium sized buisness accounts.

With gas prices hovering and poised to go up, I would, if I was in charge of a railroad, be competing with medium sized businesses for accounts, especially in New England and the Mid-Atlantic.

GOOD QUESTION - and it gets to the heart of what regulation will do to an industry.

The problem is that doing business in a heavily-regulated industry is so onerous, and making needed changes so difficult and time consuming...

...that the industry doesn't try.

It's not that leaders throw up their hands and give up, individually. It's that people with VISION and INITIATIVE get out of the field quickly...there is no challenge, changes are blocked at every move, from every corner (government, labor, lower management) so executives with the "vision thing" go elsewhere.

Or else they don't enter the industry in the first place.

The railroad can make SOME money by just doing what they've always done, no change, no fight, no struggle. If they try to change they have to fight bureaucracy inside and out. And if they're successful, immediately other carriers and other transportation industries, like truckers, will scream "Unfair competition!!" And Congress reserves the right, indefinitely, to retract Staggers and re-regulate the railroad.

Now...in that kind of environment, with an industry where every time you need to use the men's room you need to file a FRA form in triplicate...who's going to go to work for the railroad industry?

Picture a kid, top of his class, good school, has a B.A. or MBA...he can go to work for Sony Pictures. Or Microsoft. Or General Motors or a myriad of other businesses.

Is he going to want to go to work for a business that will issue him a green eyeshade, sit him in a corner, and tell him to SHUT UP?

NO. The railroad industry gets the "second tier," the kids who went to school on an athletic scholorship but weren't good enough for the MBA.

And they come in and serve their time. They have no vision and no desire to shake up their comfortable, structured world. So the railroad plods on, lacking initiative or will to modernize.

It's interesting that you said it's the fault of regulation, I would have faulted de-regulation. Has de-regulation really helped the industry?

gprimr1 wrote:It's interesting that you said it's the fault of regulation, I would have faulted de-regulation. Has de-regulation really helped the industry?

THE STAGGERS ACT SAVED NORTHEASTERN RAILROADING AND MADE CONRAIL'S CONTINUED SURVIVAL POSSIBLE.

I cannot stress that enough. Without Staggers, before Staggers, Conrail was just Penn Central with a different name and was getting worse. It was predicted in 1981 that Conrail would continue to be a subsidized industry until 2000 and possibly indefinitely. And other railroads were starting to suffer from Penn-Central-itis...a onetime friend on the Santa Fe had bought a lot of its stock for a song in the years 1977-1984. (Became a near-millionaire from it, too.)

Without deregulation and profitibility, the subsidized Con-Rail would have remained a politica football, just waiting for some politician or other to swing the axe. Sooner or later it would happen...unlike trucking, which enjoys an indirect subsidy (people benefit directly from roads as much as the trucking industry does) money poured into rail subsidies is just money given to the industry. It suggests an inability to compete and an obsolete transportation mode.

Staggers proved it wasn't so. Staggers allowed the rail industry to make money on its services as the market allowed.

It's always that way in regulated industries. Let me give an example: Ma Bell and the cellular phone companies.

For $28 a month, your local landline phone company gives you...a dial tone. YOU buy the phone. Long distance is an extra service. You want an answering machine, you have to pay for it. And before the Bell breakup, phones hadn't changed in 30 years.

For $30 a month at the cellular company I use I get:

--Service;

--A phone, miniaturized, that includes a camera, a calculator, even games;

--Free nationwide long distance;

--Even a voicemail box.

The cellular phone isn't even tied to a cord! Why the difference? Cellular companies have to compete and thus have to offer more for the consumer. Regional telephone companies are protected, regulated monopolies.

The one delivers service and value; the other stagnates.

This is a complex subject, but here's one other thought, and his applies to the publicly traded mega-railroads (CSX, NS, BNSF, and UP) and not to privately held companies like Guilford or most shortlines.

Thanks to the current mentality of Wall Street power brokers, it is no longer enough for a publicly traded company to simply make money. Now you have to make more money every quarter than in the one before, or stock analysts will label your company a loser and recomend a selloff. It's idiotic, in my opinion, since it favors short-term profits over long-term growth and stability, and it's one of the things contributing to the current decline of this country's manufacturing base.

The way this affects the mega-railroads is that small shippers no longer matter to them. They might make a few dollars hauling one or two carloads of widgets from here to there, but they make a lot more money hauling a whole trainload of coal or containers. So that's where their focus is. To me profit is profit, and if you make even one dollar on a business transaction that's one more dollar than you would have had otherwise, but on the whole corporate America is forced to view things differently these days by the stock traders who really control our economy. If you're not making a quick killing, don't bother.

Absolutely the Staggers Act was a huge help in making railroads competitive. Going back 40 years railroads were not free to set the rates they felt would be successful in getting traffic - there were volumes and volumes of tarriffs, incredibly complex in some instances, and often hopelessly outdated. Railroads were bound by these rates, and getting a new rate approved was not an easy task. Now with deregulation, each railroad in a prospective move quotes its own factor - add them all up, publish it, and go.

I would think railroads in general must be doing something right in that I have always wondered how they can compete with trucking at all.Consider that railroads must pay themselves for any improvement to its infrastructure,
and then PAY property taxes on it.Trucking's infrastructure,on the other hand, RECIEVES tax money to pay for its improvement.
Sadly,I can't include my local freigt carrier,Guilford/Pan Am,which seems quite content to let the infrastructure in Ct. just rot away and let all the customers go to trucking,while the local regionals such as Housatonic and P &W go after traffic and watch their business grow.
Ed Baclawski

What it is, ed, is that railroads are so much more inherently efficient than any other mode of transport.

Consider:

--Two men and a dispatcher can do the work of 500 truckers loaded to legal limits.

--An ounce of diesel oil will move a ton of freight a mile.

--When properly run, a railroad revenue train can outrun a truck, simply because of the lack of traffic controls and congestion. Crews can continue without stops for meals - the only stops needed are for fuel and recrewing

--A locomotive may last as long as 25 years in revenue service. Freight cars often last over 40 years.

This is how the industry makes money and how it keeps going in spite of tax gouging, in spite of incompetent management, in spite of more glamorous transportation options.

I'm no expert, but I would venture to say most of them don't care about maintaining their rail is because within the next few years the government is going to buy it all up anyway. Then its the governments problem to improve it... and they are gonna want to make it all good enough to use it for passengers and for freight.

The only question I would have would be if I was a shortline asking if i serve enough of a purpose to make the government care about me in this new national system?

I'm going to study abroad next year, I know I'll come back to see the NYC area undergoing and completing some large changes, it will be interesting to see what else will be in the works all over the country. Whose knows what will be by the time I enter the workforce. On the other had I wouldn't be shocked if 12 years from now nothing has change.

An interesting theory Harry, but why would you think the government is going to buy up all the railroads in the country? Usually nationalization is done only as a last resort, or for military reasons. While today's railroads face problems, so does every sector of the business community in one way or another. In general the railroads are profitable and personally I can't see ANY justification for nationalization. And I also see no indications that suggest that will happen at any time in the forseeable future.

This country was built on private enterprise and that is still the best way to growth and progress. Any time you see something about the government buying something or paying something, read it again and substitute the words "taxpayers, including ME" for "government". If the government took over the nation's railroads, it would be a disaster of incredible proportions.

BR&P wrote:An interesting theory Harry, but why would you think the government is going to buy up all the railroads in the country? Usually nationalization is done only as a last resort, or for military reasons. While today's railroads face problems, so does every sector of the business community in one way or another. In general the railroads are profitable and personally I can't see ANY justification for nationalization. And I also see no indications that suggest that will happen at any time in the forseeable future.

This country was built on private enterprise and that is still the best way to growth and progress. Any time you see something about the government buying something or paying something, read it again and substitute the words "taxpayers, including ME" for "government". If the government took over the nation's railroads, it would be a disaster of incredible proportions.

This might be looking at the world from the point of view of the NE and other major urban areas, but there is just no more room to make roads for cars and trucks. There seems to be steadily increasing pressure on the government to improve our passenger rail system and to a lesser extent the freight rail system. If the current railroad companies can't or wont pay to improve it, the government is going to have no choice but to step in.

When I say the government is going to buy it up I mean just the rails, switching, and dispatch. The companies will still have to haul the freight and deal with the clients. Maybe passenger rail might even become profitable above the rail and we can eliminate Amtrak.... but i doubt it.

You have already seen demand for passenger rail work in the favor of freight companies. Aren't there a few cases where the regional passenger rail buy stretches of freight rail to run light and heavy passenger rail service on while allowing the original owners haul freight late at night? Freight lines give the lowest possible priority to Amtrak's LDs and do everything to hold up passenger rail on their turf, when people get fed up with 6 hour delays its going to Amtrak people look to to fix it, not the freight rail the LD is running on. This might only be railfan suggestions that i've heard this from but hasn't Amtrak offered to add sidings to the freight lines their LDs run on?

It seems there is always a constant push to privatize, the government brings an industry back to life and then kicks it out the door. For the most part nobody has ever tried to privatize the national road system in america... that is everybody except for New Jersey who wants to sell the Turnpike. We pay taxes and tolls for the upkeep and supervision of our roads, waterways, and airways... why not our rails?

Its the only possible future i can think of.

I'm not trying to advocate this system, but what are the other options. My bet is rail companies see it like I do. Put your money into engines and other stuff that rolls on rail, not on rail itself- thats not going to your problem to much longer. Plus the worse it gets the more "normal" people get mad with it.

I don't see the US gov't "taking over" the US rail system anytime soon. What i do see is a series of tax breaks, etc, to give the railroads some incentive to upkeep and maintain their trackage.

Passenger service (in any industry) has never been profitable. Just take a look at the airline industry and tell me if any of those airlines would be profitable without the subsidies they recieve.

and there will always be room for more cars and trucks. After all, who needs those trees taking up all of that unused space anyway.

TomNelligan wrote:This is a complex subject, but here's one other thought, and his applies to the publicly traded mega-railroads (CSX, NS, BNSF, and UP) and not to privately held companies like Guilford or most shortlines.

Thanks to the current mentality of Wall Street power brokers, it is no longer enough for a publicly traded company to simply make money. Now you have to make more money every quarter than in the one before, or stock analysts will label your company a loser and recomend a selloff. It's idiotic, in my opinion, since it favors short-term profits over long-term growth and stability, and it's one of the things contributing to the current decline of this country's manufacturing base.

The way this affects the mega-railroads is that small shippers no longer matter to them. They might make a few dollars hauling one or two carloads of widgets from here to there, but they make a lot more money hauling a whole trainload of coal or containers. So that's where their focus is. To me profit is profit, and if you make even one dollar on a business transaction that's one more dollar than you would have had otherwise, but on the whole corporate America is forced to view things differently these days by the stock traders who really control our economy. If you're not making a quick killing, don't bother.

You are right on the money. (Sorry no pun intended)

Mr. Nelligan's point is essentially correct, but it overlooks several long-term trends which may further inveigh in favor of the railroads, unless prevented by union/governmental interference.

Until sometime around 1990, railroads essentially had nothing to sell; they were viewed as the carrier of last resort because no other form of carriage was available. Clarence Werner, the founder of the highly-successful Omaha-based truckload carrier which bears his name, statrted out with a single truck, and quickly learned that he could always obtain a backhaul of freight which would otherwise go by rail.

But over the past 15 years, huge new markets have opened up for freight, particularly high-value imports moving in containers which can be easily switched between modes. But as has been noted, capacity on the handful of remaining main lines is limited, and the pressure has increased on the approaches to a number of major cities (not all of them in the Northeast), due to an expanding demand for commuter rail and short-distance corridors. Like aircraft, rail signalling and traffic control is an extremely sophisticated and expensive technology, slowly evolving to a global standard, and as with electrification, even the remaining mega-railroads are reluctant to undertake major improvements alone.

Meanwhile, a handful of small regional and shortline cariers, not saddled with the higher labor costs and strict work rules in force on the main lines, have been free to innovate for shorter hauls, though the market is, of course, limitied by geography. The question of whether continued fuel-price pressures might allow these lines to partner with larger regionals aqnd seek longer hauls remains unsettled, but I'll call your attention to the "Time to Re-Invent the Iron Horse?" thread I posted about a month ago.

Finally, it should be noted that a number of trends within the general field of distribution/logistics will likely continue to strengthen the railroads' position. I spent much of my working life in the trucking industry, starting in the early 1970's when the railroads simply weren't hiring. As the Interstate System was completed, more and more high-value traffic found its way onto the highways, and hauls became longer and longer. A large pool of "baby-boomers" entering the work force provided an abundant supply of labor, and trucking was often viewed as a glamour job for young men seeking to escape a regimented life style. The passing lane of Interstate 80 was sometimes called the "Monfort Lane" in a reference to the speed-conscious Colorado-based fresh meat hauler.

These things are no longer true. The high scales of pay and benefits from those days have been competed away, traded in part for a more-stable weekly schedule, but turnover remains high. It is becoming increasingly apparent that the railroads now hold the upper hand with regard to high-volume freight. Whether innovation and market freedom will allow a new generation of entrepreneurs to go after the next stratum of business is yet to be determined.