Class 1 Merger Speculation

Good point, Mr. RandalW, and within the market for small-shipment parcels and pallets, the Class 1's (except NS' niche product) have taken a successful wholesale role offering replacement for those serving carriers in their linehaul operations vs. going over the road. It requires a high degree of reliability including execution by the hour for parcels where the Class 1's have long and continuing success.

Noteworthy in earlier intermodal was PRR's wholesale channel approach using truckers vs. NYC's direct retail channel approach in reaching the marketplace.

LTL in trucking most resembles railroads including in their higher capital structure in a network of break classification and serving terminals (but of course, not the linehaul infrastructure). Noteworthy within that sector is that the best service provider also has the lowest OR shooting for sub-70's.

Among truckload and domestic container service, interestingly enough where economics dictate, shippers will use this service to then tender through interchange deep into an LTL carrier network for break and then distribution particularly if the freight is lighter weight. That, for example, can be seen amongst larger movements of light-weight consumer products originating from import at the west coast moving via rail domestic container to be tendered to an LTL carrier to be broken in Harrisburg PA for final delivery in the Mid-Atlantic and Northeast.

As always, whoever is paying the freight will look for the best combination of cost and service within their overall distribution system whether it's a railcar, truck trailer, domestic container, international container, etc. etc. (they don't care) with reliability a critical driver amongst the choices.

Amazon's shift to running their own delivery network disrupted the shipping industry that competed to give them the best prices and win their business. Amazon still uses FedEx, UPS and USPS (and the FedEx or UPS to USPS services where USPS provides the last mile to the home) but they are well on their way of completely cutting out the "middle man" carriers, filling boxes at increasingly automated fulfillment centers that are located in strategic locations across the country then sending those boxes to sorting sites where independent contractors in "Amazon" vans pick up a presorted pallet of packages, load them in their van and make the final mile delivery.

Amazon is a technology company more than just an online seller. Using sales history for each area they can predict purchases and plan to have the items that will be ordered in the appropriate warehouse before the order is placed. If their guesses are wrong an something unexpected is ordered they can ship the order from a nearby warehouse. And while older fulfillment centers relied on people with carts running around warehouses pulling items the new robotic warehouses bring purchased items to workers working in stationary workstations.

As long as the railroads continue to perform at a minimum standard they can be part of Amazon's supply chain. $950 to get one semi load across the country in two to three days on a train instead of $1600 for well paid truck drivers (cheaper if the truck drivers are not well paid). Statistically secure transport? But images of container trains with open doors and missing product is not good PR. Statistically safer? But every train that loses contact with the rail is bad PR, Statistically reliable? But every load delayed by some problem on the tracks.

Railroads are in a tenuous position. They cannot afford to lose business yet their non-railroad competition continues to grow.

Therein lies the issue most critically and importantly understood when seen through the clearest eyes of the wolves who pick the winners and losers within the markets that move capital.

Invest in a business and its privately owned rights-of-way and technology competing across derived demands while requiring a bigger appetite for investment in long-term assets for basic health & well-being and operating with a workforce 85% organized against businesses and technology operating on public infrastructure able to innovate more quickly with shorter-term assets and a workforce 15% organized during a time of increasing technological innovation -for growth? - or decline?

And, what is the role public policy coming out of the political sausage-maker will/should play with levers that can be used to promote or regulate amongst differing modes where there are underlying and ongoing economic distortions created within that decision-making? - including in expectations around risk?

As an enthusiast, across my experience and looking back over my shoulder I don't think the impact in coal's bedrock erosion should be under-appreciated, believe Harrison's responsive influence will in the end have a good chance for net benefit, and am wondering if across risk/cost/benefit over this next chapter a fulsome public policy should encourage a final round of transcon merger proactively toward ensuring the highest chance for the most growth for this old technology and evolving business.

To your point, we're at a crossroads in transition, but I'm not ready to call the position tenuous and as Amazon uses and has invested in rail intermodal for handling their long-haul high-volume lanes with demand derived from importing consumer goods.

Amazon and other shippers will use rail until it no longer makes sense for them to use rail. I don't see that tipping point as being decades away. If autonomous trucks were more morally and financially accepted we probably would be at that point. It would only take a slight reduction in the cost of rubber tire shipping or a slight increase in the cost of rail shipping to reach the tipping point.

And then rail would be left with the captive traffic. Bulk commodities and large objects that are easier to move by rail until they get to the point where rail does not serve the destination and they have to be rubber tire shipped to the final destination. Railroads would still get a piece of that action. Restrictions where large loads can only be carried sun up to sun down on highways help railroads who can keep a load moving overnight. If that load fits on a train. (What plate size is a mobile / modular home? Those shipments are captive to the rubber tire shippers. But even RVs and trailers that are smaller than a semi trailer end up being towed the width of the US instead of being transloaded on a train.)

Figuring out which party's regulatory opinion is better for the railroads gets complicated. Should oil and gas be delivered by fixed pipeline or rail cars? Or should the country be moving to alternate sources? Questions beyond the scope of this thread.

Bottom line is that merging Class 1s is not a magic bullet that makes railroads work better than they do today. Anyone who thinks merged railroads will do that better include a lot of "forward looking" language in their legal double speak to cover their butt when results vary.

The bottom line is found in marginal benefit vs. marginal cost even if not totally magic, with a 2-transcon system case study found in Canada for consideration, and against 4 separate systems each maximizing benefit only for themselves individually and where, importantly, the line drawn between east and west is imperfect favoring the West when considering the entire system.

Clearly there are benefits in reduced overhead, improvement in service and costs when eliminating interchange, new marketplace opportunities across the watershed, and a greater ability to cross-subsidize amongst markets and within competitive advantages and disadvantages. These would have to be measured against costs found importantly within public policy, merging and amongst ownership motivation, and where the debate begins.

BTW, railroads once tried to enter the market for movement of mobile homes, but the un-truck-like ride quality lead to far too much incidence of structural damage. In terms of RV's and the like, I suspect the underlying issue around balance may have a part to play, if not in terminal handling, in not deploying the long-term assets of those specialized railcars capable of handling them.

justalurker66 wrote: ↑Mon Dec 09, 2024 1:02 pm Amazon and other shippers will use rail until it no longer makes sense for them to use rail. I don't see that tipping point as being decades away. If autonomous trucks were more morally and financially accepted we probably would be at that point. It would only take a slight reduction in the cost of rubber tire shipping or a slight increase in the cost of rail shipping to reach the tipping point.

And then rail would be left with the captive traffic. Bulk commodities and large objects that are easier to move by rail until they get to the point where rail does not serve the destination and they have to be rubber tire shipped to the final destination. Railroads would still get a piece of that action. Restrictions where large loads can only be carried sun up to sun down on highways help railroads who can keep a load moving overnight. If that load fits on a train. (What plate size is a mobile / modular home? Those shipments are captive to the rubber tire shippers. But even RVs and trailers that are smaller than a semi trailer end up being towed the width of the US instead of being transloaded on a train.)

Figuring out which party's regulatory opinion is better for the railroads gets complicated. Should oil and gas be delivered by fixed pipeline or rail cars? Or should the country be moving to alternate sources? Questions beyond the scope of this thread.

Bottom line is that merging Class 1s is not a magic bullet that makes railroads work better than they do today. Anyone who thinks merged railroads will do that better include a lot of "forward looking" language in their legal double speak to cover their butt when results vary.

There is also the awkward fact that likely 1/4 of road bridges will fail, and it's heavy trucks that are causing the most damage. I can't see amazon paying their share for upkeep.

There's also the risks that within policy the public will pay for those bridges, charging user fees non-compensatory to the direct maintenance and capital costs of the infrastructure, allowing liberalization of truck weight and length limitations, and while promoting improvement in their fuel/emissions and/or labor costs as private investments pursue those productivity improvements, even if short of a widespread system of full autonomy, and sometime sooner than later.

scratchyX1 wrote: ↑Mon Dec 09, 2024 3:11 pmThere is also the awkward fact that likely 1/4 of road bridges will fail, and it's heavy trucks that are causing the most damage. I can't see amazon paying their share for upkeep.

They pay what the government believes is their fair share. Railroads, railroad employees and railroad fans may not accept the cost distribution for maintaining road infrastructure. But they have no more power over road funding than any other citizen.

If one doesn't like the cost distribution one needs to figure out which party and policies are more likely to change said distribution to one that matches their desires. And fight against well established lobbyists that protect the trucking industry from what they feel are unfair taxes and fees.

Merging Class 1 railroads to create a duopoly will not change how roads are funded.