NS and Weaver Popcorn - Class I Pricing Monopoly

[Jeff Smith]

I'll start this in NS, then move to General Class I as it's somewhat of an overarching topic.

I don't think anyone wants to go back to the "bad old days", yet, without the yoke of passenger transportation around their necks, certainly, instances such as this can be avoided somehow? Any thoughts as to how this might work?

http://thehill.com/blogs/congress-blog/ ... g-monopoly

Tens of thousands of American businesses depend on the freight railroads for reliable and reasonably priced transportation. In 1980, when the freight railroads were struggling, Congress deregulated them where they operate in competitive markets and allowed them to retain exemptions from antitrust laws. Since then the industry has consolidated into a monopoly, with just four major railroads controlling more than 90 percent of freight traffic effectively eliminating competition for all but the most fortunate rail dependent shippers.

...

The Weaver Popcorn Company in Indiana is one of the world's largest popcorn producers and relies on railroads to transport goods for shipment globally. Lacking local rail access, Weaver exports 360 million pounds less popcorn per year, giving overseas competitors a large advantage. They have sent several requests to their primary railroad, Norfolk Southern, to be allowed to invest over $1 million of their own money to create a critical rail upgrade to access Norfolk Southern to the nation's ports, but have yet to even receive a response.

[gprimr1]

A corrective slap to the head of the management of NS?

Seriously though, this drives me crazy. Here is a customer, who wants to pay money to use your service, and is even willing to pay their own money to get connected to your service, which means more profit for you, yet you turn them down?

Now we all know with these things, there may well be, as Paul Harvey said "The rest of the story" but based on what we see here they are stupidly passing up an opportunity to make more money.

Now we are approaching the opposite of 1970s. Back then, we had 6 railroads leading to the same place, and it was unsustainable. Now we have 1 that isn't interested in a customer, who is interested in them.

NS isn't the only railroad to do this though and it is something that needs to be addressed, but I don't know how.

[Jeff Smith]

Exactly; what is the balance between regulation, competition, and capitalism? States still routinely set rates for utilities, or at least transmission rates, as there has been some opening of competition.

[QB 52.32]

I think this highlights more of a PR problem than a need to reregulate the railroad industry. Yeah right, NS is gonna blow off a realistic opportunity for more traffic --- give me a break! More likely this shipper wants to load their international containers onto flatcars within their plant instead of trucking to the nearest intermodal terminal and doesn't understand why NS has no interest in that. If so, that's a story that's been repeated hundreds of times.

I think the railroad industry has a much more competitive structure than the electric industry, which they are often compared to in this kind of conversation. There's plenty of modal competition the railroads must meet while there's next to nil for electricity. A great deal of the railroad business is competitive due to intermodalism (including transloading) and the fact that all regions of our country are accessed to some degree by more than one carrier. Then, too, there's also an overlay of product and logistical competition at play in transportation.

From a capitalistic viewpoint, what's telling about the railroad industry since deregulation is that only now is the industry earning average (for the industrial sector) returns on investment. Since the business is capital-intensive, this is a very important determinant of how much, and by whom, critical capital investment can be made to support or grow the industry. In the big picture, given the industry's competitive structure and consequential returns on the business, doesn't seem to me like the railroads hold a monopoly or position as "robber barons". For their part, while seemingly effective in laying out the situation within Washington so far, perhaps the railroads need to broaden their message to gain greater understanding, and, if necessary, be ready for some tweaking around the edges.

The days when, by necessity, railroads were "all things to all people" are over and that needs to remain reflected in our government's promotion and regulation of the industry.

[airman00]

So then... are we saying the day of the branchline is over? I've learned from this site that learning how to switch freight customers is how guys "cut there teeth" so to speak in this business. And now potential freight customers must truck there freight over to the nearnest intermodal or transload facility to get rail service? Is the day of the branchline over? Isn't the whole purpose of rail to help take trucks OFF the road? It seems to me NS just doesn't want to deal with servicing an individual customer. And remember, the Gov't cracked down on Microsoft for getting too big. 4 major railroads controlling 90% of rail service sure sounds like a monopoly to me.

[QB 52.32]

If it were 4 railroads each solely controlling seperate parts of our country, I'd buy what you're selling, but it's 2 in the west and 2 in the east competing with each other in all regions of the US. Then, too, there's a couple of Canadian roads and mid-American KCS which have operations and compete in certain regions of the US. Then, too, there's the ability of each carrier to access and compete in territories with trucks handling merchandise in trailers or containers, or handling traditional carload traffic like chemicals, autos, forest products, etc. via truck from transload terminals into the places they don't directly serve. There's also the possibility of pricing yourself out of markets because there's alternative production or distribution points that would elimate participation. And, lastly, there's alternative modes of transportation or technologies that become competitive at a certain point. That's not a monopoly.

Railroads do best moving freight characterized by heavy weights, high volumes, long distances, or in some instances, specialized handling characteristics. Movements that fit at least one of these criteria inform what belongs on rail in terms of competitive rates that allow railroads to earn financial returns on their investment capable of supporting reinvestment over the long term. Branchlines with traffic that fit some aspect(s) of the above characteristics to some degree will continue, those that don't may not. But, nowhere have I heard of a railroad that maintains branchlines simply for purposes of training.

Trucks have an important place within our transportation system. They're more flexible, oftentimes faster and more reliable, and have much greater market coverage than rail.

Intermodal takes in the best of rail and the best of truck allowing trucks to do the pickup and delivery from multiple points in an economical and timely fashion while railroads handle the large consolidated volumes economically. While we don't quite know the whole story of Weaver Popcorn as presented, it's indicated they want to ship popcorn from their plant to ports for export. Likely it's packaged in a form that would need to move via dry international container. This kind of movement is best handled in dedicated intermodal trains via large hub terminals with trucks doing the local pickup to the intermodal facility: the service is much better and it's the way the railroad is going to make money on the shipment (and that is the goal for the railroad). I think you'd be hard pressed to find one businessperson who'd be interested and willing to make an inferior, money-losing product, no matter how badly the customer wanted it. And, likely in this case, NS is no different.

[JayBee]

Does anybody have any more information on this topic? Weaver Popcorn's main processing plant is at Forest City, IL which is on the I&M shortline not very near any NS line, main or otherwise. It looks like export orders are shipped in 50lb bags stacked on pallets, something conducive to container shipping. A premium product is not going to be handled loose in a covered hopper. Also do they intend or need to ship primarily to the West Coast for export? 360 million pounds is a significant amount (180k tons).

[ExCon90]

It's hard to assess a situation like this without knowing what the shipper expects to pay for the service. If by any chance the shipper wants to load containers on flatcars at his plant and pay the same rate per container that applies from an intermodal terminal in the area, that expectation is unrealistic. While it certainly seems that the shipper should have received a response from the railroad by now, perhaps that response would have to be no. Other things it would be helpful to know are whether traffic is moving now, and if so, how? Is the "less traffic" now moving due to transport cost? As observed above, we're greatly handicapped here by not having "the rest of the story."

[2nd trick op]

I think this discussion can be linked (in part) to an excange between Mr. Norman and myself, as referenced in the link below:

http://www.railroad.net/forums/viewtopi ... 77&t=86930

The continuing (and likely inevitable) escalation in the price of fuel creates, in theory at least, an enormous potential for the expansion of rail traffic, and as the distance required to justify the savings decreases, the potential volume should increase even faster. But the fixed and expensive nature of the rail plant, and the cumbersome nature of the framework of rules under which railroads, particularly the few remaining class I's, operate, negates much of this.

So how can all the participants in the freight business work toward the refinement of our rail infrastructure? Those of us with a familairity of operating conditions on the bi-directional, but seldom more than double-main-track systems that characterize most main lines know that flexibilty diminishes greatly once traffic approaches a saturation point. I'm not familiar with what usually takes place on the only major stretch of three-track main (UP - Gibbon to North Platte) and while it's tempting to believe that a return to four tracks on the former NYC and PRR mains would offer some enormous possibilities, the cost appears to be too much. (Yet the new interlocking plants on the NEC dveloped over the past fiften years or so are testimony as to what can be done.)

The pssiblity of again experimenting with restructured crew districts, and siding-to-siding direct service, as embodied in Reading's short-lived Bee Line service of forty years ago, or of re-opening a "mothballed" secondary line stricly for slow-speed "land barges", or even of drawing upon the use of short lines and regionals as feeders, is also tantalizing.

All of this is pretty much still in the "pipe-dream" stage, and I surely wouldn't hold my breath waiting. But the biggest single incentive, the economic advantage, is out there in plain sight. And it s more likely to intensify than to go away.