Eastern Railroad Discussion > Rail costing and it's impact on strategies

I’m digging up a November 2018 discussion from the Western forum that discussed PSR and Amtrak, with a view to elaborating on some comments I made about railroad costing. (By the way, there’s lots of great stuff in that discussion, and it’s always worth revisiting.) I'm posting this in the Eastern forum because I think the issues of train size and higher frequency have more relevance to the shorter distances between markets in the territories of the eastern rails.

https://www.trainorders.com/discussion/read.php?1,4668835,page=1

Here’s the issue in question from that discussion:

   “It is my position that the fixation on variable costs is the result of fundamentally flawed costing which ignores the cost of capital employed in the fixed plant. By ignoring        the cost of capital, the costing methods employed understate the cost of the long-life deteriorating assets that are a railroad's major investment, while simultaneously overstating the importance of the more variable costs (esp. crews). The result is the vastly underutilized rail infrastructure that we have seen for decades.”

TAW responded, in part:

   “Meanwhile, folks in other countries (or continents, actually) realize that and try to fill the infrastructure with the greatest possible number of trains. That requires effort to learn in detail how to do it.”

This anecdote regarding Carnegie Steel from Harold Livesay's book "American Made: Shaping the American Economy" is a good account of the principle involved:

Quote
Carnegie's strategy in reducing costs was to "hard drive" the equipment, obtaining the maximum output in the shortest amount of time. Such techniques raised production at one furnace from 13,000 tons to over 100,000 tons per year. It also reduced the life of the assets [as meaured by time]. A visiting English industrialist being led on a tour of the mills by Carnegie's superintendent deplored these techniques which resulted in the furnace components being replaced every three years. The superintendent's response was "What do we care about the lining? We think a lining is good for so much iron and the sooner it makes it the better."

Translated to railroads, this approach would result in the mandate for those in service design, operations, and marketing to “fill the infrastructure” as TAW said, or to “wear out that rail!” To paraphrase the Carnegie superintendent, "We think the rail is good for so much traffic and the sooner we carry it, the better."

One does not have to be conversant with financial methods such as Net Present Value (NPV) or the Internal Rate of Return (IRR) to appreciate the simple logic of Carnegie’s approach. It is valid because of the phenomenon of time preference—of sooner being better than later (if I’m going to give you $100, do you want it now or five years from now?). Time preference and the time value of money are what underlie interest, the cost of capital, and the use of NPV and IRR.

Any costing system that does not recognize the benefits of using an asset (and thus earning the revenue) sooner rather than later is simply not recognizing that capital (both debt and equity) has a cost. The owners of a firm want a return on their capital in addition to the return of their capital. The finance and costing departments of railroads undoubtedly use DCF methods extensively, and the IRR and NPV are the preferred methods of evaluating projects.

However, it appears that the railroads are not incorporating the cost of capital into their costing systems. As I’ve never worked for a railroad, I don’t say that out of any first hand experience. Yet, the railroads’ fixation on managing and reducing variable costs and not striving to maximize use of the infrastructure is a good indication that they don’t. Also, the depreciation methods that do factor in the cost of capital are forbidden by GAAP, making it less likely that they’d be used even for internal analysis and planning. In addition, I had attended a conference on Track Maintenance Costing back in the early 90s. A key point in several of the presentations (including Zarembski’s model) was that track component life—and therefore costs—are linear at mainline densities. However, when the cost of capital is factored in to depreciation, the true economic costs do in fact decline at higher rates of utilization due to the time value of money.

• [Jul 2023 edit] According to Zarembski's model, only 50% of MoW costs vary directly with traffic. "TRACKSHARE (Zeta-Tech's cost model) is applied only to those components directly affected by the passage of trains (rail, ties, and ballast). These variable expenses typically comprise about one half of total permanent way maintenance costs. The remaining 50% of track maintenance costs do not vary directly with traffic." [My comment: it would be more correct to say that compenent life varies directly with traffic. As we are arguing here, the true economic cost, when the cost of capital is factored in, declines with more intense use shortening the life (in time) of the asset.]

One method of incorporating the cost of capital in a costing system is to use the annuity depreciation method, which has also been referred to as Equivalent Annual Cost (EAC). It’s hardly new, having been written about in finance and accounting journals, particularly in the 30s and 50s. The need to recognize the cost of capital in costing for the railroad industry was specifically addressed by C.F. Murphy in a 1975 working paper for the Department of Transportation. Citing other work, Murphy called for the use of a “capital recovery factor” to determine the annual cost of an investment in a long-term deteriorating asset.

So what is it? Think in terms of a self-amortizing mortgage on your home—the calculations and methodology are the same. If you have a $300,000 30-year mortgage, your annual costs sure aren’t $10,000. Take out a shorter term mortgage of 15 or 20 years, and while your annual payments will be higher, your total costs are much lower due to paying less interest.

Let’s do an illustration of how the EAC varies with respect to volume, in comparison to the straight-line costs, for rail infrastructure. Assume a life of 600 million gross tons, a 10% cost of capital, and a cost of $200 million. Under “straight line” or rateable costing, the unit cost is $3.33, regardless of annual volume and asset life (in years). Whether annual volume is 20 million GTM (30 year life) or 40 million GTM (15 year life), the unit cost is the same. Following is a comparison of the EAC and traditional costing:

Life  Vol/yr    EAC/year        S-L/year         EAC/unit    S-L/unit
30    20 m    $21,215,850    $6,666,667      $1.06        $0.33
25    24 m    $22,033,644    $8,000,000      $0.92        $0.33
20    30 m    $23,491,925    $10,000,000    $0.78        $0.33
15    40 m    $26,294,755    $13,333,333    $0.66        $0.33
10    60 m    $32,549,079    $20,000,000    $0.55        $0.33
  5   120 m   $52,759,496    $40,000,000    $0.44        $0.33

What we see here is that when the cost of capital is included in the costing/depreciation method:

1) The true economic “cost” of the asset is substantially higher than currently recognized. Consequently, the true economic cost of the infrastructure thus also rises in comparison to short-term variable costs such as crews. This could change management’s perspective on where the priorities lie—do you focus on reducing variable cost and the operating ratio, or make better use of the plant?

2) The true economic “cost” per GTM declines as you carry more cargo and accelerate the revenue you earn.

Arguably, the operating practices and schedules needed to provide better, more frequent service and gain more business will cause some variable costs such as crews go up. This is why the railroads have typically or often pursued longer trains as the panacea (and this long predates PSR). Others might say those variable costs don’t go up as much as expected, and may even decline due to, for example, fewer re-crews, higher car utilization, etc. But what’s not considered in the costs above is that the additional business gained by providing better, more frequent service that is competitive and can pull traffic off the highways is likely to provide higher revenues through higher rates, not just the increased volumes. To the extent higher rates can be earned, that will also help to offset any higher variable costs, on top of the reduced capital costs.

It should also be recognized that the different components of the infrastructure have different physical lives and cycles of maintenance and replacement. While rail might have a life of something like 600 million GT (under certain conditions), the other and maintenance activities have shorter lives, and the gap between the EAC and straight-line depreciation for those shorter lived components and MoW activities is not as great as it is for the rail. Thus, a full-blown life-cycle costing effort that incorporates the cost of capital is not as simple as presented above.

Another big question is how underutilized the infrastructure is, and how much more traffic can be handled? A key assumption is that railroads in the U.S. are sufficiently underutilized that volumes can be increased substantially—especially through better operating practices and approaches to scheduling and service design—and those higher volumes are a key part of achieving the time value of money economies of using an asset and earning revenue sooner rather than later. (There are some really interesting comments about capacity in this discussion from the Passenger forum: https://www.trainorders.com/discussion/read.php?4,4749563)



Edited 4 time(s). Last edit at 07/25/23 13:10 by Bandito.

Cost of capital l (basically, what it costs to get the money to run your business) is a fundamental measure of a company's success. The companion, return on invested capital, measures how effectively that money is being spent.

For years the American financial laws and central bank policy have made it cheaper to issue more debt, and buy back more stock.  Whether that's changed is not yet clear.

Bandito Wrote:
-------------------------------------------------------
> The result is the vastly
> underutilized rail infrastructure that we have
> seen for decades.”
>
> This anecdote regarding Carnegie Steel from Harold
> Livesay's book "American Made: Shaping the
> American Economy" is a good account of the
> principle involved:
>
> Quote
> Carnegie's strategy in reducing costs was to "hard
> drive" the equipment, obtaining the maximum output
> in the shortest amount of time.

Carnegie is an interesting example. He was the first train dispatcher, a position he created, and the standard / role model for generations of train dispatchers to come. However, that has not been the case for decades.

He went on to owning / running industrial enterprises in the manner described (which is also generally lost, at least in the railroad industry).

He also became very rich doing it, but not for the purpose of being rich: I propose to take an income no greater than $50,000 per annum! Beyond this I need ever earn, make no effort to increase my fortune, but spend the surplus each year for benevolent purposes! That attitude also seems to be pretty much gone.

> The
> superintendent's response was "What do we care
> about the lining? We think a lining is good for so
> much iron and the sooner it makes it the better."

I publish books, not a secret. One does not get rich selling railroad textbooks. I must periodically buy more books because I sell them. That is a big expense that I could avoid if I didn't print books. All I need to do is discourage people from buying books and my costs will plummet: no printing, no shipping from the printer, no postage. I could be rich!

At BN, where during my time dealing with system scheduling and capacity I had arguments with management about traffic, priority, profit, etc. (a level above the arguments I had with management when I was asst. chief or trick man). There is not enough profit in perishable, intermodal, passenger, carload, etc. We need to get rid of all that and just keep the money trains (coal, grain). I would ask how profitable the money trains would be if the they supported the infrastructure by themselves. A few got it. Most didn't. I used an example:

You own a grocery store. Your space is 10,000 SF. You have long aisles lined with commercial display shelving, hundreds of feet of it. It's empty because there is not enough profit in most of the stuff other stores have on the shelves, so you quit carrying it. At the back of the mostly empty store, you have one small case of expensive stuff: steak, lobster, crab. You're the only one in town with those things, so there is a good business. However, to save cost, you have one guy handling the case and a big queue of customers waiting for him. He packages the purchase, but doesn't price it. That is done by the one cashier in front, serving another queue of customers. You can get away with this business model because you're the only game in town. Your store pays taxes on 10,000 SF. You have tens of Kilobucks invested in empty display shelving, but your costs are low. THAT is Burlington Northern Railroad.

>
> Translated to railroads, this approach would
> result in the mandate for those in service design,
> operations, and marketing to “fill the
> infrastructure” as TAW said, or to “wear out
> that rail!” To paraphrase the Carnegie
> superintendent, "We think the rail is good for so
> much traffic and the sooner we carry it, the
> better."

The countries of Europe have long recognized the value of rail transportation (although they still subsidize trucking to a degree similar to what the US does). Their open access policy reflects that.

In 2002, I visited the DB Berlin control center.The manager of the center did a presentation about the center, what it does, and how. He told me that his job was to see that the railroad was always as full of trains as he could make it. The more trains he could run reliably on the infrastructure, the more that his company (DB Netze, the infrastructure subsidiary of DB) would make. I hadn't heard anything like that from a railroad manager since I left B&OCT. He went on to apologize for the chaos I would see; it was a bad morning to visit. Someone had phoned an anonymous threat of a bomb at the Zoo station in Berlin. Traffic at Zoo was stopped and there were efforts to move trains that could be sent another way, arrange connections at other stations, etc. We went through the door to the traffic control room. It was cleaner than any not new US control center I have been in and quiet. It was like a US control center on Christmas Eve. The chaos was a couple of the train directors and dispatchers talking on the phone. You could see that they were on the phone, but not hear it unless you were standing next to them. It was an interesting experience.


>
> One does not have to be conversant with financial
> methods such as Net Present Value (NPV) or the
> Internal Rate of Return (IRR) to appreciate the
> simple logic of Carnegie’s approach.

No, but Common Sense helps. Actually, maybe being conversant with such as NPV and IRR obfuscates reality into oblivion. I remember an observation of a Japanese executive decades ago. He said that America doesn't realize that it is in a war, an economic war, and they are losing. Our best weapon in this struggle against them is the Harvard School of Business.


>Yet, the railroads’ fixation on
> managing and reducing variable costs and not
> striving to maximize use of the infrastructure is
> a good indication that they don’t.

BN used the magic Train Starts number as the measure of success. The line between Everett and Vancouver BC was the best example because it was isolated and not as complex as the absurdity going on all over.

There had been two trains a day between Everett and Vancouver BC, one to Sumas, one to Ferndale. Traffic grew to more than enough for two Vancouver trains and more than one Sumas train. According to the Magic Measure, there were already too many trains. That was fixed by running one train a day between Everett and Vancouver BC. The Sumas traffic went on the one Ferndale train. The Sumas switch engine would go to Burlington to get the Sumas traffic.There was too much traffic for the one GP (they figured that out the hard way -- repeatedly). Switch crews were eliminated in the two Everett yards, so a couple of sidings were full of Everett traffic that had nowhere to go. A couple of other sidings were full of traffic that the trains that were running couldn't pick up for lack of time on Hours of Service or because if they picked them up, they'd have to set them out again for lack of ability to accommodate them in Everett. Other sidings were full of stored cars of LPG, for which BN wasn't charging hazardous storage because the customers would be upset. There were three main line locals that were so far behind because of digging cars out of the middle of sidings that they weren't getting the work done. One pair was a self-dogcatching day and night job. The other got a second crew virtually every night. The through trains were using at least two crews apiece for about 130 miles), some needing a third crew. By the time the Sumas yard job went to Burlington for the train, got it banged out and delivered, they were all done. A new crew collected the deliveries from Canada, took the train to Burlington and took the power back to Sumas. All this was being done on four train starts (two north, two south), three locals, and one yard job - 8 a day. Of course,m the 8 train starts were taking a dozen crews and the locomotives were each making 130 or fewer miles a day, but BN was rolling in cash. They had to be! The train starts figure said so.



> I had attended
> a conference on Track Maintenance Costing back in
> the early 90s. A key point in several of the
> presentations (including Zarembski’s model) was
> that track component life—and therefore
> costs—are linear at mainline densities. However,
> when the cost of capital is factored in to
> depreciation, the true economic costs do in fact
> decline at higher rates of utilization due to the
> time value of money.

It is such a myopic view. Sure, the components need not be replaced if there are fewer ton miles, but the ditches, culverts, road crossings, etc. must be maintained, the effects of weather must be mitigated, and the signal system checks must be done even if there is one train a day. Of course, taxes must be paid on the infrastructure even if there are no trains. The methodology for that instance is drive away customers until there is only one train a day, then abandon to avoid all of the costs. That fixes the not enough profit problem.


> 1) The true economic “cost” of the asset is
> substantially higher than currently recognized.
> Consequently, the true economic cost of the
> infrastructure thus also rises in comparison to
> short-term variable costs such as crews. This
> could change management’s perspective on where
> the priorities lie—do you focus on reducing
> variable cost and the operating ratio, or make
> better use of the plant?

This is why I have been advocating the EU concept of open access for a couple of decades. Separate the infrastructure from operation. Require the infrastructure to be operated for profit, like a toll road. Allow train operations to provide the business that they want to provide in the way that they want to provide it. Staggers rescued railroad corporations, not rail transportation. That needs to be fixed. It doesn't need to be fixed to the disadvantage of current railroad corporations, but it needs to be fixed with a new approach to the way that rail transportation is conducted. Maybe (I hope) if the infrastructure is a separate business unit / subsidiary, common sense will overcome the current (wrong) data driven model.




> Another big question is how underutilized the
> infrastructure is, and how much more traffic can
> be handled? A key assumption is that railroads in
> the U.S. are sufficiently underutilized that
> volumes can be increased
> substantially—especially through better
> operating practices and approaches to scheduling
> and service design—and those higher volumes are
> a key part of achieving the time value of money
> economies of using an asset and earning revenue
> sooner rather than later.

The team I worked with in the BNSF scheduled railroad program of the 90s demonstrated this, but met fierce opposition from the established management and were eventually disbanded for having the wrong answers.

We found not only scheduling improvements, but also localized infrastructure improvements that had to be made. There were yards, many (most) of them had one way in/out. An arriving train had to wait for a leaving train & v. Engineering steadfastly opposed such as an additional crossover or lead for parallel routes because maintenance cost was too much. Look at track charts from the 60s or earlier. I have mentioned in other discussions the need for sidings on two track CTC. A similar concept applies to single track. Old track charts show that many stations had two sidings. In that configuration, two trains could meet, with one also meeting a second train and one being passed by that train. Now, the configuration of one siding per station, 10-30 minutes apart presents a problem (considered to be invisible) in operation of trains with speed differential. In a best case situation, sidings A, B, C, D, E, F, G, H I, J are 10 minutes apart and can accommodate any train (truly a best case scenario). Trains AJDOFT and JADOFT  (Dirty Ol' Freight Trains) are going to get to E at about the same time - good meet! Uh Oh...train AJRHSAZT (Red Hot Smokin' Awesome Z Train) is going to get to E at the same time as the two DOFTs. That won't work. THE AJDOFT has to dive at D instead of E. Hell see the RHSAZ train and the opposing DOFT. He'll be at D for 20 minutes (10 minute running time each direction, the Z and the DOFT - Cliff Notes version). (In the Real World, the Z train is under POG (Plenty of Green) operation, making the situation worse). Two sidings at E would have eliminated a lot of delay and "invisible" cost.

However, in several cases of infrastructure I designed for operation, the engineering department killed the functionality with Value Engineering. They saw no value in keeping trains moving as opposed to the value of maintenance of the track. I remember a time in the distant past when the job of engineering was to provide what operation needed. In recent times, I was told that the job of operation is to make do with what engineering provides. That goes right along with the philosophy of the people who count the money are way more important thatn the peoplle who make the money.

This comes back to the discussion of the value of money over time. Just as railroads don't recognize the value of money over time, they don't recognize the value of crews and equipment over time. Traffic takes as long to get there as it takes (an attitude that caused nationalization in 1917). If shippers are unhappy with that, they can use a truck. They don't make enough profit for us anyway. Good riddance. Not considering time leads to POG operation. It also leads to trains getting close to HOS becoming POG trains, causing huge delays to other trains that will become short on time POG trains that will cause other trains to be short time POG trains, etc. Waste out of ignorance, laziness, or both is just the cost of doing business.

To me, it appears to be just common sense. However, common sense doesn't appear to be common.

TAW

I'll hit a couple of items to start with:

TAW Wrote:
-------------------------------------------------------
> I would ask how profitable the money trains would
> be if the they supported the infrastructure by
> themselves.

This is similar to what Goldratt and other Theory of Constraints people have said about traditional cost accounting, where overhead is allocated in excruciating detail (typically by arbitrary formulas) to every part or product manufactured. The cost accounting says a product or part is a loser, so they drop the product or outsource the part. Except the overhead charged doesn't go away and then has to be absorbed by other products, which in turn are deemed to be losers, and so on.

> This is why I have been advocating the EU concept
> of open access for a couple of decades. Separate
> the infrastructure from operation. Require the
> infrastructure to be operated for profit, like a
> toll road. Allow train operations to provide the
> business that they want to provide in the way that
> they want to provide it.

The question is what degree of separation is necessary. For a US railroad to try to do it by simply treating the infrastructure and operations as separate profit centers would arguably not be suffiicent, as the central management over both would continue to blure the cost and profit issues. A wholly owned subsidiary? Perhaps, but it would have to be independent enough to truly make its own decisions, including selling its capacity to outside operators.

There's also the question of terminals. Does the infrastructure entity just do the linehaul track, or retain control of the terminals and the operations thereof? I suppose this could be a mix, with the infrastructure company owning and running terminals, but also offering the linehaul capacity to operators who want to build their own terminals.

Another thing that could drive railroads to focus more on filling the infrastructure would be if there was a switch to autonomousm, crewless train operations on the linehaul (THAT ought to get some readers' attention!) The trucking industry and politicians are all big on driverless trucks (which is a really stupid idea in my view), and the railroads would fight that like crazy and demand they be able to do the same. And autonomous trains on a fixed right of way are certainly are far more workable than the idea is for trucks on public highways. If such a thing were to come to pass, the railroads would have far less reason to be fixated on maximizing train lengths and reducing frequency. It would arguably prompt them to completely rethink their service design and scheduling practices and start looking at maximizing use of the intrastructure.
>
> I have mentioned
> in other discussions the need for sidings on two
> track CTC.

I had that in mind when I linked that other discussion from the Passenger Foruom. You had mentioned it there.

> This comes back to the discussion of the value of
> money over time. Just as railroads don't recognize
> the value of money over time, they don't recognize
> the value of crews and equipment over time.
> Traffic takes as long to get there as it takes (an
> attitude that caused nationalization in 1917). If
> shippers are unhappy with that, they can use a
> truck. They don't make enough profit for us
> anyway. Good riddance. Not considering time leads
> to POG operation. It also leads to trains getting
> close to HOS becoming POG trains, causing huge
> delays to other trains that will become short on
> time POG trains that will cause other trains to be
> short time POG trains, etc. Waste out of
> ignorance, laziness, or both is just the cost of
> doing business.
>

This gets to the question of whether running longer (and less frequent) trains and interchanges and reducing switching operations actually reduces the variable crew costs, or at least as much as promised. I was dealing with the UP in the late 90s when they decided to stage eastbound interchanges to NS and CSX (post CR split) from West Chicago instead of Global II. The trains enroute to Global II would drop the interchange traffic off at West Chicago. But because the distance to Ashland and Bedford Park was greater, they wanted to build longer, and less frequent, interchanges, and I think they even set a minimum lenght of 5000ft trailing footage. Of course, that was too long to get through Chicago and cross tracks blocked by other trains and interchanges, so interchange almost invariably had to be recrewed. Great efficiency there!

Bandito Wrote:
-------------------------------------------------------

> This is similar to what Goldratt and other Theory
> of Constraints people have said about traditional
> cost accounting, where overhead is allocated in
> excruciating detail (typically by arbitrary
> formulas) to every part or product manufactured.
> The cost accounting says a product or part is a
> loser, so they drop the product or outsource the
> part. Except the overhead charged doesn't go away
> and then has to be absorbed by other products,
> which in turn are deemed to be losers, and so on.
>

The passenger service gurus do the same with ridership. When we did the 2007 long range plan for Amtrak Cascades, I sent the timetable (hourly trains 6a until 11p, 2h30m Seattle - Portland) to the ridership gurus. They came back with the ridership numbers and a list of trains to remove from the timetable because of low ridership. I argued with them about it.

What happens to the people who were on those trains?

Oh, they can ride another train with more riders.

But isn't ridership related to convenience?

Sure it is. We can run the numbers again and find the real effects of reducing those schedules. (for an additional fee, of course)

But aren't the people who won't ride the train you eliminated also on some other train. We don't have trains full of one-way-trip riders.

We can find that with another round of work on the reduced timetable.

Will that also have a recommended list of trains to remove?

Sure, the lowest ridership ones.

Not being a ridership guru, I did the prudent thing - ignored them and published the original figures for the entire timetable.



> The question is what degree of separation is
> necessary. For a US railroad to try to do it by
> simply treating the infrastructure and operations
> as separate profit centers would arguably not be
> suffiicent, as the central management over both
> would continue to blure the cost and profit
> issues. A wholly owned subsidiary? Perhaps, but it
> would have to be independent enough to truly make
> its own decisions, including selling its capacity
> to outside operators.
>

That would be absolutely necessary. The EU directive includes the term non-discriminatory access. That also means structured operation. That was a big awakening for Ed Burkhardt after acquiring English Welsh & Scottish Railway. He had trouble dealing with the concept of not being able to run trains whenever it was convenient. He complained about the concept of run the train at the time you specified or lose your turn (move as allowed by traffic that is on time.) US railroads ran that way until the late 70s. A lot of today's chaos is related to CTC and direct radio control. Management couldn't wait until they could eliminate that pesky planning that train order operation required and just dump trains onto the main line for dispatchers to deal with using their new found flexibility. They didn't know, actually didn't want to hear, that structure, planning, and discipline are required for railroad operation, not just train order operation.

All of that means that there must not only be separation of infrastructure and operation, there must be substantial education and training in rail engineering and operation. 28 week Instant Expert school for train dispatchers doesn't cut it (or for T&E for that matter). There must also be a lot more education (general knowledge of railroad subjects) as well as training (learning to perform tasks).  The precious little railroad engineering in the US teaches how to build, not what to build or why. Management courses concentrate on financial aspects (such as we are discussing) without knowing how the infrastructure/service they will be running works.


> There's also the question of terminals. Does the
> infrastructure entity just do the linehaul track,
> or retain control of the terminals and the
> operations thereof? I suppose this could be a mix,
> with the infrastructure company owning and running
> terminals, but also offering the linehaul capacity
> to operators who want to build their own
> terminals.

Any of those could be possibilities. The infrastructure company might own the yard and sell the operation entirely to a terminal operator (Working kind of like Belt Railway of Chicago), it might sell access to parts of the terminals to various linehaul TOCs (Train Operating Companies) (Carrier A gets 3 receiving tracks, B gets 2, C gets 5...and onward for departure tracks, and maybe each gets a a time slot for the switching yard).


>
> Another thing that could drive railroads to focus
> more on filling the infrastructure would be if
> there was a switch to autonomousm, crewless train
> operations on the linehaul

> (THAT ought to get some
> readers' attention!)

That would require being fully prepared for every possible circumstance and not experimenting in revenue service (ala PTC) because the open access concept includes penalties for those responsible for delays.

(...and that, too.)


>.... If such a thing were to come to
> pass, the railroads would have far less reason to
> be fixated on maximizing train lengths and
> reducing frequency.

We thought that about eliminating

• firemen,
• 1 brakeman,
• cabooses,
• the other brakeman,
• the 100 mile basic day.

How'd that work out?

> It would arguably prompt them
> to completely rethink their service design and
> scheduling practices and start looking at
> maximizing use of the infrastructure.

mmmmmmmmmmmmmmmMaybe.

Combine the general lack of knowledge and skill in the industry and the general level of laziness (how many times have I been told in the past 30 years That's too much work, so we won't be doing it?) and the conclusion is that it won't be easy.

The hope I see is education programs (I know and work with several people in Europe who are literally PhDs in railroad operation...after years of studying in a railroad operation and engineering program. That isn't available here) and convincing the industry that there is money to be made with empty railroad. That part won't be easy either (but my last 46 years in the industry haven't been particularly easy anyway).

I developed a plan for my state senator (as an individual, not working for the government). I was asked to attend the annual meeting of Pacific Northwest Economic Region in 2017, where I listened to the Major Players talking about transportation problems, then an All Aboard Washington meeting about passenger service between eastern and western WA, then a jobs and economic summit in Moses Lake (where there was a whole day of sessions on transportation and economic effects). After that, the question was You've heard all of it now. What can we do about it?

The what is: https://drive.google.com/open?id=17U9j0vwqZqhZ3fBo3vB8ltryevIgCtjW

It may seem far-fetched, but I think it can be done or I wouldn't have put a year into developing it (The Washington passenger program - Cascades Sounder commuter trains were also considered to be the product of a lunatic). Fundamental to the whole plan is education, education, education. I have already told the senator that if we can get a university program started, we will need to import expertise to teach. Fortunately, the railroad involved is an apparently open-minded, long term minded, non-PSR railroad. Getting them to agree to making more money is hopefully within the realm of possibility.


> This gets to the question of whether running
> longer (and less frequent) trains and interchanges
> and reducing switching operations actually reduces
> the variable crew costs, or at least as much as
> promised.

Random operation and Plenty Of Green results in delays and hours of service relief that is just considered the cost of doing business. Used to be that we had to have a detailed reason for hours of service relief and deadheading. Now, just like pouring trains into the CTC or radio control line, it is easy to do the secondary effect mitigation on a whim. All it takes is reading through trainorders discussions to see gratuitous deadheading, cross deadheading, trains that have nowhere to go, etc. Someone here pointed out to me that railroads are making plenty of money, they don't need to worry and shouldn't be criticized. They have the luxury of throwing money away because

• They pick the biggest bucks traffic and figure out how to drive the rest away
• They have become so huge that the waste doesn't show unless you know where to look
• (The worst one) Just like not enough profit to worry about, the various waste is not enough waste to worry about.

That is why PSR is so popular.



> Of course, that
> was too long to get through Chicago and cross
> tracks blocked by other trains and interchanges,
> so interchange almost invariably had to be
> recrewed. Great efficiency there!

Englewood has plenty to say about that. I've seen that referred as the rant of a disgruntled retired guy who doesn't have a clue. I have a charter membership in that club too (except I quit in absolute disgust, and I'm not retired).

Quoting a couple of colleagues - The most depressing thing about the railroad industry is that it is essential.

TAW

TAW Wrote:
-------------------------------------------------------
> Bandito Wrote:
> --------------------------------------------------
> > There's also the question of terminals. Does
> the
> > infrastructure entity just do the linehaul
> track,
> > or retain control of the terminals and the
> > operations thereof? I suppose this could be a
> mix,
> > with the infrastructure company owning and
> running
> > terminals, but also offering the linehaul
> capacity
> > to operators who want to build their own
> > terminals.
>
> Any of those could be possibilities. The
> infrastructure company might own the yard and sell
> the operation entirely to a terminal operator
> (Working kind of like Belt Railway of Chicago), it
> might sell access to parts of the terminals to
> various linehaul TOCs (Train Operating Companies)
> (Carrier A gets 3 receiving tracks, B gets 2, C
> gets 5...and onward for departure tracks, and
> maybe each gets a a time slot for the switching
> yard).

Here's an example from Australia. I believe that SCT Logistics and Pacific National are the two largest train operating companies there. The Parkes National Logistics Center seems to be a local or regional government development at the crossroads of the east-west transcontinential line from Perth to Sydney, and a new north-south "Inland Rail" line between Melbourne and Brisbane. The line is owned by the Australia Rail Track Corporation, and SCT and Pacfiic National operate trains and their own terminals (in this case on opposite sides of one of the main lines). I think they both do intermodal and carload (via transload facilities) at this location.

https://www.parkes.nsw.gov.au/business-investment/national-logistics-hub/parkes-national-logistics-hub/

Pricing of terminal space, especially if leased, can also be an issue that either fosters or hinders high utilization. I'm thinking specifically about how marine terminal leases are structured in the U.S., especially in the San Pedro ports of Los Angeles and Long Beach. It is my impression that the ports revenue is based too much on variable factors--e.g., "wharfage" charges assessed on containers discharged and loaded from and to vessels--rather than a flat rental rate for the use of the facility. If the costs are too variable in nature, the steamship lines lose the incentive to make the most use of the facility, and most of the terminals in SoCal are woefully underutilized.

TAW Wrote:

>
> Carnegie is an interesting example. He was the
> first train dispatcher, a position he created, and
> the standard / role model for generations of train
> dispatchers to come. However, that has not been
> the case for decades. ...
>
> He also became very rich doing it, but not for the
> purpose of being rich: I propose to take an income
> no greater than $50,000 per annum! Beyond this I
> need ever earn, make no effort to increase my
> fortune, but spend the surplus each year for
> benevolent purposes! That attitude also seems to
> be pretty much gone.

> TAW

Carnegie had a lot of smarts, no question.  But before he is canonized, just remember how badly he treated labor.  When violent labor unrest loomed because of his low wages, he liked to take his family on extended vacations to Scotland, leaving Frick in charge to deal with the messy issues which typically included people being killed.  His treatment of labor became a model for corporations which persists to this day and is a fundamental contributor to the operational messes that are the focus of this excellent thread.

Wages in the Carnegie era were variable, so they would be cut as business slowed down. And people would often be hired as day labor.  Much as folks are hired outside Home Depot, etc today.

Labor's fight to organize and secure basic rights grew out of the struggle against Carnegie, Ford, Morgan, and the mining barons.

RRTom Wrote:
-------------------------------------------------------

> Carnegie had a lot of smarts, no question.  But
> before he is canonized, just remember how badly he
> treated labor.  When violent labor unrest loomed
> because of his low wages, he liked to take his
> family on extended vacations to Scotland, leaving
> Frick in charge to deal with the messy issues
> which typically included people being killed. 
> His treatment of labor became a model for
> corporations which persists to this day and is a
> fundamental contributor to the operational messes
> that are the focus of this excellent thread.

Yup. No canonization involved. Some of the greatest heroes, in one view, were pretty awful in another. The view of Ghandi that I got in South Africa was vastly different from the tales learned about him here. FDR did a lot of really good stuff...and some really bad stuff. Likewise Churchill, George Pullman invented really cool railroad cars but his employees paid dearly in 1893, and on and on and on.

Carnegie's treatment of labor was horrible. Trying to negotiate to prevent WWI was not. I was merely making reference to the behavior applicable to the discussion.

TAW

 

TAW Wrote:
-------------------------------------------------------
> Yup. No canonization involved. Some of the
> greatest heroes, in one view, were pretty awful in
> another. The view of Ghandi that I got in South
> Africa was vastly different from the tales learned
> about him here. FDR did a lot of really good
> stuff...and some really bad stuff. Likewise
> Churchill, George Pullman invented really cool
> railroad cars but his employees paid dearly in
> 1893, and on and on and on.
>
> Carnegie's treatment of labor was horrible. Trying
> to negotiate to prevent WWI was not. I was merely
> making reference to the behavior applicable to the
> discussion.
>
> TAW

We often judge historical people by today's standards. 

What Carnegie did with labor was basically how business was done. Thankfully, we have made improvements since then

To me, the worst Nineteenth Century practice which persisted well into the Twentieth Century was paying employees in script which could only be used at the company store. That, along with company housing which your family could be evicted from if you did not behave as desired, created a de facto system of bondage well after the abolishment of slavery.

Lackawanna484 Wrote:
-------------------------------------------------------
> Wages in the Carnegie era were variable, so they
> would be cut as business slowed down. And people
> would often be hired as day labor.  Much as folks
> are hired outside Home Depot, etc today.

That was an important catalyst of the situation. Management (in general) viewed the value of labor as variable with the value of their product. Labor viewed their value as constant. That is a very big obstacle that is not usually overcome in a peaceful manner; so unusual that Daniel Willard made the cover of Time for resolving the need for railroad wage reductions during the Depression.

(When I started on B&OCT, it was still very much Daniel Willard's B&O. By the time I left, it was the harbinger of CSX.)

TAW

RRTom Wrote:
-------------------------------------------------------

> His treatment of labor became a model for
> corporations which persists to this day and is a
> fundamental contributor to the operational messes
> that are the focus of this excellent thread.

RRTom, regarding your comment on Carnegie and your viewpoints on his dealings with "labor" (which you might also ascribe to other 19th century businessmen), that wasn't the subject of the post and I don't care to debate that here.

However, your statement about it being a "fundamental contributor" to the current messes does raise the issue of motivation or causes. Why do railroads (and other companies in different industries) pursue stratagies and policies that many, myself included and perhaps yourself, disagree with? To that I would point to the line, "Never attribute to malice that which is adequately explained by stupidity." While "stupidity" may be a bit strong, I did opine that rail costing methods are fundamentally flawed in a certain respect and that the methods and measurements used (not any kind of animus towards "labor") have lead the railroads to pursue the wrong strategies and tactics . (I'd also argue that steamship lines have a fundamentally flawed concept of the very product or service they are providing, but that's another subject.)

I doubt that anyone wants me to get into why companies, across all industries, are so messed up these days.

 



Edited 2 time(s). Last edit at 03/18/19 18:55 by Bandito.

Bandito Wrote:
>
> However, your statement about it being a
> "fundamental contributor" to the current messes
> does raise the issue of motivation or causes. Why
> do railroads (and other companies in different
> industries) pursue stratagies and policies that
> many, myself included and perhaps yourself,
> disagree with? To that I would point to the line,
> "Never attribute to malice that which is
> adequately explained by stupidity." While
> "stupidity" may be a bit strong, I did opine that
> rail costing methods are fundamentally flawed in a
> certain respect and that the methods and
> measurements used (not any kind of animus towards
> "labor") have lead the railroads to pursue the
> wrong strategies and tactics . (I'd also argue
> that steamship lines have a fundamentally flawed
> concept of the very product or service they are
> providing, but that's another subject.)
>
> I doubt that anyone wants me to get into why
> companies, across all industries, are so messed up
> these days.
>
I'll listen to what you have to say, for one.
Also, my meaning is that the treatment of labor as an erg (unit of energy), is a fundamental flaw (I would call it maliciously stupid) which contributes to the stupid operating practices in this discussion.  Workers treated and paid like the intrinsically valuable humans that they are more likely to be better for an operation.

RRTom Wrote:
-------------------------------------------------------
> Bandito Wrote:
> >
> > However, your statement about it being a
> > "fundamental contributor" to the current messes
> > does raise the issue of motivation or causes.
> Why
> > do railroads (and other companies in different
> > industries) pursue stratagies and policies that
> > many, myself included and perhaps yourself,
> > disagree with? To that I would point to the
> line,
> > "Never attribute to malice that which is
> > adequately explained by stupidity." While
> > "stupidity" may be a bit strong, I did opine
> that
> > rail costing methods are fundamentally flawed in
> a
> > certain respect and that the methods and
> > measurements used (not any kind of animus
> towards
> > "labor") have lead the railroads to pursue the
> > wrong strategies and tactics . (I'd also argue
> > that steamship lines have a fundamentally
> flawed
> > concept of the very product or service they are
> > providing, but that's another subject.)
> >
> > I doubt that anyone wants me to get into why
> > companies, across all industries, are so messed
> up
> > these days.
> >
> I'll listen to what you have to say, for one.
> Also, my meaning is that the treatment of labor as
> an erg (unit of energy), is a fundamental flaw (I
> would call it maliciously stupid) which
> contributes to the stupid operating practices in
> this discussion.  Workers treated and paid like
> the intrinsically valuable humans that they are
> more likely to be better for an operation.

That observation is at the root of the discussion / conflict over how much training and development is appropriate.  And, how the gains from a smarter, better trained, higher productivity labor force are divided.  If workers are disposable, and interchangeable, why invest much in them?

One way to engage a long term workforce is to share the long term gains from productivity (end of cabooses, longer runs, eliminate entire crafts) with the staff through ownership of stock.  So workers share in the benefits of capital investment. Over decades.