juniata guy posted:Bigkid; I’ll offer this concerning the way truckers price.
If you’ve followed the Class 1’s in recent years, doubtless you are aware of their obsession with achieving sub 60 operating ratios. At the same time, they are also diverting large sums of cash to repurchase stock. These two things alone account for the constant pressure on railroad pricing people to extract ever higher rates from shippers.
If you look at the operating ratios of trucking companies however; you’ll see a lot of 80’s and 90’s. With the exception of second half 2017 / first half 2018, their markets are so price competitive they are essentially forced to accept lower margins to keep their trucks busy.
Railroads like to talk about the competitive environment in which they operate but; the latitude they have in pricing competitive traffic is handed to them by their ability to price captive traffic more or less as they wish. And now; with the drive to achieve sub 60 OR’s; they are narrowing the scope of traffic they wish to compete for. Truckers have not been blessed with captive traffic and are forced to price competitively.
Curt
I can't argue with what you wrote. Truckers face a lot more competition, there is no doubt, the trucking business has relatively low impediments to getting into the business, the capital requirements are relatively low (though having just seen a you tube video with this trucker and his rig, the sleeper alone was like wow *lol*) comparatively to other forms of transport. And as far as the railroads and the way they are run, you aren't going to get much argument about the bottom line and things like taking cash and instead of investing it in capital improvements, buying back stock (trucking companies at least as far as I know are generally privately owned, though these days for all I know big corporations have bought into the fleets), this is a problem across the board with public companies, where money that could be spent on capital improvements, was supposed to be, has been used to buy back stock and increase dividends..(and I'll leave it at that).
My point about being competitive was more about shipping efficiency then price, and trains should be as efficient if not more so, given the kind of technology available to trains and for example, being less affected by things like traffic or weather that trucks face. Fuel wise, trains are superior to what big rigs can haul in terms of fuel used per ton mile or any other measure, and also trucks do have some advantages (ie the cost of maintaining and running their own rail network, trucks run on subsidized roads) that if they had to pay let's say the true cost of the roads they use, they wouldn't be as price efficient as they are today. If trains are that expensive, for whatever reasons, then people will ship via truck, unless trains offer them something trucks don't, and this will show up in how much cargo each ships, if trains are overpriced for the service they offer, then trucks will ship more and more and the railroads will lose business.
