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Railroads Railroad Industry Characteristics Return on Investment Increased from 5.7% in 1984 to 9.4% in 1996. Accounts for 1% of GDP Employs over 200,000 (0.19% of population) Shipped about 40.6% of all ton-miles moved in U.S. (down from 75% in 1929) Ton-miles moved (1997) = 1,375 billion

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railroad industry characteristics
Railroad Industry Characteristics
  • Return on Investment
    • Increased from 5.7% in 1984 to 9.4% in 1996.
  • Accounts for 1% of GDP
  • Employs over 200,000 (0.19% of population)
  • Shipped about 40.6% of all ton-miles moved in U.S. (down from 75% in 1929)
  • Ton-miles moved (1997) = 1,375 billion
  • Total of 530 Line-Haul Railroads
    • 9 Class I; remained Regionals, Locals, & Switching carriers
general service characterisitics
General Service Characterisitics
  • Commodities Hauled
    • Coal
      • Primary haulers of coal (43.8% of total tonnage)
    • Farm Products (1.4 million tons)
    • Chemicals (1.04 million tons)
    • Motor Vehicles & Equipment
    • Non-metallic minerals
constraints
Constraints
  • Limited to fixed rights-of-way
  • Door-to-Door service only available if both shipper & receiver possess rail sidings.
  • On-time delivery
  • Frequency of service
  • High percent of goods damaged in transit (3% of total tonnage shipped)
strengths
Strengths
  • Can handle large-volume movements of low-value commodities over long distances
  • Can haul a larger variety of products than pipelines
  • Assume liability for loss & damages
  • Offer TOFC (trailer-on-flatcar) & COFC (container-on-flatcar) service
equipment used
Equipment Used
  • Carload
    • Basic unit of measurement of freight handling by railroads
    • Average carrying capacity = 91.9 tons
    • Some newer cars exceed 100 tons
    • Railroads typically own & maintain their own rolling stock
most common car types
Most Common Car Types
  • Boxcar (plain)
    • Standardized roofed freight car with sliding doors
    • Used for general commodities
  • Boxcar (equipped)
    • Specially modified boxcar used for specialized merchandise (such as automobile parts)
  • Hopper car
    • Freight car with floor sloping to one or more hinged doors
    • Used for discharging bulk materials
  • Covered hopper
    • Hopper with roof designed to haul bulk commodities that require protection from elements
most common car types8
Most Common Car Types
  • Flatcar
    • Freight car with no top or sides
    • Primarily used for TOFC service machinery and building materials
  • Refrigerator car
    • Freight car that provides controlled temperatures
  • Gondola
    • Freight car with no top, flat bottom, & fixed sides
    • Used for hauling bulk commodities
  • Tank car
    • Specialized car used for transporting liquids & gases
unit train
Unit Train
  • Specializes in transport of only one commodity (usually coal or grain) from origin to destination
  • Shipper typically owns cars
  • Train is basically rented to the shipper for the movement
cost structure
Cost Structure
  • Fixed Costs
    • Account for 30% of total cost structure
    • Railroads & pipelines only modes that own & maintain their own network & terminals
    • Typically operate their own rolling stock
    • Rights-of-way
      • Railroads own, operate, & maintain
    • Terminals
    • Equipment
      • $6.9 billion investment in 1996
      • Class I railroads alone operated 19,269 locomotives & 1,240,573 freight cars in 1996
cost structure11
Cost Structure
  • Semivariable Costs
    • Account for 40% of total cost structure
    • Maintenance of rights-of-way, structures & equipment
    • Roughly about $10 billion per year
cost structure12
Cost Structure
  • Variable Costs
    • Account for 30% of total cost structure
    • Labor
      • Average hourly gross wage = $20.05
      • Average earnings of $50,611
      • Labor represented by 14 different unions
        • Operating unions
        • Non-operating craft unions
        • Non-operating industrial unions
    • Fuel
      • $2.4 billion spent on fuel in 1996
key benefit of railroads
Key Benefit of Railroads
  • High Economies of Scale
  • Note example in textbook
    • 200 million tons of freight hauled at average charge of $0.035 per ton.
    • With fixed costs of $3.5 million
    • Plus variable costs of $2.5 million (assuming $0.0125 per ton hauled)
    • And revenue of $7 million (200 million tons @ $0.035 per ton)
    • Railroad earns $1 million in profit
    • Railroad’s costs are $0.03 per ton ($6 million total costs divided by 200 million tons hauled)
key benefit of railroads14
Key Benefit of Railroads
  • Now assume a 20% increase in traffic at same rate charged (assumes capacity requirements equal)
    • 240 million tons of freight hauled at average charge of $0.035 per ton.
    • With fixed costs of $3.5 million
    • Plus variable costs of $3 million (assuming $0.0125 per ton hauled)
    • And revenue of $8.4 million (240 million tons @ $0.035 per ton)
    • Railroad earns $1.9 million in profit
    • Railroad’s costs are $0.027083 per ton ($6.5 million total costs divided by 240 million tons hauled)