Railroads
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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 l.jpg
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


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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


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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)


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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


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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


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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


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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


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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


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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


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Cost Structure

  • Semivariable Costs

    • Account for 40% of total cost structure

    • Maintenance of rights-of-way, structures & equipment

    • Roughly about $10 billion per year


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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


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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)


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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)