Re: Freight Tariffs



The subject of rail freight tariffs is ENORMOUSLY complex. There are
numerous books with substantial content on the subject dating back over 100 years.
It was so complex that at one time one could take college courses that were
largely devoted to the topic. Both RRs and shippers needed people who understood
this stuff. The subject does not lend itself to any simple, logical rules of
transportation or economic efficiency. As Tim says, the basis for rates
started with commodity type and weight (higher value commodities generally
commanded higher rates per hundredweight), but beyond that the arcana began. And
don't make the mistake of thinking it was internally consistent within a
particular RR. RR sales agents were often rewarded for getting the traffic, not how
much (or even if!) the company actually profited from it. One principal that
affected a lot of this was the belief (probably mistaken) that RR cost
structure was dominated by very large fixed expenses, so any carload that at least
covered what was thought to be the small incremental cost of its actual
transportation was contributing to the bottom line. This could lead to the routings
like the one Tim cites below and Schuyler's example of the Texas to NJ routing
via Chicago. In fact, neither of these strike me as the most outlandish that

There are others on this list (Greg Mahlkov, etc.?) who were employed by
railroads and have more direct knowledge of the process. They could probably cite
some interesting examples of the ways and means by which RRs and their
employees obtained business by playing games with the rate and routing structure.


In a message dated 1/22/05 1:54:05 PM, timboconnor@... writes:

<< Phil,

I think tariffs were based on commodity and weight per carload,
and of course, source and destination. Changing the rules to be
more flexible as cars got larger, and railroads wanted to offer
multi-car discounts, was the subject of the huge "Big John"
hopper case in the 1960's. Tariffs were published and anyone
could offer them. For example, a railroad from A-B might have
the best route, but any other competitor serving A and B also
could offer the same rate, even if that meant going A-C-D-B.
So routings were often seemingly bizarre, involving hundreds
of extra miles (if not thousands). The SP brought Oregon lumber
down through Texas and up via the Cotton Belt to St Louis, rather
than short-haul itself via Ogden and the UP. The all-SP route
was hundreds of miles further, but UP could offer no advantage
on rates -- only service.


In general terms, how were shippers charged for the railroad's
services. In particular, a shipper has 3/4ths of a 1944 box car
volume worth of widgets, but the railroad supplies a 1923 built 8
1/2 foot tall car, which gets filled to the rim with the same number
of widgets. Do the shippers get charged for "a car and up to 50 tons
times X number of miles", for "volume times weight times miles", or
what? Same thing applies to grain shipments (actually, the photos in
the 1932 ARA box car book which show the different lines on the
inside lining, for different grain types, is what got me thinking
about this!)

A "high level" explanation of how this worked might help making more
realistic car assignments during an operating session.

Phil Buchwald>>

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