Why the hurry on perishables


Railroad353@...
 

The bananas were mostly gone before I went railroading, but I did encounter
another, related reason why railroads tried to move perishables fast. It was
not only product decay in transit but also customer risk of missing the best
market price at wholesale. Slow transit and uncertainty of delivery increased
the risk that the expected price might change for the worse. Price swings in
perishables can be huge, so this was a major customer concern. Concerns about
making market price may have led to perishable guarantees on bananas too;
others on the list may know for sure.

In 1970, I provided cost testimony for the ATSF in an ICC Investigation &
Supension Case, Vegetables and Melons Eastbound. By then the major eastbound
perishables carriers, UP, SP, and ATSF, were noticing that the rates on
perishables weren't high enough to justify replacement of the remaining ice cars with
mechanicals. To close at least a little of the cost gap, they sought a major
rate increase and, as an incentive, offered persishable guarantees. If the
traffic was late reaching the market, which, as I recall, was heavily on the East
Coast, the carriers owed them for the difference between the market price on
the perishables on the actual day of sale and the price on the day the traffic
was supposed to have been there under the guarantee.

The problem was that integrated food chains didn't buy or sell in wholesale
markets. They handled for their own account without brokers and therefore
couldn't take advantage of the guarantees, which required an arm-length buy/sell
transaction to establish a perishables claim. They said that this put them at
a competitive disadvantage, and the rates were suspended while a roomful of
lawyers and rate officers tried to figure out what to do. (The ICC at the time
was still very much in the business of using the railroads to help customers
who claimed they were disadvantaged. The ICC's assumption was that the
railroads would always make enough money to susidize all sorts of nice-sounding
objectives even if all this market-rigging hurt the railroads severely.)

I was one of the most junior people in the room. After listening for an hour
or so to a discussion that didn't seem to be getting anywhere, I stuck my
neck out and made a suggestion: If the shippers didn't want the higher rates
instituted and wanted to bicker the railroads to death over guarantees, why not
just tell them we wouldn't buy any more new reefers? I knew that, even with
the higher rates, the mechanicals were a really poor investment.

Up until then, Frank Kriebel, VP-Traffic of SP, had let his flunkies do most
of the talking, but at that point he unfolded his arms, leveled a finger at
me, and said that the SP had built the great agricultural economy of California
and regardless of rates would never desert agriculture. This was quite a
rousing speech. It let his guys call the shippers and tell them how the SP was
hanging in there for them, in contrast to the untrustworthy Santa Fe. Frank
Kriebel or no, though, the wretched economics of the mechanicals eventually
prevailed.

Although all this happened post-steam era, the rate officers in the room were
harking back to a time when perishable guarantees were common, and I am sure
there were many such guarantees in the steam era, when wholesale markets
probably accounted for much more of the perishables business than in later years
when independent grocers had lost out to grocery chains.

Harry Meislahn


ljack70117@...
 

On Friday, December 5, 2003, at 09:57 PM, Railroad353@... wrote:

The bananas were mostly gone before I went railroading, but I did encounter
another, related reason why railroads tried to move perishables fast. It was
not only product decay in transit but also customer risk of missing the best
market price at wholesale. Slow transit and uncertainty of delivery increased
the risk that the expected price might change for the worse. Price swings in
perishables can be huge, so this was a major customer concern. Concerns about
making market price may have led to perishable guarantees on bananas too;
others on the list may know for sure.

In 1970, I provided cost testimony for the ATSF in an ICC Investigation &
Supension Case, Vegetables and Melons Eastbound. By then the major eastbound
perishables carriers, UP, SP, and ATSF, were noticing that the rates on
perishables weren't high enough to justify replacement of the remaining ice cars with
mechanicals. To close at least a little of the cost gap, they sought a major
rate increase and, as an incentive, offered persishable guarantees. If the
traffic was late reaching the market, which, as I recall, was heavily on the East
Coast, the carriers owed them for the difference between the market price on
the perishables on the actual day of sale and the price on the day the traffic
was supposed to have been there under the guarantee.

The problem was that integrated food chains didn't buy or sell in wholesale
markets. They handled for their own account without brokers and therefore
couldn't take advantage of the guarantees, which required an arm-length buy/sell
transaction to establish a perishables claim. They said that this put them at
a competitive disadvantage, and the rates were suspended while a roomful of
lawyers and rate officers tried to figure out what to do. (The ICC at the time
was still very much in the business of using the railroads to help customers
who claimed they were disadvantaged. The ICC's assumption was that the
railroads would always make enough money to susidize all sorts of nice-sounding
objectives even if all this market-rigging hurt the railroads severely.)

I was one of the most junior people in the room. After listening for an hour
or so to a discussion that didn't seem to be getting anywhere, I stuck my
neck out and made a suggestion: If the shippers didn't want the higher rates
instituted and wanted to bicker the railroads to death over guarantees, why not
just tell them we wouldn't buy any more new reefers? I knew that, even with
the higher rates, the mechanicals were a really poor investment.

Up until then, Frank Kriebel, VP-Traffic of SP, had let his flunkies do most
of the talking, but at that point he unfolded his arms, leveled a finger at
me, and said that the SP had built the great agricultural economy of California
and regardless of rates would never desert agriculture. This was quite a
rousing speech. It let his guys call the shippers and tell them how the SP was
hanging in there for them, in contrast to the untrustworthy Santa Fe. Frank
Kriebel or no, though, the wretched economics of the mechanicals eventually
prevailed.

Although all this happened post-steam era, the rate officers in the room were
harking back to a time when perishable guarantees were common, and I am sure
there were many such guarantees in the steam era, when wholesale markets
probably accounted for much more of the perishables business than in later years
when independent grocers had lost out to grocery chains.

Harry Meislahn
I think you may hit the nail on the head. Speed for the buyer and seller and not for the fruit.
Thank you
Larry Jackman
I don't care who you are fat man. Get that sleigh and reindeer off my roof.