(erielack) Railroad Pricing and Costing in the EL Era

[Wdburt1_@_aol.com]

SGL writes:

There were armies of accountants working for the railroads in the earlier 
days you arereferencing here.  And they were using computers - yes, with punch 
cards, but computers...   I suspect that they had a pretty good idea of what 
services made money, and how much.  But I agree that it probably isn't very 
available information.

Comment:

I think SGL draws the wrong conclusion from those photos of revenue 
accounting types sitting at grey metal desks.  Most of what they were doing created 
little useful (much less available) information about unit costs, and what they 
did create was too far out of date to enable the railroad to respond to 
increasingly dynamic competition.  Railroad costing was shaped by ICC requirements, 
including the Commission's prescribed Rail Form A, which was carload-oriented 
and a poor way to evaluate intermodal costs or carload's competitiveness vs. 
intermodal.  

SGL is entirely correct that deregulation was the fundamental change.  If the 
rail industry had not been deregulated, its ability to analyze costs and 
respond quickly to rapidly changing market conditions might never have advanced 
beyond the cradle.  But it is also true that the personal computer and Lotus 
1-2-3 were a godsend to the railroad market analyst.  When I attended grad school 
in the late 1970s, doing a computer analysis meant standing in line to hand a 
stack of punch cards to one of the IT priesthood through a bank teller-type 
window in the wall of the mainframe computer room.  On the job at RoadRailer in 
1978, evaluating intermodal services of even modest scope meant laying out a 
sizeable matrix of origins and destinations, then analyzing each lane in 
detail while properly allocating shared costs.  We did this using 11x17 pads with 
blue and red lines, and I became very fast on my HP-38C calculator.  The only 
good thing I can say about this experience is that it taught me ways to set up 
every analysis to cross-check itself--a lost art today.  It is no exaggeration 
to say that the advent of electronic spreadsheets revolutionized railroad 
market analysis and expanded what the mind could comprehend and manage.  The 
ability to watch the results change while you play with the variables was, and is, 
simply invaluable.

This was also true on a larger scale.  In the voluminous analyses of 
Northeastern railroad issues published by the United States Railway Association and 
others, one finds many references to the importance of implementing "car 
control" systems enabling the railroads to keep track of freight cars on their 
systems.  In a classic illustration of the "too big to manage" syndrome that had 
haunted Penn Central, Conrail experienced widely publicized difficulty in 
implementing such a system during the late 1970s.  Erie Lackawanna, on the other 
hand, had calmly informed USRA in 1974 that it planned to implement a car control 
system, and no difficulty was anticipated.  There may still be such a thing as 
a rail system "too big to manage," but all the advances in information and 
communication technology clearly have raised the bar.

WDB







 


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