From: sws37449@uxa.cso.uiuc.edu (Steven W. Salzman)
Subject: Re: ICC gives WC preliminary approval to buy GB&W
Organization: University of Illinois at Urbana
Distribution: usa
Date: Sun, 15 Nov 1992 18:06:45 GMT

>Yeah, and I want to see trucks haul that coal train I saw the FRVR
>hauling out of Butler, Wis. yard the the other day. We're talking rail
>monopoly here, not trucks.

Just because some materials cannot be hauled by truck does not mean
that the railroad has a monopoly. Shippers have several alternatives they
may use to provide leverage to get railroads to lower their rates:

1. Most of the power plants on Wisconsin Central are dual-access, for
example, SOO Line has access to the Weston plant (it was part of the
original sale agreement).   The utility can always threaten to move the
shipment to the competing road.

2. Utilities may build spurs to competing railroads in an effort to 
lower rates.  Empirically, this works quite well. The City of San Antonio
built to the UP main from their SP-served plant in a successful effort to
drive rates down.  Even the threat of building a spur works. Last year,
Iowa Power threatened to build a line from their BN-served plant to the
mainline of archrival UP.  Shortly thereafter, BN and IP signed a new
(and one can assume more competitive) contract.

3. Utilities will switch plants over to other energy sources if the costs
of obtaining coal are too high.  For example, they may buy oil, natural
gas, or switch to other alternative energy sources, until they can 
negotiate lower rates from the mine or the railroad.

4. Electricity is a commodity and can be purchased on the open market.
Utilities frequently purchase energy from one another, if their costs of
obtaining coal, gas, or whatever is too high.

5. If its taconite that you're worried about, remember that it can be
purchased from many sources, only a fraction of which are on WC. 
This business is water-competitive.  Take the case of the Duluth, 
Missabe & Iron Range, which recently lost a lot of business because
the customer found the costs of obtaining arrowhead ore too high.
The ore is now being purchased from Brazil.

6. Finally, remember that in this highly competitive environment, railroads
need some rather non-competitive traffic to cover the costs of obtaining
more marginal traffic.  Most truck-competitive business (such as WC's 
paper traffic) can be hauled at rates which cover variable costs (such
as crew costs and fuel costs) but leaves little revenue to pay for 
maintenence costs and the costs of investing in new physical plant and
equipment.  Some high-margin business is necessary to maintain the
fiscal health of the railroad.

7. Note: all of the above are not mere theory; these ideas have been
successfully implemented in similar situations.

>>Back to the employees, ex ITEL workers can't be laid off, but current
>>WC workers can be laid off. I find this to be quite unfair, but
>>that's the way it goes...

>I think that's fair, considering WC workers could have unionized and
>received some support. It's nice to see someone besides union workers
>get it, for a change.

First of all, it should be noted that only GBW is unionized, FRVR is 
non-union. 
The purpose of a union is to increase the utility of the workers, through
higher wages, safer working conditions, job security, or other means.
WC's employees are paid quite well, work for a company that cares about
safety, and has not suffered many (if any) periods of layoffs.  If the
workers felt that their needs were not being addressed, they could have
voted to be unionized. They did not.
The facts are this: Wisconsin Central has the highest customer service
rating of any railroad, even better than many truck lines (see Distribution
magazine's annual quality survey).  WC employees appear to be rather
content, and WC has been a progressive force in the railroad industry.
I don't know of anyplace where WC has said that it will layoff people as
a result of the merger, and I doubt that all GBW-FRVR employees will choose
to join WC. So there may be no layoffs at all.

Personally, I wish WC the best in obtaining traffic from the truckers
of Wisconsin. And remember, if CNW, WC, or other railroads scare off
business, it is often picked up by Schneider, JB Hunt, or other
non-union truck lines.

Steven W. Salzman
University of Illinois
sws37449@uxa.cso.uiuc.edu

All opinions are my own.