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Re: Watco as middle man--how much.?
Author: S. L. Murray
Date: 02-13-2007 - 22:06
Dick,
I'm not sure I'd agree that having a short line bridge to another is most likely to be unsuccessful. The key is, as I'm sure you know, that the short line has the ability to set rates or surcharges. The VAST majority of short line spin offs in the past 20 years have all been as handling carrier agreements, so the Class 1 continues to set all rates and precludes any surcharges. The exceptions, at least in the west, are as rare as those short lines which are interline.
The cases where the final terminating short line aren't successful are more likely due to the overall lack of traffic, rather than an unfair division of the revenue with a bridging short line. In more cases, in my experience, it is actually the bridging short line who has cause to complain over a low rate.
So, as the two examples you give, the POTB is successful because they can set their own surcharge, and the PNWR was spun off after the POTB, so their handling carrier charge takes into account the costs of bridging traffic between Banks and Portland. Everybody is, if not fat, at least fairly happy. On the other hand, the Wallowa Union will always struggle, because the rate the INPR got (zone based, by the way) wasn't enough to support the whole line, and they're left with not enough traffic. So, even if the Wallowa Union got the full handling carrier charge and the INPR got nothing, the Union wouldn't be able to make a go of it.
The "Paper Pacific" as you say on the McCloud was always a farce and a fraud, so isn't even worth wasting words and is pretty much all around useless.
So, to the question at hand, my point is all this speculation is pointless because:
a) the BNSF and UP will continue to have full rate making authority on any Watco move to bridge traffic. Watco can't set their own rates (unless, for some reason, the PCC/BLMR agreements are totally unlike any other recent ones) or surcharges. So, Hooper to Winona/Colfax/Timbuctu will be whatever they've been since the lines were spun off. I'd be very surprised if these were not zone based, although I won't look into it.
b) The current closed or open customers on the old PCC will remain so, so any bridged moves over the UP/BLMR/Watco will be at standard reciprocal switch rates. Again, Watco won't have any control over these.
In other words, Watco won't be able to screw any potential new operator on the PCC because UP and BNSF set the rates. If anything, UP and BNSF will cut their rate for bridge moves.
A new operator will have to negotiate a new handling line agreement with BNSF and UP, so they can get what they get. If they're lucky they can impose a surcharge, but I don't believe they'd have that ability in this case without the prior consent of the controlling Class 1.
So, there are lots of things to worry about which affect a new operator of the PCC, but Watco's ability to price out that traffic isn't one.
SLM
I'm not sure I'd agree that having a short line bridge to another is most likely to be unsuccessful. The key is, as I'm sure you know, that the short line has the ability to set rates or surcharges. The VAST majority of short line spin offs in the past 20 years have all been as handling carrier agreements, so the Class 1 continues to set all rates and precludes any surcharges. The exceptions, at least in the west, are as rare as those short lines which are interline.
The cases where the final terminating short line aren't successful are more likely due to the overall lack of traffic, rather than an unfair division of the revenue with a bridging short line. In more cases, in my experience, it is actually the bridging short line who has cause to complain over a low rate.
So, as the two examples you give, the POTB is successful because they can set their own surcharge, and the PNWR was spun off after the POTB, so their handling carrier charge takes into account the costs of bridging traffic between Banks and Portland. Everybody is, if not fat, at least fairly happy. On the other hand, the Wallowa Union will always struggle, because the rate the INPR got (zone based, by the way) wasn't enough to support the whole line, and they're left with not enough traffic. So, even if the Wallowa Union got the full handling carrier charge and the INPR got nothing, the Union wouldn't be able to make a go of it.
The "Paper Pacific" as you say on the McCloud was always a farce and a fraud, so isn't even worth wasting words and is pretty much all around useless.
So, to the question at hand, my point is all this speculation is pointless because:
a) the BNSF and UP will continue to have full rate making authority on any Watco move to bridge traffic. Watco can't set their own rates (unless, for some reason, the PCC/BLMR agreements are totally unlike any other recent ones) or surcharges. So, Hooper to Winona/Colfax/Timbuctu will be whatever they've been since the lines were spun off. I'd be very surprised if these were not zone based, although I won't look into it.
b) The current closed or open customers on the old PCC will remain so, so any bridged moves over the UP/BLMR/Watco will be at standard reciprocal switch rates. Again, Watco won't have any control over these.
In other words, Watco won't be able to screw any potential new operator on the PCC because UP and BNSF set the rates. If anything, UP and BNSF will cut their rate for bridge moves.
A new operator will have to negotiate a new handling line agreement with BNSF and UP, so they can get what they get. If they're lucky they can impose a surcharge, but I don't believe they'd have that ability in this case without the prior consent of the controlling Class 1.
So, there are lots of things to worry about which affect a new operator of the PCC, but Watco's ability to price out that traffic isn't one.
SLM
