Rail/Truck Competition for Grain Traffic in Minnesota: Implications for Rate Making

Abstract

The simplest model of railroad rate making is that trucks are more cost-efficient for short hauls and railroads for long hauls. Unfortunately for the railroads' market share, the "long" haul gets longer with each new round of rate increases. This has been particularly true for grain traffic in Minnesota.In this paper, an analysis of rail/truck competition for Minnesota's grain traffic is presented. It suggests a reconsideration of the long-and shorthaul categories normally assumed for railroads and trucks since railroads are being granted more rate-making discretion. We argue that the annual rail volume generated by various areas is at least as important as the route length within those areas in determining transportation costs for bulk commodities. Both distance and volume must be considered in rate implementation to avoid distortions in mode selection. Trends in Grain RatesThe first task is to examine single-car rail and truck rates in effect for Minnesota grain and soybeans during 1970-79. In this period, both railroad and truck rates for grain and soybeans were regulated. (Although motor carriage of grain and soybeans is exempt from interstate rate regulation, minimum rates for intrastate movements have been regulated by the Minnesota Public Service Commission since 1970.)A county-by-county comparison of truck and single-car railroad grain rates for 1970-79 was made using railroad and truck rates for the years 1970, 1973, 1975, 1977, and 1979. Rates were collected for soybeans and corn (both are the same) from the seat of each of sixty-nine grain-producing counties to Minneapolis. The point of using this simplified transportation pattern was to highlight rate structure changes. Minneapolis is a major, but not the only, destination for intrastate grain shipments.In 1970, the first year in which both railroads and trucks were regulated in Minnesota, the two were strongly competitive for grain traffic. Thirty of the sixty-nine counties had single-car rail rates to MinGregory H. Michaels is a market research analyst, Kellogg Company; Richard A. Levins is a research associate, University of Florida; and Jerry E. Fruin is an associate professor, University of Minnesota.The comments of Michael V. Martin and an anonymous Journal reviewer are acknowledged. neapolis lower than corresponding truck rates, and eighteen counties had less expensive truck rates. Truck and rail rates to Minneapolis from twentyone counties were identical.In 1973, the year ofthe Arab oil embargo and the first round of recent fuel price increases, railroads continued their domination of short-haul grain rates. Truck rates rose faster than rail rates during 1970-73. In 1973 only eight of the sixty-nine counties showed a definite advantage for trucks. Three counties had equivalent rail and truck rates, and the remaining fifty-eight counties showed a definite advantage for rail.Only two years later, the situation was completely reversed. No county had a definite rail rate advantage, sixty-six would have been better off using trucks, and three coun...

Losses of corn in the harvest, loading and transportation at rural property level

“…Michaels et al (1982) stress that "road transportation by trucks has the capacity to adjust to the variations in demand".…”