TOWARD A FUNCTIONAL MARKET FOR FREIGHT CAR CAPACITY

It is widely recognized that the existing freight car compensation systems result in significant economic and managerial inefficiencies. The deregulation of most freight transportation rates and modern information technology provide an opportunity to adopt a fundamentally different approach. A system that eliminates car hire and allowances altogether would be market responsive, work simply, result in appropriate incentives to invest, and avoid market power by any one participant. Under the proposed system, the price of renting a car is unbundled from the price of rail transportation. Shippers rent cars from car suppliers in an unregulated market and railroads charge for all empty movements. The system is advantageous to all participants. Shippers manage the equipment aspects of their business more efficiently; origin carriers can reduce the equipment costs of serving shippers; connecting carriers no longer face uncertainty regarding the car costs and empty movement of received traffic; and car owners have greater control over the use of their assets. For the industry as a whole, the proposed system improves empty distribution efficiency and eliminates the irrational behavior that results from artificially determined car hire rates and allowances. While a dramatic break from the current arrangement, implementation of such a system is clearly feasible. Many changes to the regulatory environment would be necessary, but they pale in comparison to the regulatory problems that a car capacity market structure would solve. Fortunately, these changes are also consistent with trends already developing in the industry today.

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Filing Info

  • Accession Number: 00490256
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Dec 31 1989 12:00AM