UBC Theses and Dissertations

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UBC Theses and Dissertations

An analysis of factors influencing railway freight rates Shepherdson, Stephen Dwight 1975

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AN ANALYSIS OF FACTORS INFLUENCING RAILWAY FREIGHT RATES by S tephen Dwight Shepherdson B . S c , U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1969 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE ( B u s i n e s s A d m i n i s t r a t i o n ) i n the F a c u l t y of COMMERCE AND BUSINESS ADMINISTRATION We a c c e p t t h i s t h e s i s as c o n f o r m i n g to the r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA J u l y 1975 In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d that c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t ten pe rm i ss i on . Commerce and Business Administration Department o f The U n i v e r s i t y o f B r i t i s h C o l u m b i a 2075 Wesbrook P l a c e Vancouver, Canada V6T 1W5 September 3rd, 1975 i ABSTRACT The l e v e l of any p a r t i c u l a r r a i l w a y f r e i g h t r a t e i s a f u n c t i o n of the i n t e r a c t i o n between c o s t and demand f a c -t o r s f o r the movement of the commodity from one l o c a t i o n to a n o t h e r . The purpose of t h i s t h e s i s i s to a n a l y s e c o s t and demand f a c t o r s i n f l u e n c i n g r a i l w a y f r e i g h t r a t e s . The s tudy f o cu se s on t h r e e a r e a s : 1) the d e t e r m i n a t i o n of the j o i n t e f f e c t of a number of f a c t o r s on the r a t e ; 2) t h r e e r a t e i s s u e s ; and 3) the s t r e n g t h and weaknesses of the CTC W a y b i l l A n a l y s i s to e x p l a i n t r end s i n r a t e s . The a n a l y s i s ranges i n scope from a d e s c r i p t i o n of c o s t and demand f a c t o r s a f f e c t i n g r a t e s to a s t a t i s t i c a l a n a l y s i s . The s u b j e c t i v e n a t u r e o f r a t e - m a k i n g , the p o l a r -i z e d v iews c o n c e r n i n g c o s t - or demand- based p r i c i n g , and the impact of p u b l i c p o l i c y on r a t e - m a k i n g a re d i s c u s s e d i n Chapter 2. The t h e o r e t i c a l r e l a t i o n s h i p between a f a c t o r and the r a t e i s d e s c r i b e d f o r a l a r g e number o f f a c t o r s i n t h i s c h a p t e r as w e l l . The t h i r d c h a p t e r d e s c r i b e s s i x r a t e c a t e g o r i e s . Two o f these r a t e c a t e g o r i e s a re mode-compet-i t i v e r a t e s and one i s based upon s p e c i f i c market c o m p e t i -t i v e f a c t o r s . Temporal changes i n these r a t e c a t e g o r i e s a re noted i n an a t t empt to e x p l a i n the r e l a t i v e impo r t ance of c o s t and demand f a c t o r s over t i m e . In the f o u r t h chap -t e r the a v a i l a b l e da ta a re examined and two r a t e models a re p o s t u l a t e d . These r a t e models are used to a s se s s some i i o f the i s s u e s c o n c e r n i n g r a t e s . C h a p t e r 5 p r e s e n t s the s t a t i s t i c a l r e s u l t s o f the s t u d y . From t h e s e r e s u l t s , a p r o p o s a l i s made f o r e x p l a i n i n g t r e n d s i n r a t e s by m o n i -t o r i n g changes i n i d e n t i f i e d , s i g n i f i c a n t f a c t o r s o v e r t i m e . The s t u d y c o n c l u d e s t h a t the j o i n t e f f e c t o f a num-ber o f f a c t o r s i s i m p o r t a n t i n d e f i n i n g the l e v e l o f a r a t e . A l l f a c t o r s a re not e q u a l l y i m p o r t a n t and the s i g -n i f i c a n t f a c t o r s v a r y f o r d i f f e r e n t r e g i o n a l movements . The r e s u l t s o f t h i s s t u d y i n d i c a t e t h a t both c o s t and demand f a c t o r s a r e s i g n i f i c a n t f o r e x p l a i n i n g d i f f e r -ences i n r a t e s . C o s t f a c t o r s a re more s i g n i f i c a n t than demand f a c t o r s i n a l l movement models e x a m i n e d . The v a l -ue of the commodity i s s i g n i f i c a n t i n some c a s e s , but i n t e r m o d a l c o m p e t i t i o n and market c o m p e t i t i o n are a l s o s i g n i f i c a n t . The s t u d y c o n c l u d e s t h a t the W a y b i l l A n a l y s i s d a t a are u s e f u l f o r making a d e t a i l e d a n a l y s i s of f a c t o r s i n -f l u e n c i n g r a t e s . The a n a l y s i s of a number of f a c t o r s i s c o n s i d e r e d to be a s u p e r i o r method to t h a t o f e x a m i n i n g one a g g r e g a t e m e a s u r e , average revenue per t o n - m i l e , f o r e x p l a i n i n g t r e n d s i n r a t e s . i i i T a b l e o f C o n t e n t s C h a p t e r Page 1.0 I n t r o d u c t i on 1 1.1 O b j e c t i v e and R e l e v a n c e of the S t u d y 1 1.2 M e t h o d o l o g y 3 1.3 O u t l i n e of the S u c e e d i n g C h a p t e r s 5 2 . 0 F a c t o r s I n f l u e n c i n g D i f f e r e n c e s i n the L e v e l s o f Rates 8 2 . I n t r o d u c t i o n 8 2 .2 R a i l w a y C o s t s and C o s t F a c t o r s 14 2 . 3 Demand F a c t o r s A f f e c t i n g the L e v e l o f Rates 20 2 .4 Summary 24 3 .0 Rate S t r u c t u r e and Changes i n the Rate S t r u c t u r e 25 3.1 I n t r o d u c t i o n 25 3 .2 C l a s s Rates 26 3 . 3 Commodity N o n - C o m p e t i t i v e Rates 26 3 .4 Commodity C o m p e t i t i v e Rates 27 3 .5 Agreed Charges 28 3 .6 S t a t u t o r y GraAn Rates 28 3 .7 F i x e d Rates 29 3 .8 Temporal Changes i n the Rate C a t e g o r i e s 30 3 .9 Summary 33 4 . 0 Two Rate Models and Data Used i n the A n a l y s i s 35 4.1 I n t r o d u c t i o n 35 i v T a b l e o f C o n t e n t s ( C o n t i n u e d ) C h a p t e r Page 4 .2 N a t u r e of the W a y b i l l A n a l y s i s Data 35 4 . 3 F a c t o r s o t o be A n a l y s e d 41 4 . 4 O r g a n i z a t i o n of Sample Data 54 4 . 5 D e s c r i p t i v e R a t h e r than P r e d i c t i v e M o d e l s 57 4 . 6 Summary 58 A p p e n d i x to C h a p t e r 4 59 5 .0 S t a t i s t i c a l A n a l y s i s of Two Rate Models 63 5.1 I n t r o d u c t i o n 63 5 .2 R e s e a r c h D e s i g n 63 5 .3 G e n e r a l O b s e r v a t i o n s of the R e s u l t s 66 5 .4 A n a l y s i s o f R e s u l t s f o r S p e c i f i c Movements 72 5 .5 Summary o f the S t a t i s t i c a l R e s u l t s 84 5 .6 A P r o p o s a l f o r M o n i t o r i n g Trends o f Rate F a c t o r s 87 A p p e n d i x to C h a p t e r 5 92 6 .0 Summary, A r e a s o f F u r t h e r R e s e a r c h and C o n c l u s i o n s 95 6.1 Summary 95 6 .1 .1 : Rate I s s u e s 95 6 . 1 . 2 The Use of the W a y b i l l A n a l y s i s Data and T h e i r L i m i t a t i o n s 97 6 . 1 . 3 The R e s e a r c h D e s i g n and i t s I m p l i - ; c a t i o n s f o r F u t u r e A n a l y s i s 98 V T a b l e o f C o n t e n t s ( C o n t i n u e d ) C h a p t e r Page 6.2 A r e a s o f F u r t h e r R e s e a r c h 99 6 . 2 . 1 C o n t i n u i n g the R e s e a r c h 100 6 . 2 . 2 F u r t h e r R e s e a r c h Stemming f rom the S t a t i s t i c a l R e s u l t s 101 6 .3 C o n c l u s i o n s 103 B i b l i o g r a p h y 106 VI L i s t o f F i g u r e s Number Page 2.1 The G e n e r a l S t r u c t u r e of Rates 10 2 .2 C o s t Per M i l e f o r the Same Commodity Moving D i f f e r e n t D i s t a n c e s 17 4.1 The E x p e c t e d Rate - C a r l o a d Minima R e l a t i o n 43 4 . 2 Da;ta R e l a t i o n s h i p : Revenue ($) Per H u n d r e d -w e i g h t V e r s u s Load Per Car ( t o n s ) 44 4 . 3 a Data R e l a t i o n s h i p , ' : . Revenue ($) Per H u n d r e d -w e i g h t V e r s u s D i s t a n c e ( L e s s than 1400 m i l e s ) 46 4 .3b Data R e l a t i o n s h i p : Revenue ($) Per H u n d r e d -w e i g h t V e r s u s D i s t a n c e (More than 1600 m i l e s ) 47 4 . 4 Data R e l a t i o n s h i p ! : . Revenue ($) per H u n d r e d -w e i g h t V e r s u s Number of C a r l o a d s 49 4 . 5 The Re i a t i o n s h i p : B e t w e e n Rate and D o l l a r V a l u e of the Commodity 51 4-6 Data R e l a t i o n s h i p : Revenue ($) Per H u n d r e d -w e i g h t V e r s u s Commodity Vailme ( D o l l a r s per t o n ) 53 5 .1 S c h e m a t i c o f the R e s e a r c h P r o c e s s 64 5 .2 C o m p a r i s o n o f the A v e r a g e D i s t a n c e Moved w i t h the Mean of the P r o x y Rate V a r i a b l e f o r Four Movements 72 5 . 3 A S c h e m a t i c o f the Rate F a c t o r M o n i t o r i n g P r o c e s s 88 V 1 1 L i s t o f T a b l e s Number Page 2.1 The Rate - D i s t a n c e R e l a t i o n s h i p , An E x a m p l e : 100 pounds moving d i f f e r e n t d i s t a n c e s 18 2 .2 The Long - S h o r t Haul D i s c r i m i n a t i o n P r o b l e m A l b e r t a and B r i t i s h C o l u m b i a 23 . 3.1 C o m p a r i s o n of T o n - M i l e s f o r F i v e Rate C a t e g o r i e s 1970 to 1973 31 4.1 E x t r a c t f o r the Annual W a y b i l l A n a l y s i s , 1972 37 4 . 2 C l a s s Number and Commodity D i s c r i p t i o n o f the Sample A n a l y s e d 55-56 4 . 3 Number of Commodites I n c l u d e d i n a S p e c i f i e d R e g i o n a l Movement 56 5.1 C o m p a r i s o n o f S i g n i f i c a n t V a r i a b l e s Among the E i g h t Movement Models 67 5 .2 R e l a t i v e B a n k i n g of S i g n i f i c a n t V a r i a b l e s f o r D i f f e r e n t Movements 69 5 .3 Movement Models E x c l u d i n g D i s t a n c e as a S i g n i f i c a n t V a r i a b l e 71 5 .4 I m p l i c a t i o n s of the model r e s u l t s f o r the Three H y p o t h e s e s 85 ACKNOWLEDGEMENT A number of p e o p l e and o r g a n i z a t i o n s a i d e d me i n c o m p l e t i n g t h i s t h e s i s . To them I am g r a t e f u l . In p a r t i c u l a r , my T h e s i s A d v i s o r , P r o f e s s o r T r e v o r D. Heaver p r o v i d e d the d i r e c t i o n and g u i d a n c e t h a t was n e c e s s a r y . D r . L o r e n C . D o l l p r o v i d e d much of the t e c h n i c a a s s i s t a n c e . As the e x t e r n a l r e a d e r , D r . A l b e r t S, D e x t e r c o n t r i b u t e d to the f i n a l p r o d u c t w i t h h i s comments. I am i n d e b t e d a l s o , t o many of my c l a s s m a t e s f o r the d i s c u s s i o n s w h i c h we had and the c o n s t r u c t i v e comments w h i c h t h e y p r o v i d e d , In p a r t i c u l a r , M e s s r s . B u c h a n a n , Oum and Jones h e l p e d me i n c o m p l e t i n g the t h e s i s . The T r a n s p o r t a t i o n Development Agency p r o v i d e d f u n d s , a n e g o t i a t e d r e s e a r c h g r a n t , f o r w h i c h I am most a p p r e c i a t i v e , I s h o u l d a l s o T i k e to e x p r e s s my g r a t i t u d e to M i s s B e v e r l e y S m i t h and M r s , Dornan who t y p e d v a r i o u s p a r t s o f the t h e s i s . And f i n a l l y , my w i f e J u l i e , f o r her p e r s e v e r a n c e and s u p p o r t when I needed i t m o s t , 1 CHAPTER 1 INTRODUCTION 1,1 O b j e c t i v e and R e l e v a n c e of the S t u d y T h i s s t u d y i s c o n c e r n e d w i t h an a n a l y s i s of some of the c o s t and demand f a c t o r s w h i c h i n f l u e n c e r a i l w a y f r e i g h t r a t e s . These f a c t o r s a r e known t o . b e s i g n i f i c a n t i n r a t e - m a k i n g and s h o u l d e x p l a i n d i f f e r e n c e s i n e x i s t i n g r a t e s , R a i l w a y f r e i g h t r a t e s a r e a c o n t e n t i o u s and p o l i t i c a l l y s e n s i t i v e i s s u e , p a r t i c u l a r l y between the p r o v i n c e s and the f e d e r a l g o v e r n m e n t , ^ C o n c e r n i s e x p r e s s e d t h a t r a i l w a y f r e i g h t r a t e s are based on the v a l u e o f s e r v i c e r a t h e r than on the c o s t s o f p r o v i d i n g the s e r v i c e , A n o t h e r c o n c e r n i s t h a t i n t e r m o d a l c o m p e t i t i o n has been i n e f f e c t u a l i n some p a r t s o f C a n a d a ; h i g h e r r a i l r a t e s a re a t t r i b u t e d to t h i s l a c k of i n t e r m o d a l (2) c o m p e t i t i o n . T h i s s t u d y a d d r e s s e s (.1 ) The J o i n t S u b m i s s i o n on T r a n s p o r t a t i o n made by the f o u r Western P r e m i e r s t o the P r i m e M i n i s t e r o f C a n a d a , Western Economic O p p o r t u n i t i e s C o n f e r e n c e , C a l g a r y , A l b e r t a , J u l y 1973. (2) Government o f A l b e r t a , Depar tment o f I n d u s t r y and Commerce, "The E q u i t a b l e P r i c i n g P o l i c y : A New Method o f R a i l Rate M a k i n g " , J u l y 1973. 2 t h e s e i s s u e s by d e t e r m i n i n g the s i g n i f i c a n c e o f v a r i o u s f a c t o r s . The C a n a d i a n T r a n s p o r t Commiss ion W a y b i l l A n a l y s i s o f t e n i s used as a s o u r c e document f o r e x p l a i n i n g t e m p o r a l t r e n d s i n r a t e s . ^ ^ There a r e t h r e e a r e a s of c o n c e r n i n the use made o f t h e s e W a y b i l l A n a l y s i s d a t a . F i r s t , , o f t e n o n l y one m e a s u r e , average revenue per t o n - m i l e , i s u s e d . A l t h o u g h w e i g h t and d i s t a n c e may be the most s i g n i f i c a n t f a c t o r s a f f e c t i n g r a t e s , b o t h , t h e i r s i g n i f i c a n c e and the e f f e c t e x e r t e d by o t h e r f a c t o r s s h o u l d a l s o be c o n s i d e r e d . S e c o n d , t h e s e d a t a a re h i g h l y a g g r e g a t e d . A v e r a g e revenue and a v e r a g e v a r i a b l e v a l u e s a re a n a l y s e d . The a c t u a l r a t e s and a c t u a l v a r i a b l e v a l u e s are not e x a m i n e d . T h i r d , the d a t a o n l y r e p r e s e n t c o s t f a c t o r s . I t i s i m p o s s i b l e to draw any c o n c l u s i o n s about the r e l a t i v e i m p o r t a n c e of demand f a c t o r s f rom d a t a , Yet many i s s u e s r e m a i n c o n -c e r n e d w i t h the s i g n i f i c a n c e o f v a l u e of the c o m m o d i t y , i n t e r m o d a l c o m p e t i t i o n , and market c o m p e t i t i o n . As noted a b o v e , t h i s s t u d y d e a l s d i r e c t l y w i t h t h e s e i s s u e s . An a l t e r n a t i v e method of e v a l u a t i n g t r e n d s i n the f a c t o r s a f f e c t i n g d i f f e r e n c e s i n r a t e s i s p o s t u l a t e d , g i v e n the r e s u l t s o f t h i s s t u d y , (1) M o r r i s h , J , H , , and M a c K i n n o n , D. P . , An A d d r e s s to the 18th Annual T r a f f i c and T r a n s p o r t a t i o n C o n f e r e n c e , C a n a d i a n I n d u s t r i a l T r a f f i c L e a g u e , W i n n i p e g , M a n i t o b a , F e b r u a r y 1 974; and " R a i 1 roads ' W a y b i l l A n a l y s i s E x p l a i n s F r e i g h t Rate T r e n d s " , M a t e r i a l s  Management and D i s t r i b u t i o n , December 1974, p p . 26 - 29 . 3 D i f f e r e n c e s i n r a t e s a r e r e l a t i v e l y e a s y t o u n d e r -s t a n d when s i n g l e f a c t o r / r a t e r e l a t i o n s h i p s a r e d e s c r i b e d . However, r a t e s a r e t h e r e s u l t o f t h e j o i n t a f f e c t o f a number o f f a c t o r s . U n d e r s t a n d i n g t h e n a t u r e o f t h e j o i n t a f f e c t and m e a s u r i n g i t a r e more d i f f i c u l t t o a c c o m p l i s h . R e g r e s s i o n a n a l y s i s and f a c t o r a n a l y s i s a r e two s t a t i s t i -c a l t e c h n i q u e s e m p l o y e d i n t h i s s t u d y t o d e t e r m i n e what f a c t o r s a r e s i g n i f i c a n t and t o m e a s u r e t h i s s i g n i f i c a n c e . 1,2 M e t h o d o l o g y The a n a l y s i s p r o c e e d s i n two s t a g e s . The f i r s t s t a g e p r o v i d e s a t h e o r e t i c a l and h i s t o r i c a l b a s e f r o m w h i c h t h e s t a t i s t i c a l e v a l u a t i o n may f o l l o w . The s e c o n d s t a g e , t h e s t a t i s t i c a l a n a l y s i s , i s an a s s e s s m e n t o f t h e d a t a and t h e r e g r e s s i o n r e s u l t s , The t h e o r e t i c a l s e c t i o n d e a l s w i t h t h e e x p e c t e d r e l a t i o n s h i p b etween e a c h f a c t o r and t h e r a t e . B o t h c o s t and demand f a c t o r s a r e t r e a t e d i n t h i s manner. A t t h i s s t a g e n o t h i n g i s s a i d a b o u t t h e i m p o r t a n c e o f one f a c t o r i n r e l a t i o n t o o t h e r f a c t o r s , n o r i s t h e a b s o l u t e a f f e c t o f t h e f a c t o r on t h e r a t e i d e n t i f i e d . T h i s ' t r e a t m e n t s e r v e s two p u r p o s e s , h owever. F i r s t , i t s e t s t h e s t a g e by i d e n t i f y i n g t h e many f a c t o r s w h i c h a r e i m p o r t a n t i n r a t e -m a k i n g , S e c o n d , t h e p r i o r k n o w l e d g e o f what t h e f a c t o r / r a t e r e l a t i o n s h i p m i g h t be i s a means o f v a l i d a t i n g t h e 4 s t a t i s t i c a l r e s u l t s , There i s a t w o - f o l d o b j e c t i v e to the h i s t o r i c a l p e r s p e c t i v e , F i r s t , i t i n d i c a t e s how r a t e - m a k i n g t h e o r y has been made o p e r a t i o n a l . S e c o n d , the t e m p o r a l changes i n the i m p o r t a n c e of the d i f f e r e n t r a t e c a t e g o r i e s i s a measure of the c h a n g i n g r a t e - m a k i n g e n v i r o n m e n t . Some r a t e c a t e g o r i e s , f o r example Commodity C o m p e t i t i v e r a t e s , are an e x p l i c i t r e c o g n i t i o n of the emerging i m p o r t a n c e of some f a c t o r , In t h i s c a s e , the r a t e c a t e g o r y p r o v i d e s f o r m o d e ^ c o m p e t i t i v e r a t e s . The a n a l y s i s of the d a t a i s d i r e c t e d to two e n d s , Those d a t a d e r i v e d f rom the W a y b i l l A n a l y s i s a r e a s s e s s e d f o r t h e i r s u i t a b i l i t y and t h e i r l i m i t a t i o n s a r e i d e n t i f i e d , As an a d j u n c t , the v a r i a b l e s e x t r a c t e d f rom the W a y b i l l A n a l y s i s a r e r e l a t e d to the t h e o r e t i c a l f a c t o r / r a t e r e l a t i o n s h i p s d e a l t w i t h i n the f i r s t s t a g e o f the a n a l y s i s . A t t h i s s t a g e , t h e n e c e s s i t y of o b t a i n i n g a d d i t i o n a l d a t a , n o t a b l y demand d a t a , i s made c l e a r . The d a t a a re examined p r i o r to the d e f i n i t i o n o f the r a t e m o d e l s . In p a r t i c u l a r , any c o n s t r a i n t s imposed on the use o f the models by the d a t a l i m i t a t i o n s a r e i d e n t i f i e d . R e g r e s s i o n a n a l y s i s i s used to d e t e r m i n e w h i c h c o s t and demand v a r i a b l e s a r e s i g n i f i c a n t f o r e i g h t r e g i o n a l movements, A major c o n s i d e r a t i o n i n t h i s s t u d y i s the . 5 p o t e n t i a l p r o b l e m o f a h i g h degree of c o r r e l a t i o n between any two c o s t and demand f a c t o r s b e i n g e v a l u a t e d . Such a c o n d i t i o n has s e r i o u s i m p l i c a t i o n s f o r a s s e s s i n g the r e g r e s -s i o n r e s u l t s . The r e s e a r c h d e s i g n a c c o u n t s f o r t h i s by u s i n g f a c t o r a n a l y s i s as an i n t e r m e d i a t e s t e p p r i o r to e m p l o y i n g r e g r e s s i o n a n a l y s i s . The m e r i t s of t h i s t w o -s t a g e a p p r o a c h v e r s u s the use of r e g r e s s i o n a n a l y s i s a l o n e are d i s c u s s e d . 1,3 O u t l i n e of the S u c c e e d i n g C h a p t e r s Each c h a p t e r i s p r e f a c e d w i t h an i n t r o d u c t o r y s e c t i o n c o n c e r n i n g the t o p i c o f t h e c h a p t e r . The rate^-making e n v i r o n m e n t i s d i s c u s s e d i n the second s e c t i o n o f C h a p t e r 2 . T h i s i n c l u d e s a d e s c r i p t i o n of the i m p a c t of p u b l i c p o l i c y i n s e t t i n g a s t r u c t u r e w i t h i n w h i c h r a t e s a r e made. P u b l i c p o l i c y i s c h a r a c t e r i z e d as havng a r e a c t i v e r o l e to p l a y as w e l l , i n r e s p o n s e to r a t e i s s u e s . The s u b j e c t i v e n a t u r e of r a t e - m a k i n g i s e m p h a s i z e d i n t h i s s e c t i o n , and the f u n d a m e n t a l c o n t r o v e r s y , c o s t v e r s u s demands-based p r i c i n g , i s r e v i e w e d . The t h i r d s e c t i o n d e s c r i b e d the f a c t o r s and the s p e c i f i c f a c t o r / r a t e r e l a t i o n s h i p s . S i x f r e i g h t r a t e c a t e g o r i e s a re d e s c r i b e d and compar-ed i n C h a p t e r 3 , The i m p l e m e n t a t i o n o f t h e s e c a t e g o r i e s a r e 6 r e l a t e d to e v o l u t i o n a r y changes i n p u b l i c p o l i c y . A more r e c e n t c o m p a r i s o n i n d i c a t e s the r e l a t i v e i m p o r t a n c e of each r a t e among the o t h e r r a t e c a t e g o r i e s and the a p p a r e n t t r e n d s d u r i n g t h e m p e r x o d 1970 to 1973. The l a s t s e c t i o n of t h i s c h a p t e r p r o v i d e s the r a t i o n a l e f o r the q u a n t i t a t i v e a n a l y s i s . A framework f o r the a n a l y s i s i s g i v e n 'by p o s t u l a t i n g t h r e e h y p o t h e s e s r e l a t i n g to r a t e i s s u e s . C h a p t e r 4 e v a l u a t e s the d a t a and d e s c r i b e s two g e n -e r a l r a t e m o d e l s . In the second s e c t i o n , the W a y b i l l d a t a are d e s c r i b e d ; p a r t i c u l a r a t t e n t i o n i s p a i d to the o r g a n i z -a t i o n of these d a t a . The l i m i t a t i o n s of these d a t a are n o t e d . In the t h i r d s e c t i o n , the f a c t o r s i n the models a re r e l a t e d to the f a c t o r s d i s c u s s e d i n C h a p t e r 2 . Each f a c t o r i s d e s c r i b e d and e v a l u a t e d s e p a r a t e l y . The f o u r t h s e c t i o n d e s c r i b e s the o r g a n i z a t i o n of the d a t a i n t o e i g h t movement models and the sampled c o m m o d i t i e s are n o t e d . The l a s t s e c -t i o n d e s c r i b e s the i m p a c t o f the d a t a l i m i t a t i o n s on the d e v e l o p e d m o d e l s . w h i c h are d e s c r i p t i v e ( a n a l y t i c a l ) r a t h e r than p r e d i c t i v e . C h a p t e r 5 p r e s e n t s the r e s u l t s o f the s t a t i s t i c a l a n -a l y s i s . The second s e c t i o n o u t l i n e s the r e s e a r c h d e s i g n and d e s c r i b e s r e g r e s s i o n a n a l y s i s and f a c t o r a n a l y s i s i n v e r y g e n e r a l t e r m s . The t h i r d s e c t i o n p r o v i d e s an o v e r v i e w of the r e s u l t s i n terms of the s i g n i f i c a n t v a r i a b l e s and the r e l a t i v e r a n k i n g of s i g n i f i c a n t v a r i a b l e s w i t h i n each of the e i g h t movement m o d e l s . The f o u r t h s e c t i o n d e s c r i b e s 7 s e p a r a t e l y the r e s u l t s f o r each of the e i g h t movement m o d e l s . The use of f a c t o r a n a l y s i s i s noted i n each c a s e . A summary of the m a t h e m a t i c a l h i g h l i g h t s of f a c t o r a n a l y s i s i s p r e s e n -t e d as an A p p e n d i x to C h a p t e r .5. The f i f t h s e c t i o n i s a summary of the s t a t i s t i c a l r e s u l t s . The l a s t s e c t i o n p r e -s e n t s a p r o p o s a l f o r m o n i t o r i n g t r e n d s i n f a c t o r s a f f e c t i n g r a t e s o v e r t i m e . There are t h r e e s e c t i o n s to C h a p t e r 6. The f i r s t i s a b r i e f summary of the s t u d y . The second d e a l s w i t h a r e a s r e q u i r i n g f u r t h e r s t u d y . P a r t i c u l a r a t t e n t i o n i s g i v e n to a n o m a l i e s i n the r e s u l t s . The l a s t s e c t i o n p r e -s e n t s the c o n c l u s i o n s drawn from the s t u d y . 8 CHAPTER 2 FACTORS INFLUENCING DIFFERENCES IN THE LEVELS OF RATES 2.1 I n t r o d u c t i o n The f o c u s of t h i s c h a p t e r i s on the c o s t and demand f a c t o r s t h a t a f f e c t the l e v e l o f r a i l w a y f r e i g h t r a t e s . However , r a t e making i s a complex s u b j e c t and m e r e l y d e s -c r i b i n g these f a c t o r s may not be adequate f o r u n d e r s t a n d i n g the n a t u r e and l e v e l o f r a t e s . R a t e - m a k i n g i s an a r t , not a s c i e n c e , and r e c o g n i z i n g t h i s may h e l p i n u n d e r s t a n d i n g the r a t e - m a k i n g p r o c e s s . P u b l i c p o l i c y i s i m p o r t a n t f o r two r e a s o n s . F i r s t , p o l i c y i s i n s t r u m e n t a l i n d e f i n i n g the e n v i r o n m e n t i n w h i c h r a t e s a re made. S e c o n d , p u b l i c p o l i c y may be c a l l e d upon i n r e a c t i o n to c o n d i t i o n s c r e a t e d by the s t a t e o f f r e i g h t r a t e s . The s u b j e c t i v i t y o f r a t e - m a k i n g and p u b l i c p o l i c y c o n c e r n s , t h e r e f o r e , are r e l e v a n t i n any d i s c u s s i o n about f a c t o r s a f f e c t i n g d i f f e r e n c e s i n r a t e s . 2 . 1 . 1 Rate Making - A r t Not a S c i e n c e N o t w i t h s t a n d i n g the a t t e m p t s to d e f i n e " s c i e n t i f i c " r a t e s t r u c t u r e s and i n d e e d the a t t e m p t i n t h i s t h e s i s to a n -a l y s e f a c t o r s i n f l u e n c i n g d i f f e r e n c e s i n r a t e s i n a q u a n t i -t a t i v e f a s h i o n , r a t e - m a k i n g i s s t i l l l a r g e l y a m a t t e r o f j u d g e m e n t . The problems a s s o c i a t e d w i t h d e t e r m i n i n g c o s t s a s s o c i a t e d w i t h the movement o f a s p e c i f i c commodity from a p a r t i c u l a r o r i g i n to a s p e c i f i c d e s t i n a t i o n i s p a r t o f the 9 p r o b l e m . The n e g o t i a t i o n s between s h i p p e r s and c a r r i e r s add a f u r t h e r j u d g e m e n t a l d i m e n s i o n to the s e t t i n g of r a t e s . C o n s i d e r a t i o n s o t h e r than t h o s e p u r e l y c o s t - or d e m a n d - o r i e n t e d may i n f l u e n c e the r a t e - m a k i n g p r o c e s s . For e x a m p l e , p u b l i c p o l i c y both c o n s t r a i n s the l i m i t s o f the r a t e s and the l e v e l of a r a t e may be q u e s t i o n e d on the grounds of " p u b l i c i n t e r e s t " . ^ 2 . 1 . 2 P u b l i c P o l i c y - D e f i n i n g the r a t e - m a k i n g e n v i r o n m e n t R a i l w a y p r i c i n g i n Canada i s p r e d i c a t e d upon c o s t and demand f a c t o r s c o n s t r a i n e d by a minimum of r e g u l a t i o n . The c r e a t i o n o f the r a t e - m a k i n g e n v i r o n m e n t as i t e x i s t s today i s a r e s u l t o f a g r a d u a l t e m p o r a l s h i f t i n the emphasis o f p u b l i c p o l i c y w h i c h c u l m i n a t e d i n the N a t i o n a l T r a n s p o r t a -t i o n A c t o f 1967. The e f f e c t o f p u b l i c p o l i c y i n d e f i n i n g the r a t e - m a k i n g e n v i r o n m e n t i s t h a t p r i m a r y r e l i a n c e i s p l a c e d on market f o r c e s f o r d e t e r m i n i n g the l e v e l o f r a t e s . That i s , w i t h i n the r e g u l a t o r y f r a m e w o r k , the d i f f e r e n c e s i n the l e v e l of two or more r a t e s a t any t ime i s based on c o s t and demand f a c t o r s w h i c h are m a r k e t - d e t e r m i n e d . The minimum l e v e l f o r a r a t e i s 100% of the v a r i a b l e ( o u t - o f - p o c k e t ) c o s t s f o r the movement of the p a r t i c u l a r com-(2) m o d i t y . v ' The maximum l e v e l o f the r a t e may be f i x e d by (1) S e c t i o n 334 and 336 of the R a i l w a y A c t and S e c t i o n 23 of the N a t i o n a l T r a n s p o r t a t i o n A c t , 1967 r e s p e c t i v e l y . . (2) S e c t i o n 334 of the R a i l w a y A c t . e i t h e r the C a n a d i a n T r a n s p o r t Commiss ion or by market f o r c e s . In the f o r m e r c a s e , i f a s h i p p e r has a pr ima f a c i e case t h a t he i s a " c a p t i v e s h i p p e r " then the maximum r a t e may be d e -f i n e d as h i g h as 2 .5 t i m e s the v a r i a b l e c o s t s f o r the move-ment o f the commodi ty . ^ In the s t r i c t e s t s e n s e , the m a x i -mum r a t e can be d e s i g n a t e d as t h a t r a t e w h i c h , i f e x c e e d e d , w i l l r e s u l t i n a f a i l u r e to move the t r a f f i c . However , t h e r e are many f a c t o r s w h i c h the r a i l w a y s m i g h t c o n s i d e r b e f o r e a t -t e m p t i n g to n e g o t i a t e a r a t e as h i g h as one w h i c h r e s u l t s i n no movement o f the t r a f f i c . Rate, Dollars per cwt. F i g u r e 2.1 - The G e n e r a l S t r u c t u r e of Rates maximum maximum minimum maximum minimum minimum 1 2 3 Commodity Movements I n . e a c h o f t h r e e c a s e s , d e p i c t e d i n F i g u r e 2 . 1 , the min^ imum r a t e r e f l e c t s the d i f f e r e n c e s i n the v a r i a b l e c o s t s r e -q u i r e d f o r the movement o f the commodi ty . For the f i r s t com-(1) S e c t i o n 336 of the R a i l w a y A c t . 11 m o d i t y movement, the maximum r a t e i s s e t a t 2 .5 t i m e s the v a r i a b l e c o s t , r e f l e c t i n g the maximum r a t e c h a r g e d a " c a p -t i v e s h i p p e r " . The second and t h i r d commodity movements r e f l e c t maximum r a t e s s e t by market f o r c e s . In each case the a rea between the maximum and minimum r a t e l e v e l s r e p -r e s e n t s p o t e n t i a l r a t e l e v e l s f o r the movement o f the com-m o d i t y . Where the r a t e i s f i n a l l y e s t a b l i s h e d w i l l depend on a number of f a c t o r s . The a v a i l a b i l i t y o f a l t e r n a t i v e t r a n s p o r t modes and n e g o t i a t i n g s k i l l s a re among t h e s e f a c t o r s , A f o r m a l a p p e a l mechanism e x i s t s whereby a s h i p p e r may ask f o r a r e d u c t i o n i n r a t e s i n the " p u b l i c i n t e r e s t " under S e c t i o n 23 o f the N a t i o n a l T r a n s p o r t a t i o n A c t , In the e v e n t t h a t the C a n a d i a n T r a n s p o r t a t i o n Commiss ion d e c i d e s t h a t a pr ima f a c i e case has been made t h a t a r a t e i s not i n the pub-l i c i n t e r e s t , a f o r m a l h e a r i n g w i l l be h e l d . S h o u l d the CTC d e c i d e t h a t the r a t e i s h i g h , the r a i l w a y s can be o r d e r e d to reduce the l e v e l o f the r a t e . In s p i t e o f the e x i s t e n c e o f t h i s mechanism and i t s i m p o r t a n c e , i t i s d i f f i c u l t to d e t e r -mine i t s e f f e c t as t h e r e has o n l y been, one d e c i s i o n by the CTC c o n c e r n i n g r a t e s , I t may w e l l be a f a c t o r i n n e g o t i a t i o n s between s h i p p e r s and c a r r i e r s , 2 , 1 , 3 P u b l i c P o l i c y - R e a c t i o n to f r e i g h t r a t e i s s u e s In an i m p e r f e c t w o r l d , i t i s h a r d l y s u r p r i s i n g t h a t r e -a l i t y d i f f e r s f rom the p e r f e c t i o n o f t e n assumed i n f o r m u l a -t i n g p u b l i c p o l i c y . The i m p a c t o f the N a t i o n a l T r a n s p o r t a -t i o n A c t i s t h a t r e l i a n c e i s p l a c e d on market f o r c e s to d e t e r m i n e the l e v e l of r a t e s . S h o u l d t h e s e market f o r c e s f a i l to s e r v e the p o l i c y r e q u i r e m e n t s , p o l i c y r e a c t i o n may be n e c e s s a r y . A c o n c e r n of the w e s t e r n p r o v i n c e s , h i s t o r i c a l l y , i s t h a t t r a n s p o r t a t i o n p o l i c y a f f e c t s the r e g i o n a l economy. A l t h o u g h the emphasis o f t h e s e c o n c e r n s may have c h a n g e d , i t i s a l l e g e d t h a t the N a t i o n a l T r a n s p o r t a t i o n A c t as p u b l i c p o l i c y has f a i l e d to d e a l w i t h the r e g i o n a l economic r e q u i r e -(1 ) ments of w e s t e r n Canada , v ' In g e n e r a l , the w e s t e r n p r o v i n c e s v i e w c u r r e n t t r a n s -p o r t a t i o n p o l i c y as l i m i t i n g economic e x p a n s i o n of t h e r e g -(2) i o n . S p e c i f i c i s s u e s c o n c e r n i n g r a i l w a y f r e i g h t r a t e cases were r a i s e d at the Western Economic O p p o r t u n i t i e s C o n -(3) f e r e n c e i n the summer of 1973. ' The i s s u e s i n c l u d e the f o l l o w i n g : 1, R a i l u s e r s pay a p p r o x i m a t e l y 80% of the f i x e d c o s t s w h i l e a i r and water users , pay a p p r o x i m a t e l y 20% o f such c o s t s ; 2, R a i l w a y s base many r a t e s on the v a l u e of the p r o d u c t s t r a n s p o r t e d ; t h e r e f o r e f i n i s h e d goods are c h a r g e d h i g h e r r a t e s than raw m a t e r i a l s ; 0) Government o f A l b e r t a , Department of I n d u s t r y and Com-m e r c e , T r a n s p o r t R e s e a r c h and Development D i v i s i o n , "The E q u i t a b l e P r i c i n g P o l i c y : A New Method o f R a i l Rate M a k i n g " , J u l y 1 973 , p . 1 . (2) The E q u i t a b l e P r i c i n g P o l i c y , o p . c i t . , p . 5 . (3) J o i n t s u b m i s s i o n on T r a n s p o r t a t i o n by the Four Western P r e m i e r s to the Pr ime M i n i s t e r o f C a n a d a , Western E c o n -omic O p p o r t u n i t i e s C o n f e r e n c e , C a l g a r y , A l b e r t a , J u l y 1973 . 13 3 . R a i l r a t e groups e x i s t i n C e n t r a l C a n a d a , and l a r g e a r e a s are c o n s i d e r e d one l o c a t i o n f o r r a t e - m a k i n g p u r p o s e s ; such a p o l i c y e n c o u r a g e s d e v e l o p m e n t o f the s m a l l c o m m u n i t i e s c o v e r e d by the a rea r a t e ; 4 . H o r i z o n t a l p e r c e n t a g e r a t e i n c r e a s e s p l a c e a d i s -p r o p o r t i o n a t e burden on w e s t e r n n o n - c o m p e t i t i v e t r a f f i c ; a n d ; 5 . In c e r t a i n i n s t a n c e s h i g h e r r a i l r a t e s a re c h a r g e d f o r s h o r t h a u l s than f o r l o n g e r ones i n v o l v i n g the same c o m m o d i t y . 2 . 1 . 4 Summary B e f o r e d i s c u s s i n g the g e n e r a l f a c t o r s i n f l u e n c i n g the l e v e l o f r a t e s , i t s h o u l d be noted t h a t r a i l w a y p r i c i n g i s a complex s u b j e c t w h i c h has a l o n g h i s t o r y of c o n t r o v e r s y . To some e x t e n t the v i e w s about r a i l w a y r a t e s and what t h e y ought to be p r e d i c a t e d upon are p o l a r i z e d . On one hand i t i s a r -gued t h a t f r e i g h t r a t e s s h o u l d be based on c o s t s ; on the o t h e r i t i s a r g u e d t h a t r a t e s s h o u l d be s e t on the b a s i s o f demand f o r the s e r v i c e . ^ The A l b e r t a government has t a k e n the f o r m e r p o s i t i o n . ^ The r a i l w a y s would be e x p e c t e d to r a t i o n a l i z e r a t e - m a k i n g i n the l a t t e r manner ; t h a t i s , charge What the t r a f f i c w i l l bear (1) D a v i s , G r a n t M . , Combs, L i n d a J . , "Some O b s e r v a t i o n s Re-g a r d i n g V a l u e - d f - S e r v i c e P r i c i n g i n T r a n s p o r t a t i o n " , T r a n s p o r t a t i o n J o u r n a l , V o l . 14 , No. 3 , S p r i n g 1975 , p . 49 . (2) The A l b e r t a g o v e r n m e n t ' s p a p e r : "The E q u i t a b l e P r i c i n g P o l i c y " . (demand-based p r i c i n g ) . C u r r e n t p o l i c y has c r e a t e d an e n v i r o n m e n t i n w h i c h both c o s t s and demand f a c t o r s may be r e l e v a n t i n d e t e r m i n i n g the l e v e l of r a t e s . The d i s c u s s i o n of c o s t and. demand f a c t o r s i n the f o l -l o w i n g two s e c t i o n s i s s i m p l i f i e d by n e c e s s i t y . In c o n t r a s t , d e t e r m i n i n g the e q u i t y of a p a r t i c u l a r r a t e l e v e l r e q u i r e s the i d e n t i f i c a t i o n of s p e c i f i c f a c t o r s a f f e c t i n g the l e v e l of t h a t r a t e . Thus a d i c o t o m y e x i s t s between the g e n e r a l t r e a t m e n t g i v e n the t h e o r e t i c a l r e l a t i o n s h i p between f a c t o r s and r a t e s i n t h i s c h a p t e r , and the i n h e r e n t s p e c i f i c i t y o f any p a r t i c u l a r r a t e . 2 .2 R a i l w a y C o s t s and C o s t F a c t o r s The r a i l mode i s c a p i t a l i n t e n s i v e and u n l i k e o t h e r t r a n s p o r t modes ( e x c e p t p i p e l i n e s ) , the r a i l w a y companies have a major i n v e s t m e n t i n the i n f r a s t r u c t u r e . Thus f i x e d c o s t s are a s i g n i f i c a n t component o f the t o t a l c o s t . T h i s f a c t o r s e r i o u s l y a f f e c t s the a b i l i t y o f the r a i l r o a d com-p a n i e s (or anybody e l s e ) to make r a t e s p u r e l y on the b a s i s o f c o s t s . A l t h o u g h v a r i a b l e c o s t s would i n c r e a s e as a p r o p o r t i o n of t o t a l c o s t s i n the l o n g - r u n , i n the s h o r t - r u n most c o s t s a r e (2) f t x e d . ' The p r o b l e m of making r a t e s on the b a s i s o f c o s t s (1) A l b e r t a G o v e r n m e n t , o p . c i t . , p . 5 and R a i l w a y T r a n s p o r t Committee D e c i s i o n , Rapeseed C a s e , o p . c i t . , p . 44 . (2) See L o c k l i n , o p . c i t . , p . 168 , he r e f e r e n c e s a s t u d y done i n 1 943 , w h i c h found t h a t i i i the l o n g - r u n , 70 - 80 p e r -c e n t o f U . S. r a i l r o a d o p e r a t i n g expenses are v a r i a b l e . becomes one o f a l l o c a t i n g these f i x e d c o s t s to the t r a f f i c w h i c h i s moved. W h i l e both f i x e d and v a r i a b l e c o s t s can be a l l o c a t e d by some means, the a l l o c a t i o n may not be s i g n i f i -c a n t f o r the making of r a t e s . D i f f e r e n c e s i n the l e v e l o f r a t e s can be i n f l u e n c e d by c o s t f a c t o r s r e l a t e d to d i f f e r e n t c o m m o d i t i e s moving between the same p o i n t s , or by c o s t f a c t o r s f o r the same commodity moving between d i f f e r e n t p o i n t s . 2 .2 .1 C o s t F a c t o r s I n f l u e n c i n g D i f f e r e n c e s i n Rates Between  Commodi t i e s The l o a d i n g c h a r a c t e r i s t i c s o f d i f f e r e n t c o m m o d i t i e s can r e s u l t i n d i f f e r e n t c o s t s . The w e i g h t per c u b i c f o o t i s com-monly used to d e f i n e the l o a d i n g c h a r a c t e r i s t i c o f a commod-i t y . In g e n e r a l , as w e i g h t per c u b i c f o o t i n c r e a s e s , the r a t e d e c r e a s e s . T h i s c o n d i t i o n i s r e f l e c t e d i n d i f f e r e n t c a r -l o a d minima f o r d i f f e r e n t c o m m o d i t i e s . For e x a m p l e , commodi-t i e s w i t h low c a r 1oad m i n i m a , say 25 ,000 p o u n d s , w i l l have a h i g h e r r a t e per h u n d r e d w e i g h t than w i l l a commodity w i t h a h i g h e r - c a r l o a d . m i n i m a , say 80 ,000 p o u n d s . Commodi t i es may l o a d l i g h t l y f o r o t h e r r e a s o n s b e s i d e s w e i g h t d e n s i t y . Ob-j e c t s w i t h l a r g e d i m e n s i o n s w h i c h cannot be " b r o k e n down" or w i t h odd shapes w i l l i n c u r h i g h e r r a t e s . The l i a b i l i t y o f the c a r r i e r f o r the goods c a r r i e d and the s u s c e p t i b i l i t y o f the goods to l o s s and damage may be i n -s t r u m e n t a l i n d e f i n i n g d i f f e r e n c e s i n r a t e s . Commodi t i es h i g h l y s u s c e p t i b l e to damage w i l l bear h i g h e r c o s t s than t n i s t h o s e w i t h low s u s c e p t i b l i t y to damage, o t h e r t h i n g s b e i n g ft equa l . C o s t s d i r e c t l y r e l a t e d to a p a r t i c u l a r commodity may d e c r e a s e as a r e s u l t o f h i g h e r volumes of t r a f f i c moving o v e r t i m e . The u t i l i z a t i o n o f u n i t c o a l t r a i n s r e p r e s e n t s the k i n d of c o s t e f f i c i e n c i e s a l l u d e d to by t h i s f a c t o r . In t h i s c a s e , c o s t e f f i c i e n c i e s a re a c h i e v e d t h r o u g h i n c r e a s -ed h a n d l i n g e f f i c i e n c i e s . O t h e r t h i n g s b e i n g e q u a l , l o w e r r a t e s per t r a n s p o r t e d u n i t w o u l d be e x p e c t e d . Equipment r e q u i r e m e n t s f o r two c o m m o d i t i e s may r e s u l t i n d i f f e r e n t c o s t s and hence d i f f e r e n t r a t e s . For e x a m p l e , f r o z e n meat , r e q u i r i n g a r e f r i d g e r a t e d c a r would bear a h i g h -er r a t e t h a t would canned meat w h i c h can be s h i p p e d i n a s t a n d a r d box c a r . 2.2.2 C o s t F a c t o r s I n f l u e n c i n g D i f f e r e n c e s i n Rates Between  P a r t i c u l a r P o i n t s The c o s t - d i s t a n c e r e l a t i o n s h i p i s p r e d i c a t e d on two t y p e s of c o s t s , t e r m i n a l c o s t s and l i n e haul c o s t s . ^ T e r -m i n a l c o s t s can be v iewed as a f i x e d amount per h u n d r e d w e i g h t I f i n t e r m e d i a t e - p o i n t c o s t s a re i g n o r e d , l i n e haul c o s t s can (2) be e x p r e s s e d as a c o n s t a n t amount per m i l e . v ' T o t a l c o s t f o r any movement i s : V (1) P u r d y , o p t . c i t . p . 101 . (2) o p . c i t . ( 2 . 1 ) TC = a + bD where a = the f i x e d t e r m i n a l c o s t per h u n d r e d w e i g h t ; b = f i x e d c o s t per m i l e ; D = the d i s t a n c e of movement; TC = T o t a l c o s t The c o s t per m i l e i s n o n - l i n e a r and i t s s l o p e i s n e g a t i v e ( F i g u r e 2 . 2 ) . T h i s r e l a t i o n s h i p r e s u l t s because the f i x e d t e r -m i n a l c h a r g e s a r e s p r e a d o v e r more m i l e s as the d i s t a n c e i n -c r e a s e s . T o t a l c o s t f o r l o n g - h a u l s a re g r e a t e r than f o r s h o r t - h a u l s and the r a t e s , o t h e r t h i n g s b e i n g e q u a l , w i l l r e -f l e c t t h e s e c o s t s . ( T a b l e 2 . 1 ) The r a t e per m i l e / d i s t a n c e r e l a t i o n s h i p i s a l s o n o n - l i n e a r ; i t d e c l i n e s as d i s t a n c e i n -c r e a s e s , ( T a b l e 2 . 1 ) . ^ 1 ^ F i g u r e 2 .2 - C o s t Per M i l e f o r the Same Commodity Moving D i f f e r e n t D i s t a n c e s C o s t Per Mi l e D i s t a n c e ( m i l e s ) (1 ). I n t e r s t a t e Commerce C o m m i s s i o n , Bureau C a r l o a d C o s t S c a l e s by T e r r i t o r i e s f o r o f A c c o u n t s , " R a i 1  the Year 1 9 5 9 " , W a s h i n g t o n , D . C . , November 1960, T a b l e 2 , p . 72 . 18 T a b l e 2 . 1 - The R a t e - D i s t a n c e R e l a t i o n s h i p An E x a m p l e : 100 Pounds Moving D i f f e r e n t D i s t a n c e s Di s t a n c e ( i n m i l e s ) T o t a l C o s t of the Movement ( i n d o l l a r s ) Rate per M i l e ( i n c e n t s ) 50 .0797 . 1 596 100 .0924 .0924 500 .1935 .0387 1 000 .3199 .0319 1 500 .4463 .0297 2000 .5727 .0286 2500 .6991 .0279 S o u r c e : See f o o t n o t e (1) b e l o w , a d a p t e d from I n t e r s t a t e Com-m i s s i on , ' Bureau of A c c o u n t s , R a i l C a r l o a d C o s t S c a l e s by T e r -r i t o r y , f o r the Year 1959, W a s h i n g t o n , D. C , November 1960, T a b l e 2 , p . 72 . O p e r a t i n g c o n d i t i o n s f o r two movements i n d i f f e r e n t r e g i o n s may be d i f f e r e n t even though the d i s t a n c e i s the same f o r both movements. For e x a m p l e , d i f f e r e n c e s i n r o u t e p r o f i l e s can r e s u l t i n d i f f e r e n t o p e r a t i n g c o s t s w h i c h the s h i p p e r may not be aware o f . Some p a r t s o f the B r i t i s h C o l -(1) O u t - o f - p o c k e t t e r m i n a l c o s t s , a , equa l 6 .714 c e n t s per 100 p o u n d s ; o u t - o f - p o c k e t l i n e haul c o s t , b , equa l .02528 c e n t s per h u n d r e d w e i g h t m i l e . Both o f t h e s e c o s t s a re f o r a Western D i s t r i c t , box c a r movement a t 50 tons per c a r . T h e r e f o r e , i f r a t e s a re assumed to equa l c o s t s f o r a 100 pound s h i p m e n t moving d i f f e r e n t d i s t a n c e s , the t o t a l c o s t o f the movement = a + bD when a and b are as d e f i n e d above and D, i s the d i s t a n c e t r a v e l l e d . The r a t e per m i l e i n c e n t s , = (a + bD) See s o u r c e T a b l e 2 . 1 . D 19 umbia R a i l w a y system have maximum g r a d i e n t s o f 2.2%. Heav-i l y l a d e n t r a i n s t r a v e l l i n g on t h i s p a r t o f the sys tem may. r e q u i r e the a d d i t i o n of an a u x i l i a r y power u n i t . Thus a l l t r a f f i c moving o v e r t h i s p a r t o f the system bears t h i s a d d -i t i o n a l c o s t . In an o p p o s i t e c a s e , l a r g e r t r a i n s may be a b l e to o p e r a t e w i t h f ewer e n g i n e s i n c e r t a i n P r a i r i e s u b - d i v i s i o n s . Rates i n the f o r m e r case would be h i g h e r , o t h e r t h i n g s b e i n g e q u a l , than i n the l a t t e r c a s e . M u l t i p l e l i n e h a u l s , f o r example f rom a b r a n c h l i n e to a main l i n e w i l l i n c u r s w i t c h i n g c o s t s . As the number o f l i n e s c r o s s e d i n c r e a s e s , s w i t c h i n g c o s t s i n c r e a s e and r a t e s w i l l i n c r e a s e . As t r a f f i c d e n s i t y i n c r e a s e s , the u n i t c o s t o f t r a n s -p o r t a t i o n d e c r e a s e s . T h e r e f o r e , l a r g e volumes of t r a f f i c o v e r a l i n e , o r p o r t i o n of a l i n e , m a y r e s u l t i n l o w e r r a t e s , o t h e r t h i n g s b e i n g e q u a l . The n e c e s s a r y q u a l i f i c a t i o n i s t h a t e x c e s s c a p a c i t y e x i s t s on the l i n e . A t some p o i n t , the a d d i t i o n of t r a f f i c to a l i n e may cause c o s t s to i n -c r e a s e as c a p i t a l i s expended to i n c r e a s e c a p a c i t y . I f t r a f f i c i s added to a sys tem and i t moves i n the same d i r e c t i o n as empty c a r movements , r a t e s wou ld be l o w e r . T h i s f a c t o r may become i n c r e a s i n g l y i m p o r t a n t i n the f u t u r e , i n s o f a r as the u t i l i z a t i o n of u n i t t r a i n s o f t e n r e s u l t s i n b a c k h a u l i n g empty c a r s . A l t h o u g h i t c o u l d be i m p o r t a n t e l s e -where i n C a n a d a , i t would be e x p e c t e d to be more s i g n i f i c a n t i n Western C a n a d a , g i v e n the p o t e n t i a l f o r u n i t t r a i n mover, ments o f b u l k c o m m o d i t i e s . 2 . 3 Demand F a c t o r s A f f e c t i n g the L e v e l o f Rates Demand f o r t r a n s p o r t i s a d e r i v e d demand. I t i s the demand f o r a p r o d u c t w h i c h may r e s u l t i n t h a t p r o d u c t b e i n g t r a n s p o r t e d from one p o i n t to a n o t h e r . Thus t h e r e are two d i m e n s i o n s to c o n s i d e r : f i r s t a re those f a c t o r s w h i c h may a f f e c t the demand f o r the c o m m o d i t y , and second t h e r e are f a c t o r s w h i c h may i n f l u e n c e the demand f o r t r a n s p o r t o f the c o m m o d i t y . M a r k e t c o m p e t i t i o n i s one f a c t o r w h i c h can a f f e c t the demand f o r the p r o d u c t . Demand f o r any one p r o d u c t may d e -c r e a s e i f i t i s s u b j e c t e d to s t r o n g market c o m p e t i t i o n : . T h u s , to e n s u r e c o m p e t i t i v e n e s s , i t wou ld be e x p e c t e d t h a t r a t e s would d e c r e a s e as market c o m p e t i t i o n i n c r e a s e s . Com-p e t i t i o n f o r c a r r i a g e of the commodity may e x i s t between t r a n s p o r t modes, a f f e c t i n g the demand f o r t r a n s p o r t . O t h e r t h i n g s b e i n g equal , r a t e s wou ld be e x p e c t e d to d e c r e a s e when i n t e r m o d a l c o m p e t i t i o n i n c r e a s e s . 2 . 3 . 1 Demand F a c t o r s A f f e c t i n g D i f f e r e n c e s i n Rates Between  Commodi t i e s The v a l u e of the commodity i s a major f a c t o r i n f l u e n -c i n g d i f f e r e n c e s i n r a t e s . In the p a s t , i t p l a y e d a g r e a t e r r o l e i n d e t e r m i n i n g the l e v e l o f r a t e s than i t does t o d a y . The d i m i n i s h i n g r o l e o f t h i s f a c t o r may be a t t r i b u t e d to i n -c r e a s i n g c o m p e t i t i o n f rom r o a d and a i r modes f o r c a r r i a g e 21 of h i g h - v a l u e g o o d s . v ' In g e n e r a l , the h i g h e r the v a l u e of the c o m m o d i t y , the more l i k e l y i t i s t h a t the r a t e w i l l be h i g h e r than f o r a l o w - v a l u e d g o o d . T h i s i s not meant to i m p l y t h a t h i g h - v a l u e d goods w i l l n e c e s s a r i l y have a h i g h r a t e r e l a t i v e to l o w - v a l u e d g o o d s ; i t o n l y means t h a t the a b i l i t y o f h i g h - v a l u e d goods to bear a h i g h e r r a t e i s g r e a t -[ 2) er than f o r l o w - v a l u e d g o o d s . v ' In a d d i t i o n to the g e n e r a l c o n d i t i o n , t h e r e are a num-ber o f s p e c i f i c i s s u e s w h i c h may be r e l a t e d to the v a l u e o f the c o m m o d i t y . Thus r a t e d i f f e r e n t i a l s bet-wee*n raw m a t e r -i a l s and f i n i s h e d p r o d u c t s , and the use made of the commodity may be e x p l a i n e d , i n p a r t , by the v a l u e o f the commodi ty . The r a t e f o r raw p r o d u c t s i s g e n e r a l l y l o w e r than f o r f i n i s h -ed p r o d u c t s . The use made of a commodity may depend on i t s q u a l i t y (grade or p u r i t y ) w h i c h i s r e f l e c t e d i n d i f f e r e n t i a l (3) v a l u e s f o r d i f f e r e n t grades of a commodi ty . v ' The economic c o n d i t i o n of an i n d u s t r y may a f f e c t the l e v e l o f r a t e s . Other t h i n g s b e i n g e q u a l , i n t i m e s o f p r o s -p e r i t y r a t e s may be h i g h e r than t h o s e when the p a r t i c u l a r i n -d u s t r y i s s u f f e r i n g f rom d e p r e s s e d economic c o n d i t i o n s . (1) A l t h o u g h the d i s c u s s i o n i n t h i s s e c t i o n i s meant to d e a l w i t h c o m p e t i t i o n among c o m m o d i t i e s , among o t h e r t h i n g s , i t i s i m p o r t a n t to note t h a t i n r e a l i t y , i t i s d i f f i c u l t to d i f f e r e n t i a t e between c o m p e t i t i o n f o r the commodity and c o m p e t i t i o n f o r c a r r i a g e o f the commodity v i s - a - v i s o t h e r f a c t o r s . (2) L o c k l i n , i b i d . p . 159. (3) A d i f f e r e n t r a t e would be e x p e c t e d between sand f o r manu-f a c t u r i n g g l a s s and sand f o r c o n s t r u c t i o n , f o r e x a m p l e . 22 2 . 3 . 2 Demand F a c t o r s A f f e c t i n g D i f f e r e n c e s i n Rates Between  P a r t i c u l a r P o i n t s In the t r a n s p o r t o f a good between p a r t i c u l a r p o i n t s , c o m p e t i t i o n may p l a y an i m p o r t a n t r o l e i n e x p l a i n i n g r a t e d i f f e r e n t i a l s . The a b i l i t y o f a t r a n s p o r t e d commodity to compete e f f e c -t i v e l y i n a market depends on the p r o d u c t p r i c e a n d , o f c o u r s e , the p r i c e i s dependent upon the c o s t s o f p r o d u c t i o n and d i s -t r i b u t i o n w h i c h i n c l u d e t r a n s p o r t a t i o n c o s t s . O t h e r t h i n g s b e i n g e q u a l , l o w e r r a t e s would be e x p e c t e d f o r c o m m o d i t i e s s u b j e c t to a h i g h degree of c o m p e t i t i o n and h i g h e r r a t e s would be e x p e c t e d f o r c o m m o d i t i e s w h i c h bear l i t t l e marke t compet i t i o n . I n t e r m o d a l c o m p e t i t i o n may1 i n f 1 u e n c e the l e v e l o f r a t e s . The t r a d e - o f f between modes i s between the modes' s e r v i c e c h a r a c t e r i s t i c s and the s h i p p e r s ' c o s t o f u s i n g the mode. That i s , i f t ime i n t r a n s i t i s an i m p o r t a n t f a c t o r f o r the s h i p p e r he w i l l be w i l l i n g to bear a h i g h e r t r a n s p o r t c o s t f o r s h i p p i n g by a i r than i f he were to use a l e s s speedy mode such as r a i l . S p e c i f i c o r i g i n s or d e s t i n a t i o n s may have some i n h e r e n t a d v a n t a g e f o r the s h i p p i n g of some t y p e s of c o m m o d i t i e s . O t h e r t h i n g s b e i n g e q u a l , a h i g h degree o f i n -t e r m o d a l c o m p e t i t i o n would mean l o w e r r a t e s , and h i g h e r r a t e s would be e x p e c t e d when t h e r e i s l i t t l e or no i n t e r m o d a l com-p e t i t i o n . I t may be v e r y d i f f i c u l t to s e p a r a t e the i n f l u e n c e o f market and i n t e r m o d a l c o m p e t i t i o n . For e x a m p l e , the l o n g -23 s h o r t haul d i s c r i m i n a t i o n c h a r g e d f o r the movement o f s t e e l from e a s t e r n Canada to A l b e r t a and B r i t i s h C o l u m b i a may be a f u n c t i o n of both t y p e s o f c o m p e t i t i o n . An example of the l o n g - s h o r t haul p r o b l e m i s p o r t r a y e d i n T a b l e 2 . 2 . T a b l e 2 .2 - The L o n g - S h o r t Haul D i s c r i m i n a t i o n  P r o b l e m - A l b e r t a and B r i t i s h C o l u m b i a ( d o l l a r t r a n s p o r t c o s t per hundred pounds) ORIGIN DESTINATION V a n c o u v e r Edmonton S a s k a t o o n T o r o n t o ( i r o n and s t e e l ) $1 .68 N/A $2 .47 H a m i l t o n ( s k e l p ) $1 .35 $2.11 N/A S o u r c e : A l b e r t a Government , E q u i t a b l e P r i c i n g P o l i c y , p . 5 , c o m p i l e d by a u t h o r . I t may be argued t h a t the l o w e r c o s t s i n V a n c o u v e r a re a t t r i b u t a b l e to both market c o m p e t i t i o n f o r s t e e l i n V a n -c o u v e r and w a t e r c o m p e t i t i o n v i a the Panama C a n a l . V a n c o u v e r has the a d v a n t a g e . I t i s c l o s e r to o t h e r s o u r c e s , l i k e Japan and South A m e r i c a , and a cheaper mode o f t r a n s p o r t - w a t e r , can be u t i 1 i zed . ^ (1) A l t h o u g h t h i s was the case i n 1973, ocean f r e i g h t r a t e s and m a n u f a c t u r i n g c o s t s i n the Far E a s t and South A m e r i c a may have i n c r e a s e d s u b s t a n t i a l l y s i n c e 1973. I f t h i s i s the c a s e , a d e c r e a s e i n the t o t a l c o s t d i f f e r e n t i a l be-tween d o m e s t i c and f o r e i g n s t e e l m i g h t r e s u l t i n h i g h e r r a i l w a y f r e i g h t r a t e s at the p r e s e n t t i m e . 2.4 Summary R a t e - m a k i n g has been c h a r a c t e r i z e d as a l e s s - t h a n -e x a c t phenomenon. P u b l i c p o l i c y i n Canada has s e t a s t a g e whereby both c o s t and demand f a c t o r s may i n t e r a c t i n d e f i n -i n g the l e v e l o f a r a t e . The n a t u r e o f r a i l w a y c o s t s l i m i t the degree to w h i c h c o s t s may be a l l o c a t e d i n a s i g n i f i c a n t manner . The s u b -j e c t i v e n a t u r e o f demand f a c t o r s i n some cases makes i t d i f -f i c u l t to d e t e r m i n e the e q u i t y of any p a r t i c u l a r r a t e . P u b l i c p o l i c y has been c h a r a c t e r i z e d as h a v i n g a s e c -ond r o l e to p l a y i n d e t e r m i n i n g d i f f e r e n c e s i n r a t e s . As economic and s o c i a l g o a l s c h a n g e , p u b l i c p o l i c y on t r a n s p o r -t a t i o n can be e x p e c t e d to c h a n g e . For e x a m p l e , a g r e a t d e a l o f c o n c e r n has been e x p r e s s e d i n some r e g i o n s o f Canada about the i m p a c t o f r a i l w a y f r e i g h t r a t e s on r e g i o n a l d e v -e l o p m e n t . In some cases t h e r e appears to be i n t e r d e p e n d e n c e be-tween or among the c o s t and demand f a c t o r s d i s c u s s e d . In a d d i t i o n , the p o r t r a y a l o f a s p e c i f i c f a c t o r s ' i n f l u e n c e on d i f f e r e n c e s i n r a t e s i s i n g e n e r a l t e r m s . There has been no d i s c u s s i o n about the degree to w h i c h a f a c t o r a f f e c t s a r a t e l e v e l , y e t i t may be assumed t h a t t h i s i s an i m p o r t a n t d i m e n s i o n a f f e c t i n g d i f f e r e n c e s i n r a t e s . C a u t i o n must be e x e r c i s e d i n a n a l y s i n g s p e c i f i c f r e i g h t r a t e s i n terms of the f a c t o r s d i s c u s s e d i n t h i s c h a p t e r . . CHAPTER 3 RATE STRUCTURE AND CHANGES IN THE RATE STRUCTURE OVER TIME 3.1 I n t r o d u c t i on In the p r e v i o u s c h a p t e r , r a t e s were c h a r a c t e r i z e d as b e i n g h e t e r o g e n e o u s . The number of f a c t o r s i n v o l v e d , t h e i r r e l a t i o n s h i p s w i t h one a n o t h e r and the r a t e - m a k i n g e n v i r o n -ment a l l c o n t r i b u t e to the c o m p l e x i t y of d e f i n i n g r a t e l e v -e l s . As w e l l , the t h o u s a n d s of c o m m o d i t i e s moving between t h o u s a n d s of p a i r s o f p o i n t s s u g g e s t t h a t a d m i n i s t e r i n g a : p u b l i s h e d s e t of r a t e s i s a d i f f i c u l t t a s k . Rate t a r i f f s a re a means of s i m p l y a r t i c u l a t i n g and a d m i n i s t e r i n g r a i l -way f r e i g h t r a t e s . There are f i v e main r a t e s y s t e m s . A s i x t h r a t e s y s -tem, a l t h o u g h l e s s i m p o r t a n t , i s d i s c u s s e d to i n d i c a t e the e x t e n t of r a t e r e g u l a t i o n and c o n t r o l t h a t e x i s t s i n C a n a d a . The f i r s t r a t e s y s t e m , C l a s s R a t e s , a n t e d a t e s r a i l w a y r a t e systems but was r e a d i l y adopted by the r a i l w a y s . The r e -m a i n i n g r a t e systems were each i n i t i a t e d p r i m a r i l y to s e r v e a s p e c i f i c p u r p o s e , as w i l l become a p p a r e n t . The amount o f t r a f f i c moving under each o f ' i t h e s e r a t e t y p e s has changed o v e r t i m e . Thus the t e m p o r a l changes i n the t r a f f i c moving under each r a t e t y p e r e f l e c t the r e l a t i v e i m p o r t a n c e of c o s t , demand, and p u b l i c p o l i c y f a c t o r s o v e r t i m e . 26 3 .2 C l a s s Rates The c u r r e n t C l a s s Rate system a p p l i e s o n l y to c a r l o a d t r a f f i c . In the C l a s s Rate s t r u c t u r e c o m m o d i t i e s a re g r o u p -ed i n one of a number of c l a s s e s . Each c l a s s r a t e i s e x p r e s -sed as a p e r c e n t a g e of the C l a s s One r a t e . ^ The c a r 1 oadnm.i.nnimum w e i g h t i s p r o v i d e d , as i s the s t a t e of the commodity p a c k a g i n g ( f o r e x a m p l e , s e t u p , knocked down, or o w n e r ' s r i s k o f b r e a k a g e ) . The C l a s s One r a t e s are r e l a t e d to a d i s t a n c e s c a l e w h i c h shows the " t a p e r " phenom-enon a c c o r d e d l o n g - d i s t a n c e movements. Very l i t t l e t r a f f i c tends to move under the C l a s s r a t e s y s t e m . O n l y .8% of the sampled t o n - m i l e s f o r a l l o f Canada (2) moved under C l a s s r a t e s i n 1972. v ' The C l a s s r a t e s p r o v i d e a h i g h e r a v e r a g e revenue per f r e i g h t t o n - m i l e to the r a i l -w a y s , 4.71<£ i n 1 972 , than do the o t h e r r a t e s t r u c t u r e s . ^ 3 . 3 Commodity N o n - C o m p e t i t i v e Rates T h i s r a t e system i s n o n - c o m p e t i t i v e v i s - a - v i s i n t e r m o -d a l c o m p e t i t i o n . However , i t does f o c u s on t h o s e c o m m o d i t i e s w h i c h may be m a r k e t - c o m p e t i t i v e . Perhaps more i m p o r t a n t l y , the Commodity N o n - c o m p e t i t i v e r a t e s were d e s i g n e d to e n s u r e the movement o f t h o s e c o m m o d i t i e s w h i c h wou ld n o t , or c o u l d not move a t the C l a s s r a t e s . T y p i c a l l y , the c o m m o d i t i e s a re l o w - v a l u e d , b u l k c o m m o d i t i e s such as c o a l , o r e s , c o n c e n t r a t e s , (1) P u r d y , i b i d . , p . 100 , f o o t n o t e 2 and C a n a d i a n T r a n s p o r t C o m m i s s i o n , W a y b i l l A n a l y s i s , 1972, T a b l e 1 , p . 3 . (2) CTC, W a y b i l l A n a l y s i s , T a b l e 1 , p . 3 , 1972 (3) o p . c i t . , T a b l e 3 , p . 44 . 27 cement , p o t a s h , and s u l p h u r . v ' ; For such c o m m o d i t i e s , the t r a n s p o r t c o s t s a re s i g n i f i c a n t l y h i g h i n r e l a t i o n to the market v a l u e o f the g o o d . C o s t f a c t o r s c o n t r i b u t e to the v i a b i l i t y o f t h i s r a t e system as w e l l . For e x a m p l e , h a n d l i n g c o s t e f f i c i e n c i e s have been r e a l i z e d i n the t r a n s p o r t o f b u l k c o m m o d i t i e s by u n i t t r a i n s . In g e n e r a l i t would be e x p e c t e d t h a t b u l k commodi-t i e s would l o a d to h i g h e r w e i g h t s i n r a i l w a y s c a r s and the volume o f t r a f f i c may be r e l a t i v e l y more c o n s t a n t . In 1972, 29.6% of the t o t a l sampled t o n - m i l e s i n the W a y b i l l A n a l y s i s , moved under t h i s r a t e s y s t e m and the a v e r -age revenue per f r e i g h t t o n - m i l e was 1.24<£. (2) 3 .4 Commodity C o m p e t i t i v e Rates v ' The impetus b e h i n d the d e v e l o p m e n t o f t h i s r a t e system i s a t t r i b u t e d to i n c r e a s i n g i n t e r m o d a l c o m p e t i t i o n , p a r t i c u -(3) l a r l y highway c o m p e t i t i o n . v 1 B e a r i n g i n mind the s e r v i c e c h a r a c t e r ! ' s t i c s - c o s t o f s e r v i c e t r a d e - o f f , h i g h e r - v a l u e d c o m m o d i t i e s w i l l move s u b -j e c t to c o m p e t i t i o n between the r a i l w a y s and the r o a d . a i r c a r -r i e r s . L o w - v a l u e d goods may be the s u b j e c t o f c o m p e t i t i o n between r a i l and w a t e r c a r r i e r s . (1) P u r d y , i b i d , p p . 102 - 103 (2) A p p r o v e d i n the R a i l w a y A c t , S. 3 3 1 , r e f e r e n c e d i n P u r d y , o p . c i t . p . 103. (3) CTC, W a y b i l l A n a l y s i s , i b i d . p . 3 . 28 These r a t e s are n e g o t i a b l e by the s h i p p e r and the c a r -r i e r . The a b i l i t y , o f the s h i p p e r to s e c u r e a m o d e - c o m p e t i -t i v e r a t e depends upon the n a t u r e of the commodity b e i n g s h i p p e d , the l o c a t i o n of o r i g i n and d e s t i n a t i o n , and a l t e r n a -t i v e t r a n s p o r t means from the o r g i n to d e s t i n a t i o n . In 1972 , 23.8% of the sampled t o n - m i l e s i n the W a y b i l l A n a l y s i s moved under Commodity C o m p e t i t i v e R a t e s . ^ A v e r -age revenue per f r e i g h t t o n - m i l e i n 1 972 was 2.23c/:. v ' (3) 3 .5 Agreed Charges • ; Agreed Charges r a t e s are n e g o t i a t e d . L i k e the Commod-i t y C o m p e t i t i v e r a t e s , Agreed Charges a re d e s i g n e d to meet i n t e r m o d a l c o m p e t i t i o n . In c o n t r a s t to Commodity C o m p e t i t i v e r a t e s , the s h i p p e r must commit to the r a i l w a y s some p r o p o r -t i o n ( u s u a l l y o v e r 80%) of h i s t o t a l t r a f f i c f o r the p e r i o d i n w h i c h the Agreed Charges a re n e g o t i a t e d ( u s u a l l y one y e a r ) . Of the t o t a l sampled t o n - m i l e s i n 1972 , 17.8% moved u n -(4) der A g r e e d Charges r a t e s . v ' A v e r a g e r e v e n u e p e r f r e i g h t (5) t o n - m i l e t h a t y e a r was 2.01c/;. v 1 3 .6 S t a t u t o r y G r a i n Rates T h i s r a t e a p p l i e s to g r a i n and g r a i n p r o d u c t s t r a n s p o r t -ed f o r e x p o r t . The r a t e o r i g i n a t e d w i t h the C r o w s n e s t Pass (1) CTC, W a y b i l l A n a l y s i s , i b i d , p . 3 . (2) o p . c i t . p . 44 . (3) Agreed Charges p r o v i d e d f o r i n the T r a n s p o r t A c t , 1938, S. 3 5 , r e f e r e n c e d i n P u r d y , o p . c i t . , p . 104. (4) CTC, W a y b i l l A n a l y s i s , i b i d , p . 3 . (5) op', c i t . , p . 44 . 29 Agreement o f 1896 and has remained i n e f f e c t , o t h e r than f o r some s h o r t p e r i o d s , s i n c e t h a t t i m e . The S t a t u t o r y G r a i n r a t e s are m e n t i o n e d here as a p a r t i c u l a r a n o m a l y . T h e i r e x i s t e n c e i s a f u n c t i o n of l e g i s l a t i v e a c t i o n ; c o s t f a c t o r s a re r e l a t i v e l y i m p o r t a n t v i s - a - v i s the r a t e l e v e l , but t h e y are a c o n t e n t i o u s i s s u e f rom the r a i l w a y companies s t a n d p o i n t , However , a s i g n i f i c a n t 28% of the sampled t o n - m i l e s i n 1972 moved under t h e s e r a t e s , A v e r a g e revenue per f r e i g h t ton^-mile was ,50<£, as i t has been f o r a number of y e a r s . (2) 3 ,7 . F i x e d R a t e s F i x e d r a t e s are not p a r t o f the f o r m a l r a t e s t r u c t u r e ; h o w e v e r , t h e y p r o y i d e a r e g u l a t e d a l t e r n a t i v e to the f i r s t f o u r s t r u c t u r e s d i s c u s s e d a b o v e . The F i x e d Rate e x i s t s to p r o t e c t t h o s e s h i p p e r s who are dependent s o l e l y on r a i l c a r r i e r s and who may be d i s s a t i s f i e d (3) w i t h the l e v e l of the n e g o t i a t e d , r a t e , ; ' The F i x e d Rate i s s e t e q u a l to a minimum o f 250% o f the v a r i a b l e c o s t . In a d d i t i o n , s h o u l d the s h i p p e r a c c e p t t h i s r a t e i n c o n t r a c t w i t h the r a i l w a y s , he must s h i p a l l t r a f f i c a f f e c t e d by the agreement w i t h the r a i l w a y s f o r a t l e a s t one y e a r , ' (1 ) P u r d y , o p , c i t , , p p . 175 - 182 , d i s c u s s e s the s t a t u t o r y g r a i n r a t e s , (2) CTC, Waybi11 A n a l y s i s , o p , c i t , , p , 3 and p . 44 , (3) Amendment to R a i l w a y A c t , , S. 33 6 , by N a t i o n a l T r a n s p o r t a -t i o n A c t , 1967. (4) P u r d y , i b i d , , p , 105, 30 Purdy notes t h a t the F i x e d Rate i s 75% o v e r f u l l c o s t , and hence i t i s not a p a r t i c u l a r l y a t t r a c t i v e a l t e r n a t i v e f o r a s h i p p e r , ^ ^ 3 .8 Temporal Changes i n the Rate C a t e g o r i e s The sampled t o n - m i l e s f o r each r a t e c a t e g o r y i s used to measure the t r e n d s f o r each r a t e c a t e g o r y d u r i n g the p e r -i o d 1970 to 1973 , T a b l e 3 . 1 . In summary, the f o u r y e a r t r e n d s f o r each r a t e c a t e g o r y are as f o l l o w s : 1, C l a s s Rates d e c l i n e o v e r a l l d u r i n g the p e r i o d ; 2 , Commodity N o n - C o m p e t i t i v e Rates show an upward t r e n d ; 3 , Commodity C o m p e t i t i v e Rates show a s u s t a i n e d upward t r e n d ; 4 , In t h i s s h o r t p e r i o d t h e r e a re no d i s t i n c t i v e t r e n d s f o r Agreed Charges or S t a t u t o r y g r a i n r a t e s , The k i n d s o f c o m m o d i t i e s moving under t h e s e d i f f e r e n t r a t e s and the u n d e r l y i n g r a t i o n a l e b e h i n d each one s u g g e s t the f o l l o w i n g c o n c l u s i o n s . [1 ) o p . c i t . , p , 105 T a b l e 3.1 - Compar ison of T . o n - M i l e s f o r F i v e Rate C a t e g o r i e s , 1 970 to 1973 F r e i g h t Rate C a t e g o r y Ton-Mi 1es 1 970 T o n - M i 1 e s 1971 P e r c e n t a g e Change From 1970 T o n - M i 1 e s 1 972 P e r c e n t a g e Change From 1971 T o n - M i l e s 1973 P e r c e n t a g e Change From 1972 C l a s s Rates 7 , 484 ,943 6 , 5 5 6 , 8 3 3 -12% 6 , 2 1 5 , 7 6 4 -5% 7 , 0 2 5 , 4 1 8 + 1 3% Commodi t y N o n - C o m p e t i t i v e 239 ,004 ,717 243 ,523 ,257 + 2% 2 3 7 , 8 6 7 , 6 9 5 -2% 283 ,602 ,101 + 19% Commodity C o m p e t i t i v e 1 61 ,262 ,229 188 ,175 ,354 + 17% 1 91 ,1 49 ,894 + 2% 2 2 2 , 4 7 5 , 8 4 7 + 16% Agreed Charges 119 ,858 ,930 143 ,781 ,589 + 20% 143 ,237 ,899 0 1 1 7 , 2 4 6 , 7 2 5 -18% S t a t u t o r y G r a i n Rates 197 ,881 ,812 220 ,603 ,818 + 11% 2 2 5 , 2 8 1 , 1 7 5 + 2% 188 ,970 ,641 -16% T o t a l 725 ,492 ,631 802 ,640 ,851 8 0 3 , 7 5 2 , 4 2 7 8 1 9 , 3 2 0 , 7 3 2 S o u r c e : C a n a d i a n T r a n s p o r t Commiss ion W a y b i l l A n a l y s i s C a r l o a d A l l - R a i l T r a f f i c , 1 9 7 0 , 1 9 7 1 , 1972, and 1 973 , T a b l e 1 . 32 F i r s t , the C l a s s Rate s t r u c t u r e i s r e l a t i v e l y u n i m p o r -t a n t , and t h e r e are no t r e n d s a p p a r e n t t h a t would s u g g e s t t h a t t h e s e r a t e s w i l l i n c r e a s e i n i m p o r t a n c e . S e c o n d , the i n c r e a s i n g r e l a t i v e s h a r e of t r a f f i c moving under Commodity C o m p e t i t i v e Rates s u g g e s t s t h a t i n t e r m o d a l c o m p e t i t i o n i s an i m p o r t a n t f a c t o r i n r a t e m a k i n g . T h i r d , the d e c r e a s i n g s h a r e of t r a f f i c moving under Agreed Charges does not mean n e c e s s a r i l y t h a t i n t e r m o d a l c o m p e t i t i o n i s d e c r e a s i n g i n i m p o r t a n c e . More l i k e l y , the r e d u c t i o n may be a t t r i b u t e d to the r e l u c t a n c e of s h i p p e r s to be commit ted to one mode as r e q u i r e d under the Agreed C h a r -g e s . In f a c t , i f i n t e r m o d a l c o m p e t i t i o n i s i n c r e a s i n g , then the Agreed Charges c o n d i t i o n s c o u l d be p e r c e i v e d as l e s s and l e s s d e s i r a b l e by s h i p p e r s . I f t h i s i s the c a s e , i t c o u l d mean t h a t t r a f f i c p r e v i o u s l y moving under Agreed Charges i s now moving under the Commodity C o m p e t i t i v e R a t e s . F o u r t h , the t r a f f i c moving under Commodity Non-Compet -i t i v e Rates would be e x p e c t e d to remain r e l a t i v e l y s t a b l e , w i t h any changes i n r e l a t i v e volume b e i n g a t t r i b u t e d to e c -onomic changes i n the m a r k e t s f o r these c o m m o d i t i e s . To some e x t e n t the r a i l w a y s e n j o y a monopoly p o s i t i o n f o r the c a r r i a g e o f t h e s e c o m m o d i t i e s , i . e . they are the most e c o n -o m i c a l t r a n s p o r t mode. S i m i l a r l y , the r e l a t i v e volume of g r a i n c a r r i e d may r e f l e c t s u p p l y and demand changes o v e r the s h o r t - r u n . 3.9 Summary The t h e o r e t i c a l f o u n d a t i o n f o r r a t e l e v e l s was l a i d i n C h a p t e r 2, P u b l i c p o l i c y i s i n s t r u m e n t a l i n d e f i n i n g the r a t e - m a k i n g e n v i r o n m e n t i n w h i c h c o s t and demand f a c t o r s may i n f l u e n c e the l e v e l o f a p a r t i c u l a r r a t e . By n e c e s s i t y , the f a c t o r s - r a t e r e l a t i o n s h i p must be e v a l u a t e d w i t h a l l o t h e r f a c t o r s , but o n e , h e l d c o n s t a n t . . C l e a r l y , t h i s s o r t o f s u p e r f i c i a l a n a l y s i s does n o t h i n g to i l l u m i n a t e the j o i n t e f f e c t s t h a t a number o f f a c t o r s have on r a t e l e v e l s or on d i f f e r e n c e s i n r a t e s . In t h i s C h a p t e r , the t y p e s of r a t e s a r e d e s c r i b e d b r i e f l y to i n d i c a t e the r e l a t i v e i m p o r t a n c e o f i m p l i c i t f a c t o r s i n the d i f f e r e n t r a t e c a t e g o r i e s . Some r a t e s r e f l e c t the i n c r e a s i n g i m p o r t a n c e of i n t e r m o d a l c o m p e t i t i o n , w h i l e s t i l l o t h e r s a re a r e f l e c t i o n o f the k i n d s of c o m m o d i t i e s moving under a p a r t i c u l a r r a t e s t r u c t u r e . A l t h o u g h the d a t a u t i l i z e d i n t h i s s t u d y do not c o n -form to the r a t e t y p e s d i s c u s s e d i n C h a p t e r 3, t h e s e d a t a , do r e p r e s e n t some of the v a r i a b l e s d i s c u s s e d i n C h a p t e r 2. The h y p o t h e s e s s t a t e d below r e f l e c t some o f the c o n c e r n s r e l a t e d to r a t e - m a k i n g , 1 H y p o t h e s e s ; 1 , Rates a re based on the v a l u e of the s e r v i c e Cpr ic f -ng based on demand) and not on the c o s t o f p r o v i d i n g the s e r v i c e , 2, I n t e r m o d a l c o m p e t i t i o n has had an e f f e c t i n d e t e r m i n i n g d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s . 34 3 . M a r k e t c o m p e t i t i o n f o r the t r a n s p o r t e d c o m m o d i t i e s i n f l u e n c e s d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s . The next two c h a p t e r s are d e v o t e d to a more q u a n t i t a -t i v e a n a l y s i s o f some of the f a c t o r s t h o u g h t to e x p l a i n d i f -f e r e n c e s i n r a t e s . The c o s t f a c t o r d a t a were t a k e n from the C a n a d i a n T r a n s p o r t Commiss ion W a y b i l l A n a l y s i s , 1972. These h i g h l y a g g r e g a t e d d a t a a re o f t e n used to e x p l a i n r a t e t r e n d s i n terms of a v e r a g e revenue per t o n - m i l e . Whether or not t h i s i s a r e a s o n a b l e a p p r o a c h to t a k e w i l l be d e t e r m i n e d f rom the a n a l y s i s . In a d d i t i o n , C h a p t e r 4 w i l l d e a l s p e c i f i c a l l y w i t h f a c t o r s to be e v a l u a t e d and w i l l d e s c r i b e two h y p o t h e t i c a l r a t e m o d e l s . The r e s u l t s w i l l be d e a l t w i t h i n C h a p t e r 5 , v i s - a - v i s the t h r e e h y p o t h e s e s s t a t e d a b o v e . (1) See f o r e x a m p l e , M o r r i s h , J . H . and M a c K i n n o n , D. P . , An A d d r e s s to the 18th Annual T r a f f i c and T r a n s p o r t a t i o n C o n -f e r e n c e , C a n a d i a n I n d u s t r i a l T r a f f i c L e a g u e , W i n n i p e g , M a n i t o b a , F e b r u a r y 1974. CHAPTER 4 TWO RATE MODELS AND DATA USED IN THE ANALYSIS 4.1 I n t r o d u c t i on The . o b j e c t i v e o f the q u a n t i t a t i v e a n a l y s i s i s to measure t h e . r e l a t i v e i m p o r t a n c e and j o i n t e f f e c t o f the V a r i a b l e s d i s c u s s e d i n C h a p t e r 2, In t h i s c h a p t e r two models a r e p o s t u l a t e d and the d a t a used i n the a n a l y s i s are e v a l u -a t e d , The d a t a are e v a l u a t e d i n terms of prob lems w i t h the d a t a and t h e i r i m p a c t on the s t u d y , Both the Canad ian T r a n s p o r t - C o m m i s s i o n W a y b i l l A n a l y s i s and S t a t i s t i c s Canada m a t e r i a l p r o v i d e d a t a f o r a n a l y s i s o f r a t e f a c t o r s , The W a y b i l l A n a l y s i s p r e s e n t s da ta f rom a 1% sample of c a r l o a d a l l - r a i l t r a f f i c w a y b i l l s f o r w a r d e d to the C a n a d i a n T r a n s p o r t Commiss ion by the r a i l w a y c o m p a n i e s , T h e i S t a t i s t i c s Canada d a t a p r o v i d e s i n f o r m a t i o n f o r d e t e r m i n i n g the v a l u e of c o m m o d i t i e s g r o w n , p r o c e s s e d o r m a n u f a c t u r e d , Two v a r i a b l e s m e a s u r i n g c o m p e t i t i o n were d e f i n e d s u b j e c t i v e l y and the da ta f o r t h e s e were o b t a i n e d from the r a t e s o f f i c e r s f o r the C a n a d i a n N a t i o n a l and the C a n a d i a n P a c i f i c R a i l w a y s , 4 . 2 N a t u r e o f the Data Used i n the A n a l y s i s Commodity movement d a t a f r o m the 1972 W a y b i l l A n a l y s i s are used i n t h i s s t u d y , These d a t a r e f l e c t the movement of c o m m o d i t i e s by v a r i o u s i n t r a - and i n t e r - r e g i o n a l move-ments . Three r e g i o n s are d e f i n e d i n the W a y b i l l A n a l y s i s , the M a r i t i m e , the E a s t e r n , and the Western r e g i o n s . The M a r i -t ime r e g i o n c o n s i s t s o f the M a r i t i m e p r o v i n c e s and t h a t p a r t o f Quebec e a s t o f L e v i s and Diamond, Quebec. The E a s t e r n R e g i o n c o n s i s t s o f the r e m a i n d e r o f Quebec and t h a t p a r t o f O n t a r i o , e a s t o f Thunder Bay and A r m s t r o n g , O n t a r i o . The Western r e g i o n s c o n s i s t s o f a l l t e r r i t o r y west o f Thunder Bay and A r m s t r o n g , e x c l u d i n g the Yukon T e r r i t o r y . Thus n i n e movement c o m b i n a t i o n s are p o s s i b l e . Data a re p r e s e n t e d f o r a p p r o x i m a t e l y 300 commodity c l a s s e s . W i t h i n each commodity c l a s s the d a t a a re f u r t h e r s u b d i v i d e d by some or a l l o f the n i n e p o s s i b l e r e g i o n a l movements. The f o l l o w i n g T a b l e , e x t r a c t e d from the W a y b i l l A n a l y s i s , p r e s e n t s the d a t a by commodity c l a s s and movement u s i n g n i n e m e a s u r e s . CO Table 4.1 - Extract from the Annual Waybill A n a l y s i s , 1972 Region Average Kevenue Class No. Commodity S.liass From To No. of Carloads Weight (Tons) Revenue ($') Ton-Miles Car-Miles Length of Haul (Miles) Load Per Car (Tons) Per Ton-Mile U) Per Car-Mile ($)• 124 Pre-cooked Frozen Food Preparations Maritime Maritime 2 65.0 931 8,395 247 130 32.5, 11.09 3.77 Maritime Western 3 95.6 7,268 263,718 8,251 2,759 31.9 2.76 .88 Eastern Maritime 2 29.8 1,271 32,870 2,206 1.103 14.9 3.87 .58 Eastern Western 2 53.8 3,531 136,431 4,779 2,536 26.9 2.59 .74 Western Maritime 2 44.5 2,520 87,935 3,988 1,977 22.3 2.87 .63 Western Eastern 2 65.4 2,593 111 ,636 3,451 1,707 32.7 2.32 .75 Western Western 6 153.9 2,728 65,981 3,004 428 25.7 4.13 .91 19 508.0 20,842 706,966 25,926 1,392 26.7 2.95 .80 The commodity c l a s s e s d e f i n e d by the C a n a d i a n T r a n s -p o r t Commiss ion are f a r b r o a d e r i n scope than the commodity c l a s s i f i c a t i o n s f o u n d i n the r a i l f r e i g h t t a r i f f s . T h e r e -f o r e a w a y b i l l commodity c l a s s may i n c l u d e a number~of com-m o d i t i e s w h i c h are s u b j e c t to d i f f e r e n t r a t e s i n a t a r i f f or t a r i f f s . W i t h o u t the o r i g i n a l w a y b i l l s i t i s i m p o s s i b l e to a s c e r t a i n the e x t e n t to w h i c h c o m m o d i t i e s , s u b j e c t to d i f f e r e n t t a r i f f s , have been grouped i n the v a r i o u s w a y b i l l commodity c l a s s e s . In a s i m i l a r manner , the s u b - g r o u p i n g of c o m m o d i t i e s i n a s p e c i f i c c l a s s by the r e g i o n a l o r i g i n and d e s t i n a t i o n of the movement means t h a t d i f f e r e n t r a t e s may have been a p p l i e d . For e x a m p l e , one c a r l o a d of c o a l c o u l d move 100 m i l e s and a n o t h e r may move 300 m i l e s . The a v e r a g e haul d i s -t a n c e , 200 m i l e s , would be shown i n t t h e d a t a , h o w e v e r , d i f -f e r e n t r a t e s would be a p p l i e d on the b a s i s o f the d i f f e r e n t c o s t - d i s t a n c e r e l a t i o n s h i p s f o r t h e s e two movements. W i t h o n l y the W a y b i l l A n a l y s i s d a t a i n t h e i r a g g r e g a t e form i t i s i m p o s s i b l e to d e t e r m i n e the e x t e n t to w h i c h d i f f e r e n t r a t e s a p p l i e d . The f i r s t f i v e d a t a e l e m e n t s , number of c a r l o a d s , w e i g h t , r e v e n u e s , t o n - m i l e s , and c a r - m i l e s , are t o t a l s f o r the s p e c i f i c movement o f each commodi ty . The l a s t f o u r d a t a e l e m e n t s a re a v e r a g e s . The use of the d a t a i n t h i s form i s l i m i t e d by t h e i r degree of a g g r e g a t i o n . The n a t u r e of the W a y b i l l A n a l y s i s does not p r e c l u d e u s i n g i t to a n a l y s e w h i c h c o s t and demand f a c t o r s may be 39 i n f l u e n c i n g d i f f e r e n c e s i n r a t e s . I t does p o i n t o u t , h o w e v e r , t h a t the d a t a i n t h i s form s h o u l d be used w i t h c a u t i o n . The W a y b i l l A n a l y s i s does not c o n t a i n d a t a m e a s u r i n g the demand f o r t r a n s p o r t or demand f o r the p r o d u c t . Com-m o d i t y v a l u e , i n t e r m o d a l c o m p e t i t i o n , and market c o m p e t i t i o n data a re d e r i v e d f rom o t h e r s o u r c e s to measure t h e s e two k j n d s o f demand. In t h i s s t u d y i n t e r m o d a l c o m p e t i t i o n and market c o m p e t i t i o n are measured on an o r d i n a l s c a l e and t h e s e s c a l e s are a p p l i e d to each commodity movement. The q u e s t i o n n a i r e used by the r a i l w a y s ' r a t e s o f f i c e r s to e s t i m -a t e these two v a r i a b l e s i s found i n A p p e n d i x 1 to t h i s c h a p t e r . Both i n t e r m o d a l c o m p e t i t i o n and market c o m p e t i t i o n are c o m p l e x , m u l t i - d i m e n s i o n a l phenomena. Any i n - d e p t h q u a n t i -t a t i v e a n a l y s i s o f t h e s e f a c t o r s i s r e s t r i c t e d g i v e n the o b j e c t i v e of t h i s t h e s i s . Two p r a c t i c a l and less c o s t l y a p -p r o a c h e s are c o n s i d e r e d . F i r s t , each v a r i a b l e c o u l d be e s t i m a t e d i n o n e ^ d i m -e n s i o n . For e x a m p l e , the t o n - m i l e s of a commodity moving from one r e g i o n to a n o t h e r c o u l d be e x p r e s s e d i n terms of the p r o p o r t i o n o c a r r i e d by r a i l v e r s u s o t h e r modes to meas-ure the amount o f i n t e r m o d a l c o m p e t i t i o n . T h i s may not p r o v i d e a r e a l i s t i c m e a s u r e . For e x a m p l e , i t i s p o s s i b l e t h a t 100% of some commodity c o u l d t r a v e l by r a i l and u s i n g the measure d e s c r i b e d above i t would be c o n c l u d e d t h a t t h e r e i s no i n t e r m o d a l c o m p e t i t i o n . But the amount o f t r a f -f i c moved by r a i l c o u l d be e x p l a i n e d by the r a i l r a t e h a v i n g been l o w e r e d to e n s u r e t h a t a l l o f t h a t t r a f f i c moved by r a i l r a t h e r than some o t h e r mode. Thus the danger e x i s t s t h a t o v e r - s i m p l i f i c a t i o n m i g h t r e s u l t i n a f a i l u r e to c a p t u r e a l l i m p a c t s of a p a r t i c u l a r v a r i a b l e . The second a p p r o a c h i n v o l v e s the s u b j e c t i v e e s t i m a -t i o n o f t h e s e v a r i a b l e s . The r a i l w a y s , t r u c k i n g a s s o c i a -t i o n s , and s h i p p e r s ' a s s o c i a t i o n s would be e x p e c t e d to have some knowledge o f the degree o f i n t e r m o d a l and marke t com-p e t i t i o n e x i s t i n g f o r a p a r t i c u l a r commodity movement. A D e l p h i - l i k e method c o u l d be u s e d , whereby e s t i m a t e s f rom each of t h e s e t h r e e s o u r c e s c o u l d be o b t a i n e d , i n f o r m a t i o n e x c h a n g e d , and second and t h i r d e s t i m a t e s made u n t i l a c o n -sensus i s r e a c h e d . ^ ^ T h i s method i s not u s e d . The r a t e s o f f i c e r s froiti the C a n a d i a n N a t i o n a l and C a n a d i a n P a c i f i c R a i l w a y s i n d e p e n d e n t l y e s t i m a t e the two v a r i a b l e s and the a v e r a g e v a l u e i s used i n t h i s a n a l y s i s . The b e n e f i t o f h a y i n g r a i l w a y s ' r a t e s o f f i c e r s e s t i m a t e the degree o f i n t e r m o d a l and market c o m p e t i t i o n i s t h a t t h e s e f a c t o r s a r e c o n s i d e r e d by them i n r a t e n e g o t i -a t i o n s w i t h s h i p p e r s , Thus w h i l e t h e y m i g h t l a c k d e t a i l e d knowledge about s p e c i f i c s o f i n t e r m o d a l and market compe-t i t i o n , the r a t e s o f f i c e r s wou ld be e x p e c t e d to have a g l o b -(1) MacCrimmon K, R , , " M a n a g e r i a l D e c i s i o n M a k i n g " , Work ing Paper No, 117 , F a c u l t y of Commerce and B u s i n e s s A d m i n i s -t r a t i o n , U n i v e r s i t y o f B r i t i s h C o l u m b i a , F e b r u a r y 1972 , p , 32 . 41 a l a p p r e c i a t i o n of the r e l e v a n c e of t h e s e two v a r i a b l e s f o r a p a r t i c u l a r commodity movement. 4 . 3 F a c t o r s to be A n a l y s e d C l e a r l y i t would be d e s i r a b l e to a n a l y s e a l l o f the f a c t o r s w h i c h may b e f a f f e c t i n g d i f f e r e n c e s i n r a t e s . For any one movement, d e p e n d i n g on the commodity and i t s o r i g i n and d e s t i n a t i o n , i t would be e x p e c t e d t h a t a d i f f e r e n t s e t of f a c t o r s would p l a y a dominant r o l e i n d e t e r m i n i n g the r a t e . The 1 i m i t a t i o n imposed by the a v a i 1 a b i 1 t y ; o f d a t a , however , p r e c l u d e e v a l u a t i n g a l l f a c t o r s t h a t m i g h t i n f l u -ence d i f f e r e n c e s i n r a t e s . The f a c t o r s a n a l y s e d i n t h i s s t u d y are i n c l u d e d i n two r a t e models d e s c r i b e d b e l o w . The f i r s t model w i l l be e v a l u a t e d f o r f i v e i n t r a - and i n t e r - r e g i o n a l movements. E q u a t i o n ( 4 . 1 ) shows the f a c t o r s i n c l u d e d i n t h i s r a t e m o d e l . ( 4 . 1 ) Y = f ( L , D , N , V ) where Y = a v e r a g e revenue per h u n d r e d -w e i g h t , i n d o l l a r s ; f an u n s p e c i f i e d r e l a t i o n s h i p ; L l o a d per c a r , i n tons. ; D a v e r a g e haul d i s t a n c e , i n N m i l e s ; \ ) number of c a r l o a d s i n the movement; and V d o l l a r v a l u e o f the commod-i t y per t o n . The second model w i l l be e v a l u a t e d f o r t h r e e move-m e n t s ; Western - E a s t e r n , Western - W e s t e r n , and E a s t e r n -W e s t e r n . ( e q u a t i o n 4 . 2 ) . ( 4 . 2 ) Y = f (L , D , N , V , CM D»Cjyj-j-) where a l l terms are as d e -f i n e d above a n d : C ^  Q = a v e r a g e degree of i n t e r -modal c o m p e t i t i o n ; and C^j= a v e r a g e degree of market compet i t i o n . The a v e r a g e revenue per h u n d r e d w e i g h t v a r i a b l e , w i l l be r e f e r r e d to as the p r o x y r a t e v a r i a b l e . The r e m a i n i n g v a r i a b l e s i n t h e s e two models w i l l be e v a l u a t e d i n C h a p t e r 5 to d e t e r m i n e the e x t e n t to w h i c h t h e y e x p l a i n d i f f e r e n -ces i n the p r o x y r a t e v a r i a b l e . Each of these v a r i a b l e s are d i s c u s s e d b e l o w . 4 . 3 . 1 Load Per Car Weight per c a r i s an i m p o r t a n t c o s t f a c t o r f o r the c a r r i e r . To some e x t e n t i t i s a measure of u t i l i z a t i o n . T h u s , as the w e i g h t per c a r i n c r e a s e s , b e t t e r u t i l i z a t i o n i s a c h i e v e d . The i n c r e a s i n g l y e f f i c i e n t u t i l i z a t i o n of the c a r r e s u l t s i n l o w e r u n i t c o s t s a n d , h e n c e , l o w e r r a t e s would be e x p e c t e d . Rate t a r i f f s r e f l e c t t h i s by q u o t i n g l o w e r r a t e s a t d i f f e r e n t c a r l o a d m i n i m a . These c o n d i t i o n s are r e p r e s e n t e d i n F i g u r e 4 . 1 . 43 F i g u r e 4.1 - The E x p e c t e d R a t e - C a r l o a d Minima R e l a t i o n Rate i n $ per h u n d r e d -w e i g h t C a r l o a d Mi nima (pounds) A s u b - s a m p l e of the W a y b i l l A n a l y s i s d a t a i n d i c a t e s t h a t Toad per c a r i s i n v e r s e l y r e l a t e d to the a c t u a l revenue d o l l a r s per h u n d r e d w e i g h t r e c e i v e d by the r a i l w a y s . F u r t h e r , the r e l a t i o n s h i p i s n o n - l i n e a r ( F i g u r e 4 . 2 ) . The v a r i a t i o n s of the sample p o i n t s about the f i t t e d l i n e are i n d i c a t i v e o f the e f f e c t t h a t o t h e r v a r i a b l e s e x e r t on the p r o x y r a t e v a r i a b l e , In a d d i t i o n , i n s p e c t i o n of the d a t a r e v e a l s a h i g h degree of v a r i a b i l i t y , as much as 100%, i n the l o a d per c a r r e p o r t e d f o r the same commodity moving between d i f f e r e n t r e g i o n s , G i v e n the broad commodity c l a s s d e f i n i t i o n s , i t c o u l d be t h a t the d e n s i t y i s v a r i a b l e due to d i f f e r e n t forms, of the commodity b e i n g t r a n s p o r t e d or the l o a d i n the c a r i s m i x e d , i . e . a number of d i f f e r e n t c o m m o d i t i e s a re i n the c a r , 4 . 6 0 4 . 4 0 4 . 2 0 4 . 0 0 3 .80 3 .40 Revenue Per Hun- 3 .20 dredwe i g ht 3;' 00 2 .80 2 .60 2 .40 2 .20 2 .00 1 .80 1 .60 1 .40 1 .20 1 .00 .80 .60 .40 .20 F i g u r e 4 . 2 - Data R e l a t i o n s h i p : R e v e n u e ($) Per H u n d r e d w e i g h t V e r s u s r L o a d Per Car (tons') 1 0 20 30 40 ,50- 60 70 80 90 1 00 Load Per Car (Tons) S o u r c e : CTC W a y b i l l A n a l y s i s 4 . 3 . 2 D i s t a n c e The l e n g t h o f haul f o r a p a r t i c u l a r s h i p m e n t i s a l s o an i m p o r t a n t c o s t f a c t o r f o r the c a r r i e r . O t h e r t h i n g s b e i n g e q u a l , the l o n g e r the d i s t a n c e , the h i g h e r w i l l be the t r a n s p o r t c o s t . The a v e r a g e h a u l d i s t a n c e i s used as a p r o x y v a r i a b l e to d e t e r m i n e the i n f l u e n c e t h a t d i s t a n c e has on r a t e s . The a g g r e g a t i o n of the W a y b i l l d a t a l i m i t s the use of t h i s v a r -i a b l e ; but where s i g n i f i c a n t d i f f e r e n c e s i n a v e r a g e haul d i s t a n c e e x i s t i t would be e x p e c t e d t h a t some v a r i a t i o n i n r a t e s would be e x p l a i n e d . I n s p e c t i o n of the w a y b i l l d a t a s u b - s a m p l e shows a p o s -i t i v e r e l a t i o n s h i p (up to about 800 m i l e s ) , between the proxy r a t e v a r i a b l e and d i s t a n c e . However , beyond 800 m i l e s i t i s not p o s s i b l e to d i s c e r n what r e l a t i o n s h i p e x i s t s . The v a r i a t i o n about a f i t t e d l i n e i s v e r y h i g h , s u g g e s t i n g t h a t o t h e r f a c t o r s are i m p o r t a n t f o r l o n g d i s t a n c e movements ( F i g ures 4 . 3 a and 4 . 3 b ) . 46 Data R e l a t i o n s h i p : Revenue ($) Per H u n d r e d w e i g h t v e r s u s D i s t a n c e ( L e s s than 1400 m i l e s ) 3 .80 3 .40 Revenue D o l l a r s 3 .20 Per Hun-. , . , . , 3 . 0 0 dredwexght 2 .80 2 .60 * 2 .40 2 . 20 2 .00 1 .80 1 .60 1 .40 1 .20 1 .00 .80 .60 .40 .20 " 1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 0 9 0 0 1.0 0 0 ,1,1,0 0 1 2 0 0 1 3 0 0 1 400 D i s t a n c e : i n M i l e s 4 .60 | F i g u r e 4 . 3 a 4 .40 4 .20 4 . 0 0 S o u r c e : CTC W a y b i l l A n a l y s i s 4 . 6 0 4 .40 4 . 2 0 4 .00 3 .80 3 .40 Revenue D o l l a r s 3 .20 Per Hun-d r e d w e i ght 3 .00 2 .80 2 .60 2 .40 2 .20 2 .00 1 .80 1.60 1 .40 1 .20 1 .00 .80 .60 .40 .20 F i g u r e 4 .3b 47 Data R e l a t i o n s h i p : Revenue ($) Per H u n d r e d w e i g h t v e r s u s D i s t a n c e (more than 1600 m i l e s ) 16 0 0 . 1800 , 2 0 0 0 2200 2400 2600 2800 ,1 700 1900 2 1 00 2300 2500 2700 2900 Distance i n Miles S o u r c e : CTC W a y b i l l A n a l y s i s 48 4 . 3 . 3 Number of C a r l o a d s The number o f c a r l o a d s c o n s t i t u t i n g a p a r t i c u l a r com-m o d i t y movement i s used as a p r o x y measure f o r the volume o f t r a f f i c . I f the W a y b i l l d a t a c o n s t i t u t e an u n b i a s e d r a n -dom s a m p l e , then the number o f c a r l o a d s of a commodity i s r e p r e s e n t a t i v e o f the c o n t r i b u t i o n of t h a t commodity to the t o t a l r e g i o n a l t r a f f i c v o l u m e . I f the volume of c a r s i s h i g h , i t may be p o s s i b l e f o r a s h i p p e r to n e g o t i a t e a more f a v o u r a b l e r a t e w i t h the c a r r i e r . The s h i p p e r s ' p o s i t i o n would be e n h a n c e d , as w e l l , i f a c o n s t a n t volume of t r a f f i c i s g e n e r a t e d . I t i s n o t p o s s i b l e to d e t e r m i n e f rom the d a t a whether movement p a t t e r n s , such as s e a s o n a l movements , e x i s t . The W a y b i l l d a t a s u b - s a m p l e i n d i c a t e d a s t r o n g , i n -v e r s e , n o n - l i n e a r r e l a t i o n s h i p between the p r o x y r a t e v a r i -a b l e and number o f c a r l o a d s ( F i g u r e 4 . 4 ) . The v a r i a t i o n i n the p r o x y r a t e v a r i a b l e i s v e r y h i g h f o r a low number o f c a r l o a d s and tends to d e c r e a s e as the number o f c a r l o a d s i n c r e a s e s . To some e x t e n t , t h i s can be e x p l a i n e d by the i n c r e a s i n g s i g n i f i c a n c e of t h i s v a r i a b l e , as the number of c a r l o a d s i n c r e a s e s . P r e s u m a b l y , o t h e r v a r i a b l e s a re more s i g n i f i c a n t when the number of c a r l o a d s i n the movement i s s m a l l , hence the h i g h v a r i a t i o n i n the p r o x y r a t e v a r i a b l e . 49 F i g u r e 4.4 Data R e l a t i o n s h i p : Revenue ($) Per Hundredweight Ver sus Number- o f C a r -1 oads Revenue Dollars Per Hundred-weight S ou r ce : 10 20 30 40 50 60 70 80 90 100 120 130 140 150 Number of C a r l o a d s CTC W a y b i l l A n a l y s i s 50 4 . 3 . 4 Commodity V a l u e D o l l a r v a l u e of the commodity i s used as a measure o f the c o m m o d i t y ' s e l a s t i c i t y o f demand f o r t r a n s p o r t . The W a y b i l l d a t a does not i n c l u d e t h i s i n f o r m a t i o n , h o w e v e r , S t a t i s t i c s Canada p u b l i s h e s commodity p r o d u c t i o n i n f o r m a -t i o n w h i c h i n c l u d e s the d o l l a r v a l u e o f v a r i o u s commodi-t i e s . ( D In g e n e r a l , h i g h f r e i g h t r a t e s are u s u a l l y a s s o c i a t e d w i t h h i g h e r - v a l u e d g o o d s . I t i s r e c o g n i z e d by the r a i l w a y companies t h a t l o w - v a l u e d commodites w i l l move o f t e n a t o n l y v e r y low r a t e s . The a b i l i t y o f a commodity to compete i n a p a r t i c u l a r e n v i r o n m e n t i s a s s o c i a t e d w i t h t h i s f a c t o r . Goods s h i p p e d i n t o an a r e a w i l l compete e f f e c t i v e l y i n the market i f the t r a n s p o r t a t i o n c o s t s and o t h e r p r o d u c t i o n c o s t s a l l o w the goods to be c o m p e t i t i v e l y p r i c e d . For e x -a m p l e , t r a n s p o r t a t i o n c o s t s can be l o o k e d a t as a p r o p o r t i o n of the t o t a l market v a l u e of the commodity . " - A f o u r d o l l a r r a t e on a t e n d o l l a r i t e m i s more s i g n i f i c a n t t h a n a f o u r d o l l a r r a t e on a one hundred d o l l a r i t e m , i n terms of the e f f e c t on the c o m m o d i t y ' s a b i l i t y to compete e f f e c t i v e l y . The g e n e r a l r e l a t i o n s h i p between r a t e s and the v a l u e of the commodity i s shown i n F i g u r e 4 . 5 . (1) S t a t i s t i c s C a n a d a , 6 2 - 0 0 5 , F e b r u a r y 1974, T a b l e 2 . 51 F i g u r e 4 . 5 - The R e l a t i o n s h i p Between Rate and D o l l a r V a l u e  o f the Commodity Rate i n D o l l a r s per H u n d r e d -we.ight T h r e s h o l d C o s t D o l l a r v a l u e of the commodity per t o n . I t s h o u l d be noted t h a t t h e r e a re p r a c t i c a l l i m i t s to t h i s r e l a t i o n s h i p , as p o r t r a y e d i n F i g u r e 4 . 5 . I t i s not r e a s o n a b l e t o p r o p o s e t h a t v e r y l o w - v a l u e d c o m m o d i t i e s move a t r a t e s c l o s e to z e r o . The r a t e s on t h i s l o w - v a l u e d t r a f -f i c s t i l l must r e f l e c t the v a r i a b l e c o s t s a s s o c i a t e d w i t h t h i s movement. There are a l s o p r a c t i c a l l i m i t s on the r a t e w h i c h can be c h a r g e d a g a i n s t h i g h - v a l u e d t r a f f i c . Compe-t i t i o n by a l t e r n a t i v e modes i s more i m p o r t a n t f o r h i g h -v a l u e d goods and t h i s w i l l i n f l u e n c e the l e v e l a t w h i c h r a i l w a y r a t e s a re s e t . For e x a m p l e , i n v e n t o r i e s f o r h i g h -v a l u e d goods w i l l be k e p t a t a l o w e r l e v e l t h a n f o r l o w -v a l u e d g o o d s , due to t h e i r r e l a t i v e i n v e n t o r y c o s t s . Thus more f r e q u e n t s h i p m e n t s r a t h e r than fewer b u l k s h i p m e n t s w i l l be made. Modal c h o i c e i s more i m p o r t a n t under t h e s e c i r c u m s t a n c e s and r a i l way r . ra tes may r e f l e c t such i n t e r m o d a l c o m p e t i t i o n by b e i n g l o w e r than o t h e r w i s e wou ld be e x p e c t e d . The v a l u e of some of the sampled c o m m o d i t i e s i s r e -l a t e d to the p r o x y r a t e v a r i a b l e i n F i g u r e 4 . 6 . On the b a s i s o f t h i s s a m p l e , i t i s c o n c l u d e d t h a t t h e r e i s no d i s -c e r n a b l e r e l a t i o n between commodity v a l u e and the p r o x y r a t e v a r i a b l e . The v a r i a t i o n i s e q u a l l y h i g h f o r l o w - v a l u e d goods and h i g h - v a l u e d g o o d s . 4 . 3 . 5 I n t e r m o d a l C o m p e t i t i o n For each commodity movement, the r a t e s o f f i c e r s f o r the C a n a d i a n N a t i o n a l and C a n a d i a n P a c i f i c R a i l w a y s were asked to d e f i n e the degree of i n t e r m o d a l c o m p e t i t i o n . As noted a b o v e , i n t e r m o d a l c o m p e t i t i o n i s h i g h t l y c o r -r e l a t e d w i t h commodity v a l u e . The d e c l i n i n g i m p o r t a n c e of the C l a s s Rate c a t e g o r y , e s s e n t i a l l y v a l u e of s e r v i c e p r i c -i n g (based on commodity v a l u e ) , i s a s c r i b e d to i n c r e a s i n g highway c o m p e t i t i o n . In C h a p t e r 3 i t was noted t h a t the t r a f f i c moving under the Commodity C o m p e t i t i v e r a t e c a t -e g o r y was i n c r e a s i n g d u r i n g the p e r i o d 1970 to 1973 . In a d -d i t i o n the r a i l w a y s have s u g g e s t e d t h a t i n t e r m o d a l compe-t i t i o n was the p r i m a r y cause o f an o v e r a l r e d u c t i o n i n the a v e r a g e revenue per t o n - m i l e from 1968 to 1972 f o r m a n u f a c -(2) t u r e d goods moving e a s t to w e s t . v (1) P u r d y , i b i d . , , p . 110. (2) M b r r i s h and M a c K i n n o n , i b i d . , p . 5 . 53 Revenue Dollars Per Hundred weight 4 .60 4 . 4 0 4 . 20 4 . 0 0 3 .80 3 .40 3 .20 3 .00 2 .80 2 .60 2 .40 2 .20 2 .00 1 .80 1 .60 1 .40 1 .20 1 .00 .80 .60 .40 .20 F i g u r e 4 .6 Data R e l a t i o n s h i p : Revenue ($) Per H u n d r e d w e i g h t V e r s u s Commodity V a l u e ( D o l l a r s Per Ton) • « 200 600 1 0 0 0 1400 400 800 1200 7 2400 2800 3200 2600 3000 Source Commodity Value, Dollars Per Ton CTC W a y b i l l A n a l y s i s and S t a t i s t i c s Canada 62-005 54 G i v e n the above c o n s i d e r a t i o n s , i t i s r e a s o n a b l e to a t t e m p t to measure the s i g n i f i c a n c e o f i n t e r m o d a l compe-t i t i o n . 4 . 3 . 6 M a r k e t C o m p e t i t i o n L i k e the p r e v i o u s v a r i a b l e , marke t c o m p e t i t i o n was d e -f i n e d s u b j e c t i v e l y and d a t a were o b t a i n e d from the r a i l w a y ' s r a t e s o f f i c e r s . . M a r k e t c o m p e t i t i o n has been i n c l u d e d because i t r e -l a t e s to the d e r i v e d demand a s p e c t o f t r a n s p o r t a t i o n . To some e x t e n t . market c o m p e t i t i o n i s a more s i g n i f i c a n t f a c t o r a f f e c t i n g d i f f e r e n c e s i n r a t e s than i s i n t e r m o d a l c o m p e t i -t i o n , because demand f o r t r a n s p o r t i s a d e r i v e d demand. For e x a m p l e , s t e e l r a t e s , w h i c h were l e s s to V a n c o u v e r than to Edmonton or S a s k a t o o n , were r a t i o n a l i z e d on the b a s i s o f (2) market c o m p e t i t i o n . v ' 4 . 4 O r g a n i z a t i o n of the Sample Data The a d d i t i o n o f d o l l a r v a l u e of the commodity as a v a r i a b l e imposed a c o n s t r a i n t on the s e l e c t i o n o f a s e t o f sample d a t a f rom the W a y b i l l A n a l y s i s . The a v a i l a b i l i t y o f the v a l u e i n f o r m a t i o n was i n s t r u m e n t a l i n c h o o s i n g among the v a r i o u s W a y b i l l A n a l y s i s commodity c l a s s e s . G i v e n the above c o n s t r a i n t , t h i r t y - s i x c o m m o d i t i e s were chosen to c o n -s t i t u t e the sample d a t a b a s e . The c l a s s number and commodi-(1) o p . c i t . , p . 7 (2) c f . a n t e , p . 23 t y d e s c r i p t i o n , as t h e y appear i n the W a y b i l l A n a l y s i s , a re shown i n T a b l e 4 . 2 . T a b l e 4 . 2 - C l a s s Number and Commodity D e s c r i p t i o n of the Sample A n a l y s e d C l a s s Number Commodi t y 1 0 M e a t , f r e s h or c h i l l e d 1 6 F i s h and m a r i n e a n i m a l s 18 B u t t e r 20 Cheese 54 A p p l e s 62 Grapes 70 Pears 78 F r u i t j u i c e and f r u i t j u i c e c o n c e n t r a t e s 86 Sugar beets 88 Cabbage 94 O n i o n s a n d s h a l l o t s 1 08 Sugar 114 C o f f e e 120 S h o r t e n i n g and l a r d 1 22 Soups and i n f a n t f o o d s 1 28 Hay, f o r a g e and s t r a w 148 A l e , b e e r , s t o u t and p o r t e r 1 50 Wines and f e r m e n t e d a l c o h o l i c beverages 1 56 T o b a c c o , u n m a n u f a c t u r e d 204 Copper ore and c o n c e n t r a t e s 208 I r o n ore and C o n c e n t r a t e s 210 Lead ore and c o n c e n t r a t e s 216 N i c k e l ore and c o n c e n t r a t e s 222 Z i n c o r e and c o n c e n t r a t e s 238 B i t u m i n o u s c o a l 248 A s b e s t o s , c r u d e , . u n m a n u f a c t u r e d 258 S a n d , N . E . S . T a b l e 4 . 2 - C l a s s Number and Commodity D e s c r i p t i o n of the Sample A n a l y s e d ( C o n t i n u e d ) C l a s s Number Commodi t y 274 B a r y t e s , n a t u r a l 276 Gypsum 280 N e p h e l i n e S y e n i t e 288 L i q u i d s u l p h u r 330 Woodpulp 516 P o r t l a n d Cement 528 L i m e , H y d r a t e d and Quick 580 T o i l e t r i e s S o u r c e : CTC W a y b i l l A n a l y s i s The sample d a t a were grouped a c c o r d i n g to r e g i o n a l movement as shown i n T a b l e 4 . 3 . The number of c o m m o d i t i e s c o n s t i t u t i n g the sample are a l s o i n d i c a t e d . t a b l e 4 . 3 - Number o f C o m m o d i t i e s I n c l u d e d i n a S p e c i f i c  R e g i o n a l Movement Movement O r i g i n M a r i t i m e M a r i t i m e M a r i t ime E a s t e r n E a s t e r n E a s t e r n Western Western Western D e s t i n a t i o n M a r i t ime E a s t e r n Western M a r i t i m e E a s t e r n Western M a r i t i m e E a s t e r n Western (1) Number of C o m m o d i t i e s  i n the Movement 22 1 0 0 16 27 12 1 2 16 23 (1) T h i s movement was not e v a l u a t e d due to l a c k of d a t a . 57 4.5 D e s c r i p t i v e R a t h e r than P r e d i c t i v e Models The m o d e l s , w h i c h are d e s c r i b e d i n C h a p t e r 5, a re d e s -c r i p t i v e >rather than p r e d i c t i v e m o d e l s . A number of c o n s i d -e r a t i o n s , most o f them r e l a t e d to the n a t u r e of the d a t a or to the v a r i a b l e b e i n g e v a l u a t e d , a re r e s p o n s i b l e f o r t h i s 1 imi t a t i on . The f o l l o w i n g f o u r r e a s o n s p r e c l u d e u s i n g the d e v e l -oped models f o r p r e d i c t i v e p u r p o s e s . 1. A r a t e p r e d i c t i n g model would r e q u i r e s p e c i f i c v a r -i a b l e v a l u e s . The models i n C h a p t e r 5 a re not based on s p e c i f i c v a r i a b l e s t a t e s but on h i g h l y a g g r e g a t e d d a t a . 2. The p r o x y r a t e v a r i a b l e , a v e r a g e revenue per h u n -d r e d w e i g h t , i s an a g g r e g a t e f i g u r e r e f l e c t i n g a number of r a t e s i n a t a r i f f or t a r i f f s . The a c t u a l v a l u e s i n the sample d a t a a re m e a n i n g l e s s i n an a b -s o l u t e s e n s e , a l t h o u g h they do have meaning i n a r e l a t i v e s e n s e . 3. The s p e c i f i c i t y o f r a t e s i s a f u n c t i o n o f the com-m o d i t y b e i n g moved ( i t s c h a r a c t e r i s t i c s ) , and the o r i g i n and d e s t i n a t i o n o f the movement. Thus a d -d i n g c o m m o d i t i e s to those sampled would be e x p e c -t e d to change the model r e s u l t s . 4. C o s t and demand f a c t o r s a f f e c t i n g a s p e c i f i c r a t e w i l l change o v e r t i m e . The c o s t o f p r o v i d i n g d i f -f e r e n t k i n d s o f s e r v i c e s w i l l change at d i f f e r e n t 58 r a t e s . The i m p o r t a n c e o f v a r i o u s c o s t and demand f a c t o r s i n d e f i n i n g a r a t e l e v e l may c h a n g e o v e r t i m e . T h e s e c h a n g e s a r e d i f f i c u l t t o m e a s u r e ; t h e r e f o r e , t h e y c o n s t i t u t e an e f f e c t i v e b a r r i e r a-g a i n s t d e v e l o p i n g p r e d i c t i v e m o d e l s . 4.6 Summary Two r a t e m o d e l s a r e d e s c r i b e d i n t h i s c h a p t e r . T h e s e m o d e l s r e f l e c t a r a t e - m a k i n g e n v i r o n m e n t i n w h i c h b o t h c o s t and demand f a c t o r s a r e e x p e c t e d t o a f f e c t d i f f e r e n c e s i n r a t e s . Some o f t h e s e v a r i a b l e s a r e p r o x i e s f o r f a c t o r s w h i c h a r e e i t h e r d i f f i c u l t t o m e a s u r e ( e l a s t i c i t y o f demand f o r t r a n s p o r t ) , o r were n o t a v a i l a b l e ( o r i g i n a l w a y b i l l d a t a ) . Two f a c t o r s , i n t e r m o d a l c o m p e t i t i o n and m a r k e t c o m p e t i t i o n , were d e f i n e d s u b j e c t i v e l y . A number o f c o n d i t i o n s , p r e c l u d e u s i n g t h e m o d e l s d e s -c r i b e d i n t h e f o l l o w i n g c h a p t e r f o r p r e d i c t i v e p u r p o s e s . The s t a t i s t i c a l a n a l y s i s d e a l t w i t h i n t h e f o l l o w i n g c h a p t e r i s d e s i g n e d t o p r o v i d e c o n c r e t e e v i d e n c e a b o u t t h e r e l a t i v e i m p o r t a n c e o f t h e f a c t o r s d i s c u s s e d i n t h i s c h a p -t e r . However, t h e most i m p o r t a n t a s p e c t o f t h e s t a t i s t i c a l a n a l y s i s i s t h a t some u n d e r s t a n d i n g may be g a i n e d a b o u t t h e j o i n t e f f e c t o f t h e s e v a r i a b l e s on t h e p r o x y r a t e v a r i a b l e . C l e a r l y , t h e s a m p l e d a t a shows a h i g h v a r i a n c e when any one v a r i a b l e i s r e l a t e d t o t h e p r o x y r a t e v a r i a b l e . T h u s , i n most movements, a number o f f a c t o r s w o u l d be e x p e c t e d t o have some j o i n t e f f e c t i n i n f l u e n c i n g d i f f e r e n c e s i n r a t e s . A p p e n d i x 1 The r a t e s o f f i c e r s f o r C a n a d i a n N a t i o n a l and C a n a d i a n P a c i f i c R a i l w a y s p r o v i d e d the d a t a f o r the amount o f i n t e r -modal and marke t c o m p e t i t i o n . The i n s t r u c t i o n s are shown b e l o w , as a re the c o m m o d i t i e s i n the t h r e e r e g i o n a l move-ment s a m p l e s . MODAL COMPETITION Group c o m m o d i t i e s i n c l a s s e s 1 , 2 , 3 , and 4 a c c o r d i n g to the amount o f modal c o m p e t i t i o n . C l a s s 1 High l e v e l o f modal c o m p e t i t i o n C l a s s 2 F r e q u e n t modal c o m p e t i t i o n C l a s s 3 L i m i t e d modal c o m p e t i t i o n C l a s s 4 No s i g n i f i c a n t modal c o m p e t i t i o n MARKET COMPETITION Group c o m m o d i t i e s i n C l a s s e s 1 , 2 , 3 , and 4 a c c o r d i n g to the amount o f c o m p e t i t i o n f o r the commodity i n the d e s t i n a t i o n r e g i o n . C l a s s 1 High l e v e l o f marke t c o m p e t i t i o n C l a s s 2 S i g n i f i c a n t market c o m p e t i t i o n C l a s s 3 L i m i t e d m a r k e t c o m p e t i t i o n C l a s s 4 No s i g n i f i c a n t m a r k e t c o m p e t i t i o n 61 C o m m o d i t i e s f rom the f o u r Western p r o v i n c e s to O n t a r i o and  Quebec Commodity A v e r a g e C l a s s o f C o m p e t i t i o n M i l e s T r a v e l l e d M e a t , f r e s h or c h i l l e d 191 7 F i s h &.imarine a n i m a l s 2836 A p p l e s 2527 Pears 2441 P o t a t o e s , o t h e r than sweet 2171 Sugar 1637 S h o r t e n i n g & l a r d 1678 A l e , b e e r , s t o u t & p o r t e r 575 Copper ore & c o n c e n t r a t e s 2145 N i c k e l ore & c o n c e n t r a t e s 1317 B i t u m i n o u s c o a l 1895 A s b e s t o s , c r u d e unmfg. 2640 L i q u i d s u l p h u r 2232 Woodpulp 2270 L i m e , h y d r a t e d and Q u i c k 708 Commodi t i es moving w i t h i n the f o u r w e s t e r n p r o v i n c e s M e a t , f r e s h or c h i l l e d 534 B u t t e r 765 F a r i n a c e o u s s u b s t a n c e s & f l o u r 91 5 F r u i t j u i c e & c o n c e n t r a t e s 387 S u g a r b e e t s 30 Sugar 217 C o f f e e 821 Soups &;, I n f a n t Foods "•497 A l e , b e e r , s t o u t & p o r t e r 283 62 C o m m o d i t i e s moving w i t h i n the f o u r w e s t e r n p r o v i n c e s Commodi ty A v e r a g e C l a s s o f C o m p e t i t i o n M i i e s T r a v e l l e d W i n e s s & f e r m e n t e d a l c o h o l i c beverages 765 Copper ore & c o n c e n t r a t e s 203 I r o n ore S n c o n c e n t r a t e s 189 Lead ore & n c o n c e n t r a t e s 499 N i c k e l ore & c o n c e n t r a t e s 820 Z i n c e o r e & c o n c e n t r a t e s 939 B i t u m i n o u s c o a l 661 Sand NES • 20 B a r y t e s N a t u r a l 41 9 L i q u i d S u l p h u r 585 Woodpulp 457 P o r t l a n d Cement S t a n d a r d 200 L i m e , Hydra ted &nQuick 45 7 T o i l e t r i e s , c l e a n i n g p r e p -a r a t i o n s , e t c . 630 C o m m o d i t i e s moving from 0 n t a r i o ; - & Quebec to the f o u r w e s t e r n p r o v i n c e s F a r i n a c e o u s s u b s t a n d e s & f l o u r 2165 A p p l e s 1763 Grapes 201 9 C o f f e e 1 922 S h o r t e n i n g & L a r d 1726 Soups and I n f a n t Foods 1 794 A l e , b e e r , s t o u t & p o r t e r 1129 I r o n ore & c o n c e n t r a t e s 2040 Z i n c e ore & c o n c e n t r a t e s 1213 A s b e s t o s , c r u d e unmfg . 2537 P o r t l a n d Cement S t a n d a r d 2773 T o i l e t r i e s , c l e a n i n g p r e p -a r a t i o n s , e t c . 1838 63 CHAPTER 5 STATISTICAL ANALYSIS OF TWO RATE MODELS 5 .1 I n t r o d u c t i o n The o b j e c t i v e o f the s t a t i s t i c a l a n a l y s i s i s to d e -t e r m i n e whether . the p o s t u l a t e d models r e f l e c t d i f f e r e n c e s i n r a t e s . The d a t a a re o r g a n i z e d i n such a manner t h a t e i g h t d i f f e r e n t r e g i o n a l movements can be e v a l u a t e d s e p a r -a t e l y . In the n e x t s e c t i o n , the r e s e a r c h s t r a t e g y i s o u t -l i n e d and a b r i e f r e v i e w i s l m a d e of the two a n a l y t i c a l methods u s e d . The t h i r d s e c t i o n w i l l d e a l w i t h an o v e r -v i e w of the r e s u l t s o b t a i n e d from t h e s e a n a l y s e s . The f o u r t h s e c t i o n i s c o n c e r n e d w i t h the r e s u l t s o f the i n d i v -i d u a l movement m o d e l s . A summary o f the r e s u l t s i s p r e s e n -ted i n the f i f t h s e c t i o n . A p r o p o s a l f o r m o n i t o r i n g t r e n d s i n the f a c t o r s a f f e c t i n g r a t e s i s d e s c r i b e d i n the l a s t s e c -t i o n o f the c h a p t e r . 5 .2 a a R e s e a r c h e D e s i g n There are t h r e e major f a c t o r s w h i c h a f f e c t the r e s e a r c h s t r a t e g y . 1 . The number o f movement models (8) and the number o f v a r i a b l e s i n t h e s e models (4 v a r i a b l e s f o r f i v e movements and 6 v a r i a b l e s f o r 3 m o v e m e n t s ) , means a l a r g e number of c o m b i n a t i o n s must be e v a l u a t e d . F a c t o r a n a l y s i s i s used to produce a s e t o f s t a t i s t i -c a l l y i n d e p e n d e n t v a r i a b l e s f rom the o r i g i n a l d a t a . ^ These new d a t a r e p r e s e n t the o r i g i n a l v a r i a b l e s and they can be r e g r e s s e d a g a i n s t the p r o x y r a t e v a r i a b l e . The r e -g r e s s i o n r e s u l t s o f t h i s t w o - s t a g e a p p r o a c h do not r e f l e c t the m u 1 t i - c o l 1 i n e a r i t y p r o b l e m . A s c h e m a t i c o f the r e s e a r c h p r o c e s s i s shown i n F i g -ure 5 . 1 . F i g u r e 5.1 - S c h e m a t i c o f the R e s e a r c h P r o c e s s E v a l u a t i o n of Data Used i n the A n a l y s i s Stage I R e g r e s s i o n A n a l y s i s S tage I I C r i t e r i a C o e f f i c i e n t of) D e t e r m i n a t i o n J t - S t a t i s t i c s TT M u 1: t -i • s c 611 i n e a r i : t y i s a p r o b l e m ( ' C o r r e l a t i o n A n a l y s i s ) F a c t o r A n a l y s i s The p r i m a r y r e s e a r c h t o o l i s r e g r e s s i o n a n a l y s i s . The t e c h n i q u e i n v o l v e s e x p l a i n i n g the v a r i a n c e of some s p e c i f i e d (1) For a v e r y r e a d a b l e i n t r o d u c t i o n to f a c t o r a n a l y s i s , see Rummel R . J . , " U n d e r s t a n d i n g F a c t o r A n a l y s i s " , J o u r n a l o f  C o n f l i c t R e s o l u t i o n , V o l . XI No. 4 , December, 1967. 65 v a r i a b l e ( the dependent v a r i a b l e ) by one or more e x p l a n a t o r y v a r i a b l e s ( the i n d e p e n d e n t v a r i a b l e ( s )) . The b a s i c assump-t i o n s of r e g r e s s i o n a n a l y s i s a r e : 1. the e x p l a n a t o r y v a r i a b l e s must be s t a t i s t i c a l l y i n -d e p e n d e n t ; 2 . the r e s i d u a l s (f"t.he u n e x p l a i n e d v a r i a n c e i n the d e p e n -dent v a r i a b l e ) must be s t a t i s t i c a l l y i n d e p e n d e n t ; 3 . the v a r i a n c e of the r e s i d u a l s must be c o n s t a n t . I f m u l t i - c o l 1 i n e a r i t y i s a s i g n i f i c a n t p r o b l e m , i t w i l l be d e a l t w i t h by u s i n g f a c t o r a n a l y s i s as a p r e l i m i n a r y s t e p , p r i o r to u s i n g r e g r e s s i o n a n a l y s i s . ^ ^ F a c t o r a n a l y s i s has many a p p l i c a t i o n s ; h o w e v e r , i t has been used i n a l i m i t e d c o n t e x t i n t h i s s t u d y to c r e a t e new v a r i a b l e s , w h i c h s a t i s f y the f i r s t a s s u m p t i o n i n r e g r e s s i o n a n a l y s i s . The method i s more d i f f i c u l t to u n d e r s t a n d c o n -c e p t u a l l y then i s r e g r e s s i o n a n a l y s i s . The new v a r i a b l e s a re m a t h e m a t i c a l m a n i p u l a t i o n s o f the o r i g i n a l v a r i a b l e v a l u e s . They c a n n o t be i n t e r p r e t e d i n t h e i r own r i g h t , nor can t h e y be compared m e a n i n g f u l l y . v ' (1) The models d e s c r i b e d l a t e r i n the c h a p t e r have been t e s -t e d f o r a u t o c o r r e l a t i o n ( v i o l a t i o n o f a s s u m p t i o n 2) and i n s p e c t e d f o r h e t e r o s c h e d a s t i c i t y ( v i o l a t i o n of a s s u m p t i o n 3 . ) (2) See A p p e n d i x 1 , C h a p t e r 5~- Some d e t a i l s on the s p e c i f i c a p p l i c a t i o n of f a c t o r a n a l y s i s . 66 5 . 3 G e n e r a l O b s e r v a t i o n s of the R e s u l t s ^ 1 1 T h i s s e c t i o n w i l l examine the a n a l y t i c a l r e s u l t s i n g e n e r a l t e r m s ; i n e f f e c t i t w i l l b r i n g t o g e t h e r a l l o f the models f o r c o m p a r a t i v e p u r p o s e s . Three d i m e n s i o n are c o n -s i d e r e d : 1) the s i g n i f i c a n t v a r i a b l e s i n each m o d e l ; .2) the r e l a t i v e i m p o r t a n c e of the s i g n i f i c a n t v a r i a b l e s i n each m o d e l ; and 3) the r e s u l t s v i s - a - v i s the e x p e c t e d o u t -come. E x c e p t f o r one movement, the r e s u l t s i n d i c a t e t h a t s e v -e r a l f a c t o r s e x p l a i n the v a r i a n c e o b s e r v e d i n the p r o x y r a t e v a r i a b l e . ( T a b l e 5 . 1 ) Load per c a r i s s i g n i f i c a n t i n a l l m o d e l s . The r e m a i n i n g s i g n i f i c a n t v a r i a b l e s v a r y f rom model to m o d e l . (1) Load per c a r and number of c a r l o a d s were t r a n s f o r m e d to t h e i r i n v e r s e v a l u e s and the e i g h t movement models r e f l e c t these two c h a n g e s . T a b l e 5.1 - Compar ison of S i g n i f i c a n t V a r i a b l e s Among E i g h t Movement Models Movement Load S i g n i f i c a n t V a r i a b l e s ( t - S t a t i s t i c s ) From To Per Car D i s t a n c e Number D o l 1 a r I n t e r m o d a l M a r k e t (D) of c a r s r 1 Val ue Competi t i on Competi t i on (V) «V <CMT> M a r i t ime M a r i t i m e 5.57 8 .59 3 .93 N . E . N . E . E a s t e r n M a r i t ime 5.67 2 .50 N . E . N . E . E a s t e r n E a s t e r n 3.95 3 .03 2.41 N . E . N . E . Western M a r i t ime 2 .23 3.04 1 .71 N . E . N . E . M a r i t ime E a s t e r n 5 .00 N . E . N . E . Western E a s t e r n 4.71 3 .29 1 .83 Western Western 4 .22 6. 56 1 .99 E a s t e r n Western 3.35 1 .82 1 .66 (1) The s i g n i f i c a n c e l e v e l i s 10%. N . E . - Not E v a l u a t e d . A t l e a s t one demand v a r i a b l e , e i t h e r d o l l a r v a l u e , i n t e r m o d a l c o m p e t i t i o n , or market c o m p e t i t i o n i s s i g n i f i -c a n t i n s i x o f the e i g h t movement m o d e l s . G i v e n t h e s e r e -s u l t s , i t i s c o n c l u d e d t h a t both c o s t and demand f a c t o r s a c c o u n t f o r d i f f e r e n c e s i n r a t e s among the c o m m o d i t i e s c o n -s t i t u t i n g s i x o f the e i g h t s a m p l e s . C o s t f a c t o r s a l o n e a c c o u n t f o r d i f f e r e n c e s i n r a t e s f o r c o m m o d i t i e s i n the M a r i t i m e - M a r i t i m e and M a r i t i m e - E a s t e r n samples i n T a b l e 5 . 1 . The s i g n i f i c a n t v a r i a b l e s i n a p a r t i c u l a r movement model e x p l a i n the v a r i a n c e i n the p r o x y r a t e v a r i a b l e to d i f f e r e n t d e g r e e s ( T a b l e 5 . 2 ) . The r e l a t i v e i m p o r t a n c e o f a v a r i a b l e i n a p a r t i c u l a r model changes f rom model to m o d e l . In g e n e r a l , l o a d per c a r i s the most i m p o r t -ant v a r i a b l e i n s i x o f the e i g h t m o d e l s , and the second most i m p o r t a n t v a r i a b l e i n the o t h e r t w o . In t h e s e two l a t t e r m o d e l s , d i s t a n c e i s the most i m p o r t a n t v a r i a b l e . D i s t a n c e i s n o t s i g n i f i c a n t i n a l l c a s e s . However , where i t i s s i g n i f i c a n t , i t i s e i t h e r the most i m p o r t a n t or second most i m p o r t a n t v a r i a b l e . W h i l e T a b l e 5.1 i n d i c -a t e s t h a t both c o s t and demand f a c t o r s are s i g n i f i c a n t , T a b l e 5 .2 i n d i c a t e s t h a t c o s t f a c t o r s a re r e l a t i v e l y more i m p o r t a n t t h a n a r e demand f a c t o r s i n a c c o u n t i n g f o r d i f -f e r e n c e s i n r a t e s . 10 T a b l e 5 .2 - R e l a t i v e Ranking o f S i g n i f i c a n t V a r i a b l e s f o r D i f f e r e n t Movements Movement From To C o e f f i c i e n t of Determi n a t i o n Load Car Per Di s t a n c e (D) <Vi Number of c a r s ( N ' 1 ) ) <!> D o l l a r Val ue (V) I n t e r m o d a l Competi t i on <CMD> M a r k e t C o m p e t i t i o n <CMT> M a r i t i m e M a r i t i m e .9442 .22 (2) .65 (1) .15 (3) N . E . N . E . E a s t e r n M a r i t i m e .8004 .44 (1) .19 (2) N . E . N . E . E a s t e r n E a s t e r n .6761 .24 (1) .18 (2) .14 <3> N . E . N . E , Western M a r i t ime .8528 .63 (1) . 57 (2) .50 ( 3 ) N . E . N .EI M a r i t i m e E a s t e r n .7579 .40 (1) N . E . N . E . Western E a s t e r n .8368 . 57 (1) .39 , . 2 3 <3> Western Western .8073 . 1 7 (2) .27 <'> .08 ( 3 ) E a s t e r n Western .7050 .55 (1 ) .32 (2) - . 3 0 ^ ) N . E . - Not E v a l u a t e d (1) The r e l a t i v e i m p o r t a n c e of each s i g n i f i c a n t v a r i a b l e i i s a p p r o x i m a t e d ' b y b . S ^ , where b.. i s the e s t i m a t e d r e g r e s s i o n c o e f f i c i e n t s f o r the i ' t h v a r i a b l e and S. i s the c a l c u l a t e d s t a n d a r d d e v i a t i o n o f the i ' t h v a r i a b l e . The f i g u r e i n b r a c k e t s i s . t h e rank o f the s i g n i f i c a n t v a r i a b l e i n the m o d e l . Three g e n e r a l o b s e r v a t i o n s f rom the r e s u l t s a re summarized b e l o w : 1, The p o s t u l a t e d models do not a c c o u n t f o r a l l v a r i a b l e s a f f e c t i n g d i f f e r e n c e s i n r a t e s ; h o w e v e r , t h e y do appear to a c c o u n t f o r most o f the y a r i a n c e i n the p r o x y r a t e f o r the sampled c o m m o d i t i e s . 2, The amount of e x p l a i n e d v a r i a n c e v a r i e s f rom model to m o d e l , as does the r e l a t i v e i m p o r t a n c e of the v a r i a b l e s e x p l a i n i n g d i f f e r e n c e s i n r a t e s . 3 , Both c o s t and demand f a c t o r s a re s i g n i f i c a n t . Cos t f a c t o r s are more i m p o r t a n t than demand f a c t o r s f o r e x p l a i n i n g d i f f e r e n c e s i n the p r o x y r a t e g i v e n the sampled c o m m o d i t i e s . The r e s u l t s do not c o m p l e t e l y meet w i t h e x p e c t a t i o n s . Both l o a d per c a r and d i s t a n c e are e x p l i c i t l y t r e a t e d i n r a i l r a t e t a r i f f s , A l t h o u g h l o a d per c a r i s s i g n i f i c a n t , as no ted a b o v e , d i s t a n c e i s n o t s i g n i f i c a n t i n f o u r o f t h e e i g h t movement models (Ta,ble 5 . 3 ) , The s i g n i f i c a n c e of d i s t a n c e -may be m i s l e a d i n g even i n t h o s e cases where d i s t a n c e fs s t a t i s t i c a l l y s i g n i f i c a n t . The r a t e - d i s t a n c e r e l a t i o n s h i p may be s p u r i o u s , That i s , o t h e r f a c t o r s such as i n t e r m o d a l c o m p e t i t i o n or market c o m p e t i t i on -may change as d i s t a n c e changes and i t i s t h e s e f a c t o r s w h i c h may a f f e c t r a t e s and not d i s t a n c e per s e , T h i s may a l s o be the case where d i s t a n c e i s not s t a t i s t i c a l l y s i g n i f i c a n t but some r e l a t i o n -s h i p a p p e a r s to e x i s t ( F i g u r e 5 , 2 ) , T a b l e 5 . 3 - Movement Models E x c l u d i n g D i s t a n c e as a S i g n i f i c a n t V a r i a b l e D i s t a n c e Average V a l u e C o r r e l a t i o n o f D i s t a n c e With S i g -Movement of P r o x y Rate Mean f o r S t a n d a r d D e v i a t i o n n i f i c a n t V a r i a b l e s From To V a r i a b l e Movement f o r Movement L " 1 V N - 1 CMD C , MT E a s t e r n M a r i t ime 1.11 904.312 346.328 .3946 .3887 N . E . N . E . Western M a r i t i m e 2 .67 3081.58 652.988 - . 2 9 2 6 . 3682 - . 2 4 4 9 N . E . N . E . Mar i t i me E a s t e r n .74 742.7 171.837 .0591 N . E . N . E . E a s t e r n Western 2 .22 1909.92 467.267 - . 0 3 0 4 - . 1 0 6 5 - . 4 7 2 5 72 F i g u r e 5 .2 - C o m p a r i s o n of the A v e r a g e D i s t a n c e Moved With the Mean of the P r o x y Rate V a r i a b l e f o r Four Movements ^ - " ^ Western - M a r i t i m e ,<0' E a s t e r n - Western 2 .75 2 . 50 Mean 2 .25 Revenue 2 .00 Per 1 .75 Hundred -1 .50 wei ght 1 .25 1 . 00 .75 .50 .25 © E a s t e r n - M a r i t i me / M a r i t ime- r ! - E a s t e r n -f- -f- -+- — i 1 1 500 1000 1500 2000 2500 3000 Mean of D i s t a n c e V a r i a b l e ( I n s i g n i f i c a n t V a r i a b l e ) 5 .4 A n a l y s i s o f R e s u l t s f o r S p e c i f i c Movements Each of the e i g h t movement models i s e v a l u a t e d i n t h i s s e c t i o n . The f o l l o w i n g i n f o r m a t i o n i s g i v e n f o r the r e g r e s s i o n r e s u l t s o f the o r i g i n a l v a r i a b l e s : 1. r e g r e s s i o n e q u a t i o n ; 2 2 . c o e f f i c i e n t o f d e t e r m i n a t i o n (R ) ; 3 . c o r r e l a t i o n s between the s i g n i f i c a n t v a r i a b l e s ; 4 . rank o r d e r of the s i g n i f i c a n t v a r i a b l e s ; 5 . i m p l i c a t i o n s o f the r e s u l t s f o r the t h r e e hypothe-ses r e i t e r a t e d b e l o w ; and 6. s p e c i f i c o b s e r v a t i o n s about the m o d e l . The i m p a c t of m u l t i - c o l l i n e a r i t y o f t e n can not be d e -t e r m i n e d by s i m p l e i n s p e c t i o n of the c o r r e l a t i o n s among the e x p l a n a t o r y v a r i a b l e s . To c o m p l e t e the e v a l u a t i o n f o r each movement, the r e g r e s s i o n r e s u l t s of the new v a r i a b l e s p r o -duced by f a c t o r a n a l y s i s are g i v e n . The c o e f f i c i e n t o f d e -2 t e r m i n a t i o n (R ) and the s t a t i s t i c a l l y s i g n i f i c a n t o r i g i n a l v a r i a b l e s w i l l be noted f o r c o m p a r i s o n p u r p o s e s . The t h r e e h y p o t h e s e s a r e : 1 . r a t e s a re based on the v a l u e of the s e r v i c e ( p r i c -i n g based on demand) and not on the c o s t o f p r o -v i d i n g the s e r v i c e ; 2 . i n t e r m o d a l c o m p e t i t i o n has had an e f f e c t i n d e t e r -m i n i n g d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s ; and 3 . market c o m p e t i t i o n f o r the t r a n s p o r t e d c o m m o d i t i e s i n f l u e n c e s d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s . 5 . 4 . 1 Model r e s u l t s t e s t i n g the f i r s t h y p o t h e s i s  M a r i t i m e - M a r i t i m e Movements ( 5 . 4 1 ) Y = .1230 + 9 . 3 7 5 6 L " 1 + .001032D + .3494N= ] R 2 : : = .9442 r D L - l = .4945 f ^ - l ^ l = - 4 9 3 2 r N - l D = .3731 The rank o r d e r o f the s i g n i f i c a n t v a r i a b l e s i s g i v e n b e l o w : 1 . d i s t a n c e ; 2 . l o a d per c a r ; and 3 . number of c a r s i n the movement ( T a b l e 5 . 2 ) 74 O n l y the f i r s t h y p o t h e s i s i s t e s t e d by t h i s m o d e l . The r e s u l t s s u g g e s t t h a t the f i r s t h y p o t h e s i s i s i n c o r -r e c t , as c o s t f a c t o r s a l o n e a re s i g n i f i c a n t . The p o s i t i v e r e g r e s s i o n c o e f f i c i e n t s r e f l e c t the e x -p e c t e d r e l a t i o n s h i p s between each of the e x p l a n a t o r y v a r i a -b l e s and the dependent v a r i a b l e . As d i s t a n c e i n c r e a s e s , the r a t e i n c r e a s e s . As the i n v e r s e o f l o a d per c a r i n c r e a s e s ( l o a d per c a r d e c r e a s e s ) , the r a t e i n c r e a s e s . S i m i l a r l y , as the i n v e r s e o f number of c a r s i n c r e a s e s (number of c a r s d e c r e a s e s ) the r a t e i n c r e a s e s . E l a s t i c i t y of demand f o r t r a n s p o r t i s not a s i g n i f i c a n t v a r i a b l e f o r the commodi-t i e s s a m p l e d . R e g r e s s i n g the f a c t o r a n a l y s i s v a r i a b l e s does not s i g n i f i c a n t l y change the amount o f e x p l a i n e d v a r i a n c e i n the p r o x y r a t e v a r i a b l e (R = . 9 4 3 7 ) . Three new v a r i a b l e s were found to be s i g n i f i c a n t : the f i r s t new v a r i a b l e i s composed of the j o i n t i n t e r a c t i o n of the i n v e r s e o f l o a d per c a r and d i s t a n c e ; the second i s number of c a r l o a d s ; and the t h i r d i s d o l l a r v a l u e . A l t h o u g h a demand v a r i a b l e i s now s i g n i f i c a n t , the f i r s t h y p o t h e s i s would be r e j e c t e d a g a i n ; b o t h c o s t and demand f a c t o r s a r e s i g n i f i c a n t . E a s t e r n - M a r i t i m e Movements ( 5 . 4 2 ) Y = .1738 + 2 4 . 9 6 6 2 L " 1 + ,0002312V R 2 = .8004 r V L - l = .3093 The l o a d per c a r v a r i a b l e i s the most s i g n i f i c a n t o f the two v a r i a b l e s ( T a b l e 5 . 2 ) . Thus the f i r s t h y p o t h e s i s i s r e -j e c t e d on the b a s i s o f t h e s e r e s u l t s . The p o s i t i v e r e g r e s s i o n c o e f f i c i e n t f o r the d o l l a r v a l u e v a r i a b l e i n d i c a t e s t h a t as the v a l u e of the commod-i t y i n c r e a s e s , the r a t e w i l l i n c r e a s e . T h e r e f o r e , h i g h -v a l u e d goods w i l l bear a h i g h e r r a t e than l o w - v a l u e d g o o d s . The amount o f e x p l a i n e d v a r i a n c e i n the p r o x y r a t e v a r i a b l e does not change s i g n i f i c a n t l y when the new f a c t o r a n a l y s i s v a r i a b l e s a re r e g r e s s e d a g a i n s t the dependent v a r i a b l e . (R\. > . 8 0 3 6 ) . The i n v e r s e o f l o a d per c a r and d i s t a n c e form one s i g n i f i c a n t new v a r i a b l e . The number of c a r l o a d s forms a n o t h e r s i g n i f i c a n t v a r i a b l e , as does the d o l l a r v a l u e . The r e s u l t s o f e i t h e r method means r e j e c t i o n of the f i r s t h y p o t h e s i s , t h a t r a t e s a re based on v a l u e of s e r v i c e a l o n e . E a s t e r n - E a s t e r n Movements ( 5 . 4 3 ) Y = - . 1671 + 1 2 . 7 6 5 L " 1 + .0007746D + .0001717V R2; = .6761 r D L - l = .2731 r y | i - l = .2847 r V D = - . 1 1 1 4 Load per c a r i s the most i m p o r t a n t v a r i a b l e , f o l l o w e d by d i s t a n c e and v a l u e o f c o m m o d i t y . The f i r s t h y p o t h e s i s would be r e j e c t e d on the b a s i s o f t h e s e r e s u l t s ; n o t o n l y are c o s t f a c t o r s s i g n i f i c a n t , but they are r e l a t i v e l y more i m p o r t a n t than the demand f a c t o r . The r e l a t i v e l y low l e v e l o f e x p l a i n e d v a r i a n c e (67 .61%) , s u g g e s t s t h a t o t h e r f a c t o r s , not e v a l u a t e d , may be s i g n i f i -c a n t . A t e s t o f a u t o c o r r e l a t i o n was c o n d u c t e d to d e t e r m i n e whether a ma jor v a r i a b l e had been o m i t t e d . A l t h o u g h the t e s t was i n c o n c l u s i v e , i t i s d o u b t f u l t h a t a major e x p l a n a t o r y v a r i a b l e has been o m i t t e d . There a r e a number o f p o t e n t i a l v a r i a b l e s t h a t m i g h t i n c r e a s e the l e v e l o f e x p l a n a t i o n , i n c l u d i n g : d e n s i t y o f t r a f f i c i n the e a s t e r n r e g i o n ; i n t e r m o d a l c o m p e t i t i o n , and market c o m p e t i t i o n . In some p a r t s o f the d e n s e l y p o p u l a t e d e a s t e r n r e g i o n , t r u c k i n g c o m p e t i t i o n would be r e l a t i v e l y i n t e n s e f o r . t h e movement o f h i g h - v a l u e d goods o v e r s h o r t d i s t a n c e s , Indeed a v e r a g e haul d i s t a n c e i n the sample i s the l e a s t o f the e i g h t movements and the a v e r a g e d o l l a r v a l u e per ton i s the second h i g h e s t , The c o r r e l a t i o n s between the s i g n i f i c a n t i n d e p e n d e n t v a r i a b l e s p r o v i d e some i n s i g h t i n t o the n a t u r e o f the c o m m o d i t i e s i n the s a m p l e , The dependency between v a l u e and the i n v e r s e o f load) per c a r ( .2847 ) s u g g e s t s t h a t as the l o a d p e . r c a r i n c r e a s e s , the d o l l a r v a l u e d e c r e a s e s . T h i s i s a d i r e c t r e f l e c t i o n of the sampled c o m m o d i t i e s , i , e , h i g h d e n s i t y b u l k c o m m o d i t i e s would be e x p e c t e d to have a l o w e r v a l u e per ton t h a n l o w e r d e n s i t y m a n u f a c t u r e d p r o d u c t s . . The amount o f e x p l a i n e d v a r i a n c e does not change s i g -n i f i c a n t l y when the new f a c t o r a n a l y s i s v a r i a b l e s a re r e -g r e s s e d a g a i n s t the p r o x y r a t e v a r i a b l e (R = . 6 8 5 2 ) . How-e v e r , a l l f o u r o r i g i n a l v a r i a b l e s are s i g n i f i c a n t , g i v e n t h e i r a s s o c i a t i o n w i t h the f o u r s i g n i f i c a n t new v a r i a -b l e s . The f i r s t h y p o t h e s i s i s r e j e c t e d as both c o s t and demand f a c t o r s a r e s i g n i f i c a n t . Western - M a r i t i m e Movements ( 5 . 3 4 ) Y = .2619 + 4 2 . 2 7 2 9 L " 1 + 1 . 3 0 0 7 N " 1 + .0006245V R 2 = .8528 r N - 1 L - 1 = .0411 r ^ - 1 = .7678 r V N - l = - . 2 2 1 7 Load per c a r i s the most s i g n i f i c a n t v a r i a b l e , f o l l o w -ed by number o f c a r l o a d s and d o l l a r v a l u e . T h i s model s u g -g e s t s t h a t the f i r s t h y p o t h e s i s would be r e j e c t e d ; both c o s t and demand f a c t o r s are s i g n i f i c a n t . The r e s u l t s o f t h i s e v a l u a t i o n may be q u e s t i o n a b l e due to the h i g h c o r r e l a t i o n between v a l u e and l o a d per c a r . The h i g h c o r r e l a t i o n may be due to the p a r t i c u l a r c o m m o d i t i e s c o n s t i t u t i n g the s a m p l e . To some e x t e n t the v a l u e of the commodity i s l e s s a measure of the e l a s t i c i t y o f demand f o r t r a n s p o r t , and i s more a measure of the k i n d s of c o m m o d i t i e s t r a v e l l i n g between t h e s e two r e g i o n s . (1) The number of new v a r i a b l e s p r o d u c e d by the f a c t o r a n a l y -s i s t e c h n i q u e can be s p e c i f i e d . In t h i s , and the r e m a i n -i n g movement m o d e l s , the number of new v a r i a b l e s e x a c t l y e q u a l s the number o f o r i g i n a l v a r i a b l e s i n the o r i g i n a l r a t e m o d e l s . R e g r e s s i o n of the f a c t o r a n a l y s i s v a r i a b l e s does not change the amount o f e x p l a i n e d v a r i a n c e i n the p r o x y r a t e v a r i a b l e s i g n i f i c a n t l y (R = . 8 5 9 5 ) . The same s i g n i f i c a n t v a r i a b l e s have been i n c l u d e d by u s i n g t h i s t e c h n i q u e . The f i r s t h y p o t h e s i s i s r e j e c t e d a g a i n on the b a s i s o f t h e s e r e s u l t s . M a r i t i m e - E a s t e r n Movements ( 5 . 4 5 ) Y = .0719 + 2 3 . 5 1 1 8 L " 1 R 2 = .7579 The o n l y s i g n i f i c a n t v a r i a b l e f o r the c o m m o d i t i e s sam-p l e d i s the l o a d per c a r v a r i a b l e ; i t a c c o u n t s f o r 75.79% of the v a r i a t i o n i n the p r o x y r a t e v a r i a b l e . W i t h the o t h e r v a r i a b l e s b e i n g i n s i g n i f i c a n t , i t i s c l e a r i n t h i s case t h a t f a c t o r s , o t h e r than t h o s e e v a l u a t e d , s i g n i f i c a n t l y a f f e c t d i f f e r e n c e s i n r a t e s . I n t e r m o d a l c o m p e t i t i o n , p r i m a r i l y from w a t e r t r a n s p o r t , would l i k e l y be a s i g n i f i c a n t f a c t o r f o r c o m m o d i t i e s moving from the M a r i t i m e s to the E a s t e r n r e g i o n . The v a r i a n c e o f the p r o x y r a t e v a r i a b l e i s e x p l a i n e d c o m p l e t e l y by a c o s t f a c t o r . A l t h o u g h o t h e r f a c t o r s have not been e v a l u a t e d , i t i s a p p a r e n t t h a t the f i r s t h y p o t h e -s i s would be r e j e c t e d , as a c o s t v a r i a b l e a l o n e i s s i g n i f -i c a n t . By r e g r e s s i n g the new f a c t o r a n a l y s i s v a r i a b l e s a -ga i .ns t the p r o x y r a t e v a r i a b l e , the amount of the e x p l a i n e d v a r i a n c e i n c r e a s e s by a s i g n i f i c a n t 10% (R = . 8 5 9 6 ) . The i n c r e a s e may be a t t r i b u t e d to the a d d i t i o n of number o f c a r -l o a d s as a s i g n i f i c a n t v a r i a b l e . These r e s u l t s mean t h a t the f i r s t h y p o t h e s i s i s r e j e c t e d ; o n l y c o s t f a c t o r s are s i g -n i f i c a n t . 5 . 4 . 2 Model R e s u l t s T e s t i n g A l l Three H y p o t h e s e s  Western - E a s t e r n Movements ( 5 . 4 6 ) Y = - . 1 8 8 9 + 4 9 . 5 7 5 5 L " 1 + .0006043D - . 1 8 9 8 C M D R 2 = .8368 r n | - 1 = .2185 r r . - 1 = .3826 MD = .2741 The l o a d per c a r v a r i a b l e , d i s t a n c e and i n t e r m o d a l c o m p e t i t i o n v a r i a b l e s a re s i g n i f i c a n t i n t h a t o r d e r o f i m -p o r t a n c e . The e x c l u d e d v a r i a b l e s a re a l l h i g h l y c o r r e l a t e d w i t h the s i g n i f i c a n t v a r i a b l e s . The s i g n i f i c a n c e o f t h e s e t h r e e v a r i a b l e s wou ld s u g -g e s t r e j e c t i o n of the f i r s t h y p o t h e s i s ; the r a t e s are not based s o l e l y on the v a l u e o f the s e r v i c e . The second h y p o t h -e s i s , t h a t i n t e r m o d a l c o m p e t i t i o n has a s i g n i f i c a n t e f f e c t on d i f f e r e n c e s i n r a t e s , would be a c c e p t e d . These r e s u l t s do not s u p p o r t the t h i r d h y p o t h e s i s t h a t market c o m p e t i t i o n i s a s i g n i f i c a n t f a c t o r . The p o s i t i v e c o r r e l a t i o n between i n t e r m o d a l c o m p e t i -t i o n and d i s t a n c e means t h a t i n t e r m o d a l c o m p e t i t i o n i n c r e a -ses w i t h d i s t a n c e . For the c o m m o d i t i e s i n t h i s s a m p l e , w a t e r c o m p e t i t i o n may be p a r t i c u l a r l y i m p o r t a n t , e i t h e r be-80 cause t r a f f i c i s l o s t to the w a t e r r o u t e t h r o u g h the Panama Canal or because o f w a t e r c o m p e t i t i o n on the G r e a t L a k e s . The r e g i o n a l e x p o r t o f b u l k c o m m o d i t i e s f rom the west v i a the G r e a t Lakes would be p a r t i c u l a r l y v u l n e r a b l e to l o w e r c o s t w a t e r c o m p e t i t i o n and r a t e s would be e x p e c t e d to be ! l o w e r as a r e s u l t . The n e g a t i v e r e g r e s s i o n c o e f f i c i e n t r e -f l e c t s t h i s l o g i c : as i n t e r m o d a l c o m p e t i t i o n i n c r e a s e s , the r a t e d e c r e a s e s . The n e g a t i v e c o r r e l a t i o n between i n t e r -modal c o m p e t i t i o n and the i n v e r s e o f l o a d per c a r i s a more complex r e l a t i o n . T h i s c o r r e l a t i o n i n d i c a t e s t h a t as the l o a d per c a r i n c r e a s e s , i n t e r m o d a l c o m p e t i t i o n i n c r e a s e s . T h i s e x p l a n a t i o n s u p p o r t s the p r e v i o u s c o n c l u s i o n t h a t b u l k c o m m o d i t i e s on t h i s r o u t e a re s u s c e p t i b l e to l o w e r r a t e s due to i n t e r m o d a l c o m p e t i t i o n . The r e g r e s s i o n r e s u l t s o f the new f a c t o r a n a l y s i s v a r i a b l e s i n d i c a t e a s i g n i f i c a n t r e d u c t i o n i n the amount o f e x p l a i n e d v a r i a n c e i n the p r o x y r a t e v a r i a b l e ( R . = . 7 8 2 2 ) . There i s no change i n the s i g n i f i c a n t f a c t o r s a c c o u n t i n g f o r the v a r i a n c e of the p r o x y r a t e ; the new s i g n i f i c a n t v a r i a b l e s a re a s s o c i a t e d w i t h l o a d per c a r , d i s t a n c e , and i n t e r m o d a l c o m p e t i t i o n . Thus the f i r s t and t h i r d h y p o t h e -ses a r e r e j e c t e d and the second one i s a c c e p t e d . Western - Western Movements ( 5 . 4 7 ) Y = - . 3 3 0 8 + 1 1 . 0 3 3 7 L * 1 + .0009762D + . 0 8 5 3 C M T R 2 = .8073 r D , - l = .1799 rQ , - 1 = .1239 MT r C M T D = - . 0 0 8 5 81 D i s t a n c e i s the most s i g n i f i c a n t o f the t h r e e v a r i a b l e s * f o l l o w e d by l o a d per c a r and market c o m p e t i t i o n ( T a b l e 5 . 2 ) . The t h r e e v a r i a b l e s a c c o u n t f o r 80.73% of the o b s e r v e d v a r i -a t i o n i n the dependent v a r i a b l e . There i s a r e l a t i v e l y low degree o f c o r r e l a t i o n among the t h r e e s i g n i f i c a n t v a r i a b l e s . The r e s u l t s o f t h i s a n a l y s i s i n d i c a t e t h a t both c o s t and demand f a c t o r s a r e s i g n i f i c a n t i n d e f i n i n g d i f f e r e n c e s i n r a t e s . Thus the f i r s t h y p o t h e s i s would be r e j e c t e d . I n t e r m o d a l c o m p e t i t i o n i s not a s i g n i f i c a n t v a r i a b l e , g i v e n the c o m m o d i t i e s i n c l u d e d i n the s a m p l e . T h e r e f o r e the second h y p o t h e s i s i s r e j e c t e d on the b a s i s o f these r e s u l t s . The t h i r d h y p o t h e s i s , t h a t r a t e s are i n f l u e n c e d by m a r k e t c o m p e t i t i o n , i s a c c e p t e d . The c o r r e l a t i o n s shown above i n d i c a t e t h a t market c o m p e t i t i o n i s a l m o s t c o m p l e t e l y i n d e p e n d e n t o f d i s t a n c e . The e x p e c t e d r e l a t i o n s h i p e x i s t s , t h a t i s , as d i s t a n c e i n -c r e a s e s , market c o m p e t i t i o n d e c r e a s e s . M a r k e t c o m p e t i t i o n i s c o r r e l a t e d p o s i t i v e l y w i t h the i n v e r s e of l o a d per c a r . That i s , as l o a d per c a r d e c r e a s e s , market c o m p e t i t i o n i n -c r e a s e s . C o n v e r s e l y , w i t h i n the w e s t e r n r e g i o n , market c o m p e t i t i o n i s low f o r c o m m o d i t i e s h a v i n g h i g h c a r l o a d w e i g h t s . There i s an anomaly i n the r e s u l t s ( e q u a t i o n 5 .4 7 ) . The p o s i t i v e r e g r e s s i o n c o e f f i c i e n t f o r the marke t compe-t i t i o n v a r i a b l e means t h a t as marke t c o m p e t i t i o n i n c r e a s e s , 82 the r a t e i n c r e a s e s . v ' ; T h i s , h o w e v e r , i s c o n t r a r y to what would be e x p e c t e d . A more i n t u i t i v e argument wou ld be t h a t as market c o m p e t i t i o n f o r a commodity i n c r e a s e s , the r a t e d e -c r e a s e s . T h i s argument i s based on the p r i c e c o m p e t i t i v e -ness o f the commodi ty . The r a i l w a y s s t a n d to l o s e revenue i f the commodity f a i l s to move because i t i s not p r i c e com-p e t i t i v e . The i n v e r s e r e l a t i o n a r g u m e n t , i . e . r a t e s s h o u l d d e c r e a s e as marke t c o m p e t i t i o n i n c r e a s e s , wou ld be e x p e c t e d as p a r t o f the r a t e n e g o t i a t i o n p r o c e s s . I n d e e d , i t has been used w i t h some v a r i a t i o n i n f o r m a l h e a r i n g s b e f o r e the R a i l w a y T r a n s p o r t Committee o f the C a n a d i a n T r a n s p o r t Com-• • (2) m i s s i o n . The amount o f e x p l a i n e d v a r i a n c e i n the dependent v a r -i a b l e i n c r e a s e s when the new f a c t o r a n a l y s i s v a r i a b l e s a re 2 r e g r e s s e d a g a i n s t the p r o x y r a t e v a r i a b l e (R = . 8 2 5 0 ) . Two a d d i t i o n a l v a r i a b l e s , number o f c a r l o a d s and d o l l a r v a l -u e , become s i g n i f i c a n t u s i n g t h i s t e c h n i q u e . On the b a s i s o f t h e s e r e s u l t s , the f i r s t and second h y p o t h e s i s a re r e -j e c t e d , and the t h i r d h y p o t h e s i s i s a c c e p t e d . The use of t h i s t e c h n i q u e does not s o l v e the a p p a r e n t anomaly noted a b o v e , between market c o m p e t i t i o n and the r a t e . The r e g r e s -(1) T h i s r e s u l t may be due to a l i m i t e d sample or the r e l a -t i o n s h i p may i n d e e d by t r u e . The r e g r e s s i o n r e s u l t s of the new fac*or a n a l y s i s v a r i a b l e s i n d i c a t e e x a c t l y the same r e l a t i o n s h i p , i . e . , as marke t c o m p e t i t i o n i n c r e a s e s the r a t e i n c r e a s e s . T h i s s h o u l d be the s u b j e c t o f some f u t u r e s t u d y . (2) Rapeseed Case and A n g l o - C a n a d i a n P u l p and Paper M i l l s L t d . e t . a l . 83 s i o n of the new f a c t o r a n a l y s i s v a r i a b l e s r e s u l t s i n the same m a r k e t c o m p e t i t i o n / r a t e r e l a t i o n s h i p . E a s t e r n - Western Movements ( 5 . 4 8 ) Y = 1.5517 + 3 3 . 5 4 8 3 L - 1 + .0004639V - .5242C R 2 = .7050 r. . . -1 = - . 0 2 5 3 r r , -1 = - . 2331 V L MT = .4134 Load per c a r i s the most i m p o r t a n t v a r i a b l e i n the e-q u a t i o n , f o l l o w e d by d o l l a r v a l u e and market c o m p e t i t i o n . The f i r s t and second h y p o t h e s e s a re r e j e c t e d and the t h i r d h y p o t h e s i s i s a c c e p t e d , g i v e n these r e s u l t s . The r e g r e s s i o n c o e f f i c i e n t s i n d i c a t e the f o l l o w i n g r e l a t i o n s h i p s : 1) as l o a d per c a r i n c r e a s e s , the r a t e d e -c r e a s e s ; 2) as the v a l u e of the commodity i n c r e a s e s , the r a t e i n c r e a s e s ; and 3) as market c o m p e t i t i o n i n c r e a s e s , the r a t e d e c r e a s e s . To some e x t e n t , t h e s e g e n e r a l r e l a t i o n -s h i p s s u p p o r t some of the c o n t e n t i o u s i s s u e s r a i s e d by the w e s t e r n p r o v i n c e s . M a r k e t c o m p e t i t i o n f o r s t e e l i n B r i t i s h C o l u m b i a was used to r a t i o n a l i z e s t e e l r a t e s to B. C. t h a t were l o w e r than the r a t e s f o r s t e e l s h i p p e d to A l b e r t a . S i m i l a r l y w e s t e r n e r s have s u g g e s t e d t h a t v a l u e of the com-m o d i t y i s the b a s i s f o r p r i c i n g . A l t h o u g h the l a t t e r hy-p o t h e s i s i s not s u p p o r t e d by these r e s u l t s ( t h e most s i ' g -f i c i c a n t f a c t o r i s a c o s t v a r i a b l e ) , a c o m p a r i s o n of the d o l l a r v a l u e r e g r e s s i o n c o e f f i c i e n t s i n d i c a t e s l a r g e r r e -g r e s s i o n c o e f f i c i e n t s f o r Western to M a r i t i m e and E a s t e r n 84 to Western movements than f o r E a s t e r n to M a r i t i m e and E a s t -e r n to E a s t e r n movements. ^ Thus t h e r e i s some e v i d e n c e t h a t the v a l u e of the commodity has d i f f e r e n t l e v e l s o f i m -p o r t a n c e . The e x p l a i n e d v a r i a n c e i n the dependent v a r i a b l e d e -c r e a s e s a s i g n i f i c a n t 23% when the new f a c t o r a n a l y s i s v a r i a b l e s are r e g r e s s e d a g a i n s t t t h e p r o x y r a t e v a r i a b l e 9 (R = . 4 7 7 6 ) . The r e d u c t i o n i s e x p l a i n e d by the r e d u c t i o n i n s i g n i f i c a n t v a r i a b l e s ; d o l l a r v a l u e and market c o m p e t i -t i o n are e x c l u d e d . The v e r y s i g n i f i c a n t d i f f e r e n c e i n the amount o f e x p l a i n e d v a r i a n c e of the p r o x y r a t e v a r i a b l e em-p h a s i s e s the e x t e n t to w h i c h m u l t i - c o l 1 i n e a r i t y may be a p r o b l e m . In t h i s c a s e , f a c t o r a n a l y s i s has s e r v e d a d i s -t i n c t l y u s e f u l p u r p o s e . The low degree o f e x p l a i n e d v a r i -ance may be due to the s m a l l sample s i z e a n d / o r o t h e r f a c -t o r s may be s i g n i f i c a n t . On the b a s i s o f t h e s e r e s u l t s , a l l t h r e e h y p o t h e s e s are r e j e c t e d . 5 .5 Summary of the S t a t i s t i c a l A n a l y s i s The s t a t i s t i c a l a n a l y s i s has two d i m e n s i o n s . The f i r s t d i m e n s i o n i s c o n c e r n e d w i t h the i m p l i c a t i o n s of the r e s u l t s v i s - a v v i s the s t a t e d h y p o t h e s i s . The second ddimension r e -l a t e s to the m e t h o d o l o g y and r e s e a r c h s t r a t e g y . (1) The Western M a r i t i m e v a l u e c o e f f i c i e n t i s .0006245 ; how.-, e v e r , t h e r e i s s u f f i c i e n t e v i d e n c e of m u l t i - c o l l i n e a r i t y to r e n d e r the r e g r e s s i o n c o e f f i c i e n t q u e s t i o n a b l e . The E a s t e r n to Western v a l u e c o e f f i c i e n t , h o w e v e r , i s s t i l l h i g h e r than the o t h e r two q u o t e d movement c o e f f i c i e n t s . These l a t t e r r e s u l t s are not as q u e s t i o n a b l e . 85 The a c c e p t a n c e (A) or r e j e c t i o n (R) o f the t h r e e h y -potheses i s p o r t r a y e d f o r each movement model e v a l u a t e d ( T a b l e 5 . 4 ) . T a b l e 5 .4 - I m p l i c a t i o n s o f the Model R e s u l t s f o r the Three  H y p o t h e s e s Movement Model From To 1 H y p o t h e s i s 2 3 M a r i t i me M a r i t ime R N . E . N . E . E a s t e r n M a r i t ime R N . E . N . E . Eas t e r n E a s t e r n R. N . E . N . E . Wes t e r n M a r i t ime R N . E . N . E . M a r i t i m e Eas t e r n R N . E . N . E . Western E a s t e r n R A R Western Wes t e r n R R A * E a s t e r n Western R R A R - R e j e c t A - A c c e p t N . E . Not E v a l u a t e d * - R e s u l t i s q u e s t i o n a b l e For the sampled c o m m o d i t i e s , r a t e s are not based on the v a l -ue of the s e r v i c e , but on a c o m b i n a t i o n o f c o s t and demand f a c t o r s where the c o s t f a c t o r s are the most s i g n i f i c a n t e l -ement. W i t h i n the w e s t e r n r e g i o n , i n t e r m o d a l c o m p e t i t i o n i s not a s i g n i f i c a n t f a c t o r e x p l a i n i n g d i f f e r e n c e s i n the p r o x y r a t e of the sampled c o m m o d i t i e s . Nor i s i n t e r m o d a l c o m p e t i t i o n s i g n i f i c a n t f o r the sampled c o m m o d i t i e s moving f r o m t h e e a s t e r n t o t h e w e s t e r n r e g i o n . v ' M a r k e t c o m p e t i -t i o n i s s i g n i f i c a n t b o t h f o r s h i p m e n t s w i t h i n t h e w e s t as w e l l as f o r s h i p m e n t s f r o m t h e e a s t t o t h e w e s t . The use o f f a c t o r a n a l y s i s as an i n t e r m e d i a t e s t e p r e s u l t e d i n a number o f s i g n i f i c a n t c h a n g e s i n t h e f i n a l movement m o d e l s . In f o u r c a s e s , c h a n g e s i n t h e m a g n i t u d e o f e x p l a i n e d v a r i a n c e were s m a l l , b u t a d d i t i o n a l v a r i a -b l e s were shown t o a c c o u n t f o r t h a t v a r i a n c e . The r e m a i n -i n g f o u r m o d e l s showed s i g n i f i c a n t d e p a r t u r e s i n t h e amount o f e x p l a i n e d v a r i a n c e f r o m r e g r e s s i o n r e s u l t s o f t h e o r i g -i n a l v a r i a b l e s . A g a i n i n some c a s e s , v a r i a b l e s were a d d e d o r d e l e t e d . G i v e n t h e o f t e n h i g h d e g r e e o f v a r i a b l e i n t e r -d e p e n d e n c y , f a c t o r a n a l y s i s p r o v i d e s a f e a s i b l e s o l u t i o n f o r o v e r c o m i n g one m e t h o d o l o g i c a l p r o b l e m , t h a t o f m u l t i -c o l 1 i n e a r i t y . In t h e f o l l o w i n g s e c t i o n a p r o c e s s i s d e s c r i b e d f o r m o n i t o r i n g t r e n d s i n t h e f a c t o r s a f f e c t i n g d i f f e r e n c e s i n r a t e s . T h i s p r o c e s s r e f l e c t s many o f t h e r e s u l t s d e s c r i b e d i n t h e p r e v i o u s s e c t i o n s o f t h i s c h a p t e r ; h o w e v e r , i t i s a p r o p o s a l o n l y and has n o t been t e s t e d . "(1 ) T h e s e r e s u l t s d e p a r t f r o m t h e g e n e r a l s t a t e m e n t made by M o r r i s h and M a c K i n n o n , t h a t a v e r a g e r e v e n u e p e r t o n - m i l e e a s t t o w e s t has d e c r e a s e d p r i m a r i l y b e c a u s e o f i n t e r -modal c o m p e t i t i o n . M o r r i s h and M a c K i n n o n op. c i t . p. 5. The d e p a r t u r e may be a c c o u n t e d f o r by t h e s m a l l number o f s a m p l e d c o m m o d i t i e s , o r i t c o u l d be t h a t i n t e r m o d a l c o m p e t i t i o n i s i n d e e d i n s i g n i f i c a n t . T h i s s h o u l d be t h e s u b j e c t o f a f u t u r e s t u d y . 87 5.6 A P r o p o s a l f o r M o n i t o r i n g Trends o f Rate F a c t o r s In t h i s s e c t i o n an e_x pos t a n a l y t i c approach i s ~ ;po s t -u l a t e d f o r m o n i t o r i n g t r e n d s i n t ho se f a c t o r s a f f e c t i n g d i f -f e r e n c e s i n r a t e s . Ther-proposed p rocedu re i s d e r i v e d from the r e s u l t s i n t h i s s t u d y . A l t h o u g h t h e r e may be o t h e r reasons f o r m o n i t o r i n g the r a t e f a c t o r s , two a r c o n s i d e r e d : 1) t h e t t e c h n i q u e would be u s e f u l f o r m o n i t o r i n g the e f f e c t s o f p u b l i c p o l i c y or f o r d e t e r m i n i n g what p o l i c y a c t i o n i s r e q u i r e d ; and 2) the impact of e x t e r n a l i n f l u e n c e s on the r a t e f a c t o r s c o u l d be e v a l u a t e d . A s chemat i c of the p r oce s s i s shown i n F i g u r e 5.3. The p rocedu re would be p a r t i c u l a r l y a p p r o p r i a t e a t a r e g i o n a l l e v e l f o r an a n a l y s i s o f f a c t o r s i n f l u e n c i n g r a t e s i n one t ime p e r i o d o r e o v e r s e v e r a l t ime p e r i o d s . I t s hou ld be c l e a r t h a t the p r ocedu re i s r e l a t i v e l y f l e x i b l e . For e xamp le . t he g r oup i ng s of commod i t i e s by movements w i t h i n , i n t o , and out of the r e g i o n c o u l d j u s t as e a s i l y be movements w i t h i n ,aar ito and from o t h e r s p e c i f i e d r e g i o n s . Each of the major p r oce s s components i s d e a l t w i t h be low. Commodity F lows The r e s u l t s of t h i s s tudy show t h a t the d i r e c t i o n of the movement i s i m p o r t a n t . In most c a s e s , the models de s -c r i b e d i n the p r e v i o u s s e c t i o n of t h i s c h a p t e r d i s p l a y d i f -f e r e n t c h a r a c t e r i s t i c s . The e x t e n t to which commodity f l o w s w i l l be d i s a g g r e g a t e d w i l l depend upon c o n s i d e r a t i o n s wh ich are not s t u d i e d i n t . t h i s t h e s i s . For example , d i r e c -88 F i g u r e 5.3 - A S c h e m a t i c Of The Rate F a c t o r M o n i t o r i n g P r o c e s s I d e n t i f y Commodity F lows By I n d i v i d u a l Commodi t y (Reg i on : E x p o r t ) W i t h i n , Import D e v e l o p S t a n d a r d Group Of C o m m o d i t i e s , Typed By Rate C a t e g o r y Amend S t a n d a r d Commodity Group P o s t u l a t e Rate F a c t o r Models Amend Rate F a c t o r Model Det erm ine A v a i l a b i l i t y and S u i t a b i l i t y o f Data - C o l l e c t I I Feedback I Seek A d d i t i o n a l Data As R e q u i r e d - C o l l e c t  _A_n_n_u_a l j y _ L ^ e i r — t l D e t e r m i n e S i g n i f i c a n t Rate F a c t o r s & T h e i r R e l a t i v e Impor tance For The Three Region?. F l o w s , Compare Year To Year  S t a t i s t i c a l T e c h n i q u e R e g r e s s i o n A n a l y s i s R e g r e s s i o n C o e f f i c i e n t s Used For C o m p a r a t i v e P u r p o s e s , Year to Year O t h e r Rate F a c t o r s Now S i g n i f i c a n t ? no / A/O G a t h e r Year Data ( t + 1) O t h e r Commodi t i es Now S i g n i f i c a n t ? yes / -A 89 t i o n of movement w i t h i n a r e g i o n may be r e l a t i v e l y i m p o r t -a n t , or some c o m m o d i t i e s may move to o n l y one s i g n i f i c a n t l o c a t i o n . S t a n d a r d Group of Commodi t ies The c o m m o d i t i e s c o n s t i t u t i n g the sample can i n f l u e n c e w h i c h f a c t o r s a re s i g n i f i c a n t ; t h e r e f o r e , i t i s n e c e s s a r y to have a r s t a n d a r d i z e d sample f o r the a n a l y s i s . For e x a m p l e , i f a l l o f the c o m m o d i t i e s i n the sample are l o w - v a l u e d , b u l k c o m m o d i t i e s , i t i s p o s s i b l e t h a t o n l y marke t c o m p e t i -t i o n w i l l be a s i g n i f i c a n t f a c t o r and i n t e r m o d a l c o m p e t i t i o n w i l l n o t . The c o m m o d i t i e s i n the sample s h o u l d r e f l e c t a l l f a c t o r p o s s i b i l i t i e s . A l t h o u g h i t i s s u g g e s t e d t h a t the s t a n d a r d commodity group c o u l d be amended f r o m t i m e to t i m e , the f u l l a f f e c t o f t h i s has not been e v a l u a t e d . Changes would be e x p e c t e d and c a u t i o n must be e x e r c i s e d i n a s s e s s i n g the r e s u l t s i f new c o m m o d i t i e s a re a d d e d . Rate F a c t o r . ' M o d e l s The models c o u l d i n c l u d e any f a c t o r s t h o u g h t to be r e l e v a n t to the p a r t i c u l a r movements b e i n g s t u d i e d . I t i s recommended, h o w e v e r , t h a t the f a c t o r s used i n t h i s s t u d y be e v a l u a t e d f i r s t , as t h e y have been found s i g n i f i c a n t i n t h i s a n a l y s i s . Data Less h i g h l y a g g r e g a t e d d a t a than were used i n t h i s s t u d y s h o u l d be e m p l o y e d . The a c t u a l r a t e , r a t e c a t e g o r y , 90 load per c a r , d i s t a n c e , and number of c a r l o a d s in the move-ment could be taken from the o r i g i n a l w a y b i l l . In a d d i t i o n , more p r e c i s e measures of commodity value should be sought. The measurement of intermodal and market competition prob-ably would be s u b j e c t i v e as in t h i s study. S t a t i s t i c a l Methods Regression a n a l y s i s could be employed as the research t o o l . The r e s u l t s of t h i s study show a high degree of cor-r e l a t i o n between the o r i g i n a l explanatory v a r i a b l e s . The use of f a c t o r a n a l y s i s or t r a n s f o r m a t i o n s of the o r i g i n a l data should be used to overcome t h i s problem i f i t i s s i g n i f i c a n t . Comparison from Period to Period The parameters sought in each a n a l y s i s are: 1 ) the. extent to which the explanatory v a r i a b l e s e x p l a i n the v a r i -ance of the r a t e ; 2) the v a r i a b l e s or f a c t o r s which are s i g n i f i c a n t ; 3) the r e l a t i v e importance of each f a c t o r in the r a t e model; and 4) the r e g r e s s i o n c o e f f i c i e n t f o r that v a r i a b l e . The monitoring of trends in rate f a c t o r s from period to p e r i o d i s i n terms of the.^above parameters. The f o l l o w i n g aspects need emphasis. 1 . The process d e s c r i b e d i s an a n a l y t i c method and not a p r e d i c t i v e method. 2. The process has not been t e s t e d ; i t appears to be a f e a s i b l e approach to the problem of e v a l u a t i n g time trends of f a c t o r s a f f e c t i n g r a t e s , given the r e s u l t s of t h i s study. 91 3. O n l y t h e g e n e r a l p r o c e d u r e i s o u t l i n e d a b o v e ; t h e d e t a i l s o f t h e m e t h o d o l o g y a r e c o n s i d e r e d t o be s i t u a t i o n s p e c i f i c . 92 A p p e n d i x 1 F a c t o r a n a l y s i s may be used as an i n t e r m e d i a t e s t e p , p r i o r to u s i n g r e g r e s s i o n a n a l y s i s . The f a c t o r s c o r e s are by d e f i n i t i o n i n d e p e n d e n t o f one a n o t h e r ; t h e r e f o r e when the f a c t o r s c o r e s a r e r e g r e s s e d a g a i n s t the p r o x y r a t e v a r -i a b l e , the f i r s t a s s u m p t i o n r e q u i r e d f o r the r e g r e s s i o n t e c h n i q u e i s - s a t i s f i e d . Because a l l v a r i a b l e s c o n s t i t u t i n g the g e n e r a l models a re e v a l u a t e d , an a t t e m p t i s made to l o a d each o f the o r i g -i n a l v a r i a b l e s onto one f a c t o r s p a c e . T h i s p r o v e s to be f e a s i b l e . Each o r i g i n a l v a r i a b l e t ends to l o a d v e r y h i g h l y on one f a c t o r s p a c e , u s u a l l y showing a f a c t o r l o a d i n g i n the r o t a t e d f a c t o r space g r e a t e r than . 8 5 . That i s , each p v a r i a b l e has a t l e a s t ( . 85 ) x 100 or 72% of i t s v a r i a t i o n i n common w i t h the v a r i a t i o n i n the f a c t o r s p a c e . F a c t o r a n a l y s i s p r o d u c e s f a c t o r s c o r e s f o r each case v a r i a b l e , u t i l i z i n g an i n t e r n a l r e g r e s s i o n r o u t i n e . The e n t i r e p r o c e s s i s o u t l i n e d i n summary m a t h e m a t i c a l (2) form b e l o w . v ' (1) T h i s method r e p r e s e n t s a c o n s i d e r a b l e d e p a r t u r e from the more u s u a l use of f a c t o r a n a l y s i s , i n w h i c h the number o f f a c t o r s r e s u l t i n g are based upon some s i g n i f i c a n c e c r i t e r -i o n . The i n i t i a l use made of f a c t o r a n a l y s i s u s i n g the i n t e r n a l s i g n i f i c a n c e c r i t e r i o n r e s u l t e d i n f ewer f a c t o r spaces than o r i g i n a l v a r i a b l e s . T h i s o n l y s e r v e d to c o n -f i r m t h a t the v a r i a b l e s were to v a r y i n g degrees r e l a t e d to one a n o t h e r . (2) These e q u a t i o n s o n l y f o c u s on the h i g h l i g h t s of the p r o -cess and do not d e a l w i t h the e n t i r e p r o c e s s . 93 ]>•) S t a n d a r d i z e each case v a r i a b l e ( 5 . 4 9 ) Z , . = ( X , . - X , ) / s , where Z , . = the s t a n d a r d i z e d • U * J J J ' J v a l u e f o r the i case and the j ^ ^ v a r i a b l e ; X . . = the o r i g i n a l j ^ * 1 v a r i a b l e f o r the i ^ ^  c a s e ; t h X . = the mean of the j v a r i a b l e f o r a l l c a s -es i n the s a m p l e ; and s . = the s t a n d a r d d e v i a -t i o n f o r the j * " * 1 v a r -i a b l e . 2) Determine the f a c t o r r - s c o r e , a . , f o r the i ^ * 1 case and I J v a r i a b l e ( e x a m p l e , the f i r s t v a r i a b l e ) ( 5 . 5 0 ) a ^ = c l Z i l + c 2 Z i 2 + + c n Z i n where Z . . , j = 1 n a re the s t a n d a r d i z e d v a r i -b l e s ; and c - , j = 1 n are r e g r e s s i o n c o e f f i c i e n t s d e t e r m i n e d w i t h i n the f a c t o r a n a l y s i s p r o g r a m . 3) Regress the f a c t o r s c o r e s a g a i n s t the p r o x y r a t e v a r i a b l e ( 5 . 5 1 ) Y = a + b 1 F 1 + b 2 F 0 + b p F n where Y = p r o x y r a t e v a r i a b l e a and b ^ , k = 1 n a re c a l c u l a t e d r e g r e s s i o n c o e f f i c i e n t s ; and 94 F ^ , k = 1 n a re the s p e c i f i c f a c t o r s , each r e p r e s e n t i n g one of the o r i g i n a l v a r i a b l e s . 95 CHAPTER 6 SUMMARY, AREAS OF FURTHER RESEARCH, AND CONCLUSIONS 6.1 Summary T h i s t h e s i s e v a l u a t e s the s i g n i f i c a n c e of a l i m i t e d number of c o s t and demand f a c t o r s w h i c h are e x p e c t e d to ex -p l a i n d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s . There are two a r e a s i n w h i c h t h i s t o p i c i s r e l e v a n t . F i r s t , i t a d d r e s s e s d i r e c t l y some s p e c i f i c i s s u e s c o n c e r n i n g r a i l w a y f r e i g h t r a t e s . S e c o n d , the p r o b l e m of a s s e s s i n g t r e n d s i n r a t e s o v e r t ime i s e x a m i n e d . A p r o c e s s i s p o s t u l a t e d f o r a s s e s -s i n g t e m p o r a l changes i n the f a c t o r s t h a t have a s i g n i f i -c a n t i n f l u e n c e on r a t e s . A number of c o n s i d e r a t i o n s i n f l u -ence the a p p r o a c h t a k e n i n t h i s s t u d y . In p a r t i c u l a r , the a v a i l a b i l i t y and n a t u r e of d a t a are r e l e v a n t c o n s i d e r a t i o n s , as a re the c h a r a c t e r i s t i c s and c a p a b i l i t y o f the v a r i o u s a n -a l y t i c a l methods e m p l o y e d . To some e x t e n t , the a v a i l a b i l i t y of d a t a i s a c o n s t r a i n t a f f e c t i n g the f a c t o r s t h a t are e v a l -ua ted . 6 . 1 . 1 Rate I s s u e s Among the many s p e c i f i c c o n c e r n s e x p r e s s e d about r a t e s t h r e e i s s u e s a r e p o s t u l a t e d i n the form o f h y p o t h e s e s and ex -amined i n t h i s s t u d y . 96 1. Rates a r e based on -the v a l u e of the s e r v i c e ( p r i c -i n g based on demand) and not on the c o s t o f p r o -v i d i n g the s e r v i c e . 2 . I n t e r m o d a l c o m p e t i t i o n has had an e f f e c t i n d e t e r -m i n i n g d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s . 3 . M a r k e t c o m p e t i t i o n f o r the t r a n s p o r t e d c o m m o d i t i e s i n f l u e n c e s d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s . I f the f i r s t h y p o t h e s i s i s t r u e , o n l y demand f a c t o r s would be s i g n i f i c a n t and c o s t f a c t o r s would be i n s i g n i f i -c a n t . C o s t f a c t o r s , l o a d per c a r , d i s t a n c e , and number of c a r l o a d s i n the movement a r e e x a m i n e d . The d a t a f o r t h e s e v a r i a b l e s a re e x t r a c t e d from the CTC W a y b i l l A n a l y s i s , 1972. A f o u r t h v a r i a b l e , commodity v a l u e i s used as a p r o x y f o r the e l a s t i c i t y o f demand f o r t r a n s p o r t . These d a t a a re e x t r a c -t e d f rom a S t a t i s t i c s Canada p u b l i c a t i o n . The h y p o t h e s i s i s t e s t e d by a n a l y s i n g w h i c h of the f o u r v a r i a b l e s a re s i g -n i f i c a n t f o r e i g h t movement m o d e l s . The h y p o t h e s i s can be a c c e p t e d as t r u e o n l y i f a l l c o s t f a c t o r s i n a model are s t a t i s t i c a l l y i n s i g n i f i c a n t . The second and t h i r d h y p o t h e s e s are t e s t e d f o r t h r e e r e g i o n a l movements by a d d i n g s u b j e c t i v e l y d e f i n e d v a r i a b l e s , i n t e r m o d a l c o m p e t i t i o n and market c o m p e t i t i o n , to the f o u r v a r i a b l e s d e s c r i b e d a b o v e . These h y p o t h e s e s a re a c c e p t e d f o r a p a r t i c u l a r movement model i f the r e l e v a n t v a r i a b l e i s s i g n i f i c a n t and r e j e c t e d o t h e r w i s e . J 97 6 . 1 . 2 The Use o f the W a y b i l l A n a l y s i s Data and T h e i r L i m i - t a t i o n s The CTC W a y b i l l A n a l y s i s d a t a o f t e n are used to meas - . ure t r e n d s i n r a t e s . U s u a l l y the t r e n d i s e x p l a i n e d by some f a c t o r or f a c t o r s w h i c h have not been measured e x p l i c i t l y . Thus a s s e s s i n g t r e n d s i n r a t e s and e v a l u a t i n g the s i g n i f i -cance o f f a c t o r s a f f e c t i n g d i f f e r e n c e s i n r a t e s a re p a r t o f the same c o n c e r n . The r e s u l t s o f t h i s s t u d y i n d i c a t e t h a t m e a s u r i n g the c h a n g i n g s i g n i f i c a n c e o f r a t e f a c t o r s and t h e i r j o i n t e f f e c t o v e r t i m e may be a b e t t e r measure o f tem-p o r a l t r e n d s i n r a t e s t h a n i s some a g g r e g a t e m e a s u r e , such as a v e r a g e revenue per t o n - m i l e . The use of the W a y b i l l A n a l y s i s commodity d a t a and a v e r a g e revenue per t o n - m i l e d a t a s u f f e r f rom the weaknesses d e s c r i b e d b e l o w . 1 . These d a t a a r e h i g h l y a g g r e g a t e d ; r e v e n u e s are the r e s u l t o f r a t e s w h i c h may be f o u n d i n one or more t a r i f f s ; d i s t a n c e i s an a v e r a g e f i g u r e , as i s l o a d per c a r . These a g g r e g a t e measures do not a c c u r -a t e l y r e f l e c t the r e a l c o s t r e l a t i o n s h i p s . 2 . G i v e n c u r r e n t p u b l i c p o l i c y , both c o s t and demand f a c t o r s would be e x p e c t e d to be i m p o r t a n t ; h o w e v e r , o n l y c o s t v a r i a b l e s a re c o n t a i n e d i n the W a y b i l l d a t a . Thus the d a t a a re o f l i m i t e d v a l u e f o r e v a l -u a t i n g the a f f e c t o f p u b l i c p o l i c y . 3 . A l t h o u g h w e i g h t and d i s t a n c e are f o u n d to be the most s i g n i f i c a n t f a c t o r s i n t h i s s t u d y , t h e r e i s no 98 g u a r a n t e e t h a t the t o n - m i l e s measure e x p l a i n s d i f -f e r e n c e s i n r a t e s to the same degree f o r d i f f e r e n t movements. A h i g h e r degree of e x p l a n a t i o n i s a c h i e -ved by e v a l u a t i n g a l l f e a s i b l e f a c t o r s . From the d i s c u s s i o n i n C h a p t e r 2 i t i s c l e a r t h a t many f a c t o r s m i g h t be:: s i gn i f i can t as d e t e r m i n a n t s of a p a r t i c u l a r r a t e . 6 . 1 . 3 The R e s e a r c h D e s i g n and I t s I m p l i c a t i o n s f o r F u t u r e  A n a l y s i s The i m p a c t o f the r e s e a r c h d e s i g n i s t w o - f o l d . F i r s t , the t h e s i s o b j e c t i v e and the c h a r a c t e r i s t i c s o f the d a t a r e -q u i r e a r e l a t i v e l y s o p h i s t i c a t e d a n a l y t i c m e t h o d . The ob-j e c t i v e r e q u i r e s the i d e n t i f i c a t i o n of s i g n i f i c a n t f a c t o r s t h a t can be used to r e p l i c a t e , as n e a r l y as p o s s i b l e , the l e v e l o f an e x i s t i n g r a t e . The e x a m i n a t i o n of the d a t a shows t h a t t h e r e i s a h i g h degree of c o r r e l a t i o n among the e x p l a n -a t o r y f a c t o r s . T o g e t h e r , t h e s e two a s p e c t s d i c t a t e w h i c h s t a t i s t i c a l t e c h n i q u e i s used and p o t e n t i a l prob lems t h a t may be e n c o u n t e r e d . R e g r e s s i o n a n a l y s i s i s used as the p r i m -a r y s t a t i s t i c a l method . F a c t o r a n a l y s i s i s used to p r o d u c e new, s t a t i s t i c a l l y i n d e p e n d e n t v a r i a b l e s from the o r i g i n a l v a r i a b l e s . T h i s p r o c e d u r e overcomes the p r o b l e m o f h i g h c o r -r e l a t i o n among the e x p l a n a t o r y v a r i a b l e s w h i c h a f f e c t s the use of r e g r e s s i o n a n a l y s i s ; h o w e v e r , i t a l s o c o m p l i c a t e s the a n a l y s i s c o n s i d e r a b l y . The second i m p a c t o f the r e s e a r c h d e s i g n i s t h a t i t p r o v i d e s a base f rom w h i c h f u t u r e a n a l y t i c a l s t u d i e s may be made. An a p p r o a c h i s p o s t u l a t e d f o r m o n i t o r i n g t r e n d s o v e r t ime o f s i g n i f i c a n t r a t e f a c t o r s . The p r o c e s s has not been t e s t e d ; however , i t i s c o n s i d e r e d f e a s i b l e g i v e n the r e s u l t s o f t h i s s t u d y . The p r o c e s s may be c h a r a c t e r i z e d as h a v i n g t h r e e components . 1 . I d e n t i f y s i g n i f i c a n t c o m m o d i t i e s and i n c o r p o r a t e t h e s e i n t o a s t a n d a r d commodity g r o u p . S i g n i f i -c a n t movement p a t t e r n s may be i d e n t i f i e d t h r o u g h a s e p a r a t e a n a l y s i s . 2 . P o s t u l a t e r a t e mode 1 s s i n c o r p o r a t i n g c o s t and d e -mand f a c t o r s t h o u g h t to be s i g n i f i c a n t . Which f a c -t o r s a re s i g n i f i c a n t w i l l be r e l a t e d to the p a r t i c -u l a r r e g i o n of i n t e r e s t . The c o m m o d i t i e s chosen and the o r g a n i z a t i o n of the d a t a by movement p a t -t e r n s may be d e t e r m i n a n t s o f p o t e n t i a l f a c t o r s . 3 . Use r e g r e s s i o n a n a l y s i s . t o produce s t a t i s t i c a l mea-s u r e f o r the s i g n i f i c a n t v a r i a b l e s . These measures w i l l be compared from y e a r to y e a r to e v a l u a t e changes i n the s i g n i f i c a n t v a r i a b l e s . A h i g h degree o f c o r r e l a t i o n between f a c t o r s may be e x p e c t e d , and t h i s phenomenon must be a c c o u n t e d f o r . 6 .2 Areas o f F u r t h e r R e s e a r c h There are two c a t e g o r i e s o f f u r t h e r r e s e a r c h . The f i r s t i s c o n c e r n e d w i t h c o n t i n u i n g the r e s e a r c h s t a r t e d i n t h i s s t u d y by e m p l o y i n g a l a r g e r sample of c o m m o d i t i e s and u s i n g d i s a g g r e g a t e d r a t h e r than a g g r e g a t e d d a t a . The s e c -ond c a t e g o r y o f r e s e a r c h r e f l e c t s c o n c e r n f o r some of the r e s u l t s o b t a i n e d i n t h i s s t u d y . 6.2.1 C o n t i n u i n g the R e s e a r c h The p r o p o s e d p r o c e s s d e s c r i b e d i n s e c t i o n 5 . 6 , Chap t e r 5 , would s e r v e as the r e s e a r c h d e s i g n f o r a c o n t i n u i n g s t u d y of the s i g n i f i c a n c e o f r a t e f a c t o r s . A number of changes c o u l d be made, i n c l u d i n g : 1. the use o f o r i g i n a l d i s a g g r e g a t e d w a y b i l l d a t a ; 2 . the use of a more s o p h i s t i c a t e d means f o r d e f i n -i n g the degree o f i n t e r m o d a l c o m p e t i t i o n and mark e t c o m p e t i t i o n ; 3 . the use of p r e l i m i n a r y a n a l y s i s to broaden the scope o f sampled c o m m o d i t i e s ; 4 . the use of p r i o r a n a l y s i s to d e t e r m i n e what f a c -t o r s may a f f e c t o r g a n i z a t i o n of the c o m m o d i t i e s by movement p a t t e r n ; and 5 . the use of a d d i t i o n a l d a t a to measure f a c t o r s w h i c h a r e not e v a l u a t e d i n t h i s s t u d y . A d i s c u s s i o n of the number of p o s s i b l e a p p l i c a t i o n s of t h i s a p p r o a c h w o u l d be s p e c u l a t i v e a t t h i s p o i n t , a l -though many come to m i n d . The method has not been t e s t e d to d e t e r m i n e i t s f e a s i b i l i t y and t e s t i n g of the method i s one p o s s i b l e o b j e c t i v e , however academic i t a p p e a r s to be . 101 6 . 2 . 2 F u r t h e r R e s e a r c h Stemming from the S t a t i s t i c a l R e s u l t s The use o f f a c t o r a n a l y s i s to s o l v e the m u l t i - c o l 1 i n -e a r i t y p r o b l e m i n c r e a s e d the c o m p l e x i t y o f the a n a l y s i s . In f o u r , o f the e i g h t movement m o d e l s , t h i s t e c h n i q u e made a r e l a t i v e l y i n s i g n i f i c a n t c o n t r i b u t i o n to the r e s u l t s . A l -though f a c t o r a n a l y s i s c o u l d be used to v a l i d a t e the r e g r e s -s i o n r e s u l t s , o t h e r t e c h n i q u e s , such as m a t h e m a t i c a l t r a n s -f o r m a t i o n o f the v a r i a b l e s s h o u l d be e v a l u a t e d f o r e l i m i n a -t i n g m u l t i - c o l 1 i n e a r i t y . R e t e n t i o n of the e x p l a n a t o r y power of the t r a n s f o r m e d v a r i a b l e and a c o n s e q u e n t r e d u c t i o n of m u l t i - c o l 1 i n e a r i t y a re the o b j e c t i v e s of any t r a n s f o r m a t i o n . Two a n o m a l i e s i n the movement models s h o u l d be the s u b j e c t o f f u r t h e r s t u d y . The E a s t e r n - Western movement model shows a r e a s o n -2 a b l e c o e f f i c i e n t o f d e t e r m i n a t i o n (R ) when the o r i g i n a l e x p l a n a t o r y v a r i a b l e s a re r e g r e s s e d a g a i n s t the dependent v a r i a b l e . However , the use of f a c t o r a n a l y s i s p r i o r to r e g r e s s i o n a n a l y s i s r e s u l t e d i n two s i g n i f i c a n t c h a n g e s : 1) t h e r e i s a 23% r e d u c t i o n i n the e x p l a i n e d v a r i a t i o n o f the dependent v a r i a b l e ; and 2) o n l y one v a r i a b l e , l o a d per c a r i s r e t a i n e d as b e i n g s i g n i f i c a n t . Two s t e p s may be t a k e n to e x p l a i n d i f f e r e n c e s i n r a t e s f o r t h i s m o d e l . F i r s t o t h e r f a c t o r s c o u l d be e x a m i n e d , ex a n t e , and i n c l u d -ed i n the r a t e model i f they appear to be s i g n i f i c a n t . S e c o n d , the sample s i z e c o u l d be i n c r e a s e d to i n c l u d e a l a r g e r c r o s s - s e c t i o n o f c o m m o d i t i e s . For e x a m p l e , some c o m m o d i t i e s m i g h t r e f l e c t a mode c o m p e t i t i v e r a t e and i n -t e r m o d a l c o m p e t i t i o n c o u l d become a s i g n i f i c a n t v a r i a b l e . F u r t h e r m o r e , m e r e l y i n c r e a s i n g the sample s i z e , i n c l u d i n g more of the same commodity t y p e s , c o u l d make d o l l a r v a l u e and market c o m p e t i t i o n s i g n i f i c a n t v a r i a b l e s a g a i n . M o r r i s h and MacKinnon have s u g g e s t e d t h a t i n t e r m o d a l c o m p e t i t i o n i s a f a c t o r a f f e c t i n g a r e d u c t i o n i n a v e r a g e revenue per t o n - m i l e , 1968 to 1972 , f o r E a s t e r n - Western movements. T h i s i s c o n t r a r y to the r e s u l t s o f t h i s s t u d y . The h y p o t h e s i s t h a t i n t e r m o d a l c o m p e t i t i o n i s s i g n i f i c a n t i n e x p l a i n i n g d i f f e r e n c e s i n r a t e s s h o u l d be t e s t e d by i n -c r e a s i n g the number and k i n d s o f c o m m o d i t i e s c o n s t i t u t i n g the sample f o r t h i s movement. Both the r e g r e s s i o n r e s u l t s o f the o r i g i n a l v a r i a b l e s and the r e g r e s s i o n r e s u l t s o f the new f a c t o r a n a l y s i s v a r -i a b l e s f o r the Western - Western movement model show a p o s i t i v e r e l a t i o n s h i p between the r a t e and market c o m p e t i -t i o n . That i s , as marke t c o m p e t i t i o n i n c r e a s e s , the r a t e i n c r e a s e s ; t h i s i s c o n t r a r y to the e x p e c t e d r e l a t i o n s h i p . The f o l l o w i n g h y p o t h e s i s s h o u l d be t e s t e d u t i l i z i n g a l a r g e r sample of c o m m o d i t i e s . Nul1 Hypothes i s : M a r k e t c o m p e t i t i o n i s a s i g n i f i -c a n t f a c t o r i n f l u e n c i n g h i g h e r r a t e s . A l t e r n a t i v e H y p o t h e s i s : M a r k e t c o m p e t i t i o n i s a s i g n i f i c a n t f a c t o r i n f l u e n c i n g l o w e r r a t e s , i . e . market c o m p e t i t i o n i s i n v e r s e l y r e l a t e d to the r a t e . 103 6 .3 C o n c l u s i o n s F i v e c o n c l u s i o n s are drawn f rom the r e s u l t s o f t h i s s t u d y . 1 . Both c o s t and demand f a c t o r s a re s i g n i f i c a n t i n e x p l a i n i n g d i f f e r e n c e s i n r a i l w a y f r e i g h t r a t e s where r a t e s are r e p r e s e n t e d by an a g g r e g a t e meas-u r e , a v e r a g e revenue per h u n d r e d w e i g h t . G i v e n t h i s a s s u m p t i o n , t h e r e i s no e v i d e n c e t h a t r a t e s are based s o l e l y on the v a l u e of s e r v i c e . I n -d e e d , the s t u d y i n d i c a t e s t h a t c o s t f a c t o r s are r e l a t i v e l y more i m p o r t a n t than are demand f a c t o r s i n a l l movement m o d e l s . 2 . The s i g n i f i c a n t v a r i a b l e s a f f e c t i n g d i f f e r e n c e s i n the p r o x y r a t e v a r y from movement model to move-ment model . In some c a s e s , i n s i g n i f i c a n t v a r i a b l e s i d e n t i f i e d i n t h i s s t u d y f o r a p a r t i c u l a r movement m i g h t be s i g n i f i c a n t g i v e n a w i d e r range o f sampled c o m m o d i t i e s . In o t h e r c a s e s , the n a t u r e of the r e -g i o n a l commodity movements and t r a n s p o r t t e c h n o l o -gy m i g h t p r e c l u d e the v a r i a b l e f rom b e i n g s i g n i f -i c a n t , p a r t i c u l a r l y i f d i f f e r e n c e s i n r a t e s among c o m m o d i t i e s a re b e i n g e v a l u a t e d . G i v e n t h e s e c o n -s i d e r a t i o n s , and b e a r i n g i n mind the l i m i t e d num-ber o f c o m m o d i t i e s s a m p l e d , the f o l l o w i n g s p e c i -f i c c o n c l u s i o n s a r e d r a w n : 1) intermodal competition i s s i g n i f i c a n t for 104 E a s t e r n - Western movements ; and 2) market com-p e t i t i o n i s s i g n i f i c a n t f o r E a s t e r n - Western movements , i n s i g n i f i c a n t f o r Western - E a s t e r n movements , and h i g h l y q u e s t i o n a b l e f o r Western -Western movements. 3 . The e x t e n t to w h i c h the W a y b i l l A n a l y s i s d a t a i s a g g r e g a t e d a f f e c t s any use made of t h e s e d a t a . A l -though g e n e r a l c o n c l u s i o n s may be drawn about the e x p l a i n e d , v a r i a n c e of a v e r a g e revenue per h u n d r e d -w e i g h t from the r e s u l t s o f t h i s s t u d y , i t i s not p o s s i b l e to r e l a t e these r e s u l t s to any s p e c i f i c r a t e . However , t h i s i s the case w i t h the a v e r a g e revenue per t o n - m i l e measure as w e l l . 4 . On the b a s i s o f these s t u d y r e s u l t s , i t i s c o n c l u -ded t h a t a f e a s i b l e m e t h o d o l o g y e x i s t s f o r a n a l y -s i n g the r e l a t i v e i m p o r t a n c e of a s e t o f i d e n t i -f i e d s i g n i f i c a n t f a c t o r s . f r o m y e a r to y e a r . The p r o p o s a l o u t l i n e d i n C h a p t e r 5 , and summarized i n the p r e v i o u s s e c t i o n s o f t h i s c h a p t e r , has not been t e s t e d but s h o u l d be c o n s i d e r e d i n any f u t u r e e x a m i n a t i o n of t r e n d s i n r a i l w a y f r e i g h t r a t e s 5 . The v a r i a b l e s e v a l u a t e d i n t h i s s t u d y show a v a r -i a b l e , but u s u a l l y h i g h degree of c o r r e l a t i o n be-tween one a n o t h e r . The e x t e n t to w h i c h m u l t i - c o l -l i n e a r i t y may be a p r o b l e m i s shown by the r e s u l t s o b t a i n e d f o r the E a s t e r n - Western movements. The use of f a c t o r a n a l y s i s i n t h i s case c l e a r l y a i d e d the a n a l y s i s . C o n c l u s i o n s based on the o r i g i n a l r e g r e s s i o n r e s u l t s would be i n e r r o r due to the magni tude of the v a r i a b l e c o r r e l a t i o n s . 106 Bi b l i ography Books 1. P u r d y , H . L . , T r a n s p o r t C o m p e t i t i o n and P u b l i c P o l i c y i n  C a n a d a , U n i v e r s i t y o f B r i t i s h C o l u m b i a P r e s s , V a n c o u v e r , B r i t i s h C o l u m b i a , 1972. 2 . L o c k l i n , D. P h i l i p , Economics o f T r a n s p o r t a t i o n , The I r w i n S e r i e s i n E c o n o m i c s , R i c h a r d D. I r w i n I n c . , Homewood, I l -l i n o i s , S e v e n t h E d i t i o n , 1972. 3 . Pegrum, Du d ley F . , T r a n s p o r t a t i o n : Economics and P u b l i c  P o l i c y , The I r w i n S e r i e s i n E c o n o m i c s , R i c h a r d D. I r w i n I n c . , Homewood, 1 1 1 i n o i s , R e v i s e d E d i t i o n , 1 968 . 4 . M e y e r , John R . , e_t a l_ , The Economics of C o m p e t i t i o n i n  the T r a n s p o r t a t i o n I n d u s t r i e s , H a r v a r d U n i v e r s i t y P r e s s , C a m b r i d g e , M a s s a c h u s e t t s , 1964. 5 . M o r r i s i o n , Donald F . , M u l t i v a r i a t e S t a t i s t i c a l M e t h o d s , M c G r a w - H i l l S e r i e s i n P r o b a b i l i t y and S t a t i s t i c s , McGraw-H i l l Book Company, T o r o n t o , 1963. 6. J o h n s t o n , J . E c o n o m e t r i c M e t h o d s , M c G r a w - H i l l Book Company T o r o n t o , 1963. J o u r n a l s 7. D a v i s , G r a n t M. and Combs, L i n d a J . , "Some O b s e r v a t i o n s R e g a r d i n g V a l u e - o f - S e r v i c e P r i c i n g i n T r a n s p o r t a t i o n " , T r a n s p o r t a t i o n J o u r n a l , S p r i n g 1975, V o l . 14 , No. 3 . , p p . 49 - 58 . 8 . Rummel, R. J . " U n d e r s t a n d i n g F a c t o r A n a l y s i s " , J o u r n a l  o f C o n f l i c t R e s o l u t i o n , Volume X I , Number 4 , December 1967, p p . 444 - 480. 9. , " R a i l r o a d s ' W a y b i l l A n a l y s i s E x p l a i n s F r e i g h t Rate T r e n d s " , M a t e r i a l s Management and D i s t r i b u t i o n , Dec-ember 1974, p p . 26 - 29 . Documents and U n p u b l i s h e d Papers 10. J o i n t S u b m i s s i o n on T r a n s p o r t a t i o n by the f o u r Western P r e m i e r s to the Pr ime M i n i s t e r o f C a n a d a , Western E c o n -omic O p p o r t u n i t i e s C o n f e r e n c e , C a l g a r y , A l b e r t a , J u l y 1 973 . 107 1 1 . Government o f A l b e r t a , Department of I n d u s t r y and Com-m e r c e , T r a n s p o r t and Development D i v i s i o n , "The E q u i t a -b l e P r i c i n g P o l i c y : A New Method of R a i l w a y Rate M a k i n g " , Edmonton, A l b e r t a , J u l y 1973. 12 . Government o f C a n a d a , C a n a d i a n T r a n s p o r t C o m m i s s i o n , R a i l -way T r a n s p o r t Committee D e c s i o n s r e l a t e d to S e c t i o n 23 o f the N a t i o n a l T t a n s p o r t a t i o n A c t , 1967. F i l e : 2 6 9 0 1 . 9 7 . 1 P r i n c e A l b e r t P u l p Company L t d . and 2 4 6 0 2 . 1 4 . 7 A n g l o - C a n a d i a n P u l p and Paper M i l l s L i m i t e d , e_t a]_, June 2 1 , 1971 . 2 6 9 0 1 . 9 7 . 1 P r i n c e A l b e r t P u l p Company L t d . , Nov-ember 16 , 1971 2 4 6 0 2 . 1 4 . 7 A n g l o - C a n a d i a n P u l p and Paper M i l l s L i m i t e d , e t a l , November 2 , 1 972 . 30637 .2 Rapeseed C a s e , November 2 , 1971 and June 27 , 1973 . 13 . S c o t t , W. G . , " R e g i o n a l R a i l r o a d Rate D i s c r i m i n a t i o n i n C a n a d a " , Paper p r e s e n t e d to E a s t e r n Economic A s s o c i a t i o n I n a u g u r a l C o n v e n t i o n , A l b a n y , N . Y . , O c t o b e r , 1974. ( G e n e r a l M a n a g e r , P r i c i n g , CP Rai1 , M o n t r e a l , Quebec) 14. M o r r i s h , J . H . , and M a c K i n n o n , D. P . , An a d d r e s s to the 18th Annual T r a f f i c and T r a n s p o r t a t i o n C o n f e r e n c e , C a n -a d i a n I n d u s t r i a l T r a f f i c L e a g u e , W i n n i p e g , M a n i t o b a , F e b r u a r y 21 , 1 974 . 15 . MacCrimmon K. R . , " M a n a g e r i a l D e c i s i o n M a k i n g " , W o r k i n g Paper No. 117 , F a c u l t y of Commerce and B u s i n e s s A d m i n i s -t r a t i o n , U n i v e r s i t y o f B r i t i s h C o l u m b i a , V a n c o u v e r , B . C , F e b r u a r y 1972. Computer Programs 16. B j e r r i n g , James H . , and S e a g r a v e s , P a u l , UBC T R I P : T r i a n - g u l a r R e g r e s s i o n P a c k a g e , Comput ing C e n t e r , the U n i v e r s i t y o f B r i t i s h C o l u m b i a , June 1974. 17 . B j e r r i n g , James H . , UBC FACTO: F a c t o r A n a l y s i s , Comput ing C e n t e r , the U n i v e r s i t y o f B r i t i s h C o l u m b i a , F e b r u a r y 1973 . 18 . H a l m , J a s o n , UBC FAN: F a c t o r A n a l y s i s , Comput ing C e n t e r The U n i v e r s i t y o f B r i t i s h C o l u m b i a , R e v i s e d O c t o b e r 1973 . 

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