Railroad wheat transportation markets in the central plains: modeling with error correction and directed graphs

Time series methods are used to study the dynamics of regional, export-wheat, railroad rates linking seven central US regions to Texas Gulf ports. Research focuses on the extent and nature of regional rate interactions to determine whether regional rail transportation rates are established independently, through interaction and/or dominated by several regional leaders. Analysis is carried out on 1988-1994 public waybill data for seven Business Economic Areas (BEA) located in Kansas, Oklahoma, Texas and Colorado: these regions originate virtually all of the eight million tons of hard red winter wheat annually shipped to Texas Gulf ports. Results show all rail transportation markets linked in varying degrees. Some regions are near-independent or highly exogenous regarding rate-setting, while others interact with and to rates established in other regions. Regions that are dominated by a single carrier tend to be more independent and insulated regarding rate-setting. Export rates in regions dominated by the Union Pacific (UP) generally account for a significant Variation in the rates of other regions. Data show the UP to have been aggressive in providing incentives for country elevators to consolidate for purposes of making unit train shipments, thus their presumed influence on rates of other regions. As expected, export rates for regions with substantial storage and transhipment facilities are sensitive to export rates of regions which ship to the transhipment facilities. Finally, results suggest that rate-setting in a particular region is in part a function of the dominant railroad's management and its aggressiveness, an expected outcome in an oligopolistic market. (C) 1999 Elsevier Science Ltd. All rights reserved.