The economics of branchline abandonment : a case study of west-central Saskatchewan

Abstract

In light of the changes that are occurring in the grain handling and transportation industry, one area of major concern in the new deregulated environment is the branch line abandonment and the optimal length of branch lines. The length of branch lines and location of delivery points are two important factors for an efficient transportation system. Production quantity, farmers costs, railway costs, elevator costs and road costs (taxpayers) all can be affected if a railway decides to abandon a branch line. This thesis examines the costs of alternative branch line configurations with the maximum cap rates in place, and the distributional changes of surpluses (losses) on railways, farmers, grain companies and roads under a regulatory framework (Bill C-101) and the current system. The objective of this study is, first, to use simulation techniques to explore the optimal configuration of a railway branch line system and consequent impacts on railways, farmers, grain companies and roads in a chosen region, and then to comment briefly on the major changes in regulatory rules pertaining to railroads. Various configurations of branch lines are simulated. These configurations are developed to determine: (1) the distribution, with branch line abandonment, of losses and surpluses for the parties involved in the grain industry, and (2) the most socially optimal configuration of branch lines. In each scenario, a different length of branch line is abandoned and a comparison is made to answer the above questions. The results indicate that an increase in transportation cost as a result of line abandonment causes a relatively small decrease in grain produced, and a movement away from higher volume commodities toward lower volume commodities. Increased transport distances to elevators also lead to more truck usage and more damage to the roads in the study region. The overall impact is a loss to producer's welfare, greater cost for roads, and a large gain to the railways. In sum, the model shows that moderate changes in trucking and rail costs yield a range of results. The results indicated that using larger trucks leads to significant redistribution of benefits among the parties involved in the grain industry. The results illustrated that lowering the railway's volume-related cost leads to significant benefits to the railways. Other parties involved in the grain industry can benefit only if railway freight rates decrease--the only "losers" are taxpayers. (Abstract shortened by UMI.)