At times, I think model railroaders are a rather confused lot, but then the industry doesn’t publish a lot that clears the picture. We aren’t a very large industry, and the largest of our corporations aren’t ever in danger of making the Fortune 500 list (or even the Fortune 5000 or maybe even the Fortune 50,000!) Nobody’s getting rich at this business. Lewis Polk one time asked me if I wanted to know how to make a small fortune in model railroading. I bit, of course. He said, “Start with a large fortune.”
I think he’s right. At some level, every model railroad product you’ve ever bought started life as some raw materials to which was added manufacturing, packaging, marketing, and distribution. To all of this must be added a profit, or the initial investment is eroded away and that’s the last project this particular pool of money makes. But it all starts first with the commodities. This could be plastic beads or rolled steel or bar stainless steel or brass rod in spools or copper in coils or zinc ingots or paper or wood or whatever else you have to purchase to make your product.
The price of a basic commodity is something we generally don’t give much thought. The average school kid drinks milk without thinking much about cows, we eat cereal without pondering fields of golden grain, and we handle small locomotives without giving another thought to all the raw materials that go into their production. Just once in a while, we need to look up from what we’re doing and give it a moment’s consideration, however. This is one of those times. A confluence of economic streams that have overflowed their banks is sending a flood of consequences our way.
When the price of petroleum went up, it wasn’t just at the local gas station. This has hit the railroads that transport 40 percent of all the freight in the nation even though they only use three percent of the petroleum fuel. It also hits the trucks that transport another 40 percent of all the freight and use up another forty percent of the fuel. Ouch. The cost of trucking is going to go up, big time. As these costs go up, so goes the cost of everything else. The cost of petroleum-based products goes up, too. Guess what? Plastic beads are a petrol product. Uh oh!
It isn’t just the US that is having this problem; the entire world is staggering under the high cost of moving everything around. The global economy is having global heartburn. As a result, the metals market is going up. Well, we shouldn’t be surprised. Gas went up at the gas station by a buck a gallon since January. Milk went up a buck a gallon in that same time frame. Guess what? Stainless steel quadrupled while copper tripled.
• Stainless grade 304 sheet steel cwt contracts on 1/5/05 were priced at US $67.90. Stainless grade 304 sheet steel cwt contracts on 6/1/07 were priced at US $240.00.
• Copper per pound contracts on 1/5/05 were priced at US $1.42. Copper per pound contracts on 6/15/07 were priced at US $3.42.
Price source for this is the Wall Street Journal Commodity Futures Price Report 6/19/07. How can this not have a dramatic impact on the prices of our products?
But wait: it only gets more intense and interesting. The Chinese government, not wanting for all of this to wash a significant part of their economy downstream, has added an export tax of 5 to 10 percent on products made of certain metals including steel and copper, and this would certainly apply to model railroad locomotives as well as track and a number of other model railroad products made in China.
While this would tend to hold the national profitability and reduce energy loss for China, it wouldn’t offer enough economic incentive to bring these same products on-shore here in the United States. What it would do is further increase the price of products that were going to increase anyway. At some point, dedicated model railroaders could save significant amounts of money by building kits, but that has always been true. It just has to do with the expenditure of a person’s time.
I suppose there will be some speculation into “hobby futures” as table retailers at hobby shows begin to price against the rising cost of everything. Guys at train shows will stand around and gas about the good old days when they could buy an Athearn Blue Box loco for under thirty bucks at a discount. Fortunes will be made and dashed as people get the formula right or wrong. Smart guys will stockpile the right stuff or cash out at the right time. EBay will do a brisk business; it almost always does.
I’m telling you this because you shouldn’t be the last one to know. You could reasonably calculate all of this from the rising prices of everything, but it’s funny how denial helps us to segment all of this into different compartments, and we don’t see this as a global problem when it really is. Please, don’t take this out on your local hobby shop, his suppliers, or the manufacturers who make the products. Like the grocer, the dairy, and the farmer, the rising cost of milk is due to the rising cost of feed, transportation, and other overhead, most of it going back to petroleum pricing in one way or the other.
We are not a political magazine, and I won’t go into suggesting what our nation’s response to all of this should be. Within our industry, boycotts and political actions don’t offer any relief, either immediate or long term. However, it is obvious that your hobby dollar won’t go as far as it once did. Initiatives from Atlas whose Trainman Line is aimed at lower priced products, as well as Broadway Limited’s Blue Line, are very much appreciated against this backdrop.
Despite the desire of hobby manufacturers and importers to reduce the price of their products and increase their marketshare, economics will drive prices up, and so often the best we can hope for is maintenance of current prices or just limited increases. The current rash of lead paint recalls from China has even model train makers checking their products for lead paint, though they haven’t found anything that I’ve heard about. Of course, lead causes paint to cover better while costing less, making it a tempting solution.
The future survival of the hobby may well count on how well hobbyists are willing to keep going as prices go up, and how creative manufacturers can be while poking the subtraction and division buttons on their calculators. We’ve all got to meet in the middle somewhere. Of course, we can never forget that model railroaders duplicate in miniature a transportation system that specializes in hauling commodities. If we keep that in mind, it will help us to adjust.
I think all of us would like to get to some mystic and mythical place where American industry produced our own hobby products for Americans to buy and enjoy. Of course, we’d also like them to be priced as cheaply as if they came from China, but it’s time to take a whiff of reality. The only reason there hasn’t been a recall of model railroad rolling stock is because we old guys don’t generally put them into our mouths and risk lead poisoning!