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Issue #590 | Perishables | Mediterranean | Middle East | Africa Trade

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2014 Media Kit
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Captive shippers pushing for reforms

By: | at 07:00 PM | Intermodal  

GAO, shippers fault STB processes

By Peter A. Buxbaum, AJOT

A report released earlier this month by the Government Accountability Office included some good news and bad news for rail shippers. But shippers still captive to a single rail network say the news is almost all bad.

The GAO report took a sweeping view of the effects of the Staggers Act, the 1980 law which deregulated the rail industry. The Congressional watchdog agency studied rail rates, market concentration, the extent of shipper captivity, and the mechanisms provided for shipper relief.

The report found that rail rates declined between 1985 and 2000, then increased slightly from 2001 through 2004. Deregulation spurred a flurry of industry consolidation which caused traffic to be concentrated on fewer rail systems.

That concentration would lead one to be believe that the number of captive shippers, meaning, those with access to only one rail line, would increase. But the GAO concluded, surprisingly, that an ‘analysis of limited available measures indicates that the extent of captivity appears to be dropping…’ Still, ‘the percentage of traffic traveling at rates substantially over the threshold for rate relief has increased.’ Not surprisingly, ‘some areas with access to only one major railroad have higher percentages of traffic traveling at rates above the threshold,’ the GAO concluded.

The Staggers Act established the Surface Transportation Board, a body with authority, among other things, to grant rate relief to captive shippers. The GAO slammed STB rate relief processes, saying they ‘are largely inaccessible and rarely used.’ The GAO recommended that the STB improve its rate relief processes and to ‘inquire into and report on railroad industry practices.’ Such a study, the GAO contended, could determine whether some shippers are paying excessive rates and yield ‘evidence that market power is being abused in specific markets.’ The STB disagreed with these recommendations, saying it would drain STB resources.

Shippers that rely on rail transportation, such as electric utilities which use coal to fire their generation plants, and chemicals manufacturers, often find themselves captive to a single railroad and complain they are unable to obtain relief form the STB.

‘Consolidation of the rail industry has resulted in many of our generators being held captive to one single railroad for coal transportation,’ said Glenn English, CEO of the National Rural Electric Cooperative Association, a Washington-based industry group. ‘As a result, a great many of our electric generators are subject to railroad monopoly power over price and service with no access to competition.’

‘Nearly two-thirds of America’s chemical facilities that depend on rail service are served by only one railroad,’ added Ben Zingman, a spokesperson for the American Chemistry Association, a group representing manufacturers. ‘These captive customers are routinely subject to poor service and exorbitant prices. The Surface Transportation Board has failed to address their grievances.’ Zingman claimed that one-third of rail carrier revenue comes from captive shippers in the chemicals, plastics, coal, grain, fertilizers, and forest products industries.

For an electronic utility company like Xcel Energy in Minneapolis, ‘coal continues to be a critically important fuel for electricity generation,’ according to David Wilks, the company’s president for energy supply. Of the 78.6 gigawatts of electricity annually generated by Xcel, 72% is derived from coal-fired generation, and 100% of the coal is supplied by rail.

‘It is critical that electric utilities be able to depend on reliable and affordable coal deliveries,’ Wilks commented.

Xcel receives most of its coal by rail from the Powder River Basin coal seam of Wyoming and Montana, a region which produces 40% of all US coal production. Although two railroads are available to pick up coal at PRB, ‘generally only one railroad or a short line railroad under its control can deliver the coal to th