Carriers agree government action is in order
By Peter A. Buxbaum, AJOT
Shipper and rail industry representatives battled it out last month at a hearing before a Senate subcommittee considering issues of freight rail service and capacity. Shippers contended that industry consolidation has reduced competition and service and increased carrier profits. The industry defended itself by saying that its fattened earnings are needed to finance capacity increases.
In the background, although not being directly considered by the subcommittee, is the pending passage of the Railroad Competition Act of 2005, which some see as partially undoing the deregulation effected by the Staggers Act of 1980. Some shippers supported the provisions of the proposed legislation while carriers vehemently opposed it. The rail industry agreed, however, that government action could help with industry capacity problems.
Appearing before the Subcommittee on Surface Transportation and Merchant Marine of the Senate Commerce, Science, and Transportation Committee on behalf of the American Chemistry Council, John L. McIntosh, President of Olin Corporation, a chemicals shipper, lashed out at rail carriers and the Surface Transportation Board, the agency that oversees the rail industry.
‘Railroad reliability and service are critical to our economic success,’ McIntosh proclaimed. ‘However, that is not what the nation’s railroads are providing.’
McIntosh contended that the Staggers Act has not achieved its desired results. ‘Competition has largely fizzled out,’ he said, noting that the number of Class I railroads serving North America has dropped from 63 to seven since 1977. ‘Railroad mergers reduce shipper options. Bottlenecks are extended when lines serving captive shippers are acquired by connecting carriers. Efficient service from independent bridge carriers disappears. Competition for service to new industrial sites is reduced or eliminated.’
He added that the government agencies charged to address competition issues, the Interstate Commerce Commission and its successor, the Surface Transportation Board, have ‘not done the job.’
McIntosh singled out rail fuel surcharge practices for particular criticism. ‘The manner in which fuel surcharges have been calculated and applied by the railroads has resulted in an over recovery in the range of $1 billion for 2005,’ he contended.
John Ficker, president of the National Industrial Transportation League, who testified at the same hearing, agreed that ‘many of the carriers’ fuel surcharge programs have significantly over-recovered the increased cost of fuel as applied to individual movements.’ NIT League initiatives ‘to discuss areas where individual carriers might consider improving their fuel surcharge programs,’ received positive responses from BNSF, the Canadian National, and the Canadian Pacific, but not from other carriers.
Ficker also criticized the government’s regulatory structure. ‘The current rate relief process is expensive, time-consuming, complex, and largely inaccessible to most shippers,’ he said. ‘The League has presented to the STB numerous suggestions for improving the agency’s small shipment rate complaint process. To date, however, the STB has not acted on these suggestions.’
Shippers mainly complain, not surprisingly, about higher rail rates, a situation brought about, according to Ficker, by capacity constraints. ‘Since 1980, demand for rail transportation has steadily increased while rail capacity has declined,’ despite healthy recent carrier earnings, he said. ‘Many shippers are facing double digit rate increases along with reduced or deteriorating service. Rate negotiations have become a take-it-or-leave-it proposition for many shippers.’
Higher rail earnings
Edward Hamberger, CEO of the Association of American Railroads, threw a different light on the same facts. ‘Rail earnings over the past year have been significantly higher than their historical norm,’ he acknowledged, but they are ‘still below average withi