HIGHLIGHTS FROM THE AUGUST 2008 ISSUE
Breaking News
Traffic & Market Trends
In This Issue
Commentary
They’re at it again
Abuse is raining on the railroads at a rate not seen since pre-Staggers days as certain powerful shipper interests try to turn back the clock.
Call it the law of intended consequences.
The Staggers Rail Act of 1980, most simply put, was intended to prevent the
Railroads warn that the changes sought by these shippers would, at the very least, seriously compromise their ability to invest in the new capacity their customers will desperately need in the future. An independent study has shown that the railroads need to invest $148 billion by 2035 if they are to carry their share of an increasingly heavy national transportation package. Railroads are expected to put up $96 billion of this, with the remainder coming from state and federal sources. But that $96 billion will have to come out of profits that would diminish or even disappear if legislation now proposed by shippers—and new legislation in the making—is rammed through Congress.
Now generating great interest across the business world are two pieces of shipper-sponsored legislation that, if successful, could set the stage for a wholesale overhaul of Staggers. These are the Railroad Antitrust Enforcement Act (H.R. 1650, S. 772), which would address such issues as “rate-signaling” and other collusive practices by the railroads, and the Railroad Competition and Service Improvement Act (H.R. 2125, S. 935), which would give shippers more competitive options.
The more critical of these is the antitrust bill, because it has been reported out of the Judiciary committees of both the House and the Senate and is ready for (though not yet guaranteed) a floor vote. It has won the approval of a number of populist legislators like Rep. James Oberstar (D-Minn.), who scoffs at railroad protests that enactment of this legislation could begin a perilous process of reregulation. Oberstar’s most memorable contribution to the debate so far has been to dismiss “re-reg” as “just a cute bumper sticker phrase.”
This is the kind of language that CURE (Consumers United for Rail Equity) likes to hear. The shipper lobbies like to suggest that their troubles with railroad deregulation really began with the spike in railroad rates early in the new century, after years of declines, and with the imposition of “excessive” fuel surcharges.
That simply is not true. “CURE was formed to push reregulation almost before the ink was dry on the Staggers Act,” recalls the AAR’s Tom White, a veteran of the regulatory wars. “CURE has been pushing its agenda of railroad reregulation for the past 25 years.”
Is the threat of reregulation more serious today than it has been in the past? White says the reporting of the antitrust bill out of committee in both houses of Congress suggests some cause for concern.
“Our real challenge is one of education,” says White. “There are relatively few members of Congress or staffers who were on Capitol Hill when the Staggers Act was passed. There are new members and staffs who have to be educated on the reasons why Staggers was passed.”
Railroad customers still see something sinister and vaguely un-American in practices like secretly negotiated contracts and differential pricing. AAR President Hamberger gently reminded a questioner that differential pricing is something airlines practice every day. Railroad writer Larry Kaufman compares railroad differential pricing to the pricing practices of utilities that charge different rates to different customers: “Yet a kilowatt is no different regardless of which customer buys it.”
The Surface Transportation Board wins no popularity contests with dissident shippers. CURE Executive Director Bob Szabo calls STB’s monitoring of the railroads a “Byzantine system that’s rigged against the shipper.”
In the past year, the STB has taken several actions that would appear to refute this—an investigation of railroad fuel surcharges that resulted in new guidelines, a finding for Kansas City Power & Light in a major coal rate case against Union Pacific, a subsequent finding for E.I. duPont de Nemours in a landmark small-shipments case against CSX Transportation, and a decision to change the way it figures the cost of railroad capital.
The shipping community, however, seems unimpressed. “They regard it as window-dressing,” says Frank Wilner, a railroad economist whose work resumé includes a stint at the STB. One issue that was not even contemplated when Staggers was passed—the need for fuel surcharges running into the billions of dollars—has become bitterly contentious. Shippers contend that through the AAR, the railroads conspired to fix fuel charges at a level that turned them into a veritable profit center.
They haven’t proved it. Union Pacific CEO Jim Young recently told Railway Age that UP is now consuming 1.4 billion gallons of fuel a year at up to $4.00 a gallon. “At best, we’re running in the 85-90% range in fuel cost recovery,” says Young. He’s aiming for 100%.
At the end of the day, the strongest argument that railroads have against reregulation may be the effect that it would certainly have on their future ability to move the mountains of grain and coal and the other commodities that cannot efficiently move by truck—as well as the substantial traffic the trucks themselves are shifting to rail for the long haul because of far greater railroad fuel efficiency.
The non-partisan Congressional Research Service (CRS) earlier this year warned legislators that in the re-reg battle, more is at stake than “just the question of a division of revenues between railroads and their captive customers.”
“Higher fuel prices, congestion on certain segments of the highway system, and rising domestic and international trade volumes are driving shippers to demand more rail capacity,” said the CRS report. “Freight revenues are a significant means of financing rail capacity because the railroads receive negligible public financing. Therefore a larger policy question is how a reregulated solution to the ‘captive’ shipper problem would affect the development of a more robust and efficient railroad system.”
Creating and preserving such a system is, of course, what Staggers was all about in the first place.
Copyright © 2007. Simmons-Boardman Publishing Corp.