Monday, February 01, 2010

Updated report for STB warns of rate-cut consequences

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Christensen Associates Inc., an independent consulting team studying rail competitiveness for the Surface Transportation Board, has issued a new report finding that "rate increases since 2004 were driven by fluctuating fuel prices and other costs and did not appear to reflect a greater exercise of railroad market power over captive shippers."

The updated report re-emphasized the key finding of an earlier report: "Providing significant rate relief to some shippers will likely result in rate increases for other shippers or threaten railroad financial stability." 

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The STB said in its summary: "Overall, the updated study painted a portrait of a healthy rail industry that, since 2006, has remained largely revenue sufficient, meaning railroads are able to over their operating costs and earn a rate of return that enables them to attract investment vital to pay for more locomotives, railcars, and make other improvements. The study also found hat the large productivity gains in the 1980s and 1990s--when the railroad shed excess lines, reduced crew sizes, and streamlined operations--are no longer strong enough to offset rising operating costs."

Christensen also noted that since late 2008, railroad traffic has dropped nearly 20% from the levels of 2006 and 2007, and preliminary data show rates fell last year.

The original report was issued in November 2008. The STB ordered it to be updated to reflect shippers' concerns that "the report's study period ended in 2006 and did not include subsequent years of rapidly escalating costs."