Friday, June 27, 2014

AAR to STB: Market forces aid grain shippers

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In a 24-page submission to the Surface Transportation Board dated Thursday, June 26, 2014, the Association of American Railroads (AAR) responded to STB's request "seeking input on the Board's rate reasonableness complaint procedures related to the transportation of grain by rail."

Addressing STB Ex Parte No. 665 (Sub-No. 1), "Rail transportation of grain, rate regulation review," AAR said, "The railroad industry's ability to continue to invest revenue earned today to provide capacity needed to meet future demand is critical to our nation's economic prosperity and our ability to compete successfully

in the global marketplace. Thus, the Board's rate reasonableness rules for all commodities must reflect the fundamental competitiveness of transportation markets and not artificially constrain the ability of railroads to price their services according to market demand where such competition is present.

"By adhering to the general guiding principles that railroads must be able to engage in demand-based differential pricing, and that rate reasonableness procedures should simulate the competitive outcomes of contestable markets, the Board will help ensure that any action it takes in consideration of the issues raised in this proceeding is consistent with its governing statute and with the compelling public interest in continued improvement in the nation's rail infrastructure," AAR said.

AAR offered its opinion in "three broad parts," noting, "Part I provides an overview of how grain markets vary across commodity type and over time. Part II explains how grain transportation markets must be resilient to respond to market demand. Part III sets forth the principle that demand-based differential pricing is necessary and benefits all shippers that use the rail network."

AAR's Part I overview said, in part, "The variety of forces that impact grain production and consumption make it abundantly clear that making generalized conclusions about grain is exceedingly problematic. Simply put, there is no homogenous "grain market" in the United States. For that matter,

there is no homogenous "com market" or "soybean market" or "wheat market" in the United States either."

Related to market resiliency and existing competition (Part II), AAR observed, 'Today, grain shippers benefit from strong competition among railroads, trucks, and barges to carry grain. According to USDA data, the truck share of total U.S. grain transport was 60% in 2011 (the most recent year for which data are available), compared with just 28% for railroads and 12% for barges ... The fact that the truck share has been rising for several years—it was 50 percent as recently as 2006—is strong evidence of the intensity of the competition that railroads face for grain traffic."

Addressing differential pricing in Part III, AAR asserted, "Differential pricing is necessary and benefits shippers who use the rail network." It added, "Only by recognizing and pricing in accordance with the varying demands for rail service can a railroad have any opportunity to recover its full costs. Indeed, differential pricing benefits all shippers who utilize the rail network because lower (differential) prices generate revenue which otherwise would not be realized."