Friday, March 13, 2009

As traffic stabilizes, re-reg concerns deepen

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Railroad officers attending the JP Morgan Transportation conference in New York Wednesday expressed optimism that the slide in railroad traffic has been arrested, but in their presentations expressed deepening concern that re-regulation sentiment is growing in Congress and could slow railroad recovery.

The stabilization of traffic levels during most of the first quarter suggests that "we may have reached a floor,” Union Pacific Chief Financial Officer Rob Knight told the conference—a sentiment echoed halfway cross the continent when UP Chairman and CEO Jim Young told a gathering in San Antonio, Tex., at the dedication of a new $100 million rail yard, "The good news is that the sharp falloff we have seen since last September and October has stabilized. Our customers have done a good job of managing their inventories. I am confident that when there is an increase in demand, production can respond quickly."

The not-so-good news that pervaded the JP Morgan conference had to do with the specter of re-regulation that looms larger and larger in Congress. The Senate Judiciary Committee on March 5 approved a bill that would strip railroads of their few remaining antitrust exemptions, and another re-reg bill is said to be close behind.

BNSF CEO Matt Rose suggested that one question Congress should be asking itself is,"Do we want railroads to expand their level of capital spending?" They are more likely to cut back on capacity investments, said Rose, if Congress tampers with the pricing and other freedoms railroad received when they were partially deregulated by the Staggers Rail Act of 1980.