Shippers complain about lack of rail competition
Dozens of shipper groups and transportation companies laid out their positions with the Surface Transportation Board in advance of a June 22 hearing on whether rail regulatory reform is needed.
A wide range of opinions were expressed on the hearing the STB said would “explore the current state of competition in the rail industry and possible policy alternatives to facilitate more competition, where appropriate.”
Broad-based groups that include shippers of bulk commodities and domestic manufacturers seem more interested in regulatory reform, while companies or organizations primarily concerned with the intermodal movement of containers caution the STB against moves that might reduce investment in rail infrastructure.
“While the board’s approval of several major railroad mergers have brought incredible prosperity to the industry, the promise of vigorous competition among the remaining rail carriers has not been realized to the detriment of rail customers and the U.S. economy,” said the National Industrial Transportation League. “Circumstances justify the board changing its existing policies to create a more level playing field by providing rail customers greater access to competitive rail service.”
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The group Consumers United for Rail Equity (CURE) said, “Foreign goods normally arrive at our ports in containers whose shippers benefit as to both price and service by the fact that there normally is a choice of ports of entry served by different major railroad systems. Thus, foreign imported goods normally are assured of competitive rail rates and service for the movement of their goods inside the United States.
“By contrast, many of our rail-dependent domestic manufacturers and producers are served by a single railroad system, often resulting in captive or at least very high rates and sometimes unreliable service. Moreover, no single manufacturing location in the United States is able to load a unit train of containers for movement to Chicago or New Orleans that is as efficient as the container unit trains assembled at our ports of entry.”
Brad Gray, global logistics director for Dow Chemical said, “Dow’s competitive position is handicapped by the fact that so much of its U.S. production is captive, and to a single railroad. Greater rail competition will enhance the competitiveness of Dow.”
DuPont in a filing “urges the board to modify its policies to encourage greater rail competition, and in so doing, reduce the need for regulation of the rail industry.”
In contrast, the Waterfront Coalition, which represents retailers, product suppliers, manufacturers and agricultural producers, said, “We oppose any policy or regulatory changes that would lessen the freight railroads’ ability to continue investing billions of dollars in private capital to grow and modernize the nation’s rail infrastructure to meet the needs of all rail customers. Specifically, any policy changes to address rate and service concerns for one segment of customers could result in rate increases and service delays for all other customers.”
John J. Nardi, senior vice president of container carrier Hapag-Lloyd, said, “We oppose any policy changes that hinder the freight railroads’ ability to continue investing billion of dollars in private capital to grow and modernize the nation’s rail system. A change in direction would be devastating to our industry ' “
Sung-Young Kim,, managing director of Hanjin Shipping, said, “I know that some customers believe that changing the regulatory structure will benefit their own pecuniary interest. However, such a shift actually could harm many more shippers in the long run. By taking actions that could reduce railroad revenue, which in turn will harm the interest of intermodal customers as well as the public at large, who benefit from strong railroads that are able to invest in infrastructure expansion, terminals, and rolling stock.”
NIT League said loss of competition between railroads “has allowed the remaining carriers to consciously avoid competition, except when it suits their own interest, and dramatically increase railroad rates year after year. Captive rail customers that have no other service and pricing options are forced to endure double-digit rate hikes and forgo service improvements and efficiencies. In its survey. League members reported that rates are 10 to 50 percent higher at captive facilities than at dual served facilities.”
The league pointed to a Senate report quoting information from the firm Wolfe Research that indicates “since 2004, Class I railroads have been raising prices by an average of 5 percent a year above inflation, and that even during the recent recession, Class I railroads have been able to increase price year-over-year, while pricing of other freight modes has languished.”
NIT League also complains that railroads often are unwilling to engage in meaningful negotiations with their customers. Instead, many shippers are presented contracts on a “take it or leave it” basis. When competition was more prevalent, rail contracts were true bilateral agreements, in which the shipper committed cargo volumes, the railroad provided service commitments, and the parties both negotiated liability and other terms.”
A joint filing by the CURE, the Alliance For Rail Competition, American Chemistry Council, American Forest And Paper Association, American Public Power Association, Chlorine Institute, Edison Electric Institute and several of agricultural groups compares rail deregulation to that which occurred in the telephone industry.
“If the current rules applicable to railroad competition were applied in the telecommunications industry, for example, the result would be a system that few people would view as deregulation at all,” it said. “The fact of the matter is that, under the current system in the railroad industry, rail carriers have been given a license to engage in a degree of monopolization that would not be tolerated in any other industry.” ' Chris Dupin