(The following story by Dave Hannon appeared at Purchasing.com on March 4, 2009.)
There are two new pieces of legislation in the works that could increase the regulation of railroads’ rates and pricing practices. And while shippers and rail freight buyers may find these a welcome relief from high rail rates, there could be less-than-favorable impacts on shippers if the new laws are passed.
The Railroad Antitrust Enforcement Act was introduced into Congress in January by Senator Herb Kohl and Congresswoman Tammy Baldwin of Wisconsin. A statement announcing the Act in January said the railroad mergers and acquisitions that created the current rail market are exempt from antitrust law and are reviewed solely by the Surface Transportation Board. “Railroads that engage in collective ratemaking are also exempt from antitrust law,” the statement says, adding that the Act will eliminate these antitrust exemptions by allowing the federal government, state attorneys general and private parties to file suit to enjoin anti-competitive mergers and acquisitions.
The statement highlighted Dairyland Power in La Crosse, Wis., which provides electricity for more than 575,000 people. “In 2005, Dairyland experienced a 13% shortfall of scheduled coal shipments, but was hit with a 93% rate increase resulting in about $35 million of increased cost passed along to its customers.”
In addition, a new version of the Rail Competition and Service Improvement Act is being drafted by the House Committee on Transportation and Infrastructure. “This composition of this Congress provides our best chance in years of getting these bills passed,” Bob Szabo, executive director of customer lobby group Consumers United for Rail Equity (CURE), told Reuters.
But the railroads are indicating that tighter regulation and control of rates will force them to reduce their capital expenditures. Union Pacific CEO Jim Young said should Congress pass any measure to regulate prices, “I will cut our capital spending. We’re taking this threat seriously.”
Rail carriers are already getting some heat on their rates under new rules from the Surface Transportation Board that make it easier for captive rail shippers to plead their rate cases may cause a major shift in the rail market. Already rail carriers CSX and BNSF have been issued major fines and rate restrictions as a result of overcharging rail shippers who brought their cases to STB. More recently, Montana’s attorney general released a report in late February saying the rates BNSF charged Montana farmers to ship grain were much higher than those in other states. Montana Governor Brian Schweitzer, issued a statement saying the report shows lack of competition has caused excessive rates.
“The lack of rail competition has caused both excessive freight rates and poor service,” Schweitzer said. “Our farmers, ranchers and other rail shippers deserve better.”
BNSF disputed the report and said rates varied based on distance and volume. In a statement, Kevin Kaufman, group vice president, Agricultural Products, said “This report is wrong and inaccurately portrays BNSF rates and service. We wholeheartedly stand by our rates. This is why we have entered into a voluntary arbitration and mediation process that will hold us accountable and bring transparency to the process.”
BNSF has issued rate increases for various market segments ranging from 3-6% effective April 1.