SAN ANTONIO, Texas — It’s little wonder Toyota Motor Corp. wants a proposed truck assembly plant in San Antonio to have access to competing railroads, those familiar with the freight rail industry say.
The San Antonio Express-News reports that businesses depending on trains to haul cargo say their rates can be as much as 60 percent higher when forced to deal with a railroad having a monopoly over part of a route.
“It may be even higher; nobody knows,” said Bob Szabo, director of Washington-based Consumers United for Rail Equity. “They’re just in a position to take what they want.”
Toyota, which is also considering a site in Marion, Ark., is so concerned about the rail situation here that local and state officials fear it could cripple San Antonio’s bid and deprive the city of a once-in-a-generation development opportunity.
The sticking point is that a proposed location in South Bexar County is near tracks owned by just one railroad: Union Pacific.
“In this day and time, rail shippers generally don’t look for sites that don’t have competitive rail service,” said John Helsley, president of Community Rail Development Corp, which works for rail districts in Texas.
“If we can offer dual rail service, it’s a heck of a sell,” said Helsley, who has worked on several projects in recent years to give companies options for rail services. “You can cut transportation costs by 30 to 40 percent.”
That saving varies by industry, but some shippers believe monopoly rail rates are as much as 60 percent higher than those in competitive rail markets, Charles Platz, president of Basell North America Inc., said in a statement before a U.S. Senate hearing in July on shipper concerns.
“Such monopolistic behavior would not, and is not, tolerated in any other industry,” said Platz, who spoke on behalf of chemical companies. “It simply runs counter to the principles of a free-market economy.”
Railroads say charging more based on demand is fundamental to a free market and it’s done in all economic sectors.
For example, an airline passenger pays more for a ticket bought at the last minute and an evening movie is more expensive than a matinee. But all consumers get lower prices than they otherwise would because costs to provide services are shared by more people.
“By artificially requiring more competition than a market has shown is sustainable, legitimate competition eventually would be reduced,” John Snow, chairman of CSX Corp., said in a statement at the Senate hearing.
Hauling rates for coal, grain, chemicals and finished motor vehicles and parts — commodities that rely heavily on rail — generally fell from 1997 through 2000, according to a U.S. General Accounting report released in June. And that’s been the trend since 1990, it states.
Szabo said shippers understand prices need to be different in competitive and noncompetitive areas so railroads can stay afloat, but many feel it’s gone too far. Numerous consolidations of railroads in the past two decades have eroded competition, he said.
Consumers United for Rail Equity and others are seeking changes in federal law. Shippers want to make it easier for railroads to access each other’s facilities at terminals and switching areas and require rate offerings by track segments so monopoly portions can’t be used as leverage over whole corridors.
Snow said such alterations would hurt already struggling railroads, which carry 41 percent of intercity freight but get only 10 percent of the revenues. Also, carriers invest more than a fifth of proceeds back into their systems while other industries average less than 4 percent.
“Full cost recovery would not be possible,” said Snow, who earlier this month was nominated to be President Bush’s treasury secretary. “Ultimately, customers would lose service.”
While San Antonio officials are outraged that Union Pacific, which owns all the tracks in the city, doesn’t want to let a competitor use its monopoly line near the proposed Toyota factory site, a company spokesman said it’s really a problem with what the market will tolerate.
“If the marketplace could support it then Burlington Northern would build their own line into that plant,” John Bromley of Union Pacific said.
Burlington Northern Santa Fe has the right to serve customers from a Union Pacific track running east-west through the city, but that’s at least eight miles from the plant site. Another Union Pacific line is a couple of miles away, but Burlington Northern can’t run on it.
“Not on our track, no,” Bromley said.
Bexar County commissioners recently created a rail district to look into ways to fund construction of a spur to the track that Burlington Northern is allowed to use. Helsley said that could take 18 months and cost up to $35 million, including land, crossings and maybe bridges.
The Arkansas location is within a mile of a Union Pacific line that Burlington Northern has a right to use. In addition, three other railroads operate within 10 miles.
The Toyota plant is expected to have a total annual payroll of $265 million and generate 16,000 jobs at the factory and support businesses. It would produce some 100,000 pickups and sport utility vehicles a year, of which 80 percent would be shipped by rail.
City Public Service faced a similar situation two decades ago when it was at the mercy of Burlington Northern. The railroad company was using a Southern Pacific track in San Antonio to deliver coal from Wyoming to the utility’s new electric power plants at Calaveras Lake.
That is the only local railroad track linked to the plants. Even before the first coal-burning unit began operating in 1977, hauling charges started soaring from $10.93 a ton to a high of $27.66, sparking battles before the Interstate Commerce Commission and in federal courts.
Then CPS threatened to put up more than $10 million to build a spur to a Union Pacific line near Mitchell Lake, said Mark Werner, director of fuels.
That got everyone to the negotiating table and a deal was struck so Union Pacific could access Southern Pacific’s track.
“The railroads are very large entities, unbelievably large entities,” Werner said. “They don’t give anything away.”
Union Pacific started hauling coal to San Antonio in 1985 and has the contract until 2014. Rates today are about $17 a ton, which CPS says has saved its ratepayers more than $400 million.
“It’s been well worth the effort,” Werner said.
Union Pacific is the latecomer in San Antonio’s 125-year history of railroad service, said Hugh Hemphill, chairman of the Texas Transportation Museum in San Antonio.
But within two decades the carrier swallowed up all three companies operating in the city.
Missouri Pacific was absorbed in 1982; Missouri Kansas Texas was taken over in 1988. Union Pacific merged with Southern Pacific in 1996, but a government order lets Burlington Northern continue to use the old Southern Pacific tracks to foster competition.
Consolidations also occurred nationwide. Since 1980, when federal legislation was passed to deregulate competitive rail traffic and offer protections to captive shippers, 16 major railroads combined into five, said Randy Resor of Zeta-Tech Associates Inc. in New Jersey.
The industry soon might be dominated by two major carriers, said Resor, who does consulting work for railroads.
“I fear that’s what’s going to happen,” he said. “The railroads aren’t doing well now.”