(The following story by Gregory Richards appeared on The Virginian-Pilot website on October 26.)
NORFOLK, Va. — Alliant Techsystems Inc., which runs the Radford Army Ammunition Plant west of Roanoke, has a beef over service and rates with Norfolk Southern Corp. and has taken it public.
Deliveries by the Norfolk-based railroad to Alliant’s plant, which produces propellants for ammunition for the military, law enforcement and civilians, “frequently” slip, Ken Vander Schaaf, an Alliant supply chain director, told a Senate Judiciary Committee panel this month.
The company copes by stockpiling extra materials, but that adds cost and overhead, he said in written testimony. It may start bringing in raw materials via truck but moving hazardous materials via roadways increases the potential for accidents, he said.
The complaint by Alliant mirrors those by some other railroad customers across the country that contend there is no rail competition for their business. Those shippers say they are tired of paying exorbitant rates for poor service with the nation’s biggest railroads, and are pressing Congress for change.
In the case of Alliant, Norfolk Southern has increased its rates to the Roanoke plant by more than 200 percent between May 2006 and July 2007, Vander Schaaf said. While some increase can be attributed to increased liability of transporting toxic inhalants, he said he believes such an increase is “excessive.”
Norfolk Southern spokeswoman Susan Terpay said in an e-mail response to questions that the rail rates cited by Alliant are not accurate. As for service, she said the railroad delivered 34 shipments of toxic anhydrous ammonia to the ammunition plant over the past six months. Norfolk Southern was on schedule for all but 10 of those deliveries, she said. And of those 10, she said, eight were caused by Alliant.
Similar disputes are being played out, to varying degrees, across the country. About 30 percent of railroad customers, many in rural areas, are “captive” to a single railroad, said the Consumers United for Rail Equity, a shippers’ advocacy group.
Many of the affected industries move bulk quantities of materials – utilities moving coal for their power plants and grain and chemical producers. In many cases, the higher prices are passed on to consumers, the group contends.
The railroad industry’s consolidation has left four large U.S. railroads – two in the east and two in the west, each wielding great power. Railroads carry more than 40 percent of the nation’s cargo.
The big railroads have created a “monopoly” over their customers, said Robert G. Szabo, the executive director of the shippers’ group.
Captive railroad customers “don’t have anything that approaches a normal commercial relationship,” he said. “They can’t sit down with the railroads and discuss rates. Very high rates are dictated to them and the service is very bad.”
The railroads contend that they are not overcharging shippers. They cite a recent federal study showing that rail rates for 2005 are below 1985 levels, despite recent increases. Given that, some rate increases are needed, railroad officials say, to pay for infrastructure upgrades and expansions to improve service and accommodate the projected growing volume of rail traffic.
Congress is considering the shippers’ concerns, with two sets of bills advancing through the Democratic-controlled chambers. Backers say the bills would restore some balance to a railroad industry that has changed greatly since it was partially deregulated in 1980.
At that time, railroads faced bankruptcy and generally were in shambles. Since then, they have shed unprofitable routes, streamlined work forces and entered new markets, such as hauling intermodal freight that moves on both trucks and trains. Subsequently, the industry’s profits have increased substantially.
One bill focuses on steps to increase railroad competition and improve service. The legislation would create an Office of Rail Customer Advocacy in the Department of Transportation to handle rail customer complaints. Upon the request of a customer, railroads would be required to move cargo to the point where the shipper can reach a competing railroad, eliminating what are known as “bottlenecks.”
The Surface Transportation Board, the federal body charged with resolving railroad rate and service disputes, would have to simplify its current process that it requires of shippers challenging railroad rates.
The other bill would strip away most of the railroads’ exemptions under federal antitrust laws. The change would make it easier for customers to sue railroads over matters of competition. It also would give the Department of Justice and the Federal Trade Commission the ability to stop mergers that violate antitrust laws. The Senate Judiciary Committee unanimously approved the antitrust legislation last month.
Neither the full House nor Senate is likely to vote on any of the bills until next year, Szabo said.
Norfolk Southern, the nation’s fourth largest railroad, and the railroad industry object to both bills. Railroads are now subject to antitrust laws, said James A. Hixon, Norfolk Southern’s executive vice president of law and corporate relations. The rail competition bill would re-regulate the industry, he said, and would have a “chilling” effect on investment by cutting revenues.
A recent study by the Association of American Railroads found that about $148 billion is needed to expand the nation’s freight rail systems over the next three decades to meet projected demand.
“This is about trying to take money out of our pockets and put it in our shippers’ pockets,” Hixon said. “It’s certainly possible that it would eliminate our profits over a period of time.”
Wick Moorman, Norfolk Southern’s chairman and chief executive, contends that the number of truly captive shippers is less than critics suggest. Shippers have many choices, he told a Senate Commerce panel Tuesday, between trains, trucks and barges.
Many railroad customers are large companies with significant leverage. For instance, if a railroad charges too high a rate to one plant, the customer can shift production to a facility served by another railroad.
A report issued last year by the Government Accountability Office, Congress’ investigative arm, said the number of captive shippers “appears” to be dropping. However, the amount of rail traffic being moved at high prices has increased, and these steeper rail rates are more prevalent in some areas with service from only one large railroad.
Not all railroad shippers support the proposed legislation. Executives from both Consol Energy Inc., a large coal mine operator, and Schneider National Inc., a big trucking company that ships some cargo via train, have told Congress that railroads are providing them with acceptable prices and service.
Various forms of legislation aimed at reining in railroads’ powers have been proposed in Congress since deregulation in 1980, but none were enacted. This time, however, may be different.
“We’re back and we’re angry,” said Szabo. “The railroads, I think, are beginning to take us seriously.”