(The following report by Robert Wright appeared on the Financial Times website on November 13.)
WASHINGTON, D.C. — Accelerating investment in US railroads’ capacity could come to a halt if proposed legislation to re-regulate many of the railroads’ prices is brought into force, the chief executives of three of the top five US railroads have warned.
The chief executives of CSX Corporation, Union Pacific and BNSF – all among the five large US-based Class I railroads – have told the Financial Times that fewer new investments will be justifiable if any of the four bills to regulate rates being debated in Congress becomes law.
Most US rail rates were deregulated in 1980, in response to a financial crisis at many railroads exacerbated by the previous system of federal oversight.
Railroads have invested heavily in capacity in recent years following a surge in traffic caused by the growing popularity of coal for power generation, expanding wheat production and growing imports of shipping containers from Asia.
The increased demand and need to pay for investments has pushed up many freight rates, although the Association of American Railroads says they remain about half the level they were before rail deregulation in real terms. Railroads plan to invest about $10bn in new capacity this year.
However, some rail customers back the bills – which would cap freight rates and increase competition – because they say consolidation has given more operators monopoly power over certain customers.
The controversy has fed into a debate about how the government can best encourage increased use of the US’s railroads to relieve pressure on highway networks.
Jim Young, chief executive of Union Pacific, the US’s largest railroad by revenue and network size, said he had told legislators that the company would change the size of its network to suit its returns.
“I said: ‘The government needs to be careful because you’re making decisions that determine how much business you want moving on the railroads long term,'” Mr Young said. “If they make the wrong decisions and we restrict that growth, they are going to have to figure out how to handle it on the highway.”
Matt Rose, BNSF’s chief executive, said a legislative restriction on earning potential would force capital out of the industry.
The only big point of dispute among railroads is over the likelihood that the legislation will succeed.
Mr Young said he was taking it seriously, while Michael Ward, chief executive of CSX, said he thought the consequences would be so damaging that the legislation would fail.