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Cargo Rates Trigger Shipper Backlash as US Rails Soar


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After CSX Corp. raised rates for shipping specialty gas by 41% over three years, Diversified CPC International Inc. had to shutter a production line near Chicago.

The buyer of a custom-ordered Diversified gas didn’t want the expense from those freight bills, so it decided to bring the manufacturing in-house.

“We kept cautioning the railroad and cautioning the railroad, but they didn’t listen,” said Sandra J. Dearden, president of Highroad Consulting Ltd., which represents Diversified. “They priced everybody out of the business.”

Following a decade of increases that sent rail profits and stocks to records, shippers such as Diversified and Dow Chemical Co. are asking the U.S. government to help them fight back. They want to be able to compel railroads to hand off cargo to a rival in mid-journey and make it easier to challenge higher rates with the U.S.

Those demands are setting up a showdown in Washington, where railroad lobbyists say that easing the 1980 law that ended price controls would threaten the industry’s renaissance.

Rates may keep rising. Rail carloads climbed 7% last quarter, the fastest clip since the end of 2010, buoyed by surging crude-by-rail cargoes and a bumper North American grain harvest. Truckers are boosting fees, too, with long-haul rates estimated to rise 5.1% in the second half, according to data from transportation consultant FTR Associates.

With truckers running trailers at almost 100% capacity “in an improving demand environment, it makes sense that pricing should go higher,” said Justin Long, a Stephens Inc. analyst in Little Rock, Arkansas.

Since 2001, the average shipping cost per rail carload has climbed 93%, said Scott Jensen, a spokesman for the Washington-based American Chemistry Council trade group.

“That is what has our members and other shippers so concerned,” Jensen said last month in a telephone interview.

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By Bloomberg News

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