Rail Shippers Push for Oversight
Rail companies are now profitable and have become the targets of high-stakes takeover bids on Wall Street. Gone are the days of standing derailments, when trains buckled under poorly maintained tracks even while standing still.
Despite the recent rail renaissance, however, many coal, chemical, grain and other high-volume shippers left without competitive options want to change the regulatory landscape to ultimately get lower prices and better service.
A recent service meltdown at Union Pacific Railroad gave impetus to the drive. Shippers and lawmakers are now closely watching the impending split of Philadelphia-based Conrail Inc., now scheduled for June 1.
"For pure railroad shippers served by just one railroad, we are left at the mercy of the railroad or of the (regulatory) agency," said Ed Emmett, president of the shippers group National Industrial Transportation League. "Getting relief could take years or hundreds of thousands of dollars in legal fees."
Remedies sought before Congress include requiring the Surface Transportation Board to give greater weight to increasing competition in approving mergers or settling price disputes, two of
he few areas that remain under the government's jurisdiction since a 1980 law lifted most oversight.
Shippers say they are trying to foster more competition among railroads, while the rail companies fear the move would undo many of the gains that came with deregulation.
"What they want is the rates to come down, and when rates come down, we have less money to put into the system," said Mark G. Aron, executive vice president of CSX Corp., which will take over about half of Conrail's routes.
He said regulators would wind up meddling again with basic rail operations in deciding such questions as who would get priority if railroads are forced to share tracks, a common method now used to ensure competition in some areas.
The chairman of the House Transportation Committee, Rep. Bud Shuster (R-Pa.), is vehemently opposed to any increased regulation, making the bid a difficult one for shippers.
Nevertheless, railroads are taking the threat seriously and have stepped up their lobbying. More than 150 labor and management representatives were dispatched to Capitol Hill to fight the plan Wednesday, a day after the Senate Commerce rail subcommittee opened hearings on the issue. That panel's chairwoman, Sen. Kay Bailey Hutchison of Texas, strongly supports the changes.
Prior to deregulation, rail companies needed approval to change prices, shut down unprofitable routes and make other operational decisions. Several rail companies collapsed, forcing Congress to create Conrail as a sanctioned monopoly in 1976 out of six bankrupt northeast freight lines.
Railroads since then have been able to make the necessary investments in tracks and other infrastructure to offer better service at lower prices. Conrail became profitable again, leading
o a 1997 decision by CSX and Norfolk Southern Corp. to buy Conrail for $10 billion, carve up its routes and restore competition in many markets.
But later that year, Union Pacific ran into gridlock as it tried to absorb routes from its 1996 merger with Southern Pacific Rail Corp. Angry shippers got the ear of Congress and, although the Union Pacific problems have subsided, decided to continue pressing for more competition.
"We need a rail industry that is responsive to the needs of its customers, and that means a rail industry that is not empowered to exploit major portions of its customer base by exercising monopoly market power," said William E. Harvey, global logistics development manager at Houston-based Lyondell Petrochemical Co.
Several lawmakers are joining the drive as the Conrail split approaches. Besides being concerned about potential operational problems, critics say the Conrail restructuring will leave much of New England and New York City without head-to-head rail competition. Rep. Jerrold Nadler (D-N.Y.) plans to push his own fix in the next few months.
Congressional auditors recently concluded that limited competition in certain areas of the country after a series of rail mergers has lead shippers to believe they are footing unreasonable
osts from railroads.
Two rail giants in the East and two in the West will remain following the Conrail breakup, compared with about 40 large railroads nationwide when the industry was deregulated.
Railroads insist that shippers - even those served by only one company - already get a good deal, with average rates having come down 55 percent since 1981.
"Shippers have an awful lot of options," said Tom White of the Association of American Railroads, a trade association. "Many shippers can use truckers. We also compete with barge and pipeline. It's absurd to talk about the captive shipper."
Hutchison said she recognized that the efforts to expand the regulatory board's power were controversial, "but I think we will have a compromise that frees the shippers more and also maintains the ability of the railroads to be able to invest."
