Rail Shippers Seek New Rules to Promote Rate Competition
The National Industrial Transportation League, Allied Shippers and Consumers United for Rail Equity said STB rate policies must be changed. They argued that while rail profits have grown, STB’s mechanisms for reviewing rates haven’t kept pace.
Their assertions were challenged by the Association of American Railroads at an STB hearing July 22-23 to assess the agency’s so-called “revenue adequacy” formula in light of U.S. rail earnings that rose last year to nearly $14 billion.
Carriers with return on invested capital are deemed revenue-adequate while those below it are inadequate.
AAR officials maintained that STB had no legal power to entertain shippers’ bids for lower rates just because a railroad’s profitability has improved enough to make it “revenue-adequate.”
“A handful of interest groups want you to cut their transportation costs by direct government intervention at the expense of the greater good,” AAR President Edward Hamberger said July 22. “They want you to institute a regime of wide-ranging price controls.”
Karen Booth, counsel to NITL, urged STB to adopt her trade group’s proposal to increase competition by giving a carrier that is “captive” — served by just one railroad — access to a second carrier.
“The board should not ignore the fact that three of the nation’s big four railroads have been revenue-adequate for the past three years,” she said. “Adoption of the competitive switching program will not hurt the rail industry.”
She said less than 3% of rail revenue would be affected if NITL’s proposal were adopted.
Hamberger contended that far more than a “sliver” of rail traffic was at stake if the rules were changed. He said rates for at least 20% of railroad traffic might be challenged if shippers won more power to seek lower rates.
That suggests about $14 billion in rail revenue could be at stake, based on the 20% figure and total 2014 U.S. rail revenue, which topped $70 billion.
Kelvin Dowd, a Washington attorney appearing for Allied Shippers, argued that “a revenue-adequate carrier should not be allowed to impose further rate increases on a shipper’s captive traffic. Once a shipper can show [railroad] market dominance and revenue adequacy, further increases should be illegal.”
The agency assesses “market dominance” with a separate formula. That formula allows shippers to challenge rail rates if they can prove that the rate being charged is more than 180% of the variable cost.
Dowd also said railroads’ claims that more regulation would put a lid on their profits was “dramatically exaggerated.”
Hamberger responded that capping rail rates would impede the railroads’ efforts to serve several national transportation policy goals by removing financial incentives to reinvest in the rail network.
Those goals included efficient transportation, increasing exports that largely move by rail, achieving energy independence, improving energy efficiency, reducing highway congestion and enhancing safety.
Hamberger also took a broader view. “This is not a hearing about an arcane formula of what constitutes adequate revenue at any given freight railroad,” he said. “It is a hearing about the future of the U.S. economy. It is a hearing about whether you will set the U.S. freight rail system back.”
“CURE believes that the carriers’ falsely perceived lack of adequate revenues has served to shield the railroads’ exercise of their monopoly pricing power from STB scrutiny and prevented shippers from obtaining appropriate relief,” said David Sauer, the group’s president and chief operating officer of Dakota Gasification Co. in Bismarck, North Dakota.
STB doesn’t have the power to regulate most rail rates, such as intermodal freight. However, the rates for regulated and unregulated freight affect each other because the cargo moves over the same tracks.
