Senate Expected to Introduce Measure Addressing Rail Shipping Rate Gripes

This story appears in the Oct. 5 print edition of Transport Topics.

Long-awaited rail legislation to address customers’ complaints about high rail shipping rates could be introduced in the Senate shortly, said analysts and trade groups who are eager to see the bill’s details.

Carriers and shippers have been waiting since June, when Sen. Jay Rockefeller (D-W.Va.) and Herb Kohl (D-Wis.) agreed to create a single bill that would be broader than a measure Kohl was ready to bring to the Senate floor.

However, “health care is dominating everything in the Senate now,” said Tre’ Riddle, director of federal affairs for the American Chemistry Council. “Mr. Rockefeller is entrenched in that debate.”

Rockefeller is chairman of the Commerce Committee, which would consider the rail bill. A Senate Commerce Committee official told Transport Topics a bill was still being drafted.

Kohl’s measure, which was approved by the Judiciary Committee in March, would have ended rail antitrust immunity and allowed states and local governments to sue carriers in rate cases. A broader bill also prob-ably would add new procedures for handling rate disputes and figuring rail investment costs, observers said.

“We are very close” to seeing a bill introduced, said Bob Szabo, executive director of Consumers United for Rail Equity — or CURE — which represents bulk shippers seeking lower rates.

Riddle said he thought it likely the legislation would appear during October.

The Association of American Railroads, the trade association representing carriers, remained mum. “We are not commenting on this, and will weigh in at the appropriate time,” spokeswoman Holly Arthur said.

“The long run-up to this legislation doubtless has been frustrating for all concerned,” said Bruce Carlton, president of the National Industrial Transportation League, a shipper group. “Every rail carrier and rail shipper is anxious to know precisely what has been included in the legislation and what has been left behind.

The details really matter for both the service providers and the service users.”

Szabo’s group maintains that rail rates for coal, grain and chemical shippers with a choice of railroads are about 50% less than those with service from just one railroad.

Analyst Ed Wolfe, founder of Wolfe Research, expects the measure to be focused on compromises that rail and shipper interests can live with, a departure from Rockefeller’s 2007 bill that would have forced broader access to rail networks. Carriers opposed that measure, which never reached a committee vote.

“The 2009 version of the bill [will] be materially less draconian,” Wolfe wrote in a Sept. 23 report. “We expect some form of required access by the rails to their competitor through mandatory bottleneck rate quotes and or a reciprocal switching enforcement provision.”

Bottleneck rate quotes and reciprocal switching are industry terms for mechanisms that would allow one railroad to use another carrier’s tracks to create competition for so-called “captive shippers,” which are served by only a single railroad today.

In addition to a new approach to access, Wolfe said the measure is expected to address multiple issues, including:

• Removal of rail antitrust immunity.

• Enlarging the Surface Transportation Board from three to five members.

• Additional rate-dispute handling procedures.

• Procedures for calculating the rail cost of capital.

Others also said they believed those issues would be the centerpieces of the bill.

“The two pillars for us are STB reform and the antitrust issue,” Riddle said. “This bill will be some sort of compromise. We are not viewing the railroads as the enemy. This is not a zero-sum game.”

Riddle also said he hoped the Sept. 16 approval by the House Judiciary Committee of a bill that removed rail anti-trust immunity would provide some momentum for the Senate bill to move.

Jon Langenfeld, an analyst at Robert W. Baird, said he expected a bill to be introduced in this legislative session, but action this year is questionable.

“Given the political climate in the Democratic-controlled Congress, we expect a comprehensive transportation bill to contain some incremental restrictions on rail pricing power,” he said in a report. “Any legislation will not be overly onerous and will not fundamentally change the railroad industry’s pricing power.”

Langenfeld said he believed rail pricing power won’t be curbed extensively because industry return on capital is modest, rail is a strategically important to an efficiently operating transport network and there has been effective lobbying by AAR and some union as well as shipper allies.

Wolfe also said he believes there will be nothing in the bill that impairs the rails’ long-term pricing power.