US STB commissions study on rail competition

11 September 2007 01:21  [Source: ICIS news]

By John Waggoner

HOUSTON (ICIS news)--The US Surface Transportation Board (STB) has awarded a $1m (€730,000) contract for a first-ever study on competition and policy within the US rail system, STB chairman Chip Nottingham said on Monday.

The new study comes at a time when many in the rail industry - including both shippers and freight customers - are concerned about rates and competition.

Nottingham said the contract will go to researchers from the University of Wisconsin, who will analyse the US railroad system to give regulators better information about surface freight to address these issues.

The study will include important rail shipment zones for the chemical industry, Nottingham said.

Chemical distributors are concerned about freight costs and tight capacity in certain regions of the country, especially for captive shippers.

Many in Congress contend that the STB lacks sufficient authority to oversee rail freight rates, and there is legislation pending that would give the STB greater authority on rate matters of concern to large customers such as those in the chemical industry.

Nottingham said the STB does not take positions on pending legislation. However, he said with its existing authority, the STB has attenuated concerns about freight costs for small and medium sized volumes, and is now reviewing concerns by the large volume customers.

“We have made it a lot simpler and less expensive to challenge the rates for values of $1m and $5m,” he said.

Rail companies, however, are concerned about meeting future demand for freight and the necessity to invest in new infrastructure if rates are dropped for captive shippers.

Chemical manufacturers have long complained that railroads take too long to deliver cargoes and return empty tank or hopper cars. As US freight volume grows, especially in response to new ethanol production capacity, it has raised the question of whether rail carriers will be able to expand capacity to improve service. 

“Our margins are narrower than those of some of our customers,” said Joe Arbona, director of regional public affairs for Union Pacific in Houston. “We have been reinvesting in railroads.”

Rail companies see mergers as one possible solution to the problem of how to fund investments in capital-intensive infrastructure. Arbona mentioned Union Pacific’s merger with Southern Pacific as one example.

“At the time of the merger, Southern Pacific was unable to invest,” Arbona said.

If the industry continues to consolidate, the STB will use the study to address regulatory issues that might arise regarding competition in the sector, Nottingham said.

($1.00 = €0.73)

By: John Waggoner
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