US railroad reform legislation to move forward, but a broader consensus bill is possible

On track

29 May 2009 00:00  [Source: ICB]

Legislation favored by the US chemical industryto end monopoly rail exemptions moves forward

LEGISLATION BEING pushed by chemical producers to end monopoly exemptions for US railroads is on track, say its proponents, but it could be rolled into a broader rail regulation reform bill.

The US Senate may take up consideration of the Railroad Antitrust Enforcement Act of 2009 as early as mid-June, says Marty Durbin, vice president of Federal Affairs for the American Chemistry Council (ACC).

A House version of the measure was considered on May 19 by a subcommittee of the US House Judiciary Committee.

The ACC is part of Consumers United for Rail Equity (CURE) - a group of rail shippers that is spearheading a drive to remove antitrust exemptions for the railroads. The group says the current exemptions give the railroads monopoly pricing power at the expense of "captive shippers," which are served by only one railroad.

Groups such as the American Association of Railroads (AAR) oppose the legislation, saying such "reregulation" would deprive freight railroads of several billion dollars a year, which is what makes it possible for them to fund needed rail capacity improvements.

"The result would be a shrunken rail network, higher shipping costs, more gridlock and environmental degradation as freight that otherwise would move by rail moved on the highways instead, and eventually a government bailout," the AAR warns.

However, Durbin believes the bills could be rolled into a "consensus bill that both railroads and customers can support."

One possible consensus bill is the Federal Surface Transportation Policy and Planning Act of 2009. The bill is touted as establishing "a comprehensive and unifying mission for the nation's surface transportation system."

The goals of the bill include increasing the proportion of national freight transportation provided by nonhighway or multimodal services by 10%; and reducing passenger and freight transportation delays and congestion at international points of entry on an annual basis. A reform package could be completed by late 2009, Durbin says.

But the battle lines are clearly drawn regarding railroad antitrust exemptions.

"The principal effect of the antitrust legislation will be to treat railroads like every other industry in the United States," according to CURE.

"Today, rail transportation that is subject to STB [the US Surface Transportation Board] jurisdiction is the only major federal regulated activity that operates outside US antitrust laws. All other US industry activities that are subject to federal economic regulation are also subject to the antitrust laws that protect consumers from monopolization, agreements in restraint of trade, and mergers that may lessen competition," it says.

CURE executive director Bob Szabo contends: "Because the STB is not required to ensure that its regulatory program complies with the nation's antitrust laws, railroad mergers have been approved that have resulted in less competitive transportation markets, and rulings have been made that block rail customer access to competing railroad systems." He concludes: "Some of these questionable transactions would not have been approved had railroads been subject to antitrust law."

The lack of competition in the railroad industry causes "significant problems and higher rail shipping rates for a wide variety of rail customers that must ship their goods by freight rail," said Senator Herb Kohl (Democrat, Wisconsin), author of the Railroad Antitrust Enforcement Act of 2009, in a May 5 letter to fellow members of Congress. However, the AAR argues there are plenty of reasons to reject such legislation.

In 1980, Congress passed the Staggers Act, which substantially deregulated the rail industry, according to the AAR.

The Staggers Act came after "decades of government overregulation had brought US freight railroads to their knees," according to the AAR. "Bankruptcies were common, service was unreliable, safety was deteriorating and rail infrastructure and equipment were in increasingly poor condition because meager rail profits were too low to pay for needed upkeep and replacement."

Since the Staggers Act was passed, rail traffic volume rose by 93% from 1981-2007 and rail productivity was up by 163%, according to the AAR. Inflation-adjusted rail rates fell by more than 50% in the same period, while freight railroads reinvested some $420bn (€300bn).

The AAR says the Act did not completely deregulate railroads. The STB can set maximum rates and take other action if a railroad is found to have market dominance or to have engaged in anticompetitive behavior.

The new proposed legislation would cut into railroad revenues and "could not come at a worse time for the railroad industry and its employees," according to a statement from a group of railroad and labor organizations. "Due to the worldwide recession, rail traffic is down 20+%, almost 500,000 rail cars and over 3,000 locomotives are in storage, and more than 10,000 workers have been furloughed. The rail industry and its employees shouldn't have to take any more hits."

Durbin retorts that the railroad numbers "don't show how much of the cost has been shifted from the railroads to the customers themselves" under Staggers.

Durbin argues that the rate challenge system at the STB takes too long - with cases lasting three to five years and costing the parties millions of dollars - and is weighted in favor of the railroads.

"We want railroads to have a greater chance of losing [rate cases] so they will have more incentives to meet us at the commercial table," he says.

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