US chemicals sector hails new federal study on rail rate charges

11 June 2015 19:23 Source:ICIS News

US chemicals sector hails new federal study on rail rate chargesWASHINGTON (ICIS)--A new federal study says that railroad freight rate-setting procedures are badly in need of reform, a finding hailed on Thursday by US chemical sector officials but blasted by rail industry leaders.

The study by the Transportation Research Board (TRB) found that while federal reforms in 1980 rescued the nation’s then-floundering major railroads from collapse, those reforms are themselves now in need of modernisation.

The board, part of the National Academy of Sciences (NAS), recognised that the 1980 Staggers Act eliminated or eased many federal rules that were choking rail operations and then enabled a return to profit-making.

The NAS is a taxpayer-funded agency that advises the federal government on science and technical issues, and its findings typically influence Congress.

But, said the TRB study, a legacy of the Staggers Act has left freight rail shippers unable to seek relief from or challenge what they regard as unreasonable shipping rates.

The US chemicals industry, along with other high-volume rail shippers such as the coal sector and grain farmers, has long complained that market protections afforded the railroads in 1980 serve to leave some shippers “stranded” and vulnerable to arbitrary rate decisions by a single rail carrier.

The TRB report noted that the Staggers Act did provide a means for shippers to challenge freight rates through the Surface Transportation Board (STB), which was established by that statute.

But the board found that “while the Staggers Act affords shippers with the ability to challenge unusually high rates, the [study] committee found that the formula used to identify high rates is unreliable and economically invalid”.

That in turn leads to “regulatory procedures that systematically deny large numbers of shippers’ access to the law’s maximum rate protections”, according to the TRB.

The study noted that, as has often been argued by chemical shippers and others, appealing a rate issue to the STB “can cost millions of dollars for litigation, and some [appeals] have taken years to resolve, deterring shippers with smaller claims from seeking rate relief”.

“The system has the effect of safeguarding railroad revenues by making it too costly for most shippers to litigate a case,” the STB report says. “Shippers are thus denied equal and effective access to the law’s maximum rate protections.”

The board’s report recommends that the STB complaint procedure be replaced with outside arbitration hearings “that compel faster, more economical resolutions of rate cases”.

It also recommends that outside arbitrators have authority to force reciprocal switching “for those rates found to be unreasonable”.

This remedy addresses a shortcoming of the Staggers Act that chemicals producers say creates “captive shippers”, manufacturers dependent on a single rail carrier that can charge exorbitant rates to connect one shipper site to another nearby carrier’s tracks.

American Chemistry Council (ACC) president Cal Dooley on Thursday hailed the TRB report as “more proof that freight rail reform is long overdue”.

“The conclusions outlined in the expert report make it very clear that the STB’s current freight rail policies are broken and are not able to address rising rates and declining service,” Dooley said.

But Edward Hamberger, president of the Association of American Railroads (AAR), slammed the TRB study as “a solution in search of a problem”.

Hemberger said that US freight rail customers “today pay rates that on average are 43% less than paid in 1980”.

“The TRB report is a theoretical exercise that would upend the real world concrete successes achieved since the Staggers Act passed in 1980,” Hemberger said.

Dooley said that the TRB report lends support to rail reform legislation approved earlier this year by the Senate Committee on Commerce, Science and Transportation.

That legislation, the “Surface Transportation Board Reauthorisation Act” (S-808), is awaiting action by the full Senate.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By Joe Kamalick