Rail Rate Reform Making a Comeback?

Armed with a report showing freight railroad companies have been earning record profit margins, two key senators have vowed to push railroad reform legislation to protect captive rail freight shippers. “I want everybody in this room to know that, whether we do it this year or next year, railroad reform is going to happen,” Senate Commerce, Science, and Transportation Committee Chairman Jay Rockefeller (D-WV), said at a September 15 hearing. “Either Congress will do it, or it will need to be done through regulation.”

If a comprehensive reform bill is not viable, “I will also seek to advance repeal of the [railroads’] antitrust exemption by any other means possible,” said Senator Herb Kohl (D-WI), the sponsor of a bill to repeal the exemption. Kohl last year agreed to a request by Rockefeller to incorporate his antitrust bill in a broad railroad reform bill. “All those who rely on railroads to ship their products deserve the full application of the antitrust laws to end the anticompetitive abuses all too prevalent in this industry today.” The Senate Judiciary Committee last year reported Kohl’s antitrust repeal bill on a 14-0 vote.

The findings of the report by Commerce Committee staff suggest that the Staggers Rail Act of 1980, a 30-year-old law giving railroads the authority to charge many U.S. businesses extraordinarily high shipping rates, needs to be reformed, Rockefeller said.

“If you listen to what the railroads tell their regulators in Washington, they are barely keeping the lights on,” Rockefeller said. “But the reality is that Class I railroads have become some of the most profitable companies in the United States. They enjoy substantial market power yet the current railroad regulatory system regards them as incapable of both making needed capital investments and remaining healthy. It’s past time to update our rail policies to change a system that allows railroads to grossly overcharge captive shippers and to better meet our nation’s future transportation needs.”

Using the companies’ Securities and Exchange Commission filings, quarterly investment calls, industry analyst reports, and other sources, the committee staff concluded that the freight rail industry has more than achieved the Staggers Rail Act’s policy goal of restoring the financial stability of the U.S. rail system. Among other things, the report found that:

  • In the same year (2008) that the rail industry told the Surface Transportation Board that its profitability was lagging behind other sectors of the economy, Fortune magazine rated railroads as one of the top five most profitable industries in the U.S. economy.
  • While the railroads tell regulators they are not making enough profits to cover their long-term capital investment needs, the Class I railroads are using billions of dollars of their profits to buy back stocks and boost the short-term values of their stocks for their shareholders.
  • Although the railroad industry claims that it still has difficulty attracting sufficient investment dollars, Warren Buffett and other investors have been investing billions of dollars in the companies.
  • Unlike other transportation modes, such as trucking, the railroads have maintained their high profit margins even during the sustained economic downturn of 2008-10. Freight railroads have been assuring their investors the companies will take advantage of this “robust pricing environment” and continue to push rate increases on their customers.

There is no time like the present to fix a system that permits these over charges to be laid on the backs of consumers.

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