Railroad shipping: Senators team up to craft new legislation focused on railroad antitrust exemption and reforming STB
Jeff Berman, Group News Editor -- Logistics Management, 6/2/2009
WASHINGTON—Two U.S. Senators eyeing major changes in the freight railroad industry said they are joining forces to craft legislation that they said will address the longstanding concerns of rail shippers and make the rail industry more competitive.
In a letter addressed to Senate colleagues, Senators Herb Kohl (D-WI) and John Rockefeller (D-WV) said they have petitioned Senate Majority Leader Harry Reid to withdraw the pending cloture petition on S. 146, the Railroad Antirust Enforcement Act. The Senators explained that Commerce and Judiciary Committees “intend to work together on comprehensive rail competition legislation,” resulting in a bipartisan package that reforms the Surface Transportation Board (STB) and repeals the railroad’s antitrust exemption in the form of a robust reform package.
The antitrust issue: In March, the Senate Judiciary Committee voted by a 14-0 margin to pass legislation—S. 146, which was introduced by Kohl—that would remove antitrust exemptions currently granted to the railroad industry. This legislation is geared to “bring the freight railroad system under the nation’s antitrust laws and bring protection to farmers, manufacturers and electricity customers” whom have suffered from increased rates and decreased quality and service, which is due to a lack of competition among freight carriers, as stated in an April 2008 letter penned by seven U.S. senators to Reid.
Along with removing antitrust exemptions, this legislation would:
-
revise provisions prohibiting anticompetitive transactions except for those approved by specified federal agencies acting under certain statutes to eliminate the exemption for certain STB approved transactions;
-
empower the Federal Trade Commission (FTC) to regulate, and engage in antitrust enforcement regarding, collective rate agreements and certain transactions, including railroad mergers and acquisitions;
-
revise STB authority to provide that a rail carrier, corporation, or a person participating in an approved transaction is not exempt from specified antitrust laws; and
-
permits treble damages against railroad common carriers in antitrust suits to parties injured by antitrust violations without regard to whether such railroads have filed rates or whether a complaint challenging rates has been filed, among others.
Along with S. 146, it appears the new version of railroad legislation would be meshed with related bills, including H.R. 2125, The Railroad Competition and Service Act, which was introduced in 2007, and focuses on ensuring competition in the rail industry, enabling rail shippers to obtain reliable service, and provide them with a reasonable process for challenging rates and service disputes. This bill was first introduced by Rockefeller and Byron Dorgan (D-N.D.) in the Senate as S. 953, with the goal of repairing what they say is a broken railroad system that is a detriment to shippers moving freight on the rails and also hinders the nation’s competitiveness.
Removing rail antitrust exemptions is strongly supported by the National Industrial Transportation League, as evidenced by a letter from NITL President Bruce Carlton to all 99 U.S. Senators.
“America’s freight railroads and their shipper customers will be affected by both S. 146 and Senator Rockefeller’s prospective legislation,” wrote Carlton. “Accordingly, the League’s Board of Directors has voted overwhelmingly to endorse S. 146 and urge the Senate to coordinate any changes in the applicability of antitrust law to the railroads with the forthcoming STB reauthorization bill. The League respectfully recommends that the Senate work cooperatively toward achieving a coherent, rational and comprehensive national policy which will enable our nation’s railroads to be in the best position
possible to serve their valued customers. Further, the League’s Board believes it is imperative that both pieces of legislation be developed in tandem in order to avoid the consequences of taking a piecemeal approach to legislation of such importance to shippers and railroads: uncertainty for both interests, and inevitable conflicts in law and policy direction.”
From a shipper’s perspective, this legislation is considered vital, according to Bob Szabo, executive counsel of CURE (Consumers United for Rail Equity).
“[These senators] have always been for correcting barriers to competitive access on the rails and for improving the STB’s rate challenge process so that it works better and makes the STB a real live functioning regulatory agency that protects the interests of rail shippers and consumers,” said Szabo. “That is what this bill will do, and railroads have apparently signaled some interest in resolving this issue and not compromising so they don’t have to address these problems year in and year out.”
Szabo added that although Class I railroad volumes were down in the first quarter, rates remained up even though there was less demand for business. He explained this is done primarily through monopoly pricing power.
But the rate and pricing argument does not hold water with some expert railroad analysts. And one piece of this that it has long been stated that on average U.S. railroad freight rates are among the lowest in the world, coupled with the fact that the regulatory risk this measure may bring may drive private investors and private equity away from the railroad industry for investments in infrastructure and rail cars at a time when it badly needs the capital to meet projected freight demand, according to William J. Rennicke, director of Oliver Wyman, a Boston-based management consultancy.
“The Department of Transportation is predicting an 88 percent increase in railroad freight tonnage by 2035,” said Rennicke. “So if you are going to have private capital come into an industry, investors want to invest in something where they are not going to be blindsided by changes in regulatory structure.”
Rennicke’s sentiment was supported by Anthony B. Hatch, principal of ABH Consulting in New York. Hatch said that railroads have a newfound discipline on rate structures, as well as a much better understanding of their costs and returns.
“Railroad capital expenditures are down ten percent year over year, with most of that being spent on equipment and cars—not track or infrastructure improvements,” said Hatch. “They are highly aware of and not trying to make the same mistakes they made in the last recession where they cut so much that when the economy came back they were always trailing the curve and had to embargo traffic which upset [shippers].”
View All On-Demand Webcasts
