Shipper complaints prompt STB review of rail service, competition issues

By Staff -- Logistics Management, 5/1/1998

Poor service and shipper complaints of limited rail competition have prompted the Surface Transportation Board (STB) to begin a review of railroads that could lead to a shift and perhaps an increase in railroad regulation. The board will examine several issues, including rail revenue adequacy, competitive access, market dominance, and the role of smaller rail carriers.

Shippers aired their concerns about severe rail service problems in the Western part of the country during two days of STB hearings last month. The board conducted those hearings at the request of Sen. John McCain (R-Ariz.), chairman of the Senate Committee on Commerce, and Sen. Kay Bailey Hutchison (R-Texas), chairman of the Subcommittee on Surface Transportation and the Merchant Marine.

Shippers told the board that rail consolidation had curbed competition. They also complained that regulatory remedies were burdensome, costly, and unresponsive. H. Pat Jack, chairman of the Society for the Plastics Industry and a senior vice president for Fina Oil and Chemical Co., told the board, "Unfortunately, the lack of rail competition seriously impedes our ability to compete on a level playing field."

In its decision Review of Rail Access and Competition Issues, STB Ex Parte No. 575, the board said, "It is clear the we have reached a regulatory crossroads."

The board says it plans to take a "careful, measured approach" to the problem, saying that neither the status quo nor "drastic measures" suggested by some shippers seem appropriate. It also directed railroads to establish a formal dialogue with shippers to address service and planning needs.

The STB will revisit its test for rail "revenue adequacy," which shippers say does not reflect a railroad's true financial state. The test, which measures a railroad's financial performance against its cost of capital, is important because carriers that are below the mark have greater rate flexibility than those that meet the standard. Although the railroads have been profitable lately, few meet the revenue-adequacy test.

In addition, the board will look at revising competitive-access rules and their impact on service. It also established a panel to look at how to facilitate greater access.

Shipper reaction to the STB's plans to conduct the study has been mixed at best. A Midwest chemical shipper asserts that the STB "said the right things, but the proposal has no teeth." Another questions the value of an STB or congressional solution "to what amounts to a structural problem within the Union Pacific."

Stephen M. Coulter, land transportation manager for Exxon Co., says rail-service issues should play a greater role in the development of national transportation policy. "Rather than widening interstate highways, we may want to spend our tax dollars in fostering new rights-of-way for railroads," he says. "This would let the railroads make the investment, it would increase competition, and it would add capacity without further straining the current system. We should not require one railroad to divest in order for another to compete."