Rail service issues and rates are main issues in proposed STB reauthorization bill

Railroad service issues and rates, which many rail shippers deem as unreasonable, are front and center in a piece of legislation to be introduced soon by Senators Jay Rockefeller (D-WV) and John Thune (R-SD), chairman and ranking member of the Senate Committee on Commerce Science and Transportation.

Entitled the Surface Transportation Board (STB) Reauthorization Act of 2014, the objective of the bill, according to the Senate Commerce Committee, is to make the STB, an economic regulatory agency charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers, more efficient and accessible for rail shippers.

The chief objectives of the bill include:
-strengthening the role of the STB and increasing its investigative authority so it can launch its own investigations prior to a complaint being filed;
-increasing the efficiency of the STB by improving rate review timelines, which would make it easier for STB members to communicate and improve dispute resolution practices; and
-to advance important STB proceedings that include reviewing revenue adequacy determinations, examining mandatory competitive switching and determining whether contract bundling has had an adverse impact on the ability of shippers to bring rate cases

At a hearing last week, entitled “Freight Rail Service: Improving the Performance of America’s Freight Rail System,” Rockefeller noted that when Congress passed the Staggers Act in 1980 it recognized the need for a robust rail system, as the law made what he described as sweeping changes that gave the railroad industry an opportunity to improve its finances and the ability to better compete against other modes.

“The Staggers Act sought to provide…the opportunity for railroads to obtain adequate earnings to restore, maintain and improve their physical facilities while achieving the financial stability of the national rail system. In that regard the Staggers Act has worked,” Rockefeller said. “The freight railroads continue to set new financial records quarterly, and these companies continue to raise their dividends and buy back record amounts of stock. But not everyone is doing so well. Many of the witnesses here today have struggled to remain competitive as rail service declines and rates rise. And the situation continues to get worse.”

While similar attempts to improve the STB have been proposed in recent years, this one appears to be different in that rail service, going back to last winter, has experienced major delays in various parts of the country even while Class I railroad carriers continue to make record capital expenditure investments, with much of that capital allocated for infrastructure improvements.

A large shipper group, the American Chemistry Council (ACC), supported the bill, explaining that current rail policies are more than 30 years old and not maintained pace with the myriad ways in which the freight rail sector operates and is subsequently having a negative impact on shippers.

The ACC cited a May 2014 study from Escalation Consultants that stated rail rates have increased more than 93 percent, which is three times the rate of inflation, since 2001. And it explained that reforms are needed at the STB to provide shippers with better access to more competitive and reliable freight rail service.

As for the railroads perspective, Association of American Railroads (AAR) President and CEO Ed Hamberger said at the hearing that the current balanced regulatory framework serves as a key enable of the country’s economic revival.

“America’s freight rail system, which is second to none in the world and continues to play a critical role in our country’s economic resurgence, is today moving more traffic than at any time during the last seven years. Business production and consumer demand are increasing, and rail is playing a bigger part in getting American goods to market, both domestically and internationally,” Hamberger said. “The record private investments that the rail industry makes every year in the nation’s rail network have well positioned today’s continued economic recovery. The industry invests the revenue it earns, not government funding, to grow and modernize the rail network, meeting the needs of customers, large and small.”

And he added that the current balanced regulatory system protects shippers and enables the rail industry to continue to keep refining itself in order to work more efficiently for its customers. As for the ongoing service woes, he said railroads are committed to restoring service to expected levels as quickly and efficiently as possible.”

Class I railroad executives have said repeatedly over the years that the existing regulatory railroad environment has produced—for North American railroad shippers—a freight railroad system that is the envy of the world.  And while it not perfect, depriving the industry of its ability to earn its cost of capital could have a chilling effect on capital investments to support traffic growth and it could begin to reverse the great strides the rail freight sector has made after Staggers in the areas of rail safety and service reliability.