Subscribe to our free, weekly email newsletter!


Rail shipper group takes BNSF to task over URCS and revenue adequacy determinations

By Jeff Berman, Group News Editor
September 30, 2011

The Western Coal Traffic League (WCTL), a voluntary association comprised of consumers of coal produced from United States mines located west of the Mississippi River, filed a petition this week with the Department of Transportation’s Surface Transportation Board (STB) requesting that the STB issue an order that would adjust the Uniform Railroad Costing System (URCS) of Class I railroad carrier BNSF Railway Company.

According to the STB, URCS is its railroad general purpose costing system that is used to estimate variable and total unit costs for Class I U.S. railroads. URCS only develops costs for U.S. Class I railroads.

This request by the WCTL would adjust the URCS for BNSF for 2010 and subsequent years, according to the STB. And the WCTL is asking the STB to declare that it exclude the write up in BNSF’s net investment base attributable to the difference between the book value and the price that Berkshire Hathaway Inc. paid to acquire BNSF in 2010, as well as make corresponding changes in BNSF’s annual URCS depreciation calculations.

Berkshire Hathaway paid roughly $34.5 billion for BNSF in a transaction that was made official in February 2010.

Consumers United for Rail Equity (CURE) a rail shipper concern, maintains that if BNSF has the right to inflate its asset base for regulatory purposes by a portion of the “premium” Berkshire paid to purchase all the stock of the railroad and take it private, it could spell higher rates for shippers served by BNSF.

“It is unfair and ridiculous to expect rail shippers to foot the bill for Berkshire Hathaway and the BNSF,” said Glenn English, Chairman of CURE, in a statement. “This accounting maneuver could raise shipping rates even higher and is harmful to our country’s coal, agriculture and manufacturing industries as well as a detriment to U.S. jobs and export growth.”

In its petition with the STB, the WCTL said BNSF’s write up would have significant detrimental effects on BNSF shippers that can bring rate cases before the STB because the write up would raise BNSF’s variable costs, which in turn would raise the quantitative jurisdictional threshold for rate proceedings—rates that equal or exceed 180 percent of the carrier’s variable costs.

The WCTL also noted that the write up would increase the maximum rates for shippers that are able to obtain maximum rate relief from the STB because BNSF’s increased variable costs would translate into a higher rate floor.

BNSF said in the petition that the STB and its predecessor the Interstate Commerce Commission and the Railroad Accounting Principles Board and the courts have often stated that “acquisition cost is an economically accurate measure of current market value,” adding that WCTL has not presented evidence that or argument that merits a general proceeding to revisit the use of acquisition cost for URCS costing or any other regulatory purpose.

Anthony B. Hatch, principal of New York-based ABH Consulting told LM that BNSF is the only one of the seven Class I railroads that has been allowed to mark its assets for the market.

“Its cost base has been increased, whereas everything else kind of stays the same and has depreciated,” said Hatch. “This makes things more accurate and it makes BNSF different than the other carriers. It is part of the strangeness of the vestige of the regulatory world that would be best solved by removing all the regulation.”

What’s more, Hatch noted that BNSF and all the other Class I railroads continue to make major capital investments despite indifferent traffic this year and an uncertain outlook for next year and are highly unlikely to have any type of huge cutbacks in capital expenditures. And in order to do that he said that railroads need to have projections of improved returns of which improved rates play a big role in.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

The 'Internet of Things' or IoT is a term that has rapidly taken center stage in business and consumer technology circles, with tremendous amounts of hype in both. Don't be distracted if some of the hypothetical consumer examples of the IoT seem far-fetched; the trend has serious implications for businesses. This complimentary whitepaper takes a look at some of the opportunities afforded by the Internet of Business Things.

Of special interest to readers of Logistics Management will be “Americas Update,” which will look into the future of the market in the Americas and assess how firms will be able to favorably position themselves to compete and win market share.

After 20 years, two congressional mandates and countless lawsuits and lobbying efforts, safety advocates and the Teamsters union still say there are too many inexperienced rookie truck drivers hitting the road without sufficient behind-the-wheel training.

Congested U.S. port terminals, harbor and over-the-road truck and driver shortages, slower trains and longer rail terminal dwell times due to increased domestic rates have not only disrupted service but also driven intermodal rates and cargo handling costs up sharply.

Southern California shippers are getting a break on container dwell expenses for the next ten days as the Port of Long Beach announced that it had added an extra three days to the time that overseas import containers can remain on the docks without charge.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA