Railroad antitrust legislation is re-introduced in the Senate

Never far from the railroad regulatory landscape is the topic of antitrust legislation, or, more specifically, the legislation geared to remove the industry’s exemptions from antitrust laws.

This was made clear last week, with the introduction of bipartisan legislation from Senators Amy Klobuchar (D-MN) and David Vitter (R-LA), entitled The Railroad Antitrust Investment Act.

Like the myriad previous iterations of this legislation, the senators say the bill’s objective is to:
-address so-called ‘captive shipping’ and help promote fairness and competition in the railroad industry;
-remove the railroad industry’s exemption from antitrust laws, which they say would require the industry to adhere to the same antitrust rules as other industries, which would, in turn, result in more competitive pricing that keeps costs down for shippers and their customers.

The senators said that captive shipping is a concern among rural communities in which several businesses and agricultural producers have access to a single railroad. And they added that with only four U.S.-based Class I railroads—CSX, Norfolk Southern, Union Pacific, and BNSF—providing more than 90 percent of U.S. rail transportation, it ends up with “constant increases in rail rates for companies that rely on freight railroads to get their goods to market,” with those rate increase subsequently passed on to consumers and resulting in higher prices, too.

What’s more, the senators cited a study by the Consumer Federation of America, which cited how rail rates are $3 billion higher for captive shippers compared to if the market was competitive, with the excess charges having the potential to cost up to $100 annually per household.

The Railroad Antitrust Investment Act was heartily received by the American Chemistry Council (ACC).

“We applaud Senator and Senator Vitter for their leadership in advancing reforms that increase access to a more competitive freight rail system,” ACC officials said in a statement. “The bipartisan legislation was introduced at the same time the Surface Transportation Board (STB) is investigating an array of rail competition reforms to address a troubling trend in the nation’s freight rail system as rates have soared to the highest level in 20 years. Outdated exemptions from antitrust laws provide railroads with unique government protections that help shield them from free markets and competition.  As recent ACC research shows, the lack of rail competition and rising rail freight rates are hurting the chemical industry’s ability to meet customer needs, hindering investment decisions, and harming our nation’s economy.”

Consumers United for Rail Equity Executive Counsel Bob Szabo told LM in a previous interview that CURE that the two main problems with the current lack of antitrust enforcement are paper barriers—or contractual obligations incurred when short lines acquire lines from the larger, connecting carriers—and other bottlenecks that he said gives railroads an unfair and anticompetitive advantage over shippers on rates. If antitrust laws currently applied to railroads and the STB did not allow it to occur, he said these would be viewed as illegal transactions.

A Logistics Management survey of roughly 70 rail shippers found that 63 percent—or nearly 50 shippers—support the antitrust legislation, and some were succinct in describing how the industry is functioning without antitrust regulation.

“Under the present system, there is no competition by the railroads,” one rail shipper told LM. “That leads to complacency, which contributes to the poor overall service provided by the railroads. There is little interest to invest in infrastructure and capital goods by the railroad.”

Not surprisingly, the Association of American Railroads (AAR) was firm in its opposition to this legislation.

The AAR explained that even though the bill says it claims to repeal freight railroads’ limited antitrust exemptions, it instead “singles out” railroads for policies that it said could undermine the industry’s ability to build, maintain, and upgrade national rail infrastructure without taxpayer assistance.

“This bill proposes sweeping changes that would negatively impact this country’s freight rail industry,” said AAR President and CEO Edward R. Hamberger in a statement.  “Sections of this bill are designed to override existing regulatory decisions and could potentially roll back government-approved transactions in railroad history.  That retroactive application would inevitably create conflicts and uncertainty for railroads, railroad customers and courts. The resulting regulatory uncertainty could undermine the private freight railroads’ ability to sustain necessary and critical private investments in America’s rail infrastructure. There’s one thing in Washington that everyone agrees on—and that is our nation’s infrastructure needs attention and serious investment.  Freight railroads have invested more than $526 billion in private capital over the past three decades—half a trillion dollars—into America’s rail infrastructure so taxpayers didn’t have to. A regulatory environment that encourages private investment should remain a priority.”

The AAR’s top executive added that railroads are subject to most antitrust laws, including areas where they do have limited exemptions in which railroads are regulated by the STB.

Various industry sources have told LM in the past that under the current limited antitrust exemption, shippers cannot sue railroads over rates and must appeal cases to the STB.

In February, the AAR said that AAR said that the seven North American-based Class I railroads plan to invest an estimated $24.5 billion in 2013 “to build, maintain and upgrade America’s rail network to ensure freight railroads can continue to deliver for the nation’s economy,” with $13 billion of that investment allocated towards projected capital expenditures to upgrade or enhance rail capacity.

And it added that in recent years railroads have spent about 17 percent on annual revenue on capital expenditures, whereas the average U.S. manufacturer spends about 3 percent.

While the Class I railroads continue to hit record-setting capital expenditure levels, some rail shippers and rail shipper groups continue to maintain that they are suffering from increased rates and decreased quality of service.

But railroad executives continue to counter that theory, explaining that the existing regulatory railroad environment has produced—for North American railroad shippers—a freight railroad system that is the best in the world. And if the railroad industry lost the ability to earn its cost of capital it could have a negative effect on capital investments to support traffic growth and reverse the strides made post-Staggers Act in the areas of rail safety and service reliability.