STB holds hearing on commodity and boxcar exemptions

At a time when legislation designed to re-regulate and remove antitrust immunity of the freight railroad industry has become commonplace, there is now another regulatory issue regarding railroads being debated.

Earlier today, the Surface Transportation Board (STB) held a hearing, entitled “Review of Commodity, Boxcar, and TOFC/COFC Exemptions.” The STB said the objective of the hearing is to review regulatory exemptions for certain types of rail traffic to determine their effectiveness in the marketplace, see whether the rationale behind these exemptions should be revisited, and also if these exemptions should be subject to periodic review.

It is also examining exemptions from regulation for certain types of rail traffic in which there is significant competition among railroads for customer business, with these exemptions directed by Congress in an effort to remove government regulation, stimulate industry growth, and allow competition to work in the marketplace, according to the Association of American Railroads (AAR)

This hearing follows the recent reintroduction of legislation focused on addressing the concerns of rail shippers, regarding rates and service, as well as making the railroad industry more competitive, and separate legislation centering on bringing the freight rail system under the nation’s anti-trust laws and provided needed protection for various rail customers who have suffered from increased rates and decreased quality of service, according to the bill’s authors.

In comments submitted to the STB, AAR President Edward Hamberger said that today’s rail regulatory policies are the very reason freight railroads are such a critical part of the U.S. economy and vital to our nation’s financial recovery. And he added that changing regulations creates an air of uncertainty that could harm the country’s economic recovery and negate the railroads’ ability to sustain capital infrastructure investments.

“Freeing the railroads from unneeded regulation, the exemptions have led to increased competitiveness, enhanced service offerings, and increased productivity and efficiency, which continue to benefit the customers railroads serve and the public at large,” said Hamberger. “The Nation needs railroads to continue to invest significant private funds to grow and to keep freight on tracks instead of flooding the highways. They will be able to make those investments only if the federal government maintains a consistent, coherent, and transparent regulatory regime that allows railroads and their investors to pursue returns on their enormous investments.”

In testimony submitted by Ford Motor Company, the automotive manufacturer said that while it is not submitting specific issues or concerns for the STB to solve, it instead noted it is interested in hearing the debate of the pros and cons of revoking existing commodity exemptions in the context that doing so may promote competition without constraint and provide for remedies where appropriate.

“The consolidation of railroads over time, combined with the inherent constraints associated with railroad owned infrastructure have resulted in limited opportunity for competition,” said Ford. “And though trucking provides a transportation alternative, it is not a viable economic alternative to rail on balance and we…have a keen interest in ensuring a highly competitive transportation landscape.”

Kirk R. Light, vice president, Logistics, Planning & Transportation, at Houston-based CEMEX Inc. explained in his testimony that the majority of CEMEX’ products in the U.S. not shipped directly to production sites are shipped by rail to distribution centers and subsequently delivered by truck to its customers, with the majority of the company’s rail routes being captive.

Light said that CEMEX is increasingly dependent on rail transportation and seeks the removal of rail commodity exemptions so that fair and reasonable freight rates and service can be maintained as changes in the rail industry, as well as the cement industry, “have significantly reduced transportation alternatives.”

While shippers clamor for changes to improve access to competition, railroads maintain that the existing regulatory railroad environment for 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.

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