STB Issues Rail Study Update

The U.S. Surface Transportation Board said on Feb. 1 a consulting firm’s update of a U.S. railroad industry report found rates have steadily increased since 2004, with a particularly steep increase in 2008.

"Although 2009 rate information is preliminary, it suggests that overall railroad rates decreased in that year," said Christensen Associates Inc., of Madison, Wis. The report was first issued in November 2008.

The STB said Christensen found rate increases were driven by fluctuating fuel prices and other costs and did not appear to reflect a greater exercise of railroad market power over captive shippers.

But Christensen said "in the two-year period 2007-2008, real revenue per ton-mile for the industry increased by about 12 percent, with coal and chemicals experiencing above average increases.”

"Overall, the updated study painted a portrait of a healthy rail industry that, since 2006, has remained largely revenue sufficient, meaning railroads are able to cover their operating costs and earn a rate of return that enables them to attract investment capital to pay for more locomotives, railcars and make other improvements," the STB said. "The study also found that the large productivity gains in the 1980s and 1990s -- when the railroads shed excess rail lines, reduced crew sizes, and streamlined operations -- are no longer strong enough to offset rising operating cost."

Christensen said it was repeating a conclusion in its original report: "Providing significant rate relief to some shippers will likely result in rate increases for other shippers or threaten railroad financial viability."

The study is likely to be a key document in the coming year in the debate over regulating the railroad industry. In December, a bill to reregulate railroads was passed by the Senate Committee on Commerce, Science, & Transportation.

Last month, rail executives were critical of that proposed legislation, S.2889, the Surface Transportation Board Reauthorization Act of 2009.

Edward R. Hamberger, president of the Association of American Railroads, said the Christensen study "found that rate increases in recent years are in line with increased railroad costs. The report also concluded that government regulated lower rates for some shippers would likely result in rate increases for others, and threaten the industry's financial viability and ability to sustain investment in America's rail network. Railroads have been telling policymakers that what they need is certainty, especially during times of such economic uncertainty."

But groups such as Consumers United for Rail Equity (CURE) argued when the Christensen study was originally introduced that it provided "solid evidence of the abuse of monopoly power by the freight rail industry resulting in higher prices for American consumers, the agricultural sector and rural America."

Earlier this month, CURE said criticism of S. 2889 by railroad executives was unfounded, saying it was a compromise that "preserves the Staggers Rail Act while addressing the well-documented problems of captive rail customers."

In 2007, the STB hired Christensen to assess the state of competition in the rail industry. Using data from many sources, including the board, Christensen released its initial report in November 2008. However, shippers raised concerns that the report's study period ended in 2006 and did not include subsequent years of rapidly escalating rates. The STB then directed Christensen to update its competition study to include 2007 and 2008.

The STB said the updated study, which now includes data from 1987 through 2008, found that a greater share of traffic in 2007 and 2008 moved at rates less than 180 percent of variable costs than in 2005 and 2006. Variable costs include fuel, labor and other non-capital costs associated with moving freight. Christensen also observed that, since late 2008, railroad traffic has dropped nearly 20 percent from 2006 and 2007 levels. And Christensen said preliminary data show that rail transportation rates fell last year.

The STB allows shippers to challenge freight rates if they exceed 180 percent of variable costs and if the railroad has no effective competition.

Source: American Shipper