U.S. Considers Rules to Spur Freight-Rail Competition

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http://online.wsj.com/article/SB1000142 ... _US_News_5

I tend to be all for fostering competition, but at what point does rule-making and rate-setting cross a line? Certainly, with the consolidation of Class I's through mergers, there are competitive concerns. There are also economies of scale.

I'm sure this will be an interesting debate.

The U.S. agency that regulates railroads said Tuesday it will consider a major overhaul of rules to force freight-rail companies to compete more aggressively for farmers, coal producers and other shipping customers.

The Surface Transportation Board announced it would hold a hearing in May to study possible changes designed to spur competition, and it asked railroads to weigh in. The rules under consideration would be designed to make it easier for shippers to challenge rates and to gain access to competing railroads on segments currently served by a single rail company.

The agency said the initiative responds to the longtime concerns of shippers that railroads are raising rates and posting higher profits even though productivity hasn't increased at the same pace. The agency said it was sensitive to railroads' concerns that new rules could hurt the industry's financial health and reduce money used for track expansion and maintenance.

"We need to strike a balance between providing access to competitive rail transportation for shippers while maintaining the rail industry's impressive economic renaissance," said Daniel R. Elliott III, appointed by President Barack Obama last year to serve as the board's chairman.

Well I for one think that competition isn't such a bad thing. I understand that the premise behind competition (More companies involved = better prices) doesn't always exactly work as planned. But If I'm a rail customer, say, that gets boxcars delivered, the issue is I'm at the mercy of whatever company owns the line (or the freight trackage rights) and whatever they charge. If I had more choices as to who might deliver those cars, I might get a better price. Then again this would all be a moot point if the current company was willing to negotiate a fair price. Which it according to the article it appears railroads might not be as willing to do.

On the flip side of this, railroad lovers, would probably like competition because it would bring in other railroads and chances to see different power and such that different companies use. Anyway just my 2 cents that's all.

Sounds like it could be the initial step to open access similar to that imposed on bulk electric power transportation by sister agency Federal Energy Regulatory Commission in 1996 - see Order 888: http://www.ferc.gov/legal/maj-ord-reg/l ... der888.asp Works fine there.

I think I'm going to be watching my IRA position in UNP a bit closer now.

Ken W2KB wrote:Sounds like it could be the initial step to open access similar to that imposed on bulk electric power transportation by sister agency Federal Energy Regulatory Commission in 1996 - see Order 888: http://www.ferc.gov/legal/maj-ord-reg/l ... der888.asp Works fine there.

same was done in the late 90s with the telecommunications industry (which i spent the last 5 years in before switching to financial services) it did great things for the consumer giving them choice in their provider which forced the carriers to really sit down and examine what the customers needs are (residential and commercial) which lead to many of the advancements we have now such as fiber to the premises, broadband service, etc...


if this consideration is carried out properly with the concerns of the railroads and the concerns of the customers both at the table it SHOULD work out for both sides and rail as a whole, whether it means a particular rail carrier improving services and capacity on certain stretches or improvements in the back office when it comes to customer relations and billing. This is really a wait and see what happens situation,
However its very nice to see that the GOVT is looking at the advantages of rail as compared to highways and trucks

I tend to agree with the sentiments voiced by Ken and Andre. But to be reralistic, the potential for serious competition for rail traffic probably has been diminishing since 1920, and the nature of the industry itself makes the restoration of that concept a difficult proposition.

I've never been able to determine whether the presence of "reciprocal switching agreements", whereby one carrier would assume responsibility for local pickup and deliivery to customers on its trackage after a competitor performed almost all of the line-haul, were much of a factor in the days when the nation supported about 100 Class I roads. But the ablitiy of large-scale players to seek other concessions, and the natural tendency of firms in "concentrated" industries to compete on the basis of serrvice, rather than price, leads me to belive there weren't too much of a factor. In any event, the number of individual- rather than multi-carload shipments, has dropped drastically

The few remaining major carriers have now enjoyed the status of a "growth" industry for over two decades, and to date, the only real criticism levied against them has come from shippers' groups with specific interests of their own to advance. Finding a way to reform the present impasse in a positive manner isn't likely to be strongly advocated by an industry which has long viwewed itself as a convenient political target. If anything even remotely resembling "open access" is to be advanced, it will have to be presented in a manner that conforms to the scenario of "baking more bread" rather than rationing a limited and/or slow-growing supply.

That, in turn, might call for a major revamping of the roles of some freight-industry players, possibly a refinement of the freight-forwarder model?

I really don't know how far this proposal will go, although it sounds as if the coal mine owners are the ones behind it. Are the railroads taking advantage of diminished competition? I would hope so. By the same token, the aggrieved shippers should be free to buy railroad stock, to have a seat on the board of directors. That's precisely what John Davison "Jay" Rockefeller, the great grandfather of Senator John Davison "Jay" Rockefeller IV, did. Under Rockefeller, Standard Oil had a stake in just about every railroad and received "rebates" on shipping rates. Of course, the rest of the oil industry, which paid the full rates, went to congress to eliminate the practice. We all like to believe the "muckraking" press lead the way to regulating railroads in the 19th century, but it really was a case of business interests lobbying congress to take action against other business interests.

As far as the future of the coal industry, that matter, right or wrong, will be decided in coming years by global warming regulations, not by the re-regulation of shipping rates.

I'm not sure why the article even mentions farmers. Considering the massive increase in grain prices, I doubt that shipping rates are hurting agricultural interests at the moment.

What is overlooked by the Journal reporter is that there are "a few new hands at the throttle" in Wash. Former Rep. James Oberstar, who chaired the applicable House committee during the 110th and 111th Congress no longer does so; in fact he has moved from a House Office Building to that of a lobbyist on K Street - and not exactly at his choice!!

Oberstar was sort of a populist and came from a state, MN, in which agricultural interests hold considerable sway. If a 'reg" initiative were to move forth the legislation would be formulated within that Committee.

Now for the 112th, the Republicans are at the throttle - and Rep John Mica (R-FL7) is quite happy with a largely, but not completely as Ms. Nelly Bly, who does this stuff for a living @ USDOT, has often pointed out, deregulated industry with respect to rates and services. Shippers, such as those represented by Sen. Rockefeller (D-WV), that are captive to one transportation provider (mode notwithstanding) still have recourse through the SurfBoard" should a rate be imposed that either is unreasonable or discriminatory.

Possibly Ms. Bly will choose to comment regarding the scope of powers the STB is granted with regards to ratemeking.

Let's leave well enough alone.

disclaimer: author holds long positions KSU NSC UNP

Keep in mind that there is an ever growing number of captive shippers as well.

wolfboy8171981 wrote:Keep in mind that there is an ever growing number of captive shippers as well.

I'm not sure about the "growing number," since the era of railroad mergers seems to be relatively complete. To be sure, a few heavy industries are solely reliant on the railroads, although for many enterprises, the main competition for freight railroads comes from trucking. If railroad freight rates are too high, the business will go to trucking companies. Competition accomplished. No re-regulation needed.

The coal mines probably are at the mercy of the railroads, but there again, that isn't an issue impacting most voters. Most voters most likely are more concerned about mine safety than the profits of the mine owners. As a consumer, I'm more concerned about maintaining a competitive environment for intercontinental container traffic than unit trains of coal. Keep the double stacks rolling. I believe that the current ownership pattern supports substantial competition between freight railroads.

It does and there is. The proponents of reregulation are mostly power companies and others who want the Government to present them with reduced freight rates on a silver platter. As many posters have pointed out in this and similar forums, very few people today remember why it was necessary to reduce railroad regulation in the first place--the 60's and 70's were a long time ago. I hope we don't have to learn that lesson again, and certainly not in the same way.

seems to me there are 2 issues here that have been plonked together . regulation and competition .
Regulation , well dont think anyone is a fan of that . but a form of open access , perhaps limited to existing class one railroads and shortlines , why wouldnt that work ??? . i guess there would be some regulation in the form of legislating that railroad A must allow railroad B running rights to access a customer , and must charge a reasonable access fee .

Open access wouldn't work if you want a for-profit rail industry capable of attracting private capital to maintain, never mind grow, its business. Though the rail industry is healthy because it has become efficient and now has some pricing leverage as its competive advantage rises and capacity diminishes, it's no where near a position where capital is flowing without significant constraint and scrutiny. I can't see how the new business attracted to the industry from competition generated through re-regulation, like with open access, especially if it generated capacity expansion needs, would earn the ROI necessary for private investment and without undermining the pace of existing investment.

No traffic is truly captive over the long-run and all traffic is not alike in its competitiveness. Merchandise moves intermodally and competitors can access each other's territory via highway. Heavier industrial products and raw materials can be transloaded and trucked into competing territories. It's in the heaviest, bulkiest, most voluminous commodities, like coal, agricultural products or those that may also possess those qualities as well as safe-handling characteristics found with chemicals, where the contention is taking place. And, while there may be some justification for evaluating what's going on, there is also some simple self-interest in lower rates at work. Even in these markets where railroads hold the highest competitive advantage, there is longer-term product, logistical and technological competition at work: So. Illinois coal competing with Powder River coal for midwestern electric generation; natural gas vs. coal for electric generation; all water routing for Asian merchandise traffic vs. mini-landbridge to name a few. And, the examples of competition through use of intermodal and transloading are numerous coming out of deregulation.

Reregulating rail traffic in the name of increasing competition will create costs that exceed the benefits for a for-profit rail industry and lead to a much more necessary government role in promoting the industry with investment, perhaps even operation, if it's to remain relevant or shoulder an increasing role in freight transportation.

I think that old school regulation would set the railroads back to what we had 35 years ago. There should be some type of oversight.
I work for a class 1, and see how the little customers get neglected most. I don't think open access is viable.

Certain lines had monopolies since day one. Look at New Haven's bear hug over CT and RI. CV was the only nominal competitor. At that time rates were set so service and convenience were the only diffentiation between carriers. Now we have more locations with a monopoly, but no control.
Most customers are captive to one carrier, at least for local delivery. In college I studied logistics. We took a field trip to Mlton Bradley. They had been captive to Guilford. When GTI curtailed service, MB went to tofc with Conrail,in W. Springfield. This would not work for a bulk shipper or receiver like coal mines.
I think some regulation will happen. I hope that it is more relaxed than before, but monopolies and free market competition is an oxymoron.