Rail regulatory proposal would raise costs, cut service

March 26, 2014

railyard, train yard; trainsWASHINGTON – The nation’s freight rail industry this week will outline for the Surface Transportation Board (STB) the various negative impacts of a proposal to force non-market based requirements on railroads at the request of the National Industrial Transportation League (NITL). The proposal calls for the STB to override market forces by forcing Class I railroads to turn over to their competitors substantial portions of rail traffic which moves across tracks they own and have spent billions to build, maintain, and upgrade so taxpayer’s don’t have to.

Specifically, the NITL proposal would give a small group of shippers the right to demand that in some cases where one railroad serves their facility, the serving railroad must transfer or “switch” loaded rail cars to competitors. In addition to increased operating and infrastructure costs, other impacts of the proposal would include things such as: an increase in the number of locomotives and rail cars needed; increased dwell and delay time; increased fuel use; reduced network efficiency; and increased risk for employee injury due to additional handling and switching requirements.

“This proposal is a solution looking for a problem,” Association of American Railroads (AAR) President and CEO Edward R. Hamberger stated. “Railroads already voluntarily switch traffic when it makes economic sense for all parties.”

Hamberger also noted that other existing STB regulations provide various options if a shipper believes its rates are unreasonable. In fact, of the 46 shipper complaints filed with the STB since 1996, 37 of the complaints were decided in favor of shippers or settled through commercial negotiations.

“Freight railroads are among those American industries with very high fixed costs, as they operate on infrastructure they own, maintain and continuously upgrade,” Hamberger said. “Since 1980 alone, average inflation adjusted rail rates are down 42 percent, while railroads have spent more than $550 billion to build, maintain and upgrade track, signals, bridges, tunnels, and equipment. But this proposal would undermine the benefits all rail customers have seen thanks to these investments, and would all but ensure a return to the days when most rail customers were unhappy.”

Under the NITL proposal, the freight rail industry could lose about 13 percent of its annual net income – roughly equivalent to what the industry spent in 2010 on capacity expansion projects designed to benefit all shippers. If the proposal were adopted, it would ensure that railroads could not recover all of their fixed costs, which would lead to postponed maintenance, deferred capital upgrades and expansion programs, service quality declines, and negative impacts to all shippers.

“Railroads work with their customers and find market-based solutions that serve American businesses all across the country, and help ensure freight rail lives up to its mission to power our economy,” Hamberger said. “This proposal ultimately would serve the interest of a small group of shippers, but have far-reaching and long-term negative impacts on all rail customers. As American businesses and our economy are coming back from the recession, we just can’t afford to get this wrong.”