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PIERRE, S.D. (AP) – A federal oversight board told Canadian Pacific Railway and BNSF Railway that they have until Friday to report their plans to ensure delivery of fertilizer shipments for spring planting of U.S. crops.

The Surface Transportation Board’s decision Tuesday comes in response to a hearing it held last week on recent service problems in the nation’s rail network. Farmers and representatives of agriculture producers told the board that delays in fertilizer delivery could disrupt planting.

Read the complete story at the Associated Press.

STB_logoThe Surface Transportation Board announced today that it will hold a public hearing on April 10, 2014, to provide interested persons the opportunity to report on recent railroad service issues, review proposed solutions to existing service problems, and discuss additional options to improve service.

The Board has been closely monitoring the rail industry’s performance metrics and is concerned about service problems across the nation’s railroad network, particularly on the Canadian Pacific Railway Company (CP) and BNSF Railway Company (BNSF) systems. The Board Members have written to and met with the leadership of BNSF and CP to discuss these concerns.

The Board’s Office of Public Assistance, Governmental Affairs and Compliance has been working with affected parties to better understand the problems shippers are facing and to help facilitate service solutions. Board staff recently held a meeting in North Dakota with shippers from multiple states and the agency anticipates additional meetings in other affected areas.

The Board will hold a public hearing beginning at 9:30 a.m. on Thursday, April 10, 2014, in the Board’s Hearing Room at the agency’s headquarters located at 395 E Street, S.W., in Washington, D.C. The Board will direct BNSF and CP to appear at the hearing, and the agency encourages impacted shippers and other Class I carriers to appear as well. The hearing will be open for public observation.

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.”

The U.S. Class I workforce expanded slightly in November, then contracted a bit in December, according to employment data recently compiled and released by the Surface Transportation Board (STB).

As of mid-November 2013, the large U.S. roads employed 163,199 people, up less than 0.1 percent from October’s level and 0.3 percent from November 2012’s count.

Read the complete story at Progressive Railroading.

STB_logoFederal regulators have handed freight railroads a victory, saying they can require shippers to pay for specific steps to control coal dust from rail cars.

 In a Dec. 13 decision, the Surface Transportation Board ruled that shippers failed to prove that BNSF Railway Co.’s coal-loading rules were unreasonable, though it struck down one provision relating to shipper liability.

Read the complete story at National Rural Electric Cooperative Association.

deb_miller_stb
Deb Miller

President Barack Obama has nominated former Kansas Secretary of Transportation Deb Miller to the Surface Transportation Board, reportedly replacing George Bush-appointee Francis Mulvey.

Miller, a Democrat, was the Kansas secretary of transportation from 2003 to 2012, making her the first female and longest serving transportation secretary of that state. She was appointed by former Gov. and current Health and Human Services Secretary Kathleen Sebelius and then retained by Republican Gov. Sam Brownback.

Miller is currently a senior associate at Cambridge Systematics, a transportation consultancy firm located in Cambridge, Mass. The company’s clients include the Federal Highway Administration, Federal Transit Administration, Federal Motor Carrier Safety Administration, 44 state transportation agencies, Amtrak, CSX, Norfolk Southern and the Long Island Rail Road.

Before being appointed secretary, Miller was the director of planning and development at KDOT from 1986 to 1997 and was previously a planner at HNTB Infrastructure Solutions.

She graduated magna cum laude from Kansas State University in 1976 with a bachelor of arts degree in sociology.

The STB is an economic regulatory agency that Congress charged with resolving railroad rate and service disputes and reviewing proposed railroad mergers.

The board is authorized to have three members, appointed by the president and confirmed by the Senate, each with a five-year term of office.

WASHINGTON – The U.S. Surface Transportation Board has determined that only one major railroad – Union Pacific – was “revenue adequate” in calendar year 2010.

A railroad is considered “revenue adequate” if it achieves a rate of return on net investment equal to at least the current cost of capital for the railroad industry.

Revenue adequacy determines long-term financial sustainability – the ability to pay investors competitive returns as well as covering the cost of efficient operation, which includes obtaining capital for new equipment; to maintain existing track, bridges, signal systems and other capital assets; and to fund capacity expansion.

For 2010, the STB concluded that the current cost of capital for the railroad industry was 11.03 percent, and only Union Pacific achieved a rate of return equal to or exceeding that percentage. No railroad was found to be “revenue adequate” for calendar year 2009.

For 2010, the STB determined that Union Pacific achieved a rate of return on net investment of 11.54 percent; Norfolk Southern, 10.96 percent; CSX, 10.85 percent; Kansas City Southern, 9.77 percent; BNSF, 9.22 percent; Canadian National U.S. affiliates, 9.21 percent; and Canadian Pacific U.S. affiliates, 8.01 percent.

WASHINGTON – Individuals choose bank savings accounts based on the interest rate offered, assuming the investment is secure because no depositor has ever lost their principal on a Federal Deposit Insurance Corp. (FDIC) backed account.

By contrast, corporate investors must consider risk of their principal along with an anticipated rate of return on their investment. Investors are more likely to invest in and/or lend to a firm displaying long-term financial sustainability.

For railroads, long-term financial sustainability is measured by revenue adequacy – earnings that cover the cost of paying investors competitive returns as well as covering the cost of efficient railroad operation.

Congress has instructed the U.S. Surface Transportation Board (STB) to make annual determinations of railroad revenue adequacy. For 2009 (the most recent STB determination of revenue adequacy), the STB determined that no major railroad was revenue adequate. A 2010 determination will be made soon.

To determine revenue adequacy, the STB annually measures a railroad’s profitability against its cost of holding and attracting investors.

The STB calculation estimates the average rate of return needed to persuade investors to provide a railroad with capital for new equipment; to maintain existing track, bridges, signal systems and other capital assets; and to fund capacity expansion. That profit must also allow the railroad to pay investors a competitive return.

Thus, only when the railroad’s rate of return on investment equals or exceeds its cost of capital is the railroad considered revenue adequate. The profits of large corporations may look immense in terms of total dollars, but investors and economists measure profit based upon return on investment. For example, a $5,000 interest payment by a bank on a savings account may seem huge, but if the $5,000 is paid on a $500,000 savings account, the return to the investor is but 1 percent and may cause the investor to shift banks in search of a better return.

This week, the STB determined that the 2010 cost of capital for railroads was 11.03 percent, up almost 6 percent (or sixth-tenths of one percentage point) from the 2009 cost-of-capital when no railroad was determined to be revenue adequate.

It will be November before the STB uses the higher cost-of-capital benchmark to determine if any railroad achieved revenue adequacy in 2010. To achieve revenue adequacy, a railroad’s profit for 2010 will have to have met or exceeded 11.03 percent. In 2009, for example, one of the most profitable railroads — Union Pacific — posted a return on investment almost two percentage points below the threshold for revenue adequacy.

Meanwhile, major railroad stocks are well off their 52-week highs, suggesting investor concern over the ability of railroads to sustain their recent levels of profitability.

The price of CSX common stock is down 30 percent from its 52-week high; Kansas City Southern is down 18 percent from its 52-week high; Norfolk Southern is down 21 percent from its 52-week high; and Union Pacific is down 23 percent from its 52-week high. BNSF is now held privately and its stock is not traded.

WASHINGTON – The UTU has won a victory on behalf of 12 train and engine employees represented by the UTU and employed by Manufacturers Railway, a 124-year-old subsidiary of brewer Anheuser-Busch for which Manufacturers performs switching services in St. Louis.

In March, the carrier sought permission from the U.S. Surface Transportation Board (STB) to discontinue operations, and asked the agency not to impose so-called labor protection (actually income protection) for workers who would be put in unemployment lines as a result of the discontinuance.

The railroad’s case rested on a long-standing policy of the board and its predecessor, the Interstate Commerce Commission, not to impose labor protection when an entire system is abandoned.

The UTU Law Department intervened, telling the STB that Manufacturers had provided the agency with “misleading information” with regard to the intended cessation of operations.

Rather than abandon its system, the UTU told the STB that Manufacturers, in its own press release, had said it intended, in fact, to transfer those rail operations to a third party that would operate over the railway’s tracks and yard, which would remain under Manufacturers Railway and Anheuser-Busch ownership.

“It is clear,” said the UTU, that Anheuser-Busch intends the transaction as “a means to get around the labor protection which should rightly be imposed,” and that Anheuser-Busch “stands to benefit financially from this transaction by contracting out the rail switching operations and reducing its labor expense.”

The STB agreed, and ruled that so-called Oregon Short Line labor protection be granted as a condition of the discontinuance of operations by Manufacturers Railway.

The protection provides for six years of income protection – as opposed to a guarantee of employment — for all adversely affected employees of Manufacturers Railway. 

Elliott

NEW YORK – Former UTU Associate General Counsel Dan Elliott, now chairman of the U.S. Surface Transportation Board — the federal agency regulating rail mergers, line sales, abandonments and labor protection — returned to his roots July 4, speaking to more than 500 UTU officers and members attending the union’s eastern regional meeting here.

Terming train and engine workers “the unsung heroes” of the freight railroad industry’s renaissance, Elliott said, “None [of the resurgence] would have been possible without the people in this room. Labor was a major contributor to the rebirth of the rail industry as productivity shot through the roof [since Congress partially deregulated railroads through the Staggers Rail Act of 1980]. This is all thanks to your working harder, smarter and better,” he said.

Elliott recalled that prior to partial deregulation afforded by the Staggers Act, railroad bankruptcies were increasing, track often was in such poor repair that there were standing derailments, service quality had deteriorated and job security was problematic.

The Staggers Act, said Elliott, set loose market forces, giving railroads “greater flexibility to make decisions, develop better ideas and operate more efficiently. There are fewer trucks on the highway and the United States has some of the lowest freight rates in the world. It has all been done with private investment.” He said his job and the job of the STB is to “make sure the industry stays healthy.”

As for his elevation to the STB – which required a nomination by President Obama and confirmation by the Senate — Elliott said, joking, it was something he had long sought. Reflecting on an early-career appearance before the STB’s predecessor agency, the Interstate Commerce Commission, Elliott recalled having to make a difficult argument seeking labor protection.

“I was told to say my piece and sit down. So I went to Washington to the ICC Building. There were scores of railroad attorneys, a press table and spectators. I said my piece. And the chairman asked me to explain why UTU members should have lifetime income protection when nobody else in the room had it. I knew right then and there that I wanted to be the one asking the questions and not answering them,” Elliott said.