GAO finds captive shippers caught in price squeeze
Shippers captive to a single railroad are paying higher transportation rates since deregulation, and the Surface Transportation Board is largely ineffective at protecting those shippers from rate relief, according to a preliminary report released last week by the Government Accountability Office.
"A lot more shippers are paying relatively less, but our concern is with a very small number that are paying very much more," JayEtta Hecker, director of the physical team at the GAO, testified before the Senate Commerce, Science and Transportation Committee's surface transportation and merchant marine subcommittee, last week.
More than 20% of all rail freight shipments, including many for coal-fired power plants, are captive to one rail carrier, said Glenn English, CEO of the National Rural Electric Cooperative Association and chairman of the Consumers United for Rail Equity. "The four major carriers have been allowed under current law to artificially tighten their monopolistic stranglehold over captive shippers through practices that restrain competition and deny shippers the ability to freely seek access at points where competition might otherwise be available."
The hearing was part of an ongoing battle between electricity generators and the railroads over coal delivery problems (CO 6/19). This time, representatives from the National Association of Wheat Growers, the American Chemical Council and the National Industrial Transportation League joined the utilities.
"I am not interested in re-regulating the railroads, but I am interested in dealing with areas where we only have one" railroad serving customers, Montana Senator Conrad Burns said. "The big railroads have failed to come to the table, so we're going to have to forge ahead on this legislation."
Burns introduced S. 919, the Rail Competition Act of 2005, on April 27, 2005. Currently in the committee, the bill addresses captive rail shippers and how the STB deals with rate appeals. "It's at the point where it is going to require some legislative fix," Burns said after hearing the shippers and railroad representatives continue to point fingers at each other over reliability and capacity.
Railroads ability to meet demand uncertain
"Significant increases in freight traffic over the next 15 to 25 years are forecasted, although many factors can affect the accuracy of these forecasts, and the railroad industry's ability to meet future demand is largely uncertain. Although railroads have reported significant increased investment and have told us that they plan to continue making infrastructure investments, they also expressed uncertainty as to their ability to keep pace with some of the higher projections of future freight rail demand," Hecker said.
"Historically, railroads have been burdened with excess capacity, which made it difficult for them to operate efficiently and earn a profit," STB Chairman Douglas Buttrey told the subcommittee. "In recent years, railroads have become more efficient by rationalizing their systems. At the same time, however, the US economy has expanded, and the railroad industry, like other transportation sectors, has become capacity-constrained in some areas."
STB rate relief slow and expensive
The GAO concluded that the STB's rate relief process is largely inaccessible. "Under the standard rate relief process, the board requires a shipper to demonstrate how much an optimally efficient railroad would need to charge that shipper. Therefore, the shipper must construct a hypothetical, perfectly efficient railroad that would replace its current carrier," Hecker said. "The process is expensive, time consuming and complex, and as a result, several shippers' organizations told us that it is unlikely they would ever file a rate case."
Only 10 rate cases have been filed with the STB since 2001. The average cost was $3 million each and that they took up to 3.5 years to complete. To help address the difficulties, the STB is reforming the large rate case process and has issued a notice of proposed rulemaking with six proposed changes. In the meantime, pending large rate cases have been put into abeyance.
Simplified rules in small rate cases that the STB adopted in 1996 have only been used once, Buttrey said. "We didn't do a good job [on establishing simplified rules for small shipper rate cases]. We need to sit down and come up with more simplified rules."
A rulemaking on small rate cases is expected later this summer, he said.
— Mark E. Heckathorn