“Over 25 years ago, Congress transformed federal freight rail transportation policy. At that time, after almost 100 years of economic regulation, the railroad industry was in serious economic decline, with rising costs, losses, and bankruptcies. In response, Congress passed the Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980. Together, these pieces of legislation substantially deregulated the railroad industry. In particular, the 1980 act encouraged greater reliance on competition to set rates and gave railroads increased freedom to price their services according to market conditions, including the freedom to use differential pricing-that is, to recover a greater proportion of their costs from rates charged to those shippers with a greater dependency on rail transportation. At the same time, the 1980 act anticipated that some shippers-commonly referred to as “captive shippers”-might not have competitive alternatives and gave the Interstate Commerce Commission (ICC), and later the Surface Transportation Board (STB), the authority to establish a process through which shippers could obtain relief from unreasonably high rates. This process establishes a threshold for rate relief, allowing a rate to be challenged if it produces revenue equal to or greater than 180 percent of the variable cost of transporting a shipment.”
The report shows that grain tariffs are higher than in 1985 – an argument that some on these forums carried on, arguing that such rates had dropped, for nearly three years, misinterpreting every item of data they could lay their hands on and complete with name-calling [“you must be a fool …”]. I argued to the contrary based on experience in the industry. Haven’t seen any apologies yet from that so-called expert.
But, where did you reach this conclusion, Ed? Dave doesn’t need to be “set off big time”, because the paper says no such thing. It says the opposite.
“While traffic traveling at rates over 180 percent R/VC declined in 2005, traffic traveling at rates substantially over the threshold for rate relief increased. In 2005, traffic traveling at rates over 300 percent R/VC increased. This increase followed declines in 2003 and 2004 but continued a general upward trend since 1985 (see fig. 6).” GAO-07-291R Freight Railroads Page 8.
Mike if you read the WHOLE report it states this is only the SECOND time since 1985 that rates increased faster than inflation. So basically adjusted for inflation rates now are the same as they were in 1985. The reasoning why they actually were able to get higher rates that year were so many contracts came due at once and also the RR’s also finally put in a fuel surcharge which offset the increased cost of fuel they incurred. The trucking industry did the same thing yet you don’t see their customers screaming murder over it do you.
What does that have to do with even more captive shippers than ever paying over 300% R/VC? And grain shippers are paying between 300-400% in some instances, and this has continuously trended higher than the 1985 rates. Grain shippers, who represent among the most captive of all shippers, have not benefitted at all from the Staggers Act – and given that the railroads have claimed huge productivity increases since Staggers – grain shippers have in fact been damaged by the lack of market constraints. The Captive Shippers get the same fuel surcharge as the non-captive shippers notwithstanding they are already paying 2-4x the shipping charges for the same service. Screaming “murder” seems appropriate.
Micheal look overall at the industry as a whole. Near me grain used to be only shipped by truck and barge and in the last 3 years the Co-ops themselves have built 100 car shuttle loading elevators in 4 towns. This was before all the ethanol and biodiesel plants in the area were announced. By the way they are all on the BNSF. They avarage a train every 3 days during the fall rush and one a week the rest of the year. The shippers that are screaming the loudest are the power companies who right now are all reporting record profits and most have been allowed to raise their own rates. The RR’s themselves need to be able to recover their own costs in expanding in the Poweder River and yet they still can not meet demand there. Grain shippers demand the moon and stars during harvest inculding the best power and cars and during the rest of the year let their tracks sit idle and no maintance. The BNSF switched to a demand based pricing for grain and that is why the shippers are screaming the higher the demand the more it costs. It is called supply and demand the less supply the more it costs shippers were spoiled with the ICC and did not pay what the market would bear and that led to more than one bankraupcy in the RR industry.
Now the RR are free to charge what the market WILL bear and the shippers are not happy they want it the way it was before sorry they are not going to get it. Shippers for years abused the RR’s and the trucking industry and kept rates low now they are feeling what it really costs to do business and ship freight here in the US.