Below is an article I saw in the “Wisconsin Energy Cooperative” magazine September issue. Looks like we’ll be going through another round of talks about antitrust exemptions. Next to follow will be talk about “open access”.
Railroaded!
Rates, Service Worsen for Captive Shippers
Electric cooperatives are waiting for coal. Grain is piling up. Logs are rotting in the yards. Paper mills are shutting down machines and closing their doors.
Exorbitant freight-rail rates and poor service that Wisconsin captive shippers—those without access to rail competition—have had to tolerate from the Class I railroads have taken a toll on the state’s economy and have reached a critical point. But captive shippers are demanding changes. Across the country they are banding together to back three pieces of federal legislation that take on the kings of “big business.”
“Currently, Class I railroads overcharge and under-serve captive shippers with impunity and with an antitrust exemption preventing meaningful oversight by Congress. Customers have no power,” said Senator John D. Rockefeller IV (D–WV). “This means higher prices for electricity, food, medicine, paper products; the chemicals to protect our water supply and crops; and the basic ingredients of the plastics in many of the goods we purchase. This is crucial to protecting commerce in the United States.”
An Old Fight
Following decades of conflict with shippers, the railroads became a regulated industry in the early 1900s. But along with regulation came certain antitrust exemptions that they still enjoy today.
The railroad industry became bloated and it deteriorated financially through the 20th century, culminating in the late 1970s when 21 percent of the country’s track was operated by bankrupt railroads. It was in this environment that Congress passed the 1980 Staggers Act and largely deregulated the railroad industry. In the 25 years since, consolidati
William Jennings Brian would have been proud of this one! Before going off on a tangent about this overblown PR release I have a question.
The only Anti-Trust exemption I can think of for railroads concerns mergers. Whould one of the lawyers out there let us know what, if any, are there other exemptions. I’m not really interested in a policy discussion about open access or differential pricing but what the Anit-Trust statues have to say re. railroads. I know it’s not differential pricing because all types of business selling services charge different customers different prices for the same service. Just look at any hospital’s fees for patients with or without medical insurance. Another example woud be renting an autombile from Hertz or Avis.
The disincentive of captive shippers having no recourse but through a stacked STB process is the big problem. Once that roadblock is removed, you will see an avalanche of cases being brought against the railroads.
Hmmm, “all types of businesses selling services charge different customers different prices”? They had a word for that down in the Old South. It was called “segregation”.
A monopolistic closed access system simply will not work in market based economy governed by a representative democracy in the long run. Either the collective enterprise will self destruct via the inherent inefficiencies of monopolistic enterprises, or/and those pesky little peons we call “rail shippers” will storm the proverbial castle via legislative support. Face the facts, railroad disciples, there are more of them than there are of you. You are outnumbered, and in a representative-type government that usually spells trouble for the holders of the minority view.
No matter how hard core of a railfan you are, all have to admit that all of us are paying the price of rail captivity, whether via higher power rates, higher commodity prices, or congested highways.
So if there are more of them than there are of us what is theirs is theirs and what is ours is theirs too. Thank you for making that perfectly clear.
What we are paying for today is the United States Governments previous, sustained, and largely successful efforts to make railroading unprofitable. If the business can not make a profit, who will supply the funds to provide service and greater capacity?
Railroads make millions…MILLIONS! What the hell are thay doing with that money.
The costomers need railcars that there not getting. Freight rates keep going up,service sucks,lost cargo,derailments. explain what their problem is. Prices at the store keep going up. The Railroads have been for many years have been cutting back on Track Maintence which doesn’t help any = More Derailments. The morons who run the RR today are far worse than that back in the Steam era. Train travel was much safer back in the early 1900 that today. I think that the Government need to start taking control of the RR’s. I have to agree with the Shippers…Freight rates are WAY too high. And service sucks.
You are wrong on virtually every count. Shippers have always whined about not being able to get all the cars they want when they want them. Sometimes they have been right, typically unforseen surges in demand. There is no profit for the railroad in loosing traffic. There is big losses in buying cars that don’t move for 6, 9 or 12 months per year.
Most main track is in better condition now than ever before. Consider the MILW and Penn Central which had truly awful track at various times and places.
You have obviously not looked at data on passenger deaths from 1900 to date.
If someone who ought to be informed thinks the things you say, I wonder what the truly ignorant think. Probably nothing because they don’t know the railroad exists.
Actually, in general BNSF railfan is right, albeit in a somewhat pedantic way. I have pointed out in past posts references that show freight car utilization is extremely poor by any standard (one carload per month, absolutely terrible). Railroads have a long history of deferred maintenance, a well documented fact, so nothing new there. Rates have gone up, an irrefutable fact. And if a shipper says they are dissatisfied with service, then it is inarguable that they are dissatisfied. To pawn off shipper dissatisfaction as “well, they always complain”, as if they just complain for the entertainment value of doing so, is shear sophistry.
The reference I had to rail shippers outnumbering rail service providers is simply an observation that things will eventually change in rail shippers direction. The railroad lobby has had the feds in the palm of their hands for 25 years now, as most complaints were presented in the background of the news cycles. Now that rail service-related issues affecting the general public are coming to the forefront of public awareness, you can bet the days of railroads being able to sweep things under the rug are over. Energy issues affect the public more than ag issues, and the railroads are a major part of some energy supply shortages, so as the service problems that historically affect ag grow into other sectors with more public awareness, the actions of the railroads will become more highly scrutinized.
There was nothing fair about that article. The facts were stacked with no attempt to gather fact or opinion from railroad management’s side. But judging by the name of the periodical, this was, as one person said, just a kind of extended op-ed from what I guess is an advocacy journal.
If it isn’t an advocacy journal, well then they should be ashamed of themselves for writing such one-sided blatt-blatt.
So far, other than to complain about how the shippers are being so abused and cry for reform, nobody has anwered the question of exactly what anti-trust provisions the railroad is exempt from.
It was my understanding that the anti-trust exemption allowed railroads to make joint rates or to join in rate bureaus.
For an interesting look at things, go to : http://www.aar.org/ViewContent.asp?Content_ID=2786
open the pdf file and scroll down to the first chart. Notice how productivity, rates, revenue and volume are all essentially flat through those “glory days” of regulation. Then in 1981 Staggers was passed. Productivity skyrocketed, volumes went up, rates went and revenue went down (in 1981 dollars). That one chart alone is a ringing endorsement of deregulation.
I have always thought that a person with a high IQ would also have a rather good ability to draw logical conclusions. You have consistantly proven me wrong.
You have falted railroads for only getting one car turn per month ( a slight exaggeration, but not relavant here), and deferring maintenance. You have here alluded to general service failures, for whatever cause, and noted that these conditions are the basis for shipper disatisfaction and a growing support for changes to rail regulation.
I took a look at the postion papers of the National Industrial Transportation League, the largest and most powerful shipper group in the country, and yes, they detail and support current legislative proposals to improve the rate situation for “captive shippers”. The proposed legislation seeks to get lower rates for these shippers by prohibiting railroads that serve such shippers from setting any barriers to the shipper from getting rates via connecting railroads, thus possibly getting a joint rate lower than the single line rate of their serving railroad. The legislation also proposes to substantially reduce barriers to initiating actions claiming unreasonable rates.
Clearly, the goal of the proposed legislation is to reduce the rail rates charged to captive shippers, and if that goal is achieved, railroad revenues will drop. Now unless the railroads have gold mines and oil wells to offset the loss of rail revenue, I do not see how they will do things like improve car turns, increase maintenance or do anything else to improve service. In fact, with less income, it seems possible that service might get worse. That just seems to run counter to your off stated goal of making the world a better place.
Interesting reading most of your comments. Since I started this thread, thought I’d throw my 2 cents in. But first let me say that I would not be in favor of re-regulating the railroads. That would be the worse. At this point I’m not taking sides on the issue because I don’t feel I now enough about it to make an informed decision. There is one common thing most can agree with and it is that this is a complicated topic.
I’ve read several artciles in the recent past about captive shippers complaining about unreasonable rate hikes. I’ve also seen it happen in my own hometown. But on the other hand I can understand some of the reasons railroads give for these rate hikes, for instance the costs of maintaining a line that serves only one shipper with little traffic. These might be legitimate reasons for unusual rate hikes. But if the sole reason for raising rates is because the railroad has a captive customer(s), especially if there are several customers on one line or they have a large customer with lots of rail traffic, then I would view these rate increases as being unreasonable.
As one person mentioned above, if railroads are forced to lower rates for these customers, then this would reduce their revenues which translates to deferred maintenance, etc. But wouldn’t it be true that if ALL railroads were forced to reduce rates for captive shippers, then wouldn’t ALL the railroads raise rates on the competitive lines to cover the loses. Since all the railroads would be in the same predicament, this shouldn’t give one railroad the edge over another when pricing in a shared market. Maybe this is too simple minded.
Again, I’m not an expert, but it does sound like shippers with complaints have the table stacked against them if they wi***o file a complaint. But I have a question, or need something explained. What anti-trust exemptions do the railroads have that give them the overwhelming edge???
The definitive answer to most of the above is to be found in comparing the RRs rate of return on capital plant w/ the average of, say, the Standard & Poors 500. If the RRs rate of return is signifigantly higher than average the shippers have a valid beef. If not we have just another of an incessant line of pressure groups trying to use the political power they can generate to get into the pocket of their fellow citizens. I actually don’t know what the result of such a comparison would be, but I have my suspisions that it would be the latter rather than the former.
The definitive answer to most of the above is to be found in comparing the RRs rate of return on capital plant w/ the average of, say, the Standard & Poors 500. If the RRs rate of return is signifigantly higher than average the shippers have a valid beef. If not we have just another of an incessant line of pressure groups trying to use the political power they can generate to get into the pocket of their fellow citizens. I actually don’t know what the result of such a comparison would be, but I have my suspisions that it would be the latter rather than the former.
Railroads have for decades earned less than manufactureres and electric utilities. As an industry, they have yet to earn their cost of capital post Staggers. One or two railroads may have hit cost of capital for one or two years, but they are the statistical outliers. Real rail rates are down since Staggers, which means the shippers have captured most, if not all, of the efficiency gains of the last 25 years.
If specific rates are going up, as some are, part of it is fuel price adjustments. To the extent rates are up beyond fuel price adjustments halelula brother becuase if they stay down the capital startation of the industry will continue. That capital starvation has beeen the direct result of punative rate regulation since 1906, and consistent govt bias toward rail labor which is the largest single component of rail costs. Most of the service problems, and there are many are due directly to this chronic capital startation. The capital starvation is the direct result of decades of hostile public policy.
The “capital starvation” to which you refer has nothing to do with public policy, other than the fact that public policy for other modes favors public ownership or public access of ROW’s. Railroads choose to bear the entire cost of the ROW rather than splitting that cost among all the carriers and/or allowing public participation in that ROW cost in return for a certain degree of public access to that ROW. Until and if railroads are willing to let others share the cost of ROW in exchange for those others having access to the property, the railroads will always suffer from low ROI’s. The inabillity to adaquately cover investment demands is part and parcel of a closed access system. Apparently, blaming “public policy” or “unfair competition” from truckers and barge lines is also part and parcel of railroading’s closed access system.
Considering the source (AAR), a ringing endorsement of partial deregulation is to be expected. If anyone has any evidence of the AAR advertising the not-so-great aspects of partial deregulation, please let us know.
When railroads were regulated, they were given this anti-trust exemption, e.g. there was a trade off of sorts to “balance” out the equation. When Staggers was passed, the anti-trust exemption should have also been lifted. That would have been closer to true deregulation of the railroads, but as it happened the railroads retained anti-trust exemption, so by any measure Staggers was only partial deregulation. The anti-trust exemption is a continuation of regulation, albeit on the shippers rather than the railroads themselves.
Yep, Staggers is a perfect example of railroads “having their cake and eating it too”.
For those who are interested in the facts of how the hostile public policy of 1906-1985 caused the near destruction of the railroad industry I offer the following. Sources are "Enterprise Denied, Albro Martin, 1971; “Rates of Return - Class I line Haul Railwarys” 1921-1948, Stanley Miller and others, 1950; and “Performance of US Railroads Since World War II”, Kent Healey 1985. “Enterprise” should be available in used book section of Amazon or Barnes and Noble, the others I do not know as I got them from my local University library.
Martin covers the period 1897-1917. The ICC was given extensive regulatory powers in 1906 and 1910. The commission then held down rates in a period of inflation in which only rates were restrained, which by the end of the period place the industry in the capital starved position it has yet to recover from. The rate freeze was in fact a continuing series of real rate reductions.
Martin’s fundamental question was “what investments were actually made in this period, and what investments should have been made to keep up with the growing demand”. The chart on page 131 answers that question as does a table in the appendix that describes in detail how the chart was constructed. His conclusion is that in the period 1889-1906 underinvestment ran about $200 million per year, and did not exceed 300 million per year. In the years 1912-1915 underinvestment averaged over $1,000 million per year. He also shows sources of funds invested, stock issues, bond issues and retained earnings. The peak year for retained earnings was 1906.
Rates of Return is full of small print tables, a statistician’s joy On pages 48 and 49 is a table of rates of return for all railroads, page 50 and 51 is same but for Class I railroads only. There is not much difference. Without doing the math the average return over the period for all railroads is about 3.5%. Only in 1942 does return exceed 6%, at 6.46%.
Early in this period there was great hue and cry abou
Henry Ford started mass producing Model Ts at Highland Park in 1914. The masses demanded good roads for a Sunday drive and the Federal money spigot was turned on in the 1920s. Regulation and millions in highway subsidies. Talk about a double edge sword!
I beleve the most important year in 20th century US railroading was not 1940 with EMDs FT tour but 1914 with Fords mass production of automobiles.