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Rail customers want railroad antitrust laws enforced

By TIM ALEXANDER
Illinois Correspondents

WASHINGTON, D.C. — Small, rural businesses and family farms increasingly bear the burden of a monopolistic freight rail industry that subjects its “captive customers” to poor service and outrageous rates, said a rail customers group.

Consumers United for Rail Equity (CURE) want to bring the railroads’ practices under scrutiny, and their efforts have resulted in two bills currently in front of the House and Senate.

“The STB (Surface Transportation Board) has fallen asleep at the switch, allowing rail companies to run roughshod over our nation’s small businesses, farmers and families,” said Glenn English, chairman for CURE and CEO of the National Rural Electric Cooperative Assoc., to the House Small Business Committee during a May hearing examining competition in the rail industry.

“In today’s consolidated rail environment, rail companies are free to treat their captive customers as they please with no regard for how it affects farmers getting their food to market or electric co-ops supplying their customers with power.”

The Railroad Antitrust Enforcement Act (H.R. 1650), authored by Rep. Tammy Baldwin (D-Wis.) and supported by the Washington, D.C.-based CURE, would repeal the railroads’ exemptions from antitrust statutes and allow the Federal Trade Commission to review future mergers under antitrust laws. The measure would also allow rail customers to seek legal recourse to halt anti-competitive conduct by the railroads.

The bill, along with a Senate version of the measure (S. 772), awaits action by the full House and Senate.

“For years the railroads have used their loophole exemption from antitrust laws to raise rates on rail customers and increase costs for U.S. consumer goods,” Baldwin said. “This virtual monopoly by the freight rail industry is unfair and unacceptable and it must end.”
A second bill, the Railroad Competition and Service Improvement Act (H.R. 2125, S. 953), would require the STB to address rail service problems, modernize the rate challenge process for rail customers and remove artificial barriers to competition. That bill is also before the full House and Senate.

The basic issue
Since the mid-20th century, freight railroads have been exempt from U.S. antitrust laws, but were subject to tight scrutiny by the now-defunct Interstate Commerce Commission until 1980, when competitive rail service was deregulated by Congress. It was then, claim members of CURE, that Congress should have removed the railroads’ antitrust exemptions.

“Antitrust laws are basic laws that ensure competition in markets, and just about all companies in America have to operate under them,” said Bob Szabo, executive director and counsel for CURE. “You might find it amazing that railroads are exempt from antitrust laws.”

The American Farm Bureau Assoc. (AFBF) and the National Farmers Union have linked with CURE and federal legislators to pass reform legislation to stop what they consider the railroads’ monopoly stranglehold on rural America.

“America’s farmers and ranchers deserve a fair, competitive and transparent rail system,” said National Farmers Union president Tom Buis.

“The rail industry’s increased consolidation has resulted in a lack of competitive services and higher transportation costs.”

AFBF president Bob Stallman is also calling for Congress to pass the two CURE-supported measures, adding that American agriculture depends on the railroads.

“Agricultural producers are frequently captive rail customers and experience both unreliable service and exorbitantly high rates from the railroads,” Stallman said. “Freight railroads must be subject to our nation’s antitrust laws so that prices for shipping agriculture commodities via rail can be fair and reasonable.”

Also in support of rail reform legislation are the American Coalition for Ethanol and the Alliance for Rural America, which includes the American Corn Growers Assoc., the National Farmers Organization and the American Agriculture Movement.

No mercy for customers
CURE was formed in the early 1980s, but was in hiatus until the mid-1990s when the newly formed STB changed the rules under which railroads must operate.

“In 1996 the STB, which had replaced the ICC in 1995, made a decision in a case called the Bottleneck Case which basically said railroads did not have to transport the products of a customer to a competing railroad, meaning that most customers would be served by only one railroad,” Szabo explained. “Since most customers are only served by one railroad, they automatically became captive to that one railroad. The idea of having access to competition pretty much went out the window.”

At the same time, railroads were rapidly merging more than 40 providers. Today there are only four major U.S. rail providers.
“This concentration and the lack of access to competition put a lot of people at the mercy of the railroads, and the railroads weren’t showing any mercy. (Meanwhile) the STB was not showing any mercy to rail customers,” Szabo said.

In addition to agriculture interests, CURE consists of individual member companies such as rural electrical co-ops, municipal power providers, manufacturers, chemical companies, paper companies and the national trade organizations that represent them.
“Our mission is to advocate better policy for people who are dependent on the rails for transportation,” Szabo said. “We’re not going to stand back or these important bills will not get passed. What we are going to do is hit Congress hard early next year to move our antitrust bills all the way to the president.”

Shipping volume down
Szabo and CURE point to blistering profits posted by the nation’s largest freight railroads in the third quarter of 2008 - despite declining shipping volumes - as proof of the railroads’ use of monopoly pricing to its fullest extent.

Despite claims by the railroads that expenses justify the charges assessed to rail customers, a CURE news release dated Oct. 23 noted that rail provider BNSF reported third quarter earnings were up $818 million, reflecting a 21 percent increase from the company’s third quarter earnings a year before.

Union Pacific reported a 32 percent increase in income compared to the same period last year, while Norfolk Southern realized a 35 percent increase in profits. In addition, CSX reported a 40 percent increase in quarterly net income from their 2007 third quarter report.

“When the economy is suffering, when railcar volumes are declining, when fuel prices are soaring, how can these railroads continue to post massive profits?” asked English. “The answer is clear – unfettered, monopoly-power pricing that hurts consumers, hurts our rural communities and hurts our nation’s farmers.
“Our farmers are already suffering. The last thing they need are indefensible rail transportation price increases while all of their input costs are increasing and commodity prices are declining.”

11/5/2008