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Criticism of RR antitrust exemption is mounting

By TIM ALEXANDER
Illinois Correspondent

WASHINGTON, D.C. — According to the American Bar Assoc. (ABA)’s division on antitrust law, special antitrust exemptions being enjoyed by the nation’s major freight railroads must end.

The nation’s premier law organization issued that endorsement in mid-December by asking the leadership of the U.S. House and Senate to pass the Railroad Antitrust Enforcement Act (HR 1650, S.772) during the next session. The legislation would end the major railroads’ broad exemption from antitrust laws, which allow them to avoid competition and keep rates artificially high, say those who support the bill.

According to Consumers United for Rail Equity (CURE) – a coalition of rail customers representing agriculture groups, public utilities, rural electric co-ops, chemical and other companies – rural America and agricultural sectors are especially hard hit by railroads’ abuse of the antitrust exemption due to a “captive” rail service amounting to a monopoly.

“The legal experts of the Antitrust Section of the ABA are considered the foremost authorities in the United States on matters of antitrust law,” said Rep. Tammy Baldwin (D-Wis.), author of the House version of the legislation. “Their support for this legislation reinforces the need for quick action on rail reform.”

Bob Szabo, executive director of CURE, said the ABA’s endorsement of the legislation could be seen as a harbinger of change in how railroads will be allowed to charge their customers.

“For (ABA) to come out and so completely endorse this pending legislation ... is really quite unusual and outstanding,” Szabo told Farm World. “I think it takes completely away any questions about the substance of the bill. It’s a very good endorsement to have.”

The ABA Antitrust Section authored a 13-page analysis presented to House and Senate leadership which concluded “the changing nature of the rail industry justifies a corresponding change in the way allegedly anti-competitive activity among railroads is addressed,” and urged Congress to “move forward quickly to dismantle the antitrust exemption for the railroad industry,” via the pending legislation.

Szabo said though the bill, and companion legislation called the Railroad Competition and Service Improvement Act, has gained approval by unopposed voice vote in both the House and Senate judiciary committees, it will be back to the drawing board with a new legislature in 2009.

“When the new Congress begins, (the measure) will have to be reintroduced, rerun out of the committees and then brought to the House floor and the Senate floor,” said Szabo, “(but) we think the (ABA endorsement) will be very helpful in that effort.”

No one can tell when H.R. 1650 might gain passage, Szabo said, though CURE is encouraged by what it sees as a balanced political playing field for the first time in many years. Sen. Herb Kohl (D-Wis.), author of the Senate bill and chairman of the Antitrust Subcommittee of the Senate Judiciary Committee, and House Judiciary Committee Chairman John Conyers (D-Mich.) are both outspoken in their demands for railroad antitrust reform.

“(Kohl) believes he can get a vote in the Senate in 2009,” said Szabo. “Chairman Conyers also wants to get it voted on in the House in 2009. So I think we have a pretty good chance (next year). I think this is a Congress in which we’re going to get rail reform legislation and legislation that reforms the Surface Transportation Board (STB).

“The entire rail customer base is calling for it, from foreign groups to utilities and consumer groups. This is a great opportunity; the timing is right.”

NGFA, ag groups weigh in

Adding weight to the current railroad antitrust legislation before Congress, the National Grain and Feed Assoc. (NGFA) and 12 other national agricultural groups issued a joint statement on Dec. 23, accusing a recent STB-mandated study purporting to address the state of competition in the rail industry of failing to adequately address the degree to which rail carriers are exerting market power in pricing their services to shippers.

The NGFA stated the study used “weak economic reasoning” in explaining increased freight rates and skyrocketing profits that the railroads realized last quarter. The statement disputed the study’s contention that rail carriers were increasing rates primarily to compensate for cost increases and declining productivity, insisting that fuel surcharges passed on to shippers more than offset the railroads’ expenses.

Instead, the NGFA contends, rail pricing behavior is driven more by the increasing market power of rail carriers in a market characterized by constrained transportation capacity and declining competition resulting in fewer competitive truck and rail alternatives.

“It is obvious that ... railroads are simply pricing at what the market will bear,” the statement read, in part. “With fewer railroads, less truck competition and a gradually tightening capacity, the marketplace provides more than ample evidence of market power by railroads.”

December 31, 2008

1/7/2009