By TIM ALEXANDER
Illinois Correspondent

WASHINGTON, D.C. — Agricultural commodity groups and trade organizations including the National Grain and Feed Assoc. (NGFA) and National Assoc. of Wheat Growers (NAWG) represented as the U.S. Surface Transportation Board (STB) kicked off its investigation into unfair rail competition and price-gouging allegations with a public comment hearing June 22-23.

Though representatives of agricultural interests told the three-person STB that lack of competition in the railroad industry hinders exporters – agricultural shippers in particular – representatives of the nation’s Class 1 freight rail companies countered that rail rates have actually declined in the past 20 years even as their expenses rose.

NAWG President Wayne Hurst, a wheat, barley and sugar beet producer from Idaho, told the board it must be “strong and proactive” in order to ensure agricultural shippers and others who are captive to a single freight rail provider receive fair rates and good service.

“Railroads are vital to agricultural production and the value chain,” he stated. “They are extremely important to us, and in my experience, the people who run them are good, smart, hard-working Americans, much like the American farmer.”

Hurst testified, however, that railroad mergers over the last 30 years have caused a substantial reduction in competition between rail companies, resulting in “pockets of captivity” in at least 14 states engaged in exporting wheat. Rates are higher and service is inferior in areas where rail-to-rail competition is not present, according to the NAWG.

“There are billions of dollars to be made each year in the railroad business, and the pressure to maximize that profit is real,” said Hurst. “Farmers believe that both railroads and shippers would be better off with more competition in the marketplace.”

Wheat farmers export approximately half of their entire annual production in a typical year, according to the NAWG.

NGFA President Kendall Keith urged the STB to review its policies that allow rail carriers to unilaterally impose switching charges of $500 or more per railcar – or more than five times the variable cost of performing the service – to reposition shipments to the tracks of competing carriers. Such practices, he said, close off access to agricultural markets and have a negative impact on the U.S. economy.
“We believe that, just as carriers do not want to be ‘reregulated,’ neither should they have a free hand in cutting off existing physical and economic access through closures or excessive switch rates,” Keith testified during the hearing’s first day. “To allow such autonomy on switch charges will have a negative impact on the competitive fabric of the nation’s economy.”

The NGFA has proposed a revenue-to-variable-cost threshold, such as 180 percent, for switch charges, shifting the burden of proof onto the railroads to explain how such charges are reasonable, when imposed.

Keith said the antitrust exemptions granted to railroads by the Staggers Rail Act of 1980 came during a time when railroads were struggling financially. The vastly improved economic condition of the rail industry today, he noted, should open the door to a more competitive transportation environment that would be “good for industries and the employees they hire” and give “companies a competitive edge to succeed.”

Since 1980, railroads’ market share of agricultural product movements has shrunk from 50 to 35 percent. “Those in the grain, feed and grain processing business don’t want this rail business volume trend to continue downward,” said Keith. “We want to be competitive and expand (agricultural) businesses and create jobs. To do that, we need a partner in the rail industry to assist in responding to competitive market forces, both domestically and internationally.

“We need reasonable rates, reasonable business terms and quality service. We also need access to a reasonable and cost-effective method to address problems with rates, terms and service.”

The NGFA called for the establishment of an STB-based dispute resolution system for rail customers who do not have access to NGFA’s previously established rail service dispute system for its members and rail providers. An increase in the amount of money a shipper who wins a rate case against a railroad may collect should also be considered, Keith testified.
More than 20 rail industry constituents provided testimony over the course of the hearing, according to the Assoc. of American Railroads (AAR). The rail constituents were led by AAR President and CEO Ed Hamberger, who told STB members current rail economic regulatory framework allows freight railroads to invest billions of dollars in private capital improvements for which taxpayers could otherwise be paying, while supporting more than 1.2 million jobs.
Current rail regulations have already “engendered a competitive freight marketplace that encourages private investment in railroads, rather than relying on the federal government to fund the nation’s rail infrastructure,” said Hamberger.

The STB should maintain its regulatory framework regarding rates, competition and conflict resolution, according to the AAR. “Rail rates are down 51 percent since 1981, which means the average shipper can move twice as much freight for the same price 30 years ago,” Hamberger testified.

Forcing rail companies to provide competing carriers access to their “networks and property” through changes in regulations would cause the nation’s rail industry to be “less efficient” and will affect service, he said. “Railroads know best how to operate their networks efficiently to best serve their customers,” he said.

According to a speakers’ schedule released by the STB public information office on June 17, other organizations and companies sending delegates to testify at the hearing in Washington, D.C., included the National Industrial Transportation League, North Carolina Department of Transportation, Alliance for Rail Competition, Consumers United for Rail Equity, the Western Coal Traffic League, Concerned Captive Coal Shippers, American Shortline and Regional Railroad Assoc., American Chemistry Council, The Chlorine Institute, Inc., Arkansas Electric Cooperative Corp., Ameren Corp., J.B. Hunt Transport Services, Dow Chemical Co., E.J. Dupont De Nemours and Co., BNSF Railway Co. and other railroad companies.