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Rail Solutions Sought: Competition by Glen W. Squires Wheat Life, February 2004

The following are oral testimony excerpts of Terry C. Whiteside before the U.S. Senate Commerce Subcommittee on Surface Transportation and Merchant Marine, on behalf of the Washington Wheat Commission and other wheat organizations on the challenges shippers face with the current railroad environment.

Whiteside noted that since passage of the Staggers Act in 1980 "the freight rail industry has chosen short-term profit over healthy evolution and an open American marketplace." As a result, growth in freight over the last 20 years has been just one percent per year. Contending that concentration by merger has changed the balance and reduced competition, he explained that "railroad federal law that is designed to protect the U.S. public from monopoly market abuse simply is not working and the law needs to be fixed to restore balance."

He gave evidence of service and rate problems and abuse from market domination of whole industries by single railroads saying that the freight rail marketplace does not behave like a marketplace at all: "There are federal protections for railroads that do not exist for any other industry, such as anti-trust exemptions." In addition, years of regulatory tweaking have skewed the intent of Congress when it passed the Staggers Act in 1980.

That statute says, in part, that the policy of the United States Government is ". . . to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail . . ." and ". . . to maintain reasonable rates where there is an absence of effective competition . . .". The regulatory agency (Surface Transportation Board, or STB) has not kept this congressional intention of balance in mind when issuing rulings and interpretations since 1980.

Explaining that captive shippers are dependent upon railroads, and are the last ones who would ever want to see harm come to availability of rail service or further contraction for the rail system in the marketplace, he said shippers want"

• A safe, growing and financially strong rail industry
• Elimination of monopolistic practices by furthering the direction developed in the Staggers Rail Act
• Cooperative innovation and creativity driven by rail-to-rail competition

Whiteside emphasized that S. 919 is NOT a re-regulation bill, does NOT cap rates and does NOT mandate open trackage rights; but that the issue is competition and the fairness that come3s from competition. He noted studies confirming that competitive conditions will produce greater volumes and market share for the railroads.

Acknowledging that railroad companies would respond that they could not survive in a S. 929 world -- or in other words, a world in which competition drives price, and not captivity -- he said, "If that is true . . . if it is true that an American industry cannot survive without these kinds of unfair and non-competitive market practices, then the whole issue bears even closer examination. In that case it would seem to me that you as policy makers have an amplified responsibility to consider long-term solutions to bring balance to all parties, including the consuming public . . . which ultimately pays for all of this."

Cautioning that congressional inaction will simply create a larger transportation problem for the country as time passes, Whiteside said he reasoned the problems would just become more complex and more expensive to fix. He concluded that the "day has long since passed when anyone can credibly say that there is no problem, or that things are just great as they are."

Written testimony further revealed whole states, whole regions and whole industries are now captive to a single railroad. Approximately one-third of the shipping community in the country is now captive. Just four mega carriers generate 95 percent of the gross ton-miles and 94 percent of the revenue. In the West, two carriers generate 92 percent of the gross ton-miles and 90 percent of the revenues in the West. Thee carriers control over 70 percent of grain movement. Shortline carriers need rail-to-rail competition as well. The issue is not about railroad rates, service or thwarting economic development; the issue is that federal law does not protect the U.S. public from monopoly market abuse practices. Concluding that the regulatory mechanism has skewed congressional intent of competition that Congress relied upon when it passed the Staggers Rail Act of 1980, shippers are requesting legislative changes through S. 919.

S. 919 Key Points

• Clarification of national rail policy: clarifies that the Surface Transportation Board (STB) has the following primary objectives:
  1. ensuring effective competition among rail carriers at origins and destinations;
  2. maintaining reasonable rates in the absence of effective competition;
  3. maintaining consistent and efficient rail transportation service for rail shippers, including the timely provision of rail cars; and
  4. ensuring that small carload and intermodal shippers are not precluded from accessing the rail system.

• Requirement that railroads must quote rates to their customers: in order to increase rail customer access to competition, railroads must quote rates between any two points on their systems where freight movements can originate, terminate or be transferred, when requested by the customer.

• Arbitration of certain rail rates, service and other disputes: provides "final offer" arbitration (baseball arbitration) at the choice of the not-rail party to a dispute, for all rail rate matters and other disputes at the STB involving a railroad charge.

• Removal of "paper barriers": prohibits including "paper barriers" in future sales of leases of rail line to short line or regional railroads and allows the STB to invalidate such provisions that have been in existence for 10 years.

• Removal of "anti-competitive conduct" test from terminal area and switching agreements policy of ICC/STB: changes the antitrust test added in mid-1980s by the former Interstate commerce Commission to the statutory "public interest" test included in the terminal area and switching agreement provisions of the ICC Termination Act.

• Tri-annual DOT study of extent of rail-to-rail competition

• Areas of inadequate rail competition: of petition of a state, the STB may declare all or part of a state to be an area of inadequate rail competition. Special rail customer remedies apply in such areas.

• Rail customer advocacy office established at U.S. Department of Agriculture