WASHINGTON — Groups representing rail shippers say they would be opposed to the creation of a transcontinental railroad in the U.S., arguing that further consolidation in the industry would reduce their competitive options, lead to higher rates, and worsen service.
Union Pacific and Norfolk Southern said last week that they are engaged in advanced negotiations about a merger that would create a system that would stretch from coast to coast. If they do reach a deal, industry observers expect a competitive response from BNSF Railway and CSX.
The National Industrial Transportation League, the American Chemistry Council, and the Freight Rail Customer Alliance are watching warily as the rail industry inches its way toward a potential final round of mergers that would leave the U.S. with a pair of transcontinental Class I systems.
Railroads have traditionally said that end-to-end mergers help improve service by eliminating costly and unreliable interchanges. Shipper associations don’t see it that way.
“NITL has been on the record wanting no more rail mergers,” says Nancy O’Liddy, the group’s executive director. “Generally shippers oppose continued consolidation in the rail industry based on past experiences resulting in increased rates, higher fees, and unreliable service.”
Scott Jensen, a spokesman for the American Chemistry Council, says chemical manufacturers would “oppose any merger that would boost railroad monopoly power.”
Chemical shippers are highly reliant on railroads for the shipment of hazardous materials as well as plastics and other petrochemical products.
“Our industry is one of the largest users of the U.S. freight rail system, and we need efficient and reliable service to deliver products that make people’s lives better, healthier, and safer,” Jensen says. “The four largest freight railroads already control more than 90% of U.S. rail traffic, with two dominating in the eastern U.S. and two dominating in the west. A merger between two of these railroads threatens to leave American manufacturers, farmers, and energy producers with even fewer options to ship by rail.”
The Freight Rail Customer Alliance, an umbrella group that includes trade associations representing 3,500 companies in the manufacturing, agricultural, alternative fuels, and electric utility sectors, says railroads already have too much market power.
Railroads are able to use that market power to force shippers into contracts, which fall outside of the jurisdiction of the Surface Transportation Board, says Ann Warner, the FRCA’s executive director. The STB can only regulate shipments that move under tariff rates, which are typically more expensive than contracts.
Shippers have not seen the benefits of efficiencies that railroads have gained through the spread of the low-cost Precision Scheduled Railroading operating model, Warner adds. Railroad profits keep rising, she says, despite the industry losing market share to trucks.
The devil will be in the details of a merger application, such as what concessions the railroads may be willing to make to enhance competition, which is required under the STB’s tougher and untested 2001 merger review rules.
“NITL shipper members will have to see if an application(s) is filed and then what is offered and what the STB might prescribe and what enforcement mechanisms are put in place,” O’Liddy says. “All freight rail shippers need guaranteed competitive solutions.”
In prior mergers, regulators have imposed conditions to protect shippers who otherwise would see their options shrink from two railroads to one. In many instances that has meant giving a second railroad trackage rights and access to affected customers.
Analysts have speculated that some form of expanded reciprocal switching, which provides sole-served customers with access to a second railroad, may be a potential way to enhance competition for carload shippers — and therefore help a merger application meet regulatory hurdles.
FRCA’s Warner says many of the group’s members rely on unit train service, which has not benefited much from reciprocal switching.
A majority of shippers who responded to a survey by Wall Street firm TD Cowen said they would back a transcon merger — so long as it included significant concessions. Shippers said their support would hinge on gaining things such as access to a second railroad, rate case reform, and provisions that would force railroads to pay penalties for service failures.
I don’t know if you were around before Staggers, but much of the railroad industry was bankrupt and track conditions were terrible. It was the liquidation of the Rock Island that finally led to Staggers. The solution is competition, not regulation or nationalization. Mergers have the potential to eliminate interchanges and delays, but they must come with dramatically increased competition so that some of the benefits are passed on to shippers. Options for competition include reciprocal switching, requiring open gateways, trackage rights, and possibly some form of open access. Rate and service complaints need to be streamlined before the STB.
Read the rest of that paragraph. “The STB can only regulate shipments that move under tariff rates, which are typically more expensive than contracts.” So the unregulated rates are at a discount from the rail tariff rate. If they don’t like the discount rate then they can pay the full tariff.
The essence of monopoly power:
“Railroads are able to use that market power to force shippers into contracts, which fall outside of the jurisdiction of the Surface Transportation Board”
A complete lack of transparency. How can this “enhance competition” and “serve the public interest”. Short answer, it cannot.
Re-reguation or nationalization is the ultimate solution. Carter and Staggers have utterly failed.
“Nationalization” was tried during WW I, it was a failure and led to many lines being shut down (like the Colorado Midland). And Conrail was privatized and sold off.
And would you really want the Federal Bureaucracy running the trains? It would turn into a DEI/employer of last resort. Shippers would move 100% to trucks.
And what exactly is “re-regulation”? Going back to the bad old 70s?