Q: How does railroad monopoly power affect the average consumer?

A: Monopoly rail charges are like a hidden tax on all kinds of consumer goods. Railroad monopoly power also hurts America’s ability to compete in a global market, which ultimately means lost wages and lost jobs for Americans.

Arkansas Electric Cooperative estimated that its use of natural gas and other alternatives to coal caused by rail delivery problems in the past cost its customers more than $100 million – an average of $15 to $20 per month for each of its electricity customers.

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Q: What are some of the common service complaints about railroads?

A: Reliability. Rail deliveries are often late, or cars carrying vital goods such as grain or coal, disappear for months at a time. To compensate for this, rail customers often have to ship more goods or parts – thus compounding the problem.

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Q: If there are so many problems with the railroads, why don’t shippers just take their complaints to the STB?

A: The STB is broken. It has been nearly impossible for shippers to get any reasonable relief from the STB. The rate challenge process is so complex, costly and time consuming that it provides no protection. An October 2006 report by the Government Accountability Office confirms this. The STB has refused to hold the railroads accountable when they fail to provide service. STB rulings actually have allowed the railroads to block customer access to competition.

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Q: What Federal legislation are you supporting in the current 114th Congress?

A: The Surface Transportation Board (STB) Reauthorization Act of 2015, S. 808, was approved by the U.S. Senate on June by Unanimous Consent on June 18th. Although no companion House bill, S. 808 is pending in U.S. House of Representatives.  The legislation, introduced by Senate Commerce, Science and Transportation Chair John Thune (R-SD) and Ranking Member Bill Nelson (D-FL) would reauthorization the STB for the first time since it was created.  The bill would make the STB a more effective agency for handling freight rail issues, streamline rate case procedures, create a meaningful alternative dispute resolution process, and require an analysis of the rules under which the Board operates. Other common-sense improvements include allowing the Board members to discuss agency matters with each other, permitting the Board to launch its own investigations, and creating much needed timelines for completing cases.  It was approved (without amendment) by the Senate Commerce, Science and Transportation Committee on March 25th.

The Rail Shipper Fairness Act of 2015, S. 853, is reform legislation seeking to expand freight rail competition and restoring regulatory balance by recognizing the significant market power enjoyed by the railroads and recognizing the public interest through reasonable rail rates and reliable service for freight rail customers. The bill achieves these modest reforms by: improving rail service, enhancing rail competition, reforming maximum rate case regulations, and establishing reforms at the STB.  It was introduced by Senator Tammy Baldwin (D-WI) on March 24th.  It was referred to the Senate Commerce, Science, and Transportation Committee.
Although no legislation has been introduced during the current Congress, we support measures that would repeal the railroad exemptions in the antitrust and transportation statues, so that antitrust law fully covers railroads just as it covers other industries.

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Q: Who are your members?

A: FRCA is an alliance of freight rail shippers impacted by continued unrestrained freight rail market dominance over rail dependent shippers. An umbrella membership organization, FRCA members include large trade associations representing more than 3,500 chemical, manufacturing and agriculture companies, electric utilities, and their customers. Its membership base is expanding to include other industries and commodities.

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Q: What types of freight are subject to rail monopoly power?

A: Coal, agriculture, paper and paper products, logging and construction products, steel and other manufacturing supplies, chemicals, plastics and many other items that cannot be shipped by truck or, in some cases, cannot by law move on the nation’s highways. According to a study commissioned by the Surface Transportation Board, 34 percent of all tonnage shipped by freight rail is“captive” (routes served by only one rail carrier line).

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Q: Isn’t there data showing that shipping rates have dropped over the last 20 years, not increased?

A: The railroad industry statistics do not address “captive rail rates,” which indeed have increased significantly. A 2008 study commissioned by the Surface Transportation Board showed the percentage of traffic that is captive has increased since 2001 and the percentage of captive traffic paying more than 300 percent of railroad’s direct costs has increased from 12 percent in 2001 to 17 percent in 2006.

Moreover, the rail industry statistics on “shipping rates” do not capture the costs that have been shifted to the rail customer by the railroads over the last 25 years. These enormous costs must be added to the rates to determine the true cost of shipping by rail. In fact,a 2006 GAO report verified that much of the “cost” of rail transportation that was previously built into the “rate” (the cost of train sets, maintenance, loading and other trackside facilities) has been shifted onto the backs of their customers. These increased costs are not captured in the graphs and charts provided by the freight rail industry.

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Q: Hasn’t rail service improved considering the railroad industry continues to benefit from record performance and profitability?

A: Since the Spring of 2009 (just one year following our nation’s economic collapse), the stock price performance index of the Class I railroads rose significantly thru 2Q 2014.  However, during 1Q 2005 thru 2Q 2014, shipping rates have risen, train speeds have fallen, and the number of carloads has been inconsistent.

Class l Stock Price Index | Freight Rail Rates

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Q: I’ve heard complaints about railroad fuel surcharges. Don’t they have the right to pass on fuel price increases like every other industry has?

A: An analysis by economic firm Snavely King Majoros O’Conner and Lee of the fuel surcharges being paid by captive shippers revealed the charges are unreasonable. They are not based on actual fuel consumption on the movement in question, are inappropriately linked to freight rates (not the actual fuel costs), and are often recovered through other means (such as the Rail Cost Adjustment Factor) so that the railroads are double recovering for these costs. The study estimates that the railroads have collected almost $1 billion in unjustified fuel surcharges in 2005 alone. Because these fuel surcharge excesses have been allowed to continue until at least April 25, 2007, the railroads probably have pocketed almost $3 billion in excessive fuel surcharges from its customers since 2004. Wall Street analysts have even praised some of the railroad companies for turning their fuel surcharges into a strong profit center!

On January 25, 2007, the Surface Transportation Board found that the railroads were over-charging customers through their fuel surcharges and ordered them to cease these practices within 90 days. Interestingly, the STB did not order the railroads to refund the excess charges!

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Q: What is “captive” rail?

A: “Captive” rail refers to the estimated 34 percent of the nation’s freight movements that are served by only one rail carrier, providing no competitive transportation option for the rail customer. Although railroad deregulation has given the railroad industry new life, monopolistic control over key parts of our nation’s rail routes has led to unfair pricing and poor service in the transportation of vital goods such as coal, grain, and chemicals.

In 1980 there were 41 Class I railroads. Only seven remain today, with four – two in the east and two in the west – carrying about 95 percent of all rail freight.

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Q: How much more does captive rail cost than competitive rail?

A: A study by Escalation Consultants, Inc. of Gaithersburg, Maryland (using 2009 Surface Transportation Board “Revenue Shortfall Allocation Methodology” data) found the railroads charge more than 75 percent more to ship freight on captive rail than they do on competitive rail.

  • For instance, CSX charged, on average, $11.57 a ton to transport coal over competitive routes and $28.03 per ton over captive routes.
  • BN charged, on average, $40.68 per ton to carry pulp and paper over competitive routes and $70.80 per ton over captive routes.

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Q: Why does it cost more to ship by captive rail than competitive routes?

A: The cost to the railroad of a comparable competitive and captive movement is the same. But the simple truth is that where the railroad has monopoly power, in the absence of effective oversight by the Surface Transportation Board, the railroad can charge whatever it wants. Obviously the rail companies need to be profitable and need to have capital to invest in expanding the nation’s rail system. But this economic reality does not justify unrestrained monopoly power that allows the railroad to extract whatever it wants from defenseless and dependent captive rail customers.