Rail-dependent shippers are the shippers hardest hit by the lack of competition in the freight rail industry. Some rail-dependent shippers are “captive” in the classic sense of the term. The shipper must use rail to move its freight and it has access to only one railroad, meaning that the shipper is “captive” to that railroad and at its mercy regarding rates and terms of service. Other “rail-dependent shippers” also must use rail, but are connected to more than one railroad, but only one railroad will compete for its business. Rail-dependent shippers report uniformly that the major railroads ceased competing for their business in about 2004. Since then, through one of the nation’s worst recessions and despite the vaunted railroad advantage when it comes to fuel efficiency, rail rates have risen two and half times the level of inflation and two and a half times the level of trucking rates. Other rail-dependent shippers can physically move their products for some distance by truck, but are penalized by the higher trucking rates and cannot access some important markets because the economics of trucking are constrained by distance. According to the Surface Transportation Board, approximately 35% of the annual rail traffic in the U.S. by weight is paying “captive” rates.
Captive and rail-dependent shippers include the full range of American companies. These shippers often move bulk commodities such as coal, grain, lumber, metals and chemicals, agricultural products or certain materials that, due to size or weight or hazardous characteristics, cannot be moved cost-effectively or even legally through other transportation options. Captive and rail-dependent shippers range in market sector from agriculture to manufacturing to utilities and include small family farms and companies to major global producers with stock market value that far exceeds the market value of the major American railroads.
Captive and rail-dependent shippers are found in every state except Hawaii and Alaska. Hawaii, of course, has no freight railroads except specialty railroads. Alaska has a state owned railroad. Over 78% of the more than 28,000 rail stations (where a major railroad picks up or delivers freight on a regular basis) in the continental U.S. are served by a single major railroad. Some of the remaining 22% of rail stations may also be served effectively by one railroad by controlling the other railroads serving the rail station.
The lack of competition in the U.S. freight rail industry benefits importers who move their products into the United States through ports where they obtain competitive rail transportation to American markets. In American markets, importers are often competing against American producers and manufacturers who are served by a single railroad and pay the resulting high rates that can render them non-competitive.
When Congress in 1980 chose to move from a tightly regulated national rail system to a “competitive” national rail system that presumes a deregulated relationship between the railroads and their customers, Congress did not foresee that the rail system would evolve in a way that benefits importers into American markets over our own American producers and manufacturers. This failed policy must be corrected if the American economy is to perform at its maximum efficiency.