[Senate Hearing 108-965]
[From the U.S. Government Publishing Office]
S. Hrg. 108-965
RAILROAD SHIPPER ISSUES AND S. 919, THE RAILROAD COMPETITION ACT OF
2003
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
OCTOBER 23, 2003
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South
CONRAD BURNS, Montana Carolina, Ranking
TRENT LOTT, Mississippi DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas JOHN D. ROCKEFELLER IV, West
OLYMPIA J. SNOWE, Maine Virginia
SAM BROWNBACK, Kansas JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada RON WYDEN, Oregon
GEORGE ALLEN, Virginia BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
MARIA CANTWELL, Washington
FRANK R. LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
------
SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE
KAY BAILEY HUTCHISON, Texas, Chairman
TED STEVENS, Alaska DANIEL K. INOUYE, Hawaii, Ranking
CONRAD BURNS, Montana JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON H. SMITH, Oregon RON WYDEN, Oregon
GEORGE ALLEN, Virginia BARBARA BOXER, California
FRANK R. LAUTENBERG, New Jersey
C O N T E N T S
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Page
Hearing held on October 23, 2003................................. 1
Statement of Senator Burns....................................... 3
Statement of Senator Dorgan...................................... 5
Statement of Senator Hutchison................................... 1
Statement of Senator Lautenberg.................................. 4
Statement of Senator Rockefeller................................. 91
Statement of Senator Smith....................................... 94
Witnesses
Hamberger, Edward R., President and Chief Executive Officer,
Association of American Railroads.............................. 67
Prepared statement........................................... 69
Linville, Randall L., President and Chief Executive Officer, The
Scoular Company................................................ 80
Prepared statement........................................... 81
Nober, Hon. Roger, Chairman, Surface Transportation Board........ 6
Prepared statement........................................... 10
Platz, Charles E., President, Basell North America, Inc., On
Behalf of Consumers United for Rail Equity and American
Chemistry Council.............................................. 26
Letters from members of the American Chemistry Council
supporting S. 919.......................................... 26
Prepared statement........................................... 62
Whiteside, Terry C., Representative, Montana Wheat and Barley
Committee, and Chairman, Alliance for Rail Competition......... 16
Prepared statement........................................... 18
Appendix
Response to written questions submitted by Hon. Ron Wyden to Hon.
Roger Nober.................................................... 107
Written question submitted by Hon. Frank R. Lautenberg to:
Edward R. Hamberger.......................................... 107
Hon. Roger Nober............................................. 108
RAILROAD SHIPPER ISSUES AND S. 919, THE RAILROAD COMPETITION ACT OF
2003
----------
THURSDAY, OCTOBER 23, 2003
U.S. Senate,
Subcommittee on Surface Transportation and Merchant
Marine,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:32 p.m. in
room SR-253, Russell Senate Office Building, Hon. Kay Bailey
Hutchison, [Chairman], presiding.
OPENING STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. I would like to call this hearing to
order. I am holding this hearing, of course, as the Chairman of
the Surface Transportation and Merchant Marine Subcommittee,
and at the particular request, in fact promise that I made to
Senator Burns to do this.
This is not a new issue, as all of you know. You have been
here before. And I do think, though, that it is a timely one
and one that I would like to see resolved for the benefit of
both railroads and shippers. Across the Nation our
manufacturing productivity is lessened by shippers held captive
in many places by railroads with no incentive to charge
competitive rates.
In my years in the Senate and prior to that when I served
as Vice Chairman of the National Transportation Safety Board, I
have seen numerous attempts to level the playing field between
captive shippers and the railroads that serve them. But
Congress has not been able to agree on a single approach and
the crisis continues.
Today there is a severe shortage of competition in the
freight rail industry. The railroad mergers of recent years
have reduced the number of class 1 railroads from 42 to 5.
These mergers have brought great benefits to the railroads,
with operating incomes of the class 1 carriers increasing by an
average of 10 percent per year.
For manufacturers facing tough economic times, the story is
different. In the absence of competition, shippers are forced
to pay arbitrary rates. It is a common practice for captive
shippers to send their loads without knowing how much they will
pay for carriage and without a guarantee of on-time delivery.
Every day captive shippers face the choice of pay the rate or
lose the business.
Almost 35 percent of the Nation's railroad traffic is now
considered captive. Not surprisingly, captive shippers pay a
premium per mile compared to those served by more than one
railroad. In Victoria, Texas, a shipper once had three
railroads competing for business. After the mergers only the
Union Pacific remains. With no competitors, the Union Pacific
has added new fees for carriage of empty cars, dispatching and
storage, until overall shipping costs rose more than 35 percent
for this shipper in Victoria, Texas.
Toyota currently operates five manufacturing plants in the
United States, some captive, some competitive. Captive facility
rates were so much higher that Toyota adopted a policy
dictating that no plant could be built without service from at
least two railroads. Ultimately Toyota chose to build its sixth
plant in San Antonio, Texas, but not until the legislature
threatened to build a spur to the site so another railroad
would be able to compete with the incumbent. In San Antonio a
buildout was an option due to the relative proximity of a
competing rail line. For most captives this is not the case and
buildouts are prohibitively expensive.
The Staggers Act was explicitly intended to protect captive
rail shippers and preserve competition. However, Congress had
never anticipated that the Staggers dispute resolution
mechanisms would have to function in a market of only five
class 1 railroads. Bringing a rate case under Staggers is slow
and expensive. We need to bring this law into the 21st century.
In the 106th Congress, I introduced legislation that I
thought was a fair and evenhanded approach to address the
problem. The Surface Transportation Board Reauthorization and
Improvement Act of 1999 would have established a mission to
promote rail competition and remove so-called paper barriers to
rail service. It would have required carriers where feasible to
establish consistent rates for bottleneck areas with no
competition. In a provision recently adopted by this committee,
a streamlined procedure for adjudicating small shipper cases
was set forth. Unfortunately, that bill was never considered by
the full Committee and captive shippers are still facing
overwhelming obstacles.
Despite these impediments, rail remains the only viable
method for shipping bulk commodities such as coal, grain, and
chemicals over long distances. This traffic accounts for more
than 40 percent of class 1 railroad revenues.
I do not think we should deny the existence of a problem
any longer. My colleagues Senator Burns and Senator Rockefeller
have introduced legislation to address the crisis faced by
captive shippers. I support many of the ideas behind their
bill, Senate bill 919, which contains several elements
addressed in my 1999 proposal.
I just would like to say that I believe that we should
protect our railroads and our shippers. I really believe there
should be a fair way to solve this problem that allows
railroads to make a fair profit and allows shippers to have the
capability to establish fair rates. It would be my intention to
try to move that, either through amendments with Senator Burns
bill or in some way, but it does take some movement on the part
of the railroads and I do hope that we could work something out
that would be fair to all.
With that, I will ask Senator Burns for his opening
statement before we hear from the witnesses.
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. Thank you, Madam Chairman. Again, I want to
thank you very much. She made the commitment to have this
hearing and it is happening today and I am beholden to you on
this particular issue.
I appreciate the witnesses coming today because I think we
have to work out some way or get a dialogue started to find out
that we have got a problem and we have got to identify it. I
think we are doing a pretty good job identifying the problem,
but we do not do a very good job of solving it.
This issue is very important to my state of Montana. When
my colleagues Senators Dorgan and Rockefeller and Roberts first
began this exercise, rail competitiveness was a problem in our
states as well as isolated pockets around the nation. But since
then we have heard from more and more shippers about decreased
transportation competitiveness and as a result increased
transportation rates. I think the Chairman today in her
highlights made a better case than I have made in my statement.
In 1980, Congress passed the Staggers Act during a time
when there were 40 class 1 railroads in this country. Under
those circumstances, it was intended that regulation would be
eased and competition would endure and drive the marketplace,
ensuring rail rates would remain reasonable. Through regulatory
involvement and an incredible amount of consolidation, we find
ourselves with essentially only four class 1 railroads in the
United States, without in the East and two in the West.
Together with Senators Dorgan and Rockefeller, I introduced
S. 919, the Railroad Competition Act of 2003. Our intent is to
correct the model and the economic structure that allows
monopolistic behavior in the industry. There are no provisions
in S. 919 that are reregulatory. It does not cap rates and it
does not mandate open trackage rights. The bill reinstates the
original intent of the Staggers Act, which has been eroded by
mergers and regulatory interpretation.
S. 919 will not penalize the railroads or create an
environment where railroads cannot compete with other
transportation modes. In fact, S. 919 will create competition
among our railroads, improving transportation efficiency in our
economy.
I am the last member of Congress that would introduce a
measure that would drive railroads out of the local economy,
simply due to the fact that my state of Montana is nearly
entirely captive to one railroad, the Burlington Northern-Santa
Fe. The BNSF is a very reputable railroad and I consider them
one of the greatest assets that we have in our state.
Due to the seasonality issues in agriculture, marketplace
demands place a massive logistical burden on railroads and
other modes of transportation. That has been the history of
railroads in this country. Considering their challenges in my
state, BNSF is usually, usually responsible to the needs of
their customers. But they legally operate in a business model
that breeds monopolistic behavior.
Montana is a classic case of what happens to rail customers
when you eliminate competition in transportation alternatives.
Our rail rates are some of the highest in the nation and my
shippers end up subsidizing rail rates in regions where
competition really is present. Our rail customers pay more for
less service. The rail customers in regions with competitive
alternatives pay less and receive more service. To make things
worse, in Montana we are truly dependent on railroads to
transport bulk commodities that could not be efficiently
transported by any other means.
American agricultural shippers are the most vulnerable to
predatory marketing by monopolistic practices of the railroads
and some other entities, and I am not going to go into them
today. The farm producer, unlike any other entity we know in
America, cannot pass the freight costs on to anyone else. They
must simply bear the cost.
We are not here to debate reregulation on railroads.
Rather, we need to restore the balance between rail customers
and the railroads that Congress originally intended to achieve
in the Staggers Rail Act of 1980. All rail customers, not just
a select few, should be able to make competitive choices or at
least begin to be able to negotiate with their rail carriers on
a more balanced playing field.
I would like to make it evident to this committee that one
thing is for certain: Regionalized monopolies over rail
transportation are not good for shippers, railroad investors,
or respective state economies or our national transportation
network as a whole. Furthermore, this problem will not go away.
It has been 23 years since the enactment of the Staggers Act
and neither the marketplace nor the STB, the Surface
Transportation Board, and its predecessor the Interstate
Commerce Commission has corrected what I view as obvious flaws
and obvious monopolistic behavior. This system needs to be
restored to create a prosperous, economic, and competitive
system.
Madam Chairman, again thank you for holding this hearing
today and I look forward to research the testimony from our
witnesses today, and we sure have I think the best of the lot.
Senator Hutchison. Thank you, Senator Burns.
Senator Lautenberg.
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Thank you, Madam Chairman, and I will
try not to hold up the process very long here. But I do want to
make a couple of comments.
We have a duty to ensure that our national system of
freight transportation can continue to function as one of the
principal foundations of our economy. Right now we have the
most efficient system of freight railroads in the world and I
would like to be able to say that 20 years from now--I hope I
am still sitting here--that will be the case. That went over
everybody's head.
[Laughter.]
Senator Burns. I will stand up, Senator.
Senator Lautenberg. Thanks for acknowledging that I am
speaking.
I remain convinced that any discussion of how we plan to
move freight through our country over the next 20 to 50 years--
and I concede that--must be part of a larger discussion. I feel
that we have got to look at how we plan to move passengers as
well as commodities. Passenger rail has been the least thought-
out, the least thought-out component of our national
transportation system. It holds much promise as a safe,
efficient, and environmentally sound method of getting people
from one place to another.
Having said that, in the not too distant future we are
going to be facing major challenges with respect to our freight
rail system. Will we have the infrastructure to support the
amount of freight which should be carried by rail in the coming
years? There are very optimistic estimates about how much
freight there is going to be, which is good business, and how
are we going to accommodate it is the next question.
The growth in freight traffic expected in the next couple
of decades could push differential pricing to an extreme that
it was never intended to accommodate. There may come a time
when even differential pricing will just not allow enough, with
our deregulated freight railroad industry, to recoup the
capital it needs to maintain and expand its infrastructure. We
have got to be prepared to evaluate what our options are if we
reach that point: How do we get the funds? How do we provide
the encouragement to enlarge the system?
We have to do the planning necessary now. We have to show
leadership at the Federal level and ensure that we have a
coordinated, efficient, national system for transporting
people, freight, and commodities.
I look forward, Mr. Chairman, and commend you for holding
this hearing, and I look forward to working with you and
Members of this Subcommittee to develop practical policies for
addressing all of our surface transportation needs, freight and
otherwise, in a comprehensive manner.
Thank you very much.
Senator Hutchison. Thank you, Senator Lautenberg.
Senator Dorgan.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Madam Chairman, thank you very much.
This is a really important issue. This issue has been
around for a long while. We have had difficulty even getting
hearings and certainly difficulty getting a markup on a piece
of legislation, and I think it is safe to say a lot of us are
pretty much out of patience. Nothing ever seems to happen. I
appreciate very much the fact that you are holding this
hearing.
A colleague of mine in the House of Representatives some
long while ago said: Do not take on the railroads because you
cannot beat them, you simply cannot win. Well, the problem is
we are losing at the moment with respect to captive shippers
who are not the beneficiaries of competition, but rather they
are the victims of unfair pricing.
By that I do not mean to say I do not like the railroads. I
think the railroads are a form of transportation that provides
something very important to our region of the country, to our
entire country. But we have seen a shrinkage of the number of
rail companies in dramatic consolidation and mergers over the
years and it has in many ways created a circumstance where the
economic muscle on one side of the ledger, it just overwhelms
the shippers.
Let me describe what is happening in North Dakota, because
Tip O'Neill used to say all politics is local, and so is all
policy, it is local. And this is not theory. If you have a
carload of wheat, a rail carload of wheat, and you want to ship
it from Bismarck, North Dakota, to Minneapolis, Minnesota, you
are shipping it 400 miles roughly and you are going to pay
about $2,600 for it. Take the same carload of wheat and ship it
from Minneapolis to Chicago, about 400 miles, and it will cost
you $900.
So about the same distance, you will pay $2,600 or you will
pay $900. Why the difference? On one route there is
competition, the other there is not. So our Public Service
Commission in North Dakota estimates that we are overcharged by
nearly $100 million. Farmers, businessmen and women, we are
overcharged by nearly $100 million.
Now, I have noticed that the other side to this argument is
sending out massive quantities of mail to people saying this is
an attempt to reregulate the railroads and call the Congress
and tell them we do not want to reregulate the railroads. Well,
let me say this is not an attempt to reregulate the railroads.
If we wanted to do that, we could introduce a bill to ask the
STB to cap rates. We could ask them to set prices for specific
commodities or specific routes. We could do what we did in the
telecommunications industry and we could give competitors open
access to anybody's tracks.
The fact is we are not doing any of those things, and to
argue that our attempt to streamline the rate reasonableness
process and to fix the bottleneck problem is reregulating the
railroads is farcical, just farcical. You have a right to do
that. The First Amendment allows you to say this is
reregulating the railroads, but it is simply not true.
So this legislation is long overdue. Perhaps we could pass
it by unanimous consent this afternoon following the hearing
and then have the major--you know, people around here always
say, well, let us save the major debate for the floor. If the
chairman would entertain that, we could just save the major
debate for the floor of the Senate.
But this is serious business, lots of money, and it is a
significant issue for a lot of shippers in this country,
especially family farmers in my state. Madam Chairman, again
thank you for calling this hearing.
Senator Hutchison. Thank you.
Now I would like to call on the Honorable Roger Nober, the
Chairman of the Surface Transportation Board. I appreciate your
serving on the panel so that we can expedite the testimony and
the questions. Thank you.
STATEMENT OF HON. ROGER NOBER, CHAIRMAN,
SURFACE TRANSPORTATION BOARD
Mr. Nober. Well, certainly. Thank you, Chairman Hutchison,
and good afternoon to you and Members of the Subcommittee. I
understand the hour is late and it is late in the afternoon and
I will try to be brief in my oral testimony and summarize my
written statement.
As you said, my name is Roger Nober and I am the Chairman
of the Surface Transportation Board. I certainly appreciate the
opportunity to appear before the Subcommittee today to discuss
the rate and service issues faced by rail shippers and the
provisions of S. 919, the Railroad Competition Act of 2003.
This is my first appearance before this Subcommittee on these
matters, but I know that you all have a longstanding interest
in the issues being discussed today, as many of you stated in
your opening statements, which as we all know are vitally
important the freight railroads and their employees, their
customers, and to the freight transportation system as a whole.
So I certainly commend you for having this hearing and
appreciate the opportunity to give you my perspective on these
very important issues.
Now, at the outset let me say that to me the individual
provisions of S. 919 are less significant than the underlying
concerns that give rise to this legislation. Since I have
become Chairman, I have worked hard to understand and address
the core concerns of captive shippers and the railroads that
serve them. Now, I believe that many of the issues raised by
captive shippers are legitimate and I would like to focus my
testimony today on what I think the fundamental concerns are
and the steps the board is taking to address them.
Now, I would say first many shippers do not understand the
board and its processes and do not believe that our agency is a
fair and impartial forum for resolving disputes. Now, my most
important initiative as Chairman has been to convince shippers
through openness and dialogue that the board is and can be an
effective regulatory body and forum for their concerns.
For example, shippers express a great deal of concern about
the Board's lack of transparency and I have taken several steps
to change this, including restoring regular voting conferences,
holding hearings on significant matters, initiating oral
arguments in large rate cases, and holding an open house for
practitioners for the first time in a decade. I personally have
an open door policy and have not turned down a single meeting
request in the past year. I think I have met with virtually
everyone on the panel today, and I have traveled around the
country to better understand rail transportation and the supply
chain, including again taking a trip with one of today's
witnesses.
Now, while these may seem like small steps, I think they
have helped our agency's stakeholders better understand how and
why the board makes the decisions that it does and comes to
some of the doctrines that you all have expressed concern
about.
Now, second, many disputes between shippers and railroads
seem to take on a life of their own because of the way shippers
feel they are treated by railroads. Rail customers often
conclude that, while rates are high, railroad service and
attitude are bigger problems, and I think many of you have
referred to that as well today. Rail customers understand the
financial pressures that railroads are under, but they
fundamentally feel they are not treated by railroads the way
they would treat their own customers.
This has led some to assume that railroads act this way
because they are monopolies and to believe that legislation
like S. 919 is necessary to introduce competition into the rail
network. Now, I am sympathetic to this concern, but I do not
think that legislation is the answer. Railroads must work
harder to be more customer-friendly and I am working to impress
upon all of our major carriers the importance of doing so.
Railroads have to be nimble competitors in the transportation
marketplace to increase their business and grow their revenues.
While the leadership of each of the major railroads
understands this, as some of today's witnesses can also attest,
that attitude does not always translate down through their
entire organizations.
Helping railroads improve their operations to provide
better service is one goal that carriers, shippers, and
policymakers can all share. The good news is that in many
circumstances railroads have worked with their customers to
improve efficiency and take costs out of the supply chain, to
the benefit of both parties. But these examples are just not
common enough and I will work hard to ensure that they become
the norm and not the exception.
Third, captive shippers believe that for the majority of
their shipments they cannot challenge rates they feel are
unreasonable. They feel that as a result market power is
unfairly skewed in the railroads' favor and that legislation is
necessary to correct it. Now, it is true that the board's
processes work reasonably well for large rate cases. Thirteen
such cases are currently pending, which is the most in our
agency's history. But the vast majority of disputes would be
classified as small rate cases and no small cases have been
brought under our small rate case guidelines.
Now, this may be because there are no small rate disputes
or because there is something about our agency's rules and
doctrines that discourages shippers from bringing these cases.
As of today, in effect, only about 75 coal shippers have a
meaningful opportunity to challenge rail rates and I think this
is simply unacceptable.
I am confident that a real opportunity to bring small rate
cases can be achieved through procedural, rather than
legislative, reform. I have described in detail many of these
changes in my written testimony, but let me highlight a few for
you now.
First, we can set a clear threshold for bringing cases. We
can hire an administrative law judge to hear them in the first
instance, limit discovery, and issue preliminary decisions in a
matter of months. We can ensure that such cases are decided
under a clear standard, one set in accordance with the
Interstate Commerce Act, and we can assure that these cases are
appealable to the full board and ultimately responsible to the
courts.
Now, any new procedure for small rate cases must also take
account of the fact that many shippers do have economic
leverage with railroads when the totality of their relationship
is considered. The economic relationship between shippers and
railroads is oftentimes made to be very simple, but it is
usually complex and shippers--many shippers often have many
facilities which are both captive and competitively served and
ship to numerous destinations on several railroads. It is a
relationship that is not easily captured by simple rules.
In sum I believe that real administrative reform is
possible and we are committed to working with shippers,
carriers, and the Congress to address this issue.
Fourth, certain areas of the country are disproportionately
dependent on rail service in general and on a single rail
carrier in particular for economic health. I have come to
understand that many from the Upper Midwest feel that their
economies are particularly dependent upon a single railroad.
The Board must pay close attention to the unique
circumstances in that part of the country. For example, I
recently traveled to North Dakota and met with a number of
government officials, shippers, and producers. I have also
spoken numerous times with the railroad that serves that area.
Now, the issues faced in the Upper Midwest are longstanding and
complex and not easily solved. I was recently handed at my
agency a hearing transcript from 1908 where shippers from North
Dakota were concerned about the lack of rail car supply. They
have been around for a while and I am not promising that I can
easily solve them, not even in Senator Lautenberg's timeframe.
However, attention and not legislation I believe is the
best approach and, while attention may not solve everybody
problem, improvement certainly is possible.
Finally, I understand that many in the shipping community
are unhappy with certain of the board's regulatory doctrines. I
have met with most of the supporters of S. 919 and they almost
all agree that they would not be calling for it had the board
interpreted certain provisions of the Interstate Commerce Act
differently.
Now, I have said that to interpret the Interstate Commerce
Act as some in the shipping community advocate is tantamount to
fundamentally restructuring the economic underpinnings of the
freight railroad industry. That is a significant step with
serious ramifications for the economy and one that I believe is
for the Congress rather than for an independent agency to
undertake. In the provisions of S. 919 those types of changes
would be made and it is in this context that I would like to
briefly address that bill now.
Taken as a whole I think that S. 919 would fundamentally
change the economic model of the railroad industry and is
unwise. Not a single one of our major railroads is revenue
adequate and if it were enacted S. 919 would call into question
the continued economic viability of our freight rail system. If
it were passed some shippers may realize some rate reductions
in the short term, but in the long run this legislation would
significantly degrade our nation's freight rail network, to the
detriment of all of its users and to the economy as a whole.
Although our nation's privately funded rail system may have
some problems, it is the best freight rail system in the world.
The United States is the only country with a national freight
network that does not need taxpayer subsidy. If enacted, S. 919
would jeopardize both of those distinctions.
Now, I believe that the board can and will do a better job
to address the concerns raised by captive shippers. But I think
the kinds of reforms I have outlined today and not substantive
changes to the statutory scheme are the best way to address the
concerns raised by captive shippers while maintaining a healthy
freight rail network. That is the balance Senator Hutchison
described in her opening statement and it is a difficult one,
but one that I think can be achieved.
I appreciate the opportunity to discuss these issues today
and look forward to any questions you might have, and with that
I will be happy to answer any questions when the panel is done.
[The prepared statement of Mr. Nober follows:]
Prepared Statement of Roger Nober, Chairman,
Surface Transportation Board
Good morning, Chairman Hutchison, Ranking Member Inouye, and
Members of the Subcommittee.
My name is Roger Nober, and I am Chairman of the Surface
Transportation Board. I appreciate the opportunity to appear before
this Subcommittee today to discuss the rate and service issues faced by
railroad shippers in general and singly-served (otherwise known as
``captive'') rail shippers in particular, and the provisions contained
in S. 919, the Railroad Competition Act of 2003.
This is my first appearance before this Subcommittee as Chairman of
the STB. I appreciate the longstanding and deep interest that the
Members have shown in the issues facing the railroad industry, which
are vitally important to the financial health of the freight railroads,
to the railroads' customers and employees and to the nation's freight
transportation system as a whole. I commend the Subcommittee for
holding this hearing and discussing these important issues.
In my written testimony, I would first like to provide the
Subcommittee with an overview of the Board and its responsibilities.
Next, I will discuss steps the Board is taking to address issues faced
by singly-served or captive shippers. Finally, I will discuss S. 919.
Overview of the STB
As all of you know, the Surface Transportation Board was created
eight years ago by this Committee in the ICC Termination Act of 1995.
The Board is an economic regulatory agency that Congress charged with
the fundamental missions of resolving railroad rate and service
disputes and reviewing railroad mergers, line sales, abandonments and
new construction. Structurally, the Congress determined that the Board
should be decisionally independent but administratively affiliated with
the Department of Transportation.
When it was created at the beginning of 1996, the Board had to
accomplish its statutory missions with one-third fewer employees than
had been performing those same functions at the ICC. Since 1996, the
Board has met its statutory deadlines while functioning with nearly the
same level of resources during that time. But as I will outline in my
testimony, the Board will face new challenges in the coming year as it
works to address the issues raised today and will need some modest
additional resources to continue its important work.
The Board serves as both an adjudicatory and a regulatory body. The
Board has jurisdiction over railroad rate and service issues and rail
restructuring transactions (mergers, line sales, line construction, and
line abandonments); certain trucking company, moving van, and non-
contiguous ocean shipping company rate matters; certain intercity
passenger bus company structure, financial, and operational matters;
and certain pipeline matters not regulated by the Federal Energy
Regulatory Commission.
In sum, when Congress eliminated the ICC in 1995, it created the
Board to carry out two core functions--reviewing merger proposals and
resolving disputes over rates and services provided by railroads. One
of the main reasons the Board exists is to provide a regulatory
backstop to assess the reasonableness of rates charged to captive
shippers when those customers and their railroads are unable to
successfully negotiate a contract for the transportation.
The Board has created a number of mechanisms to help railroads and
their customers resolve disputes before availing themselves of the
Board's formal processes. For example, the Office of Compliance and
Enforcement operates the Rail Consumer Assistance Program. That program
is intended to provide assistance to rail consumers in addressing those
issues that have not been resolved through private negotiations. When
informal processes like that one cannot produce a solution, however,
the Board must be the regulatory backstop that Congress intended it to
be.
It is no secret that many captive shippers--the focus of today's
hearing--believe the Board has inadequately performed this core mission
of ensuring that they have a forum for reaching a formal resolution of
rate or service disputes. They feel that without a regulatory backstop,
the transportation market for freight rail services does not properly
function. Many of the issues they raise are legitimate, and I will next
turn to the fundamental concerns raised by captive shippers and the
steps the Board is taking to address them.
Issues Faced by Captive Shippers
1. Unreasonable Rates
Under the Interstate Commerce Act, the Board has exclusive
jurisdiction to resolve rate disputes in those instances when railroads
have market dominance--in other words, the railroad is charging a rate
higher than the regulatory floor and the shipper has no effective
transportation alternative. Under the Interstate Commerce Act, the
Board must balance the often conflicting objectives of assisting
railroads in attaining revenue adequacy, on the one hand, and ensuring
that the rates that individual shippers pay are reasonable and fair, on
the other. The balance, as we all know, is not an easy one. Rates that
are too high can harm rail-dependent businesses, while rates that are
held down too low will deprive railroads of revenues to pay for the
infrastructure investments needed to give shippers the level and
quality of service that they require. The Board is the forum of last
resort if a captive shipper feels his rate is unreasonable, and the
agency must do its best to carry out the law in a way that is fair to
all when deciding railroad rate cases.
The Board has one set of procedures for handling ``large'' rate
cases and another for ``small'' cases. In recent years, the Board has
experienced a significant increase in the number of large rail rate
complaints filed with it. Whereas in past years the Board had two or
three of these cases pending at any one time, today it has 13 large
rail rate disputes pending (as well as two pipeline rate disputes and
two water carrier rate disputes pending). The Board still has not had a
single small rate case filed since it adopted its small case guidelines
in 1996, but as I will discuss further, my top priority for the next
year is to establish a meaningful process for quickly and surely
deciding small rate cases.
a. Large Rate Cases
Determining the reasonableness of a rate in a large rate case is a
complicated inquiry. The Board's governing statute requires it first to
determine whether the railroad has monopoly power over its customer--in
other words, whether the railroad is market dominant. Only if the
railroad is market dominant does the Board have jurisdiction to review
the rate. This is so because Congress has foreclosed rate regulation
where there is effective competition. Once it has determined that it
has jurisdiction to review the rate, the Board applies a court-approved
methodology for rate review known as ``constrained market pricing''
(CMP).
i. Market Dominance
The first step in a rate case is a two-part inquiry to determine
whether the railroad has ``market dominance'' over the transportation
to which the rate applies. The first part is to determine the
``variable costs'' of providing the service. The statute establishes a
conclusive presumption that a railroad does not have market dominance
over transportation if the rate that it charges produces revenues below
180 percent of the variable costs of providing the service, which means
that this 180 percent revenue-to-variable cost (r/vc) percentage is the
floor for regulatory scrutiny.
If the rate the railroad charges exceeds the 180 percent r/vc
threshold, the second part of a market dominance inquiry involves a
qualitative assessment in which the Board must determine whether there
are any feasible transportation alternatives that could be used for the
traffic involved. The Board considers whether there is actual or
potential direct competition--that is either competition from other
railroads (intramodal competition) or from other modes of
transportation such as trucks, pipelines, or barges (intermodal
competition) for transporting the same traffic moving between the same
points. If there are effective competitive alternatives for the
transportation, then the Board does not have jurisdiction to regulate
the rate, even if the rate charged yields an r/vc ratio greater than
180 percent.
ii. Rate Reasonableness Standards
If the shipper can show that the railroad is market dominant, then
the Board applies its CMP principles to assess whether the rate being
charged that shipper is in fact unreasonable. CMP provides a framework
for the Board to regulate rates while affording railroads the
opportunity to cover their costs. It is premised on differential
pricing, that is, pricing based on the demand for the service provided.
CMP principles recognize that, in order for railroads to earn adequate
revenues, they need the flexibility to charge different customers
different prices based on each customer's demand for rail service. But
CMP principles also impose constraints on a railroad's ability to
price. Despite the complexity of CMP, the courts have held that it is
the most desirable available approach to railroad rate review and that
the Board must use it whenever it is feasible.
Although complaining shippers can choose from three approaches, the
most commonly used CMP constraint is the ``stand-alone cost'' (SAC)
test. Under SAC, a railroad may not charge a shipper more than what a
hypothetical new, optimally-efficient carrier would need to charge the
complaining shipper if such a carrier were to design, build, and
operate--with no legal or financial barriers to entry into or exit from
the industry--a system to serve only that shipper and whatever group of
traffic that shipper selects to be included in the traffic base. The
ultimate objective of the SAC test is to ensure that the complaining
shipper is not charged for carrier inefficiencies or for facilities or
services from which the shipper derives no benefit. As with CMP in
general, this assures the complaining shipper that it is not required
to pay for inefficiencies or to unfairly subsidize other customers of
the railroad.
iii. The Board Is Working to Reform the Large Rate Case Process
Deciding large rate cases is time consuming and costly for both the
parties involved and the Board. Although the Board by statute has 9
months after all evidence is filed to decide a large rate case, it can
take more than twice that long after the shipper files its complaint
for the parties to file all their evidence with the Board. Preparing
that evidence and presenting it to the Board are very expensive--
parties have testified that a SAC case can cost as much as $3 million
to prosecute, $5 million to defend, and generate more than 700,000
pages of material.
When I became Chairman, the Board intensified its search for ways
to simplify and speed up this process, and as a result of this effort
the Board recently adopted a number of changes to its rules. Last
February the Board held a hearing in the rulemaking proceeding entitled
Procedures to Expedite Resolution of Rail Rate Challenges To Be
Considered Under the Stand-Alone Cost Methodology, STB Ex Parte No.
638, which was exceptionally productive.
Based on the extensive testimony received from shippers and
railroads, in April the Board revised its rules in ways that ought to
both shorten the decisional process and limit the expense of bringing a
case. The new rules' most significant provisions include: (1)
mandatory, non-binding mediation at the beginning of the case, under
the Board's auspices, between the complaining shipper and the defendant
railroad; (2) expedited procedures to resolve disputes, using Board
staff, over what information the parties can be required to give to
each other during ``discovery''; (3) technical conferences to resolve,
before the actual evidence is filed, certain factual disputes between
the parties using the expertise of Board staff; and (4) requiring
parties to submit versions of all filings with the Board that can be
read by the opposing party and the public. These new rules have already
been a success.
A significant component of the new rules is to increase the
involvement of Board staff in the process through technical conferences
and regular meetings with the parties. The Board established technical
conferences because the parties were spending time and attorney and
consultant fees fighting about--and the Board was expending resources
to resolve--technical matters over which there should be no dispute,
such as the number of miles between a coal mine and a power plant. In
the first technical conference (held in the ``Otter Tail v. The
Burlington Northern and Santa Fe Railway'' case), disputes over 200
pieces of data were settled in just over an hour. In the past, these
disputes would have led to protracted litigation that would have cost
the parties thousands of dollars in fees and could have substantially
slowed resolution of the case.
Another major component of the new rules was the institution of a
60-day period of mediation at the start of any new case. All parties--
railroads and shippers alike--who testified at our February hearing on
Ex Parte No. 638 thought mediation would be a useful tool to help them
to resolve their rate disputes privately. The first case since the
Board adopted these new rules, ``AEP Texas North v. The Burlington
Northern and Santa Fe Railway'', was filed in August 2003, and I am
pleased to say that I selected former Congressman John Thune to conduct
the initial mediation. During his tenure on Capitol Hill, Congressman
Thune served on the Committee on Transportation and Infrastructure,
where he was actively involved in matters concerning railroads and
their customers. He also served as the State Rail Commissioner in South
Dakota. He understands the perspective of both railroads and shippers,
and the involvement of a mediator in this matter will help the parties
resolve the dispute.
It is important that the process for resolving major rail rate
disputes be open and fair, and every party must have an opportunity to
make its case so that the Board will have a full grasp of the
implications of any actions it takes. In that regard, on September 10,
2003, for the first time, the agency held an oral argument in an
individual large rate case (``Duke Energy v. CSXT Transportation'').
This session was a productive one both for the Board and for the
parties, and we will continue to hold arguments, as appropriate, in
future cases.
One significant outgrowth of this focus on rate cases is that
recently, as the Board was putting together a decision last week in
``Duke Energy v. Norfolk Southern Railway,'' we realized that we needed
to ask the parties to supplement the record, which was incomplete in
one critical respect. The same issue arises in two other similar cases.
The Board issued an order addressing this situation and is taking
additional evidence in all three cases over a 3-week period. A decision
in the first case, Duke Energy v. NS, will be issued by November 6,
2003.
In sum, while major litigation such as large rate cases is
expensive and slow, the Board has made progress in helping to ensure
that the rate cases before it proceed faster, cheaper and better. I
will make it a priority to continue to make more improvements in this
area, and more progress is possible.
b. Small Rate Case Procedures
Since I became Chairman, my top priority has been to provide
shippers who have smaller rate disputes an effective forum for
resolving such disputes. On April 22, 2003, the Board held an oral
hearing on this matter where it received testimony from representatives
of shippers, railroads, and unions. In sum, shippers raised the
following concerns.
First, shippers contend that the ambiguity of who would qualify to
use the small rate case procedures is an insurmountable hurdle that has
chilled them from bringing any cases before the Board. Shippers believe
that the railroads would fight any shipper's claim that it is entitled
to use the expedited procedures, thus tying up the shipper in
extensive, expensive threshold litigation. This uncertainty appears to
be a major reason why no cases have been brought under the small-case
process.
The Board can address this concern and bring some level of
certainty to this issue by constructing a test that looks at the size
of the shipper and the value of the case. If a shipper or its shipment
met that test, the shipper automatically would be eligible to use the
small case process.
Second, shippers asked the Board to ensure the expedited
consideration of small rate cases and to constrain the discovery
process. These shippers argued that protracted resolution of small rate
case disputes under our current rules does then no good because the
transportation marketplace for such shipments is so fluid. Many
shippers have suggested arbitration as a way of resolving such disputes
because of its speed and simplicity. Railroads oppose arbitration,
since those proceedings are outside of the strictures of the Interstate
Commerce Act--which requires a balance between shippers' need for fair
rates and railroads' need to achieve revenue adequacy--and could
produce inconsistent results. While mandating binding arbitration is
beyond the Board's statutory authority, I believe it is unnecessary
because the small rate case process being developed should be able to
accommodate each side's concerns.
The Board can streamline the discovery and resolution process by
creating an administrative process that combines the speed and
simplicity of arbitration while ensuring that such cases are decided
under the framework of the Interstate Commerce Act. One way for the
Board to accomplish these goals is to hire an Administrative Law Judge
(ALJ) to hear and decide small rate cases in the first instance. The
ALJ would have a prescribed time period for overseeing discovery and
for issuing a decision. The ALJ's decision could then be appealed to
the full Board. This would allow cases to proceed with the speed and
low cost of arbitration, but also ensure that these matters are decided
under the principles of the Interstate Commerce Act. In fact, the Board
is already working toward hiring an ALJ, and recently received approval
to do so from the Office of Personnel Management. The hiring process
will be completed once the Board's revised small case regulations are
final.
The Board could also establish, resources permitting, a Special
Counsel to assist small shippers in evaluating and bringing a small
rate case.
The Board could also utilize the discovery and technical
conferences now being used in large rate cases in small cases as well.
Finally, shippers and railroads alike have urged the Board to adopt
a rate standard for small cases that is clear, unambiguous, fair, and
of course, able to withstand legal challenge. The Board promulgated a
standard in 1996, but that standard has been widely criticized and--
despite having never been applied--was challenged in Court (although
the court declined to hear the challenge before the standard is
actually applied in a case). Identifying an appropriate standard for
the resolution of these cases is our greatest challenge, and while I
have asked the parties to provide suggestions to the Board on revising
the small-case standard, none has yet done so.
After the hearing, I assembled a team from within the agency to
meet with other economic regulatory agencies to gather information on
how they handle smaller disputes. Our team talked with other agencies,
including the Federal Energy Regulatory Commission, the Federal
Communications Commission, the Postal Rate Commission, and the Maryland
Public Utilities Commission, in a ``best practices'' survey to gather
information that might inform our ideas.
Unfortunately, the Board has not been able to move forward on this
initiative. I have made a judgment that a rulemaking to create a new
process for resolving small rate cases is significant enough that I
should not take such action as a single Board member, even though I
have the power to act alone. Although it is uncertain exactly how the
Board's final proposal will look, I have outlined several key elements
of the process and believe that these will form the core of meaningful
reform.
2. Bringing Competition to Singly-Served Customers
A common desire of singly-served rail customers is to gain service
from a second, competing railroad. Singly-served rail customers who
want to be served by a second railroad may work with that railroad to
finance and apply for authority to construct a new rail line to the
singly-served facility to gain rail competition. The Board's experience
over the past decade has shown that new line construction can bring
competition while maintaining the private-sector characteristics of our
rail system.
The Board must take two regulatory steps before any such
construction can occur. First, it must approve the addition to the rail
network. Second, it must conduct any necessary environmental review of
the project. The Board has worked hard to expedite consideration of
requests to construct rail lines and to approve them when appropriate.
The Board has recently been able to rule on two such proposals.
First, the Board approved the construction by the Dakota, Minnesota and
Eastern Railroad (DM&E) of a line into the Powder River Basin in
Wyoming, which, if constructed, will provide enhanced rail
transportation options for coal shippers, particularly in the Midwest.
Second, the Board recently approved the construction of a line to
provide BNSF access into the Bayport industrial area near Houston,
which would provide competition to the large concentration of chemical
companies located there.
While build-ins can increase competition and provide many benefits,
we have seen recently two examples that demonstrate that at times, the
construction of new rail lines can be controversial in local areas.
Indeed, both DM&E and Bayport Loop have generated extensive local
opposition and spawned court challenges to the Board's decisions in
those cases by various citizen and other groups.
In DM&E, the United States Court of Appeals for the Eighth Circuit
reviewed the Board's decision, and while the Court found the Board had
done ``a highly commendable and professional job,'' it nonetheless
remanded the matter to the agency for limited additional consideration
of a few environmental issues. We are still studying the Court's
decision.
The Bayport Loop case has produced litigation both in Federal court
(where the Board's environmental review process is being challenged)
and in state court (where the City of Houston is resisting the
railroad's attempts to use state condemnation procedures to acquire
property needed for the new line). Just last week, the state court in
Texas delayed construction, but has yet to issue an opinion in the
matter.
Despite these two recent court decisions, the Board is confident
that it will prevail in both of these cases. But notwithstanding the
litigation that they can generate, construction projects represent the
best way to balance the need for greater competition with the
importance of preserving the private rail network.
S. 919
Finally, I would like to address S. 919, the Railroad Competition
Act of 2003.
Taken as a whole, S. 919 would fundamentally change the economic
model of the railroad industry and is unwise. Not a single one of our
major railroads is revenue adequate, and if enacted, S. 919 would call
into question the continued economic viability of our freight railroad
system. While some shippers may realize a short-term gain from lower
rates, in the long run this legislation, if passed, could significantly
degrade our Nation's freight rail network, to the detriment of all of
its users. Although the Nation's privately funded railroad system may
have some problems, it is the best freight railroad system in the
world, and the United States is the only country with a national
freight rail network that does not need taxpayer subsidy.
Most of the provisions of this legislation reflect unhappiness with
the Board and certain of its regulatory doctrines. I have met with most
of the supporters of this legislation, and they almost all agree that
they would not be calling for this legislation if the Board had
interpreted certain provisions of the Interstate Commerce Act
differently. But the individual provisions in the bill are less
significant than the underlying concerns that gave rise to the
introduction of this legislation. Since I have become Chairman I have
worked hard to understand the core concerns of captive shippers and the
railroads that serve them.
First, many shippers neither understand nor have confidence in the
Board. My most important initiative as Chairman has been to win that
confidence through openness and dialogue. During my nomination and
confirmation process, there was a great deal of concern expressed about
the lack of transparency at the STB. Since I have become Chairman I
have taken several steps to change this perception, including restoring
regular voting conferences on cases; holding hearings on significant
matters such as large rate cases and small rate cases, and on
individual cases pending before the Board such as the ``Highline'' case
in New York and the ``Kansas City Southern/Tex Mex'' merger proposal;
and most recently holding the Board's first ever oral argument on a
large rate case.
This summer, the Board also held an open house for practitioners to
introduce our staff to them and explain how our agency processes cases.
I have an open door policy for meetings and have met with many shippers
and railroads. I have traveled extensively in the past year to better
understand rail transportation. While these may seem like small steps,
they have gone a long way to help our agency's stakeholders understand
how and why the Board makes its decisions.
Second, many disputes between shippers and railroads often take on
a life of their own because of the way shippers feel they are treated
by the railroads. Rail customers often conclude that while rates are
high, the railroads' service and attitude are bigger problems.
Rail customers are primarily wholesale enterprises who are
themselves industrial and manufacturing companies or producers of
goods. Like railroads, these shippers are capital intensive and work on
thin profit margins. They have customers who demand top-notch service
and low prices, and they have suppliers from whom they demand the same.
All operate in a brutally competitive global marketplace. These
companies understand the financial pressures railroads are under, but
they feel that they are not treated by the railroads the way they would
treat their own customers. This has led some shippers to assume that
railroads act this way because they are monopolies and to believe that
legislation like S. 919 would introduce more competition into the rail
network and force railroads to be more responsive to them.
Railroads should work harder to operate in a more customer-friendly
fashion, and I am working with all of our major rail carriers to
impress upon them the importance of doing so. Railroads must be nimble
competitors in the transportation marketplace to increase their
business and grow their revenues. While the leadership of each of the
major railroads understands this, that attitude does not always
translate through their entire organizations. The good news is that in
many circumstances railroads have worked with their customers to
improve efficiency and take costs out of the supply chain to the
benefit of both parties. But these examples are not common enough, and
they must become the norm, not the exception.
Helping railroads improve their operations to provide better
service is one goal that carriers, shippers and policy makers all
share. The Board has been instrumental in bringing the railroads, the
city and the state together to improve operations and devise a capital
plan for improving operations in the Chicago terminal area.
Approximately one-third of all rail shipments go through Chicago at
some point in their journey. Improving Chicago and other rail gateways
will allow for faster, more reliable shipments, to the benefit of all.
Third, a fundamental underpinning of S. 919 is that very few rail
shippers feel the Board provides an effective regulatory forum in those
instances when carriers and shippers cannot privately resolve their
differences and the shipper has no effective recourse.
Although the agency tries to help parties informally resolve their
differences and improve relations between railroads and their
customers, the Board has to be an effective regulatory backstop when a
dispute over rates and services is formally brought before the Board.
No cases have ever been brought under our small rate guidelines. This
may be because there are no smaller rate disputes, or because there is
something in the Board's rules that discourage shippers from bringing
such cases. If no small cases are brought, this means that in practice,
only about 75 coal shippers have a meaningful opportunity to challenge
rail rates. This is unacceptable.
At the same time, we must recognize that the economic relationship
between shippers and carriers is complex. In many cases, shippers have
many facilities--both captive and competitively served--and ship to
numerous destinations on several railroads. While the legislation seeks
to simplify the shipper-carrier relationship, in reality the
relationships between shippers and carriers are enormously complicated
and not easily understood. Many shippers do have economic leverage with
railroads when the totality of their relationship is considered, and
the legislation takes no account of this reality.
A more accessible process for bringing small rate cases can be
achieved through procedural reform at the Board, rather than through an
overhaul of the substantive regulation of railroads. Real reform is
possible, and the Board is working to identify the steps in the process
that are the problems and develop reforms to address those problems.
Finally, certain areas of the country are disproportionately
dependent on rail service in general, and on a single rail carrier in
particular, for its economic health. Many who are from the upper
Midwest feel that, because of the importance of producing bulk,
commodity-based products to their states' economies, their region's
economies are particularly dependent upon the business practices of a
single railroad.
The Board must pay close attention to the unique set of concerns of
rail shippers in that part of the country. I recently traveled to North
Dakota and met with a number of government officials, shippers and
producers. I have spoken numerous times with the railroad that
primarily serves that area about the issues raised there. The issues
faced in that part of the country are complex, and not easily solved.
However, attention--and not legislation--is the best way to resolve the
issues faced there, and while attention may not solve every problem,
significant progress is possible.
Conclusion
One of my goals as Chairman of the STB has been to ensure that the
agency's processes work as well as they can. The first step was to open
up the Board. The Board has taken steps to streamline the process for
large rate cases, steps which are already working. The Board will
continue to reevaluate and refine how the parties and our staff work
through the large rate cases. The next step is to improve the agency's
small rate case process.
I believe that the Board can and will do a better job to address
the concerns raised by captive shippers. The reforms outlined today--
and not substantive changes to the statutory scheme--are the best way
to address the concerns raised by captive shippers while maintaining a
healthy freight rail network. It is a difficult balance, but one that
can be achieved.
I appreciate the opportunity to discuss these issues today, and
look forward to any questions you might have.
Senator Hutchison. Thank you very much, Mr. Nober.
Our second witness is Mr. Terry Whiteside, Representative
of the Montana Wheat and Barley Committee and Chairman of the
Alliance for Rail Competition.
STATEMENT OF TERRY C. WHITESIDE, REPRESENTATIVE,
MONTANA WHEAT AND BARLEY COMMITTEE, AND
CHAIRMAN, ALLIANCE FOR RAIL COMPETITION
Mr. Whiteside. Thank you, Madam Chairman, and I appreciate
the opportunity to appear here, and thank you----
Senator Burns. Pull the mike up closer to you.
Mr. Whiteside. And thanks to all the Committee Members.
Since the passage of Staggers in 1980, the rail freight
industry has undergone radical change in the number of
operators. It has in some ways adapted to this new century, but
in other ways it has not. In keeping with the old practices in
the way it treats captive shippers, the freight rail industry
has chosen short-term profit over healthy evolution and an open
American marketplace.
Some results of this tenacious hold of the past have been
for freight market shares for the railroads to decline and
overall growth to be hindered. In 1980, the rail freight
industry was a $28 billion industry. Today it is a $34 billion
industry. Over the course of 20 years, that is not impressive
growth. The railroads in 1980 originated about 1.4 billion
tons. 20 years later, they originate just over 1.7 billion
tons--a 20 percent increase or about 1 percent per year.
The railroads are not the villains here. They are doing
exactly what the law as interpreted by the regulatory body
allows. The concentration by merger in the rail industry has
changed the balance. The issue here is competition, the issue
of fairness that comes from competition. The issue is that the
railroad Federal law that was designed to protect the U.S.
public from monopoly market abuse does not work. The law needs
fixing to restore the balance.
In my written testimony I give evidence of service and rate
problems, abuse from market domination of whole industries by
single railroads. We believe that the freight rail marketplace
does not behave like a marketplace at all. There are Federal
protections for railroads that do not exist in any other
industry, such as antitrust exemptions.
In addition, we believe that over the years the regulatory
mechanisms have skewed the intent of Congress when it passed
the Staggers Act in 1980. The statute says in part that the
policy of the U.S. Government is ``to allow, to the maximum
extent possible, competition in the demand for service and to
establish reasonable rates for transportation'' and ``to
maintain reasonable rates where there is an absence of
competition.''
Evidently, the regulatory agency has not kept this
Congressional intention in mind--of course I am sitting right
next to the chairman--when issuing rulings and interpretations
since 1980.
Let me say a word about the intent of captive rail
customers that I speak for here today. Since we are captive to
the railroads, we are also dependent on the railroads. Captive
rail customers are the last ones who would ever want to see
harm come to the availability of rail service or for further
contraction of the rail system.
S. 919 is not a reregulation bill. S. 919 does not cap
rates. S. 919 does not mandate open trackage rights. We believe
S. 919 will initiate the necessary reforms to bring competitive
forces and establish the goals of the captive shippers and
consumer public that they want and need.
What do we want? A safe, growing, financially strong rail
industry. We want elimination of the monopolistic practices by
furthering the direction developed in the Staggers Rail Act,
and we want cooperative innovation and creativity driven by
rail to rail competition.
We simply do not believe this mighty historic industry
cannot function in a competitive American marketplace, as do
all other businesses in this country. We believe, and studies
have confirmed, that competitive conditions will produce
greater volumes and market shares for the railroads. Will the
railroads have to adapt to the passage of S. 919? Of course,
just as we have all had to adapt to conditions dictated by free
markets and the global economy. We believe it is unhealthy to
have railroads operate in the current federally sheltered
environment. This artificial habitat is unhealthy for shippers
and it is unhealthy for railroads.
Railroads may say here today they cannot survive in an S.
919 world, in other words a world in which competition drives
price, not captivity. If that is true, if it is true that an
American industry cannot survive without these kinds of unfair
and noncompetitive market practices, then the whole issue bears
an even closer examination. In that case, it would seem to me
that you as policymakers have an amplified responsibility to
consider the long-term solutions to bring balance to the
parties, including the consuming public which pays for all of
this.
We will hear today all kinds of dire predictions of what
will happen if Congress acts. But what happens if Congress does
nothing? Is this, the rail business plan, a long-term business
strategy that can sustain itself? The current mode of operation
has not produced a panacea in the 23 years since Staggers was
passed, even with massive concentrations.
While the wheat and barley groups along with ARC and the
coalition of shipper groups support S. 919, we know there may
be better ideas out there. In an ideal world, we would like to
join in an effort find solutions which includes all parties,
certainly including the railroads. But we do not believe that
something substantive--we do believe that something substantive
must be done.
The day has long since passed when anybody can credibly say
that there is no problem or that things are just great the way
they are. For those of you who make policy to avoid acting will
only produce a larger problem as time passes, and, given time,
the problems will certainly be larger, they will certainly be
more complex, and they will be certainly more expensive to fix.
The time to begin solving is now.
Madam Chairman, I would like to thank you once again for
the opportunity to testify here today. It is an honor on my
part. I would also like to request that my written testimony
and oral statements be made a part of the record, and I would
be happy to answer any questions. Thank you.
[The prepared statement of Mr. Whiteside follows:]
Prepared Statement of Terry C. Whiteside On Behalf of Montana Wheat &
Barley Committee, Wheat and Barley Commissions in Colorado, Idaho,
South Dakota and Washington, Oregon Wheat Growers League, The
Alliance for Rail Competition
Madam Chairwoman and members of the Subcommittee, thank you for the
opportunity to testify before you today. My name is Terry Whiteside,
Principal in Whiteside & Associates, Billings, Montana and I represent
many farm producer groups, including the Montana Wheat and Barley
Committee, the Wheat and Barley Commissions in Colorado, Idaho, South
Dakota and Washington as well as the Oregon Wheat Growers League. The
Montana Wheat and Barley Committee is a wheat and barley producer
check-off organization representing all Montana farm producers. The
Idaho Wheat Commission and Idaho Barley Commission represent all of the
Idaho wheat and barley producers, respectively. The Colorado Wheat
Administrative Committee represents wheat producers in Colorado. The
Oregon Wheat Growers League represents the wheat producers in Oregon.
The Washington Wheat Commission and the Washington Barley Commissions
represent the wheat and barley producers in Washington.
The Alliance for Rail Competition (ARC) is a diverse coalition of
shippers that was formed five years ago for the sole purpose of
developing and promoting a consensus-based plan for achieving rail-to-
rail competition. I serve as Chairman of that organization. Concerns
about railroad market power span all rail dependent shippers and
industries. ARC's growing membership reflects the diversity of those
interests: agriculture, coal, chemicals, consumer products, glass
producers, industrial products, minerals and petrochemicals, and some
of the trade associations that represent many of these groups, as well
as port and industrial development authorities. ARC has teamed up with
12 other national organizations to combine our work efforts to bring
rail competition back to this industry. These other organizations have
pledged to work together in their support for S. 919: Agriculture Ocean
Transportation Coalition, American Chemistry Council, American Public
Power Association, Consumer United for Rail Equity, Edison Electric
Institute, National Association of Wheat Growers, National Barley
Growers Association, National Petroleum Refiners Association, National
Rural Electric Cooperative Association, Paper and Forest Industry
Transportation Committee, The Fertilizer Institute, and The National
Industrial Transportation League.
The Heart of the Issue Is Choice
The heart of this issue is the lack of choice for vast numbers of
rail customers. The issue is not about excessive rates, poor or erratic
service or monopoly practices. They are the symptoms of the problem.
The issue continues to be lack of choice for rail customers in the
marketplace.
S. 919 is not a re-regulation bill. It does not re-regulate any
part of this industry.
S. 919 Does NOT cap rates
S. 919 Does NOT mandate open trackage rights.
S. 919 Does four major things:
1. S. 919 reestablishes that the National Rail Policy is pro-
competition to ensure and nurture competition in this
vitally important industry.
2. S. 919 restores several provisions that Congress established
in 1980 in the Staggers Rail Act to their original intent
and purpose taking out the intervening agency
interpretations that have altered original Congressional
language and intent (Railroads must quote rates between any
two points on their system and removal of the anti-trust
provision in terminal area and switching).
3. S. 919 establishes a final offer arbitration concept being
utilized successfully in Canada to bring opportunities for
resolutions of disputes on rates or service to rail
customers.
4. S. 919 recognizes that with concentration in the rail
industry, Congress needs to establish a concept called
Areas of Inadequate Rail Competition with advocacy and
oversight to focus remedial attention to bring about more
competitive balance in market place.
In short, S. 919 restores Congressional language and intent that
The Staggers Rail Act sought in 1980. It incorporates an arbitration
process that is being successfully utilized in Canada for resolution of
carrier/customer issues. It reestablishes for the STB that a
competitive rail industry is preferable to a non-competitive rail
industry.
Congress has taken a look at many other industries that have been
characterized by a monopoly or oligopoly market structure and has seen
it necessary and appropriate to introduce competitive balances for the
sake of national policy.
Yet, we have seen no real action to address similar issues in the
railroad industry. In this national railroad industry in 2001, four
mega carriers generate 95 percent of the gross ton-miles and 94 percent
of the revenue. Two western carriers generate 92 percent of the gross
ton-miles and 90 percent of the revenues in the west. Four of these
carriers handle over 90 percent of the U.S. coal movements. Three of
these carriers control over 70 percent of the grain movement.
In other industries of national importance, Congress has moved to
introduce competition as the best means for ensuring consumer and
customer protections. Those industries include the natural gas pipeline
industry, which like the rail industry, is characterized by high fixed
costs. The shipping community--of which as many as \1/3\ or more of our
shipments are captive--is here today to ask you to bring competition to
the rail industry as the best means of protecting our collective
economic competitiveness.
The 1980 Staggers Rail Act Was A Rail Competition Bill
When the Staggers Rail Act was passed in 1980, shippers understood
that regulation of railroads was to be curtailed, and instead, ``to the
maximum extent possible,'' competition was to ensure that rail rates
were and remained reasonable. Congress passed a very good piece of
legislation in the Staggers Rail Act but it effects have been thwarted
by both regulatory interpretation and a massive concentration in the
rail industry. The Staggers Rail Act passed by this Committee was
intended to foster a competitive railroad system in this country. S.
919 attempts to restore those provisions.
Today, whole states, whole regions and whole industries are now
captive to a single railroad. Such concentration comes at a time when
the regulatory body which approved all of these mergers and allowed
this massive concentration of economic power has seemingly chosen to
ignore the effects of this concentration on the ever-increasing captive
rail customers, even though Congress charged this agency to ``maintain
reasonable rates where there is an absence of effective competition.''
Congress in 1980 never envisioned that 40 Class I's would be allowed to
merge into the a system where four major railroads control the industry
and there would be no effective backstop for the captive rail customers
to shield them from the effects of monopoly pricing. Congress clearly
wanted a healthy rail system full of innovation that was driven by
rail-to-rail competition. The ICC and now the STB has continued to
alter and undermine the spirit of the law by regulatory interpretation.
In 1980, there were over 40 Class I railroads operating in the U.S.
Further the 1980 Staggers Rail Act specified that the regulatory
agency, the Interstate Commerce Commission was to ``maintain reasonable
rates where there is an absence of effective competition.'' In other
words, if a rail customer found that rail-to-rail competition became
`absent' it was Congressional intent that they would have protection
from predatory pricing and service abuse. The ICC, now the STB was also
charged by Congress to work to see that the financial health of the
national railroad system improved and of course, the Congress did not
want to see any more railroad bankruptcies.
Montana Agricultural Producers Need Bulk Transportation To Transport
Grain To Market And Are Completely Captive To A Single Railroad
The Montana Wheat & Barley Committee (MWBC) represents the wheat
and barley producers of the state of Montana. Montana is a natural
resources state with the main economies built upon products of the
mine, lumber and agriculture as well as tourism. In order for our bulk
products of the mine, lumber and agriculture to have value to Montana
citizens, they require bulk transportation (rail) to points outside
Montana and, in many cases, outside the U.S.
Therefore, the state's economic survival depends on having access
to good, affordable, and adequate rail transportation and attendant
facilities so that its shippers can deliver a competitively priced
product outside the state boundaries.
Montana wheat and barley producers do not have economic
alternatives to rail transportation. They are captive and tied to rail
with no viable alternatives to movement by rail. The Montana wheat and
barley producers are unique because they are the bearers of the freight
and cannot pass on increased transportation costs, but must absorb
them. Virtually any other industry has some capability of passing on
some or all of its increased costs to their consumers or customers. The
farm producer is unique because they operate in an environment where
they do not have any control over the price they receive for their crop
and they must bear every increase, in all costs, including
transportation costs, without any possibility to pass those higher
costs on to anyone else. When farm producers sell their grain to a
grain elevator or merchandiser the price of rail transportation is
deducted from the price the farm producer receives. Thus the farm
producer ``bears'' the rail transportation cost. The grain producer
pays the transportation charges they collect from the farm producers to
the railroads. The farm producers are very sophisticated marketers and
producers. U.S. farmers are the most efficient and productive
agricultural producers in the world. But they must compete in a world
market most of which do not have a monopoly rail transportation system
between the producer and the ultimate market that can dictate price and
profit levels to the producer. One of the challenges for Montana grain
producers comes from international competition as well as domestic
competition. Most industries that utilize rail face both domestic and
international competition. Montana grain producers understand that a
lack of choice of rail carriers creates a burden on their ability to
competitively market their products in the world.
Montana's Primary Transportation Is A Single Railroad
Montana is a base industry state. In the 1800s, its chief
industries were mining, lumber and agriculture; today and in the
future, Montana's chief industries will be the same three industries:
mining, lumber and agriculture with the addition of tourism. Today, we,
in Montana, have one major railroad, operating as a monopoly in the
transportation of bulk commodities from the farm to market.
Outline of Industry in Montana
The wheat industry in Montana is characterized by an export-
dominant rail movement.
The barley industry in Montana is characterized by both an
export and domestic market dominated by rail.
The lumber industry in Montana is characterized by both an
export and domestic market dominated by rail.
The coal industry in Montana is characterized by domestic
rail movement.
Montana is nationally ranked in agricultural production. Montana
ranks 4th in all wheat production, 9th in winter wheat production, 2nd
in spring wheat production, 3rd in barley production, and 4th in durum
wheat production in the U.S. (Source: Montana Agricultural Statistics
Service, May, 1997 Census of Agriculture). Montana is 2nd in Land in
Farms and Ranches with about 60,000,000 acres.
For the Montana farm producer, the cost of transporting grain can
today represent as much as one third (1/3) the overall price received
for the grain up from only 15 percent 25 years ago when Montana had
rail competition.
Montana Rail Transportation Is Predominated By One Carrier
Montana's rail infrastructure is controlled by a single rail
carrier controlling over 96 percent of all rail miles, over 95 percent
of all grain elevator and terminal sites and move 98 percent+ of all
wheat movements from the state. The rail carrier controls and dictates
the rail rates in all movements from Montana eastbound or westbound.
Annually, the Montana producers in normal rainfall years move about 150
million+ bushel production that is handled by rail from Montana and
bear about $200+ million in freight transportation charges per year.
Montana grain producers are being required to pay more for their
rail service than their counterparts in the grain producing industry
where effective rail-to-rail competition exists. That payment has come
in the form of increased transit times, upward adjustments in rail
rates and tight car supplies.
From Plentywood, Montana to Portland, Oregon, it is 1,207 miles on
the BNSF. From Nebraska origins, e. g. Sidney, Nebraska to Portland, it
is 1,566 miles on the BNSF. To ship a 52 car shipment of wheat from
Plentywood to Portland, is $67/car ($3,484) more than to ship a 52 car
shipment of wheat from Alliance, NE even though Alliance is 359 miles
further from Portland than is Plentywood, and even though the trains
from Alliance pass right through Montana on there way to Portland. Why?
In Central Nebraska, e.g., the Sidney area of Nebraska, the BNSF has
rail competition from the UP for its wheat traffic going to the same
destination--Portland, but in Montana, the BNSF has no competition.
This is modern rate discrimination that has gone on for many
decades. The graph below show the revenue to variable cost that emanate
from the rate differential between Nebraska origins (where BNSF and UP
compete) and Montana, Idaho, South Dakota and North Dakota origins
(where there is also no rail-to-rail competition).
The wheat rates, from Western Nebraska are not river compelled
rates, but rather are compelled by competition between two railroads on
movements to the Pacific Northwest (PNW).
Rate spreads between Montana origins and Nebraska origins to
Portland have increased since the passage of the Staggers Rail Act of
1980. The result is that Montana, Colorado, Idaho, South Dakota, North
Dakota and Washington farm producers are worse off today against their
traditional competitors due to their increased captive shipper status
which results from the lack of choice of carriers.
The captive rail customers in the grain country are paying rail
rates which range from 200 to 400+ percent of revenue to variable costs
well above the 180 percent threshold of unreasonableness established by
Congress in the Staggers Rail Act.
Captive Rail Traffic in the U.S. Now Comprises 1/3 of All Shipments
The result of a June 1998 study conducted by L.E. Peabody &
Associates, Inc. reflects quantitatively the amount of rail captivity.
Fully 1/3 of all U.S. rail movements are captive and it is spread over
virtually all major shipping commodity groups.
Peabody found that for movements included in the 1996 Costed
Carload Waybill Sample:
Over 31 percent of the revenue was generated by ``captive
rail traffic;''
Captive rail traffic on average has a revenue/variable cost
ratio of 2.44; and,
Movements of captive rail traffic were comprised of 129
different industry groups including coal, agriculture,
chemicals, fertilizers and many manufactured goods.
Whole States, Whole Regions and Whole Industries Are Now Captive
Today, whole states, whole regions and whole industries are now
captive to single railroad practices. Such concentration comes at a
time when the regulatory body which approved all of these mergers and
allowed this massive concentration of economic power has seemingly
chosen to ignore the effects of this concentration on the ever-
increasing captive rail customers, even though Congress charged this
agency to ``maintain reasonable rates where there is an absence of
effective competition.'' Congress in 1980 never envisioned that 40
Class I's would be allowed to merge into the a system where four major
railroads control the industry and there would be no effective backstop
for the captive rail customers to shield them the effects of monopoly
pricing and service abuses. Congress clearly wanted a healthy rail
system full of innovation that was driven by rail-to-rail competition.
The ICC and now the STB has continued to alter and undermine the spirit
of the law by regulatory interpretation.
Upon its inception in January 1996, the new Surface Transportation
Board was faced with the products of the ICC's regulatory policies: a
drastically consolidated rail market place and grave concerns from the
shipping community about the growing level of monopoly rate abuse and
deteriorating service levels. But the new STB also had a choice. At
that time, the STB could have chosen to protect the shipping community
from growing rail market dominance and begin to balance the scales
between shippers and the railroads by promoting a competitive rail
market--either by modifying existing regulatory rulemakings or
requesting changes to its statutory authority--or it could continue the
record of its predecessor, approving virtually any proposed merger and
defining the success of its decisions based upon the success of its
lawyers in the appeals court.
Based on its record, it is clear what choice the STB made. Not only
did the STB in 1997, approve the largest parallel merger of two
railroads in history in the name of ``efficiency'' -a merger that
produced service deterioration unprecedented in the annals of railroad
history--but it also handed down the now-legendary ``bottleneck''
decision and continues to wonder why shippers are reluctant to bring
``competitive access'' cases despite significant law and precedent that
was promulgated under the ICC.
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 Practices
The issue here is not about rates, or service or thwarting economic
development by market dominant railroads. The examples of monopoly
pricing and control are legion whether it is jeopardizing the economic
development plans of a truck assembly plant in Texas, or a chemical
plant in Louisiana, a fructose sugar plant in North Dakota and
Minnesota that wasn't allowed by the railroads to be built, plant
closings in Idaho due to rail transportation costs or rate and service
issues all across the grain states. The railroads are not the villain
here. They are doing exactly what the law, as interpreted by the
regulatory body, allows. The concentration by merger in the railroad
industry has changed the balance. The issue here is competition. The
issues are of fairness that comes from competition. The issue is that
the Federal law that is designed to protect the U.S. public from
monopoly market abuse does not work. The law needs fixing to restore
balance.
The agricultural producers have supported the Alliance for Rail
Competition since its inception. They have worked hard to bring
together a multitude of shipper organizations whose common bond is the
belief that increasing competition in the railroad industry is the
right thing to do. They believe that a continuation of the status quo
is unacceptable, and that changes to existing regulatory policies must
be legislated to ensure that the STB will begin to promote competition
as originally directed and intended by the 1980 Staggers Act.
Therefore, ARC and the Montana Wheat & Barley Committee and the
agricultural rail customers urge this committee to pass S. 919 which
will restore major portions of the Staggers Rail Act to their original
state and further serve to promote the reemergence of competitive
forces within the rail industry.
As I've noted before, the members of the Alliance for Rail
Competition believe that the only real long-term solution to their
concerns about rates and service quality is increasing competitive
choice in the market place.
But how do you achieve free market competition in an industry that
has only four major U.S. Class I railroads--two of which are in the
West, and two in the East? ARC believes that S. 919 will initiate the
necessary reforms to bring competitive forces and establish the goals
that the captive rail customer community wants:
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
Today, railroad customers do not have the right to any of these
things--and in fact, based on the way existing regulations have been
interpreted, they barely have the right to anything at all.
S. 919 Issues:
Competitive Reciprocal Switching and Terminal Trackage Rights--The
Congress should provide increased rights to competition through
reciprocal switching and terminal trackage rights, affirmatively
requiring the grant of these rights within an established distance of
existing interchanges in order to promote rail-to-rail competition.
Under the current statute, the STB is empowered to grant trackage
rights and reciprocal switching in a terminal or for a ``reasonable
distance'' outside of a terminal, when it finds such remedies to be
``practicable'' and ``in the public interest,'' or where reciprocal
switching is necessary to provide ``competitive rail service.'' These
rights, which are set forth at 49 U.S.C. 11102, have been in the
statute for a number of years and were broadened in the Staggers Rail
Act.
Despite these broad and seemingly pro-competitive provisions, the
agency, by rule and policy, has drastically restricted the application
of these rights. The agency's rules, promulgated in 1984, have been
interpreted in the Midtec decision (1984) and later cases to require
the shipper to prove competitive ``abuse'' in order to qualify for
competitive relief, and raise numerous other barriers. In fact, a
shipper has never won a case brought under the current rules, and the
precedent set by the half-dozen or so cases decided to date establish
tests that no shipper could possibly meet.
We recommend that legislation reversing the agency's approach
should be adopted. This will reestablish what Congress intended in the
Staggers Rail Act. The agency should have an affirmative obligation to
establish competition via reciprocal switching and trackage rights at
or within a reasonable distance of an existing interchange between rail
carriers, and the ``abuse'' test established by the agency should be
specifically abolished.
A substantially broadened right to competition via reciprocal
switching or trackage rights would provide the benefits of competition
to a number of shippers, where such shippers are at or within a
reasonable distance of another carrier. Because such trackage rights
would be limited to rail service at or within a reasonable distance of
where two carriers already interchange cars and locomotives, such
competitive rail service would be operationally feasible. Trackage
rights are frequently used by carriers: indeed, as part of the UP/SP
merger, the UP/SP granted the BNSF of 4,000 miles of trackage rights
over its system. Our recommendations would require the agency to
interpret the statute in a pro-competitive, rather than a restrictive,
manner, where relatively short-distance trackage rights or switching
can provide competitive opportunities
Shipper's Right to Competitive Routings and Reasonable Rates Over
Bottlenecks --The Congress should restore to shippers the right to
competitive rail routing through existing interchanges to encourage
rates produced by the competitive market, and should require the
provision of reasonable rates in a timely manner over rail bottlenecks.
In the agency's 1996 ``bottleneck'' decision, the STB ruled that,
in most situations, a rail carrier with a ``bottleneck'' monopoly can
lawfully foreclose alternate and competitive rail routings by another
carrier, where the ``bottleneck'' carrier can provide origin to
destination service. This interpretation altered what Congress had
intended in the Staggers Rail Act in 1980.
The STB's bottleneck decision should be reversed legislatively, to
restore to shippers the right to route over competitive routings at
rates produced by the competitive market thorough existing
interchanges, and to clarify that the STB can establish a maximum
reasonable rate over a bottleneck segment. These changes would ensure
that the monopoly bottleneck carrier couldn't take advantage of its
pricing power to foreclose competition over the competitive portion of
the route. They would permit competition to flourish where it can.
These changes would not bring a return to the old ``open routing''
system, whereby carriers were required to keep even inefficient
interchanges open and were required to charge the same rate over all
possible routes. Rather, only interchanges already utilized by the
carriers would qualify, and rates over various routes would vary as
costs and competition demand. Where a carrier controls a bottleneck,
its pricing initiative would only be subject to current statutory
restrictions against charging unreasonably high rates where there is no
effective competition.
Finally, the Congress should also reverse the bottleneck decision
to clarify that the STB can prospectively prescribe a maximum
reasonable rate so that the rate is available to a shipper immediately
upon expiration of the shipper's contract.
Competition and Reasonable Rates--The Congress should require that
significant weight be given to the level of rates produced in the
presence of rail-to-rail competition for shipments of the same or
similar commodities when reasonable rates are prescribed where
effective competition does not exist. Congress should also adopt
objective, easy to apply rate standards for agricultural shippers, and
direct the STB to consider similar standards be considered for other
non-coal shippers.
Under the STB's current so-called ``Constrained Market Pricing''
standards, the STB requires shippers to hypothesize the rates that
would be produced if a new railroad were built from the ground up to
serve the complaining shipper in competition with the existing carrier.
This exercise in ``imagining'' a new railroad--the calculation of so-
called ``Stand Alone Cost''--requires massive amounts of evidence as to
such things as the cost of land acquisition for this new ``stand
alone'' carrier, the cost of track, locomotives, operating costs, etc.
Hundreds of thousands of dollars can be spent in legal and consultant
fees on this exercise in competitive hypothesis. In the McCarty Farms
case filed by Montana producers, the ICC/STB took 19 years and cost the
producers over $3.2 million (without lawyer fees). The result even
though the railroad was judged market dominant and its rates judged
excessive, the ICC changed the judgment standard three times to ensure
the complainants never succeeded even though the rates were 200-300+
percent of variable--again well in excess of the 180 percent standard
for unreasonableness. This was not the ICC/STB's finest hour but it is
illustrative of the pervasive of the problems faced by captive rail
customers.
Yet, throughout the process of determining what a maximum rate
should be to a captive shipper, the STB never considers what that same
carrier is already charging shippers for movements of the same
commodity where rail-to-rail competition actually exists.
This ``never-never land'' of regulation should be injected with a
dose of reality.
Congress should require the STB, in determining what rate should be
charged where there is an absence of competition, to consider like
rates that are actually charged where there is the presence of
competition. The STB should give significant weight to this evidence,
though other types of evidence, such as evidence on stand alone cost
current utilized by the Board, could be considered as well.
Finally, ARC recognizes that agricultural shippers, and especially
the smaller agricultural shippers, have particular difficulties in
bringing maximum reasonable rate complaints, given their size and the
circumstances of their transportation. The Congress should establish
and mandate the STB develop such standards, particularly for small
agricultural shippers, and should direct the STB to consider similar
standards for other non-coal shippers.
Increasing Rail-to-Rail Competition from Short Line Carriers--The
Congress should make unlawful any restrictions by Class I carriers on
short line carriers from interchanging with other carriers.
The railroads will state that they have, by spinning off
branchlines into shortline carriers, created a more balanced and
competitive system. This just is not true.
Since the passage of the Staggers Act, short line carriers have
become an important part of the nation's rail transportation system.
ARC believes that Congress should make statutory changes that would
enable short line carriers to facilitate increased competition in the
rail industry.
Short line carriers are often ``captive'' to a particular Class I
carrier. Frequently, however, this captivity is not due to the fact
that a particular short line connects solely to one Class I carrier,
but rather is the result of restrictions placed upon the short line at
the time that the newly-established Class III is ``spun off'' by the
Class I parent. Specifically, when a planned short line can interchange
with a carrier besides the Class I parent, restrictions are placed on
the short line at the time of its spin-off that prevent the short line
from interchanging with any carrier other than the Class I parent.
Shippers served by the short line, then, are held captive. The Class I
parent obtains the benefits of the short line spin-off, including lower
labor costs, without jeopardizing its hold on its captive shippers.
This is poor public policy. ARC and the agricultural rail customers
believe that Congress should make unlawful any restrictions by Class I
carriers that prevent short line carriers from interchanging with other
carriers. A legislative prohibition on such restrictions would free
both shippers and short lines from the control of a particular Class I
carrier, bringing the potential for increased traffic to the short
line, and the potential for increased competition to the shipper.
Summary
We believe 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. We
have shown in this testimony that the regulatory mechanism has skewed
the Congressional intent that Congress relied upon when it passed the
Staggers Rail Act in 1980.
We, as rail customers, are captive to the railroads and we also
dependent upon the railroads. Captive rail customers are the last ones
that would ever want to see harm come to availability of rail service
or further contraction in the rail industry. We simply do not believe
that this mighty and historic industry cannot function in a competitive
American marketplace, as do all other businesses in the country.
We believe that competitive conditions will produce greater volumes
of traffic and market share for the railroads. Our studies confirm this
belief. We believe that it is unhealthy to have railroads operate in
the current federally sheltered environment. This artificial habitat is
unhealthy for rail customers . . . and unhealthy for railroads too.
Railroads may say here today that they cannot survive in an S. 919
world. In other words, a world in which competition drives prices and
innovation, not captivity. 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.
Congress has taken a look at many other industries that have been
characterized by a monopoly or oligopoly market structure and has seen
it necessary and appropriate to introduce competitive balances for the
sake of national policy. The consuming public ultimately pays for all
of this.
Yet, we have seen no real action to address similar issues in the
railroad industry. In this national railroad industry, four mega
carriers generate 95 percent of the gross ton-miles and 94 percent of
the revenue. Two western carriers generate 92 percent of the gross ton-
miles and 90 percent of the revenues in the west. Four of these
carriers handle over 90 percent of the U.S. coal movements. Three of
these carriers control over 70 percent of the grain movement.
In other industries of national importance, Congress has moved to
introduce competition as the best means for ensuring consumer and
customer protections. The shipping community--of which as many as 1/3
or more of us are captive to only one railroad--is here today to ask
you to bring competition to the rail industry as the best means of
protecting our collective economic competitiveness.
For the record, characterizing such changes as ``reregulatory,'' as
the railroads have done, would require that no regulatory system exist
at all. That clearly is not the case as in July, 2003, two months ago,
this Subcommittee took up the issue of reauthorization of the
regulatory body empowered to oversee the railroad industry. ARC and the
agricultural rail customers are interested in promoting market-based
competition as a long-term replacement for regulation, and in order to
achieve that end, existing regulations must be reformed to encourage
the gradual re-emergence of competition.
Clearly, there are areas where the STB itself can make immediate
improvements within the parameters of authority already granted by
existing statutes. To date, however, STB decisions have demonstrated
either an unwillingness or inability of this body to include the
legitimate measurement of competition in its deliberations. It is for
this reason that the Alliance for Rail Competition and the agricultural
rail customers believe that these issues must be addressed
legislatively. Captive rail customers will continue to advocate the
passage of legislation that will encourage competition in the rail
market place in both the short and long-term.
While the wheat and barley groups, along with ARC and the coalition
of rail customer groups support S. 919, we know that there may be
better ideas out there. In an ideal world we would like to join an
effort to find solutions, which includes all parties, certainly
including the railroads. But we do believe that something substantive
must be done. 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. For those of you who make policy, to avoid acting will sure
produce problems that will be larger, more complex and more expensive
to fix. The time to begin solving this is right now.
Madam Chairwoman, I'd like to thank you once again for the
opportunity to testify before you today about these important issues.
I'd also like to request that both my written and oral statements today
be made a part of this hearing record
Thanks for your consideration, and I'd be happy to answer any
questions that you may have.
Senator Hutchison. We will receive everyone's written
testimony for the record.
Our next witness will be Mr. Charles Platz, the President
of Basell North America, Inc.
STATEMENT OF CHARLES E. PLATZ, PRESIDENT, BASELL NORTH AMERICA,
INC., ON BEHALF OF CONSUMERS UNITED FOR RAIL EQUITY AND
AMERICAN CHEMISTRY COUNCIL
Mr. Platz. Thank you very much, Madam Chairman. I would
like to add into the record letters from members of the ACC
supporting S. 919.
Senator Hutchison. Without objection.
[The material referred to follows:]
Air Liquide America L.P.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Chairperson,
Subcommittee on Surface Transportation and Merchant Marine,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Senator Hutchison:
I am writing in support of S. 919, the Rail Competition Act of 2003
and to inform you about the economic disadvantage that Air Liquide
America is suffering as a result of the monopolistic practices of the
rail carriers, particularly at our plant in Pasadena, Texas.
Air Liquide America is one of the major industrial gas suppliers in
the United States with its North American headquarters based in
Houston, Texas. We supply oxygen, nitrogen, hydrogen, argon and many
other gases and services to nearly every industry (for example: steel,
oil refining, chemicals, glass, electronics, healthcare, food
processing, metallurgy, paper and aerospace). We have 132 production
facilities and 3,300 employees in the United States, of which 27
production facilities employ 1600 people throughout Texas. We provide
products to such Texas-based companies as Lyondell Chemical Company,
Texas Instruments, Exxon Mobil, The Texas Medical Center--M.D.
Anderson, The Methodist Hospital, Reliant Energy--South Texas Project,
and many others.
Our Texas Gulf Coast network with its hub in Pasadena, Texas is one
of the largest argon-producing complexes in the world, which ships
products to customers in Western States such as California, Arizona and
Colorado, and the Midwest. We depend on efficient transportation from
Texas to compete effectively with foreign producers and local
producers. Monopolistic rail practices threaten our competitiveness,
particularly in the current struggling economy.
Congress enacted the Staggers Rail Act in 1980 with the objective
of deregulating competitive rail traffic and retain certain targeted
protections for ``captive'' rail traffic that have no realistic
transportation option except a single railroad. Air Liquide America
agrees with Congress' objective in the 1980 legislation and welcomes
any market environment where willing buyers and willing sellers can
gather to make their best deal. Three regulatory actions have distorted
and undercut the provisions passed by Congress in 1980. These actions
are: (1) the 1996 ``bottleneck'' decision; (2) the ``competitive
access'' ruling of the mid-1980's; and (3) the approval of ``paper
barriers'' imposed as a condition to the sale of track from major
carriers to short line railroads. The impact has been that the total
number of major rail carriers has declined from 30 when the law was
written to seven today and, as can be expected in an industry
monopolies, featured an increase in market power exerted by the
remaining rail carriers. Air Liquide America and our customers suffer
the imposition of that market power as a ``captive'' rail customer.
The higher rates paid by ``captive'' rail customers penalize United
States industries in highly competitive global markets. Air Liquide
America ships argon by rail from our Texas gulf coast facilities as
well as in Plaquemine, Louisiana. Our company also operates an argon
production plant in Scotford, Alberta (Canada). Each of the United
States facilities is a ``captive'' rail customer and pays
transportation rates substantially higher than our Canadian plant
having open rail switching. To emphasize the point, basically we sell
product to our Canadian customers at a price less than we can sell to
comparable customers in the United States due to the monopoly rates
that we are required to pay as a ``captive'' rail user.
Our Pasadena plant is captive to the Union Pacific Railroad, which
operates a rail line in proximity to our facility. Today we transport
product via trucks and transload the product onto rail cars of the
Burlington Northern Santa Fe (BNSF) because the monopolistic rates
charged by Union Pacific will not allow us to remain competitive in
those distant markets. Still, the extra step and costs of using trucks
disadvantages us in competing for additional business. Of course, this
is very inefficient and costly in doing business.
Air Liquide America's facilities at twenty-four other locations
throughout the USA are also ``captive'' rail users, and subject to the
burden of uncompetitive rail rates.
Air Liquide America is pleased that you are holding hearings on S.
919 and urges the Senate to pass this bill as soon as possible.
Sincerely,
B.K. Chin,
Chief Operating Officer,
Air Liquide America L.P.
______
Akzo Nobel Chemicals Inc.
Chicago, IL, October 23, 2003
Dear Senator Hutchison:
Thank you for holding today's hearing to address the significant
concerns of captive railroad customers. I want to state my strong
support for S. 919, the Rail Competition Act of 2003, as an effective
means of addressing those concerns. Balanced commercial relationships
coupled with financially strong railroads are necessary to provide the
secure, effective transportation system the nation needs to remain
competitive in the global marketplace. Only Congress can make the
necessary changes in national rail policy to achieve these critical
objectives.
The financial health of America's railroads is extremely important
to the U.S. economy and the business of Chemistry. Akzo Nobel Chemicals
Inc., the entire Chemical industry, and indeed the American economy
simply cannot operate successfully without a financially viable
railroad industry and a secure railroad infrastructure.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their captive customers. Captive rail
customers are confronted with a lack of competitive options,
ineffective remedies to enhance rail competition, and a slow and costly
appeal processes through inaction by the Surface Transportation Board.
In the current atmosphere of fierce global competition, continuing the
status quo will result in further degradation of the American
manufacturing job base to overseas competition.
The Railroad Competition Act of 2003 will remove the current
railroad practices that block rail customer access to the competitive
environment and will provide effective remedies at the STB for those
railroad customers that cannot gain access to competition. This
legislation will not re-regulate the railroads as may have been
portrayed by some of its opponents nor does it cap rates on ``captive
shippers.'' This legislation is pro-competitive and consistent with the
concepts adopted by the Congress in 1980 when it partially deregulated
the railroads.
There is a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices. I
believe S. 919 can help all of us to achieve these mutually beneficial
objectives allowing American business to compete successfully in the
global market.
Very truly yours,
Edmund A. Stec,
General Manager-Commercial Services.
Akzo Nobel Chemicals Inc.
cc: Senator Richard Durbin
Senator Peter Fitzgerald
______
ASHTA Chemicals Inc.
Ashtabula, OH, September 15, 2003
Dear Senator Hutchison:
Thank you for holding today's hearing to address the significant
concerns of captive railroad customers. As a captive rail customer who
ships well over a thousand cars annually, ASHTA Chemicals Inc. would
like to take this opportunity to communicate its support for S. 919,
the Rail Competition Act of 2003, as an effective means of addressing
those concerns.
As a long time shipper and supporter of rail as a safe and
effective means of transporting hazardous chemicals, ASHTA Chemicals
Inc. has a vested interest in the financial health of America's
railroad carriers. Our company, our industry, and our economy would
simply not be able to operate successfully without a financially viable
railroad industry and a secure railroad infrastructure.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their captive customers. Too often captive
rail customers are confronted with both a lack of competitive options
and no swift or effective remedy at the Surface Transportation Board.
In the current atmosphere of fierce global competition, continuing the
status quo will result in more American jobs moving overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will remove the current
railroad practices that block rail customer access to competition and
will provide effective remedies at the STB for those railroad customers
that cannot gain access to competition. This legislation does not re-
regulate the railroads, and does not cap rates on ``captive shippers?
This legislation is pro-competitive and consistent with the concepts
adopted by the Congress in 1980 when it partially deregulated the
railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. We believe S. 919 can help us to achieve these mutually
beneficial objectives.
Bill J. Brodnick,
CFO & VP Finance,
ASHTA Chemicals Inc.
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Robert Kilpatrick,
Vice President and General Counsel.
cc: Karyn Grace
Charlie Kitchen
Marty Durbin
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (SIB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Carolyn Sanders,
Vice President--Human Resources,
Public Affairs and General Services,
ATOFINA Petrochemicals, Inc.
cc: Karyn Grace
Charlie Kitchen
Marty Durbin
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Karyn Grace,
Manager, Public Affairs
& Corporate Communications.
cc: Charlie Kitchen
Marty Durbin
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Rick Charter,
CAO and Vice President--Health,
Safety and Environment.
ATOFINA Petrochemicals, Inc.
cc: Karyn Grace
Charlie Kitchen
Marty Durbin
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Scott McEwen,
Vice President, Polypropylene.
cc: Karyn Grace
Charlie Kitchen
Marty Durbin
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Phillip Carruthers,
Vice President, Styrenics.
cc: Karyn Grace
Charlie Kitchen
Marty Durbin
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Lee O'Shields,
Vice President and CIO.
cc: Karyn Grace
Charlie Kitchen
Marty Durbin
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Paul Arends.
Cc: Charles Kitchen, Marty Durbin, Karyn Grace
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Connie Barton.
CC: Charles Kitchen
Marty Durbin
Karyn Grace
______
Kingwood, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
David M. Bock.
Cc: Mr. Charles Kitchen, Mr. Marty Durbin
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Thank you,
Raime Cotton.
cc. Karlyn Grace
Charles Kitchen
Marty Durbin
______
Spring, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
W. Alan Cramer
cc: Charles Kitchen
Marty Durbin
Karyn Grace
______
ATOFINA Petrochemicals
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Patricia Dossett.
CC: Charles Kitchen
CC: Marty Durbin
CC: Karyn Grace
______
Lake Jackson, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Best regards,
Aaron Doughty.
Cc: Karyn Grace
Charles Kitchen
Marty Durbin
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Steven Go.
Cc: Charles Kitchen, Marty Durbin, Karyn Grace
______
Atofina Petrochemicals
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Amy Johnson,
Logistics Department.
Cc: Charles Kitchen
Marty Durbin
Karyn Grace
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Debra Muron.
cc: Charles Kitchen
Marty Durbin
Karyn Grace
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Kim Onhu.
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Kinii Spear.
cc: Charles Kitchen
Marty Durbin
Karyn Grace
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Barbara Vest.
CC: Charles Kitchen
Marty Durbin
Karyn Grace
______
Spring, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Regards,
The Hung Vu.
CC: Charles Kitchen, Marty Durbin, Karyn Grace
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Leslie M. M. Wiley,
Senior Logistics Specialist.
Cc: Charles Kitchen
Marty Durbin
Karyn Grace
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Donna Womack.
Cc: Charles Kitchen
Marty Durbin
Karyn Grace
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Respectfully,
Michael J. Goins,
PE Product Manager.
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Ed Bruber,
PE National Sales Manager.
______
ATOFINA Petrochemicals, Inc.
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Mike Johhnson,
U.S. Polyethylene Business Analyst.
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Thank you,
Molly Myers,
Pricing Coordinator--HDPE.
______
ATOFINA Petrochemicals, Inc.
September 15, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Respectfully,
Sheri Reynolds.
______
ATOFINA Petrochemicals, Inc.
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on +captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Marlene Shakara.
______
Atofina Petrochemicals, Inc.
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Jenny Blackwell.
Account Coordinator.
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Regards,
Lynda 0. Jones,
Administrative Assistant
Polyethylene Department.
______
Atofina Petrochemicals
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Kimberly Jacops,
HDPE Customer Service.
______
September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my strong support for S.
919, the Rail Competition Act of 2003.
Atofina Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Shannon Taylor.
______
Houston, TX, September 16, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Subject: Support for S. 919
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. As a concerned employee of ATOFINA
Petrochemicals Inc., I want to state my strong support for S. 919, the
Rail Competition Act of 2003.
ATOFINA Petrochemicals, Inc. has five facilities in the state of
Texas, and with the exception of our plant in La Porte, Texas, we have
access to the services of only one rail carrier. At the single facility
where we do have two rail options, the cost to ship our product is
forty percent less than to, ship the same type of product from any of
the other locations. This fact alone would seem sufficient proof of the
need for competition.
However, of equal importance is a balanced commercial relationship
between the railroads and their captive customers. Too often, captive
rail customers are confronted not only with a lack of competitive
options but no swift or effective remedy regarding pricing complaints
at the Surface Transportation Board (STB). Certainly, in the current
atmosphere of fierce global competition, continuing the status quo of
high prices due to little competition among rail carriers and no quick
way to resolve pricing issues will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will not only remove the
current railroad practices that block competition but will also provide
effective remedies at the STB for those railroad customers denied
access to competitive pricing for railroad services. The aim of this
proposed legislation is not to re-regulate the railroads and does not
cap rates on ``captive shippers.'' On the contrary, this legislation is
merely pro-competition and consistent with the concepts adopted by the
Congress in 1980 when it partially deregulated the railroads.
There must be an equitable way for the railroad industry to achieve
long-term financial viability while providing efficient service at
prices that will allow American business to compete successfully in the
global market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Harry Mitchell, Jr.
Cc: Charles Kitchen
Marty Durbin
Karyn Grace
______
The Dow Chemical Company
Midland, MI, September 15, 2003
Dear Senator Stevens:
Thank you for participating in the 9/18/2003 hearing to address the
significant concerns of captive railroad customers. I want to state my
strong support for S. 919, the Rail Competition Act of 2003, as an
effective means of addressing those concerns.
First, let me state my strong interest in the financial health of
America's railroads. My company, this industry, and indeed the American
economy simply cannot operate successfully without a financially viable
railroad industry and a secure railroad infrastructure.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their captive customers. Too often captive
rail customers are confronted with both a lack of competitive options
and no swift or effective remedy at the Surface Transportation Board.
In the current atmosphere of fierce global competition, continuing the
status quo will result in more American jobs moving overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will remove the current
railroad practices that block rail customer access to competition and
will provide effective remedies at the STB for those railroad customers
that cannot gain access to competition. This legislation does not re-
regulate the railroads, and does not cap rates on ``captive shippers.''
This legislation is pro-competitive and consistent with the concepts
adopted by the Congress in 1980 when it partially deregulated the
railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
W.L. (Bill) Gebo,
Manager, Rail Services Purchasing,
The Dow Chemical Company.
______
DuPont
Wilmington, DE, September 16, 2003
Senator Kay Bailey Hutchison, Chair
Subcommittee on Surface Transportation and Merchant Marine,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Senator Hutchison:
DuPont, a successful, global, science company, wants to thank you
for holding a public hearing on S. 919, The Railroad Competition Act of
2003
DuPont strongly believes that robust rail-to-rail competition
should be a key component of the national Rail Transportation Policy.
It has been demonstrated time and again that rail competition drives
carrier efficiencies and innovation. Rail competition consistently
results in a significantly improved carrier offering and fuels growth.
The lessons of competitive rail markets as diverse as Powder River
Basin coal and intermodal trailers and containers are clear:
competition works. DuPont believes customer and railroad benefits can
be derived from robust competitive offerings across diverse rail
markets.
Most rail-served customers, including DuPont, are served
exclusively by one railroad. Under such circumstances, robust rail-to-
rail competition is not a reality. Furthermore, an other-than-
competitive rail offering too often results in service inconsistency
and lacks any continuous improvement imperative. Rail shippers, and/or
their customers, must ultimately accept and absorb the cost of such
railroad inefficiencies.
Since the 1980 passage of the Staggers Rail Act, the number of
Class 1 railroads has been reduced from 40 to 5 mega-carriers that
handle more than 90% of the country's rail traffic. The need to balance
the economic affects of consolidation with the non-competitive
environment faced by many rail customers cannot be denied. DuPont
believes the best means of balance can be provided for by S. 919. S.
919 relies on competition and market forces to determine rail rates and
service standards in most cases.
S. 919 will appropriately supplement, and complement, the Staggers
Rail Act. DuPont believes the September 18 public hearing marks an
important next step in promoting competitive, balanced behavior and
benefits for the nation's railroads, rail customers, and the general
public.
Sincerely,
Mary L. Pileggi,
North America Regional Logistics Manager.
Facsimile Copies: Members, Subcommittee on Surface
Transportation and Merchant Marine
Committee on Commerce, Science, and Transportation
United States Senate
Washington, DC
______
Georgia Gulf Chemicals & Vinyls, LLC
Plaquemine, LA, September 16, 2003
Senator Kay Bailey Hutchison, Chair
Subcommittee on Surface Transportation and Merchant Marine,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Senator Hutchison:
Thank you for holding today's hearing to address the significant
concerns of captive railroad customers. I want to state my strong
support for S. 919, the Rail Competition Act of 2003, as an effective
means of addressing those concerns.
First, let me state my strong interest in the financial health of
America's railroads. My company, this industry, and indeed the American
economy simply cannot operate successfully without a financially viable
railroad industry and a secure railroad infrastructure.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their captive customers. Too often captive
rail customers are confronted with both a lack of competitive options
and no swift or effective remedy at the Surface Transportation Board.
In the current atmosphere of fierce global competition, continuing the
status quo will result in more American jobs moving overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will remove the current
railroad practices that block rail customer access to competition and
will provide effective remedies at the STB for those railroad customers
that cannot gain access to competition. This legislation does not re-
regulate the railroads, and does not cap rates on ``captive shippers.''
This legislation is pro-competitive and consistent with the concepts
adopted by the Congress in 1980 when it partially deregulated the
railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Bennie R. Nobles,
Manager, Distribution/Customer Service,
Georgia Gulf Chemicals and Vinyls, LLC.
______
Lyondell Chemical Company
Houston, TX, September 17, 2003
Hon. Kay Bailey Hutchison,
Washington, DC.
Dear Senator Hutchison:
Thank you for holding a hearing to address the significant concerns
of captive railroad customers. I want to state my support for S. 919,
the Rail Competition Act of 2003, as an effective means of addressing
those concerns.
Lyondell Chemical Company has a strong interest in the financial
health of America's railroads. The chemical industry cannot operate
successfully without a financially viable railroad industry and a
secure railroad infrastructure.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their customers, especially those who are
captive to only one railroad for service. Captive rail customers are
not only confronted with a lack of competitive options but also find it
next to impossible to find effective remedies with the Surface
Transportation Board (STB).
The continued commoditization of the chemical industry is making us
more and more dependent on an efficient logistics process to serve our
global customers. Approximately 85 percent of chemical industry
products are delivered in bulk by rail. Unfortunately, with only seven
major railroads left in the United States today, controlling over 90
percent of the freight, our ability to profitably transport our
products to customers is becoming increasingly difficult.
Almost two out of every three chemical plants in the United States
are held captive by one railroad. When this non-competitive situation
exists, we find ourselves at a severe economic disadvantage, in that
freight rates are up to 60 percent higher than in a situation where
there are competitive options. If we let the status quo continue, the
inevitable result will be more of our U.S. industrial base moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will remove the current
railroad practices that prevent customers from obtaining access to
truly competitive services and will empower the STB to provide
effective remedies for those regions that do not currently have
effective railroad competition. Further, this legislation will help
shippers, and even Texas taxpayers, by eliminating undesired
investments in build-out projects that often place business, local
government, and communities in a no-win situation.
Contrary to the arguments made by the railroad industry, this
legislation does not re-regulate the railroads; neither does it cap
rates on ``captive shippers.'' This legislation is pro-competitive and
consistent with the concepts adopted by the Congress in 1980 when it
partially deregulated the railroads.
There must be a way for the railroad industry to achieve longterm
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S, 919 can help us to achieve these mutually
beneficial objectives.
Sincerely,
Dan F. Smith.
______
Monsanto
St. Louis, MO, October 23, 2003
Senator Kay Bailey Hutchison, Chair
Subcommittee on Surface Transportation and Merchant Marine,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Senator Hutchison:
Thank you for holding today's hearing to address the significant
concerns of captive railroad customers like Monsanto Company, among
others. We want to state strong support for S. 919, the Rail
Competition Act of 2003, as an effective means of addressing those
concerns.
As a major rail shipper we have a very strong interest in the
financial health of America's railroads. Monsanto Company, this
industry, and indeed the American economy simply cannot operate
successfully without a financially viable railroad industry and a
secure railroad infrastructure.
Equally important however, is a balanced commercial relationship
between the railroads and their captive customers. Captive rail
customers are confronted with lack of competitive options and no swift,
effective or cost efficient remedy at the Surface Transportation Board.
In the current atmosphere of fierce global competition, continuing the
status quo will result in more American jobs being lost to import cost
advantages.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will remove the current
railroad practices that block rail customer access to competition and
will provide effective remedies at the STB for those railroad customers
that cannot gain access to competition. This legislation does not
reregulate the railroads, and does not cap rates on ``captive
shippers.'' This legislation is pro-competitive and consistent with the
Concepts adopted by the Congress in 1980 when it partially deregulated
the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. Monsanto Company believes S. 919 can help us to achieve these
mutually beneficial objectives.
Sincerely,
Charles 0. Patterson,
Manager, Logistics Services.
Robert M. Hoppe,
Rail Asset Management Specialist.
______
Occidental Chemical Corporation
Dallas, TX, September 17, 2003
Hon. Kay Bailey Hutchinson,
United States Senate,
Washington, DC.
Dear Senator Hutchinson:
Thank you for meeting with me to discuss rail competition and its
impact on our economy. Your leadership on this issue, and in
orchestrating the hearing on September 18, is greatly appreciated by me
and many others from the shipping community. This hearing will go a
long way in helping to address the significant concerns of captive rail
customers. Thank you, also, for your support of S. 919, the Rail
Competition Act of 2003, which represents an effective means of
addressing these concerns.
First let me say that the chemical industry, the railroads and
Congress must work together to stop the continual drain of jobs in this
country to other places in the world, and do something constructive
about the shift in the balance of trade toward imports.
I'd also like to state my strong interest in the financial health
of America's railroads. My company, this industry, and indeed the
American economy simply cannot operate successfully without a
financially viable railroad industry and a secure railroad
infrastructure.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their captive customers. Too often captive
rail customers are confronted with both a lack of competitive options
and no swift or effective remedy at the Surface Transportation Board.
For example, we have a plant in the northeast that is facing the
reality of potentially shutting down and one of the causes is the fact
that our principle raw material rail rate to this captive plant exceeds
the rate on the same material to a nearby plant in the Shared Assets
Area by about 80 percent!
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system the nation needs to remain competitive in the global
marketplace. Only Congress can make the necessary changes in national
rail policy to achieve these critical objectives.
The Railroad Competition Act of 2003 will remove the current
railroad practices that block rail customer access to competition and
will provide effective remedies at the STB for those railroad customers
that cannot gain access to competition. This legislation does not re-
regulate the railroads, and does not cap rates on ``captive shippers.''
This legislation is pro-competitive and consistent with the concepts
adopted by the Congress in 1980 when it partially deregulated the
railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Thank you, again, for your leadership on this issue. I look forward
to meeting with you again on this issue and other issues that
positively impact the economic status of Texas and the country.
Sincerely,
J. L. Hurst III.
______
PPG Industries, Inc.
Pittsburgh, PA, October 15, 2003
Hon. Senator Kay Bailey Hutchison,
Chairman,
Hon. Senator Daniel K. Inouye,
Ranking Member,
Subcommittee on Surface Transportation and Merchant Marine,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Senator Hutchison and Senator Inouye:
Thank you for holding a hearing to address concerns of shippers
like PPG Industries, Inc. about rail freight industry competition and
service.
PPG Industries, Inc. is a diversified manufacturer of chemicals,
protective coatings, glass and fiber glass employing over 22,000 in the
United States and with more than 50 major facilities in 23 states.
Many of our businesses are dependent upon railroad freight. The
company supports efficient rail transportation. PPG has approximately
2,500 private rail cars in service. Some of our products cannot be
moved by other modes. An efficient and successful rail industry is
absolutely essential to a healthy and competitive U.S. economy and
important to PPG's continued success. This is not an anti-rail issue
for PPG.
As a major chemical producer, the issue of rail competition is very
important to us. Approximately two-thirds of America's chemical
facilities that depend on rail service are served by only one railroad.
Because of a lack of competition, these single-served locations are
subject to exorbitant prices and substandard service. Such facilities
are ``captive'' to a single railroad without competitive market forces
driving cost and service efficiency.
Rail mergers and acquisitions have been the major contributing
factor to a diminished ability to deliver our products to market in a
timely manner and at reasonable cost. The consolidation within the rail
industry has led to the loss of an effective competition balance
between railroads. Over the last 25 years, the number of Class I
railroads has been reduced from approximately sixty-three to only
seven. This unprecedented consolidation has resulted in only two Class
I railroads in the east and two in the west controlling over 90 percent
of rail freight traffic.
This is a serious issue for PPG Industries; the results of these
mergers and acquisitions are very real. As an example, one of our major
manufacturing locations, which is served by only one railroad is
significantly disadvantaged by a lack of competitive access. Moreover,
numerous
PPG customers are captive to a single delivering railroad, which
diminishes our ability to obtain competitive transportation rates and
develop service options.
In summary, PPG is dependent on rail transportation to move its
chemical products to market, and our continued economic viability is
dependent on an effective commercial rail system. PPG supports and
needs an efficient and cost competitive rail industry to provide
effective service at reasonable costs. We believe congressional action
is necessary to restore and assure fair competition among railroads.
PPG's continued economic viability and the security of its employees
are directly affected by these concerns, and we ask that these issues
be addressed soon within appropriate legislation.
We appreciate the opportunity to offer these written comments and
thank you for holding such a hearing about the need for railroad access
and competition.
Sincerely,
Charles E. Bunch,
President and Chief Operating Officer.
cc: The Honorable John McCain, Chairman
The Honorable Fritz Hollings, Ranking Member
Senate Committee on Commerce, Science, and Transportation
______
Sunoco
October 22, 2003
Hon. Kay Bailey Hutchison,
United States Senate,
Washington, DC.
Dear Senator Hutchison:
Thank you for holding this week's hearing to address the
significant concerns of captive railroad customers. Sunoco Inc., with
four owned plants and one joint venture in the State of Texas employing
over 1,050 people want to emphasize our strong support for S. 919, the
Rail Competition Act of 2003, as an effective means of addressing those
concerns. Two of our Texas locations (Bayport and Nederland) are served
by a single carrier and those two sites have more rail service
problems, incur more rail storage costs and are not as competitive in
the markets they serve as the two sites that have competitive rail
service.
First, allow me to state our strong interest in the financial
health of America's railroads. Sunoco ships and receives in excess of
40,000 carloads of oils, chemicals and fuels annually by rail and we
cannot operate and market our products without a reliable and
financially viable railroad industry and a secure railroad
infrastructure. However, we cannot tolerate rail service transit
increases of 56 days longer than 2002 on deliveries from Houston plants
to plastics customers in Dallas and central Texas. The only delivering
carrier has been unable to improve the delivery schedule to 2002
levels, forcing Sunoco to deliver by bulk truck.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their captive customers. As a captive rail
customer in Texas, we are confronted with both a lack of competitive
options and no swift or effective remedy at the Surface Transportation
Board. In the current atmosphere of fierce global competition,
continuing the status quo will result in more American jobs moving
overseas.
Both balanced commercial relationships and financially strong
railroads are necessary to provide the secure, effective transportation
system Sunoco needs to remain competitive in the global marketplace.
Only Congress can make the necessary changes in national rail policy to
achieve these critical objectives.
The Railroad Competition Act of 2003 will change the current
railroad and administrative practices that block rail customer access
to competition and will provide effective remedies at the STB for those
railroad customers that cannot gain access to competition. This
legislation does not re-regulate the railroads, is pro-competitive and
consistent with the concepts adopted by the Congress in 1980 when it
partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Very Truly Yours,
Bruce G. Fischer,
Senior Vice President--Chemicals.
______
PVS Chemicals, Inc.,
Detroit, MI, September 18, 2003
Senator Kay Bailey Hutchison, Chair
Subcommittee on Surface Transportation and Merchant Marine,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Dear Senator Hutchison:
Thank you for holding today's hearing to address the significant
concerns of captive railroad customers. I want to state my strong
support for S. 919, the Rail Competition Act of 2003, as an effective
means of addressing those concerns.
First, let me state my strong interest in the financial health of
America's railroads. PVS Chemicals, Inc. simply cannot operate
successfully without a financially viable railroad industry and a
secure railroad infrastructure. Almost 30% of our shipments move by
rail.
Of equal importance, however, is a balanced commercial relationship
between the railroads and their captive customers. PVS as a captive
rail customer is confronted with a lack of competitive rail options. We
operate a rail fleet of more than 500 cars with a network of
manufacturing plants and suppliers that covers the Eastern US. Our
relatively small size, however, gives us very little leverage with the
railroads in rate negotiation, especially in joint moves. At the same
time, declines in rail service have forced us to compensate; because of
rail inefficiencies, we have had to invest more dollars in rail
equipment just to keep product flowing and meet the needs of our
existing customers. Our cost of doing business is rising
disproportionately. In the current atmosphere of fierce global and
domestic competition, continuing the status quo puts us at an extreme
disadvantage that will ultimately result in more jobs being eliminated.
Only Congress can make the necessary changes in national rail
policy to achieve these critical objectives. The Railroad Competition
Act of 2003 will remove the current railroad practices that block rail
customer access to competition and will provide effective remedies at
the STB for those railroad customers that cannot gain access to
competition. This legislation does not re-regulate the railroads, and
does not cap rates on ``captive shippers.'' This legislation is pro-
competitive and consistent with the concepts adopted by the Congress in
1980 when it partially deregulated the railroads.
There must be a way for the railroad industry to achieve long-term
financial viability while providing efficient service at prices that
will allow American business to compete successfully in the global
market. I believe S. 919 can help us to achieve these mutually
beneficial objectives.
Very truly yours,
Beth A. Bania,
Director of Logistics.
______
Bayer Polymers
New Martinsville, WV, October 9, 2003
Hon. Kay Bailey Hutchison,
Subcommittee on Surface Transportation and Merchant Marine,
U.S. Senate,
Washington, DC.
Hon. Daniel K. Inouye, Ranking Member
Subcommittee on Surface Transportation and Merchant Marine
U.S. Senate,
Washington, DC.
Dear Chairman Hutchison and Ranking Member Inouye:
Senator Conrad Burns and Senator Byron Dorgan introduced a bill to
promote rail competition, S. 919. We understand that you had planned to
hold a hearing on Sept. 18, and that it had to be rescheduled for late
October due to Hurricane Isabel.
We wanted you to know that we support holding such a hearing. It is
important to explore the problems and concerns of rail shippers.
Thousands of chemical plant union workers rely on the valuable jobs at
many chemical plants around the country. Until rail service, costs and
reliability problems are addressed properly, jobs at chemical plants
will continue to be at risk, due to global competition.
As I am sure you are aware, chemical producers are struggling in
the current economic climate, due to several factors. Cost of rail
transportation and problems with service are two such reasons. Chemical
companies and their employees depend on rail transportation because of
the volume of chemicals that need to he shipped and the safety concerns
inherent in the transport of chemicals. Rail shipment of chemicals is
by far the safest and most cost-effective way to get chemical products
to distributors, processors and fabricators. However, rail customers at
captive sites experience non-competitive pricing and poor service. We
need a good and effective rail system in order to he competitive in
today's global market.
In recent years, chemical company employees have seen a realignment
of priorities within the industry. Many operations have been tightened,
and there is an increased focus on security. There is also increased
focus on cost reduction and efficiency. We believe competition for
service will greatly help to improve the situation. We have seen this
occur at other chemical plant sites, where competition exists. For
these reasons, we hope you will take a serious look at changing the
law, in order to promote competition. We strongly support efforts like
those of Senators Burns and Dorgan to address these issues and support
S. 919 in concept.
Sincerely,
Thomas M. Slokan,
President, International Chemical Workers
Union--Council Local No. 566-C.
______
International Chemical Workers Union
Addyston, OH, October 13, 2003
The Honorable Kay Bailey Hutchison,
Subcommittee on Surface Transportation and Merchant Marine,
United States Senate,
Washington, DC.
Dear Senator Hutchison:
Senator Conrad Burns and Senator Byron Dorgan introduced a bill to
promote rail competition, S. 919. We understand that you had planned to
hold a hearing on Sept. 18, and that it had to be rescheduled for late
October due to Hurricane Isabel.
We wanted you to know that we support holding such a hearing. It is
important to explore the problems and concerns of rail shippers.
Thousands of chemical plant union workers rely on the valuable jobs of
many chemical plants around the country. Until rail service, costs and
reliability problems are addressed properly, jobs at chemical plants
will continue to be at risk, due to global competition.
As I am sure you are aware, chemical problems are struggling in the
current economic climate, due to several factors. Cost of rail
transportation and problems with service are two such reasons. Chemical
companies and their employees depend on rail transportation because of
the volume of chemicals that need to be shipped and the safety concerns
inherent in the transport of chemicals. Rail shipment of chemicals is
by far the safest and most cost-effective way to get chemical products
to distributors, processors and fabricators. However, rail customers at
captive sites experience non-competitive pricing and poor service. We
need a good and effective rail system in order to be competitive in
today's global market.
In recent years, chemical company employees have seen a realignment
of priorities within the industry. Many operations have been tightened,
and there is an increased focus on security. There is also increased
focus on cost reduction and efficiency. We believe competition for
service will greatly help to improve the situation. We have seen this
occur at other chemical plant sites, where competition exists. For
these reasons, we hope you will take a serious look at changing the
law, in order to promote competition. We strongly support efforts like
those of Senators Burns and Dorgan to address these issues and support
S. 919 in concept.
Sincerely,
William D. Villines,
President, Local 561C.
______
International Chemical Workers Union
Addyston, OH, October 13, 2003
The Honorable Daniel K. Inouye,
Ranking Member,
Subcommittee on Surface Transportation and Merchant Marine,
United States Senate,
Washington, DC.
Dear Senator Inouye:
Senator Conrad Burns and Senator Byron Dorgan introduced a bill to
promote rail competition, S. 919. We understand that you had planned to
hold a hearing on Sept. 18, and that it had to be rescheduled for late
October due to Hurricane Isabel.
We wanted you to know that we support holding such a hearing. It is
important to explore the problems and concerns of rail shippers.
Thousands of chemical plant union workers rely on the valuable jobs of
many chemical plants around the country. Until rail service, costs and
reliability problems are addressed properly, jobs at chemical plants
will continue to be at risk, due to global competition.
As I am sure you are aware, chemical problems are struggling in the
current economic climate, due to several factors. Cost of rail
transportation and problems with service are two such reasons. Chemical
companies and their employees depend on rail transportation because of
the volume of chemicals that need to be shipped and the safety concerns
inherent in the transport of chemicals. Rail shipment of chemicals is
by far the safest and most cost-effective way to get chemical products
to distributors, processors and fabricators. However, rail customers at
captive sites experience non-competitive pricing and poor service. We
need a good and effective rail system in order to be competitive in
today's global market.
In recent years, chemical company employees have seen a realignment
of priorities within the industry. Many operations have been tightened,
and there is an increased focus on security. There is also increased
focus on cost reduction and efficiency. We believe competition for
service will greatly help to improve the situation. We have seen this
occur at other chemical plant sites, where competition exists. For
these reasons, we hope you will take a serious look at changing the
law, in order to promote competition. We strongly support efforts like
those of Senators Burns and Dorgan to address these issues and support
S. 919 in concept.
Sincerely,
William D. Villines,
President, Local 561C.
Mr. Platz. Madam Chairman and members of the Subcommittee:
Thank you for the opportunity to testify today. My name is
Charles Platz and I am President of Basell North America,
Incorporated, which is headquartered in Elkton, Maryland.
Basell has manufacturing facilities in Texas, Louisiana,
Tennessee, and also markets products manufactured at its plant
in Linden, New Jersey. We produce plastic resins that our
customers use in a variety of applications, such as automobile
components, textiles, packaging, medical products, and
household goods.
I appear in support of Senate bill 919, the Railroad
Competition Act of 2003, as Co-Chair of Consumers United for
Rail Equity and on behalf of the American Chemistry Council and
my own company.
Madam Chairman, captive rail customers are dependent upon
the railroad industry and we are vitally interested in the
financial health of America's railroads. We simply cannot
operate successfully without a financially viable railroad
industry. Indeed, I believe that the ability of the American
manufacturers and producers to compete in today's global market
is highly dependent upon a rail freight industry. Today,
however, the rail freight industry impedes rather than enables
our global competitiveness.
The captive rail customers who are petitioning Congress for
action are not a fringe group, as some of our opponents would
like you to think. Our coalition includes 14 major trade
organizations representing the agriculture, pulp and paper,
fertilizer, chemical and plastics industries, and electric
utilities that use coal. We are the largest commodity customers
of the railroads and our coalition members represent companies
whose industries spend more than $18 billion a year on rail
service. This represents approximately 55 percent of the
railroads' total annual revenue.
More importantly, a very large number of American families
depend upon wages from our industries, which provide more than
2.4 million direct jobs, and commonly accepted economic
multipliers put the indirect job impact at five times that
number, or 12 million jobs.
Over the course of the past year I have led a group of
senior executives of U.S. companies with facilities served by
only one railroad carrier. Our group met with and pursued a
dialogue with the CEO's of the major U.S. railroads that serve
captive customers. The dialogue has centered on two critical
issues: one, the financial health and viability of the
railroads, including needed infrastructure improvements; and
two, the absence of satisfactory balanced commercial
relationships between the captive rail customers and their rail
freight carriers.
These conversations began after John Snow, then the Chair
of the CSX Corporation, and I testified before this
Subcommittee on the captive rail customer issues in July 2002.
Following our testimony, Senator John Breaux of Louisiana, then
the chair of the Subcommittee, asked both Mr. Snow and me to
enter into a dialogue on this issue and to involve other
shippers and railroad CEO's.
Through these dialogues it has become clear to me that the
major railroads are pursuing a flawed business model. Even the
railroads agree that the gap between their annual income needs
and their annual income is expanding, not shrinking. This is
despite the fact that they have been allowed to consolidate to
achieve cost synergies, they have also had the opportunity to
transfer less profitable tracks to shortline railroads, and
they have been able to increase the burden on captive rail
customers.
The result is that rail customers without an alternative
pay more, rail executives defend the status quo at all cost,
and the relevant business interests cannot negotiate a
solution. In my view, pursuing a strategy of continually
loading more costs on captive rail customers does not appear to
be a business model that will result in healthy American
railroads in the long run. Captive rail customers will try to
escape. Some captive customers will construct rail line
buildouts, as my company is doing in Texas. Some will shift
their operations offshore. Some may even go out of business.
I applaud the positive change that has taken place in the
Surface Transportation Board's operating procedures since the
arrival of Chairman Roger Nober. Unfortunately captive rail
customers cannot expect the needed regulatory relief from the
STB without help from Congress. Chairman Nober, in response to
a question about the reforms sought by the captive rail
customers, said in a published interview: ``They have a lot of
legitimate issues that they are raising. The core issues that
they want to see done, though, are for the Congress.''
The changes the captive rail customers are urging today
cannot be pursued anywhere but in Congress because balanced,
fair legislation is needed to bring about a positive
relationship between the railroads and the captive customers.
S. 919 is the vehicle to achieve this.
The railroad industry's allegation that S. 919 is
reregulatory is simply not true and has been amply discussed by
other witnesses. We believe S. 919 will enable the national
rail system to evolve toward a more competitive system that
serves the needs of our Nation in a highly competitive global
market. The Ocean Shipping Reform Act of 1998 is an example of
how market forces can restore balance to the commercial
relationship.
If the railroads, the captive rail customers, and the U.S.
economy are to prosper, the railroads and the captive rail
customers must have mutually beneficial transportation
agreements. Unfortunately, I am convinced we cannot get to that
point without the help of Congress. Railroads will not
negotiate on this competitive advantage that they have. The
Surface Transportation Board will not act to change the policy
without Congressional help. So we are at an impasse.
To make meaningful change, you need to get involved. That
is why I am here today asking for your help.
Thank you, Madam Chairman, for this hearing, for your
interest in this issue, and for the opportunity to present our
case to you and your colleagues. Thank you.
[The prepared statement of Mr. Platz follows:]
Prepared Statement of Charles E. Platz, President, Basell North America
Inc. On Behalf of Consumers United for Rail Equity American Chemistry
Council
Madam Chair and Members of the Subcommittee, thank you for the
opportunity to testify today on this important subject. My name is
Charles E. Platz. I am President of Basell North America Inc., which is
headquartered in Elkton, Maryland. Basell has manufacturing facilities
in Texas, Louisiana and Tennessee, and markets products manufactured at
a plant in Linden, New Jersey. We produce raw material plastic resin
that our customers use in a variety of applications such as automobile
components, textiles, packaging, medical products and numerous
household goods. I appear today in support of S. 919, the Railroad
Competition Act of 2003, as Co-Chair of Consumers United for Rail
Equity and on behalf of the American Chemistry Council and my own
company.
Madam Chair, I approach this issue from the perspective of an
executive responsible for successfully running a U.S.-based
manufacturing business in an extremely competitive global market. I am
very concerned not only that our company succeeds in this dynamic
global economy, but also that important American manufacturing jobs
remain in this country. If Congress does not take action enabling the
market to fix this problem now, American jobs will be lost and
taxpayers will be forced to pay the bill later.
Captive Rail Customers
Madam Chair, want to make two initial points about captive rail
customers. First, as businesses dependent on the railroad industry, we
are vitally interested in the financial health of America's railroads.
We simply cannot operate successfully in this country without a
financially viable railroad industry and a secure railroad
infrastructure. Indeed, I believe that the ability of American
manufacturers and producers to compete in today's global market is
highly dependent on the rail freight industry. Today, unfortunately,
the rail freight industry impedes--rather than enables--our global
competitiveness.
Second, the captive rail customers that are petitioning Congress
for action are not a ``fringe group''--as some of our opponents would
like you to think. Our coalition includes 14 major trade organizations
representing the agriculture, pulp and paper, fertilizer, chemical and
plastics industries and electric utilities that use coal. We are the
largest commodity customers of the freight railroads, spending more
than $18 billion a year on rail service, which represents about two
thirds of U.S. rail shipments. Remarkably, our coalition represents
more than half--approximately 55 percent--of the railroads' total
annual revenue.
A very large number of American families depend on wages from our
industries, which provide more than 2.4 million direct jobs. Commonly
accepted economic multipliers put the indirect job impact at five times
that number, or 12 million jobs. Our industries provide significant
contributions to this country's balance of trade and the GDP. But in
the current highly competitive global business environment, captive
rail customers are under increasing pressure in our own businesses.
Today, American manufacturers and producers find it more and more
difficult to remain competitive against manufacturers and producers
outside the United States. In fact, the business of chemistry, of which
I am a part, suffered its first trade deficit in history last year.
Basell North America Inc.
Our rail transportation costs are a major factor in our ability to
be competitive at home and abroad and in retaining and growing our
employment base. For example, in Basell's North American operations,
rail transportation is our second highest cost--trailing only
feedstock--and we overwhelmingly depend on rail shipping. One hundred
percent of our finished product is loaded into rail hopper cars. To
meet the needs of our customers, the vast majority of whom demand
delivery by railcar, we have invested in a fleet of approximately 4,000
hopper cars with a replacement value exceeding $260 million; our
railcars are not supplied by the railroads. The operation of the fleet
is strictly at Basell's expense. This investment coupled with the
demands of our customers ties us, as it does many other industries
among our coalition, firmly to rail transportation.
At many of our facilities we are served by a single railroad for
the movement of our product to our customers. Rail customers with
facilities served by only one rail carrier are known as ``captive rail
customers.'' Let me explain what captivity has meant to Basell.
Although Basell is not captive at its facility in Lake Charles,
Louisiana, one of the railroads at that location does have a monopoly
on rail service at Basell's Bayport, Texas facility. That railroad used
its market dominance at Bayport to obtain leverage over our Lake
Charles traffic.
Within a short distance of our Bayport plant, a second major
railroad intersects the line of the carrier that holds us captive. At
this intersection point, our hopper cars could be moved to the second
railroad where competition could be utilized for the remainder of the
movement, thus spurring the rail carriers to provide better, more
efficient service and more cost-effective transportation to our
customers. Unfortunately, under current law, as interpreted by the
Surface Transportation Board in 1996, our carrier is under no
obligation to provide a rate for moving our cars to the second,
competing carrier. This ``bottleneck,'' where one railroad controls
portions of a route, allows a single rail carrier to dictate the terms
of the entire movement of our hopper cars from origin to destination,
even over that portion of a movement where rail competition physically
exists. When the bottleneck carrier can serve the customer from origin
to destination, that carrier has every incentive to block access to the
competitive alternative and to retain the traffic itself for the entire
movement.
In Basell's case, over time the incumbent carrier to which we are
captive has charged us such an excessive rate on our movements from the
Bayport plant that it has jeopardized the continued successful
operation of that plant in a highly competitive plastics industry. When
this occurred, we considered all of our options. One option might have
been to file a rate complaint at the Surface Transportation Board, but
rate cases are not a viable option for the chemical industry. The
chairman of the STB has testified that rate cases are costly and long.
We applaud him for recognizing this situation and speaking about it
publicly. The STB has begun a process to review and revise the
procedures for small rate cases and for seeking to bring about needed
change. The recent provision on small rate cases that was included in
the STB Reauthorization legislation reported from the Committee on July
17th is a step in the right direction. Captive rail customers note,
however, that this is the second time since 1995 that Congress has
directed the STB to correct this problem. Nevertheless, prospective
effective alterations that may or may not occur can't change the fact
that today, just as when our situation in Bayport became critical, the
only available remedy for achieving access to competition is pursuit of
a build-out.
Basell and three other shippers have joined with another railroad
to create competition in Bayport, of which you are very familiar, Madam
Chair. We have formed San Jacinto Rail Limited, an $80 million
investment to provide competitively priced rail-service options. This
is not an investment that is being made because we have more traffic
than one railroad can handle. Rather, we're building this redundant
rail line simply to gain access to the existing competing railroad.
Frankly, Madam Chair, I would much rather that Basell direct its
efforts and resources toward developing new technology or upgrading our
plant assets so that we could further improve our competitiveness and
that of our customers. Unfortunately, the captive rates and poor
service we endure at our Bayport plant threaten its very existence--and
the jobs it provides--and breaking that captivity became paramount.
I believe, Madam Chair, if a normal commercial relationship existed
between the railroads and their captive rail customers, we would have
been able to negotiate a mutually acceptable transportation agreement.
In doing so, we would have avoided both disrupting the community and
the unnecessary capital investment. And our current carrier may very
well have retained our business. Unfortunately, current Federal policy
that grants virtually absolute power to the railroads over their
captive customers removes major incentives for the railroads to achieve
mutually beneficial commercial relationships with their captive
customers.
In 1980, when Congress voted to partially deregulate the railroad
industry by enacting the Staggers Rail Act, Congress believed partial
deregulation was the needed cure and that economic regulation had
outlived its usefulness; that railroads faced tough competition from
trucks, barges, and pipelines, and that there were still a sufficient
number of carriers to provide significant rail-to-rail competition.
While the law did not deregulate the industry completely, Staggers
freed the railroads from many regulatory burdens and allowed the
rationalization of rail systems. In 1980, there were more than 40 major
rail carriers. Today, however, just five major railroads handle 90
percent of the nation's rail traffic. The damage to competition, to
market-driven efficiencies, and to the quality and reliability of
railroad freight services from consolidation has been enormous.
Why We Believe Congress Must Act
The power that the highly concentrated rail industry now wields in
the United States can be the dominant factor in a company's investment
decision. In the Chair's state, for example, Toyota only decided to
invest $800 million in a new truck assembly plant in San Antonio after
the creation of rail competition at the new plant. Toyota, a Basell
customer, requires that at least two competing railroad companies have
access to its manufacturing sites, which allows the company to keep its
shipping costs down. We understand, by the way, that the incumbent rail
carrier has, reluctantly, agreed to allow Toyota access to a second,
competing railroad. It's unfortunate that the same two railroads have
not come to a similar agreement in response to the San Jacinto Rail
Limited project in Bayport, Texas.
Madam Chair, these transportation issues present serious problems
for American businesses. The continued competitiveness of America's
manufacturing and producer industries demands that changes be made.
That's why I am deeply involved and committed to these issues. When I
first became involved, it was out of great concern for the welfare of
my company. However, as I learned more about these important issues, it
became clear to me that much more is at stake--that these issues are
critically important not only to our business but also, and more
importantly, to the greater American economy and the jobs it provides.
Over the course of the past year I have led a group of senior
executives of U.S. manufacturing and production companies with
facilities served by only one railroad carrier. Our group met with and
pursued a dialogue with the CEO's of the major U.S. railroads that
serve captive customers. The dialogue has centered on two critical
issues:
(1) The financial health and viability of the railroads, including
needed infrastructure improvements, and
(2) The absence of a satisfactory, balanced commercial relationship
between the captive rail customers and their rail freight
carriers.
These conversations began after John Snow, then Chair of the CSX
Corporation, and I testified before the Senate Surface Transportation
and Merchant Marine Subcommittee on the captive rail customer issue in
July of 2002. Following our testimony, Senator John Breaux of
Louisiana, then Chair of the Subcommittee, asked both Mr. Snow and me
to enter into a dialogue on this issue and to involve other shipper and
railroad CEOs in that dialogue. After the President nominated Mr. Snow
to serve as Secretary of the Treasury, the dialogue continued with Matt
Rose, the CEO of the Burlington Northern and Santa Fe Railway and
current Chair of the Association of American Railroads, taking over Mr.
Snow's role in the dialogue. During this effort, we assembled
representatives of many of the captive shippers and the railroads for
one joint meeting. Since that group meeting, the dialogue has continued
through a number of one-on-one meetings, telephone calls and
correspondence.
While engaged in the dialogue with the CEO's and senior management
of the railroads, representatives of rail freight customers examined
their position and the need for a change in the status quo. With
renewed focus, rail freight customers began coalescing around a few key
principles aimed at enhancing competition and represented in the
provisions of S. 919. That support has continually grown throughout the
year, and, as I mentioned before, S. 919 now enjoys the support of 14
trade associations representing 2.4 million American jobs and more than
half of the railroads' total annual revenue.
Since beginning the dialogue with rail executives at Senator
Breaux's request, I have engaged in many discussions and meetings about
this issue. I am now convinced that the freight railroads will not
budge from the status quo in which they have complete market dominance
over their captive customers. The Staggers Act, the ICC Termination Act
of 1995 and agency interpretation of those acts provided the market
dominance railroads hold over their captive customers. While today's
railroad CEO's may believe, or may be advised, that their fiduciary
duties and corporate governance obligations require them to defend the
status quo, that belief is misguided since it focuses only on the very
short term. Indeed, I do not accept the status quo as a reasonable
business model designed to propel the rail service business into the
future. To the contrary, the current model will inevitably lead
railroads to their financial brink, costing not only railroad
shareholders, but also taxpayers and rail-dependent American
enterprise.
A Flawed Railroad Business Model
Madam Chair, based on my experience, I believe the major railroads
in the nation are pursuing a flawed business model. Even the railroads
agree that the gap between their annual income needs and their annual
income is expanding, not shrinking. This is despite the fact that they
have been allowed to consolidate to achieve cost synergies. These
synergies should have allowed them to operate more efficiently and in a
fashion that permits them to recover their cost of capital. They've
also had the opportunity to transfer less profitable track to short
line railroads and they have been able to increase the burden on
captive rail customers. The result is simply that those customers with
no alternative pay the most.
Pursuing a strategy of continually loading more costs on captive
rail customers does not appear to be a business model that will result
in healthy American railroads in the long run. Captive rail customers
will try to escape and the universe of captive rail customers is likely
to be reduced over time. Some captive customers will construct rail
line ``build-outs'' as we are. Some captive customers will shift their
manufacturing activities to facilities that have transportation
competition. Some captives will shift their manufacturing to foreign
countries, exporting American jobs overseas. Some companies might be
forced to close a U.S. plant or to forego an expansion without even
having an offshore alternative. Under this business model, the industry
will be required to load up even more costs on the remaining captives,
thus accelerating the cycle.
Let me be very clear: none of us seeks a return to the ``bad old
days'' of the 1970s when several of the major railroads were in
bankruptcy and the industry lacked the capital necessary to maintain
their systems. Unfortunately, after more than two decades since passage
of the Staggers Act, the industry apparently continues to fall short of
the revenue needed to provide a first class rail system for the Nation.
As described above, today's rail executives will defend the status quo
at all costs, and thus no solution to this problem can be negotiated
among the relevant business interests. Unfortunately, captive rail
customers likewise cannot expect regulatory relief from the Surface
Transportation Board.
While the STB has made several positive changes to its operating
procedures since the arrival of Chairman Roger Nober, not everything at
the railroad regulatory agency is up for review. In an interview
published in the newsletter ``Rail Business,'' Chairman Nober, in
response to a question about the reform sought by the captive rail
customer coalition, stated, and I quote, ``They have a lot of
legitimate issues that they are raising. The core issues that they want
to see done, though, are for the Congress.'' End of quote. Madam Chair,
this is a clear and definitive statement that the changes we urge today
cannot be pursued anywhere but in Congress.
S. 919 Is Not Re-Regulatory
Madam Chair, there must be a better way for the railroad industry
to achieve long-term financial viability while providing efficient
service at prices that will allow American business to compete
successfully in the global market. The time has come to move toward a
partnership between government, the railroad industry and their
customers--a partnership that will ensure a national rail system that
can meet the demands of our Nation's role in a global economy. We
believe that balanced, fair legislation is needed to bring about a
positive relationship between the railroads and the captive customers.
Madam Chair, the railroad industry argues that S. 919 is ``re-
regulatory''. Rail industry documents cite two reasons. First, that S.
919 allegedly caps rail rates. Second, that S. 919 allegedly provides
for ``universal trackage rights'', a concept under which any railroad
could run over any other railroad's tracks. These allegations are
simply not true.
S. 919 does not cap rates. In fact, S. 919 does not address the
rate regulatory process at all. S. 919 does not change the current rate
standards of the Surface Transportation Board. S. 919 does not force
the railroads to provide rates to a ``special group of customers'' at
``lower than market rates.'' S. 919 does not reduce the minimum captive
rail customers must prove they pay, which is 180 percent of the
railroads' variable costs, in order to seek rate relief at the STB.
Notably, rail freight customers enjoying competition pay on average
only 106 percent of the railroads' variable costs, even though
railroads state they must receive 150 percent of their variable costs
in order to earn a sufficient return.
S. 919 does not shift any burden of proof in rate cases to the
railroads; perhaps unique in American regulatory experience, all
burdens of proof are on the rail customer. S. 919 does not require the
railroads to post tariffs or to obtain prior approval of the STB for
any tariffs that they do post. Finally, S. 919 does not even prescribe
the rate that a railroad must quote across a bottleneck. Rather, S. 919
simply requires the railroad to provide a rate across its bottleneck to
the facilities of a competing railroad. Nor does S. 919 provide for
``universal trackage rights'' under which one railroad may operate over
the tracks of another on demand.
What S. 919 does in the area of competition is overrule three
interpretations of the Staggers Rail Act by the Surface Transportation
Board and its predecessor agency that we believe were not contemplated
by Congress in 1980. S. 919 over-rules the ``bottleneck'' decision of
the STB in 1996 by requiring a railroad that has a customer captive
behind a ``bottleneck'' to provide a rate across the bottleneck to the
facilities of a competing carrier. It is important to recognize that
the customer will remain captive for the bottleneck movement and that
S. 919 does not prescribe the rate to be charged. However, we believe
strongly that a railroad should not have the right to make a customer
captive artificially over that portion of a movement where a rail
transportation alternative exists.
S. 919 also overturns a 1986 interpretation of the ``terminal
access'' provision of the Staggers Rail Act. ``Terminal access''
governs how railroads interact with each other at various rail
terminals where they exchange railcars for the purpose of moving
freight across the nation and how freight moves from the bottleneck
carrier to the competing railroad in the San Jacinto and Toyota
examples. Since the 1986 interpretation, no captive rail customer has
won a ``terminal access'' case at the STB or its predecessor agency.
Finally, S. 919 provides a mechanism by which ``paper barriers''
can be removed by the STB. The Staggers Act of 1980 allowed the major
railroads to ``rationalize'' their systems. One way they did this was
to sell their less profitable track to short line railroads. However,
through provisions in their sales or leases of this track, all of which
provisions were approved by the STB or its predecessor, the railroad
retained control of the traffic over the short line by requiring it to
come back to the major railroad for long distance movement, even when
the short line could deliver the freight to a second major railroad.
Thus, these ``paper barriers'' have prevented captive customer access
to rail competition. S. 919 outlaws these provisions in the future and
allows the STB to remove existing provisions that have been in place 10
years, after making certain findings.
We believe S. 919 will enable the national rail system to evolve
toward a more competitive system that serves the needs of our nation in
a competitive global market. The Ocean Shipping Reform Act of 1998 is
an example of how market forces can restore balance to commercial
relationships. That act opened the door for large and small ocean
shippers and ocean transportation intermediaries to put in place
creative contracts that allow them to combine freight in multiple trade
lanes and reduce shipping costs.
Conclusion
Madam Chair, we believe there is nothing in S. 919 that is either
re-regulatory or radical. Yes, if S. 919 or its provisions were to be
enacted, the railroads would have less opportunity to load up on at
least some of their captive customers. There may be temporary
difficulties as the railroads move to a new, modern business model. We
understand the difficulties of the competitive environment. We operate
in a competitive environment every day. However, we believe S. 919 will
force the railroad industry to move to more normal commercial relations
and partnerships with their captive customers. We believe this will
result in increased rail business as the competitiveness of their
captive customers improves. This evolution is crucial to the health and
viability of the railroad industry, to our nation and to our ability to
compete in the global market place.
Madam Chair, I am not here today to ask Congress to resolve issues
that can be resolved by captive rail customers and the railroads
working together, and with the STB, to benefit their own industries. We
are in fact doing that. But what I have learned over the past year in
immersing myself in this issue is that there is a basic impediment to
affecting any meaningful move in rail competition and it cannot be
resolved without the intervention of Congress.
Finally, Madam Chair, captive rail customers are not the enemy of
the railroads--we are their best customers. But, the fact is that the
STB's interpretation of the Staggers Act has given railroads a
monopolistic advantage over captive shippers, which provides a major,
steady stream of revenue for the railroads. Furthermore, the rail CEO's
view of their fiduciary responsibilities blinds them from considering
any course of action other than to protect and exercise this monopoly
advantage. Consequently, they will not give this advantage away through
negotiations with their customers. If the railroads, our business and
the economy are to prosper, our relationship must evolve from one of
captivity with all of its negatives to one of partnerships where
mutually beneficial transportation agreements can be developed. But, we
cannot get to that point without your help. The railroads won't
willingly change and the STB has declared this issue is for Congress.
Thus, Congress must address this situation before the current system
creates more serious problems that will be very difficult and costly to
correct.
Thank you, Madam Chair, for this hearing, for your interest in this
issue and for the opportunity to present our case to you and your
colleagues.
Senator Hutchison. Thank you, Mr. Platz.
Our next witness is Mr. Ed Hamberger, the President of the
Association of American Railroads.
STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, ASSOCIATION OF AMERICAN RAILROADS
Mr. Hamberger. Thank you, Madam Chairman, for holding this
hearing and for giving the AAR the opportunity to testify and
register our strong opposition to S. 919. Now, that comes as no
surprise and one would expect the AAR is going to oppose S.
919. But I submit to you what was not expected was the
overwhelming outpouring of opposition to this bill from the
railroad customer community. Some may point to some ``Inside-
the-Beltway'' groups as saying that there is support in the
customer community for this bill. But I would prefer to point
to the almost 400 letters that this Committee received from
actual customers who oppose S. 919. And, Madam Chairman,
approximately 40 percent of those come from companies who are
either singly served or have singly served stations.
They range from large international companies like Ford,
General Motors, and 3M to specialized customers like Wyo Ben
Inc. in Billings, Montana, Borealis Compounds in Port Murray,
New Jersey, and Arizona Pacific Wood Preserving, Inc., in Eloy,
Arizona. They span the entire spectrum of economic activity,
from Schneider Trucking to the Port of Lake Charles, Louisiana,
to Oregon Steel Mills in Portland, Oregon, to Pennington Seed
Company in Madison, Georgia.
Opposition includes the American Shortline and Regional
Railroad Association and, of particular importance rail labor
unions representing over 80 percent of our employees, who
understand better than most the devastating impact that this
bill would have on the railroad industry and their ability to
earn a living.
Further, customer opposition comes right from the
membership of some of those same D.C. organizations agitating
for this bill. For example, some 20 letters come from NIT
League members. The paper and forest product industry is well
represented in its opposition, from international leader
Georgia Pacific to Bennett Forest Industries in Elk City,
Idaho. The utility industry, represented by DTE out of Detroit
and Mid America Energy, along with one of the largest coal
producers, Arch Coal, have registered their opposition. Even
chemical industry customers, such as Texas Petrochemical LLP
and Solvay Engineered Polymers, have written to oppose S. 919.
Finally, I am pleased that Randall Linville of Scoular
Grain is on the panel to say why he and his fellow customers in
the grain and feed industry urge you to vote down S. 919.
In fact, I submit this is not a fight between railroads and
their customers. Rather, it is a fundamental difference between
some in the customer community who cling to the belief that
government should dictate the marketplace and the rest of
America's shippers who understand and recognize how
deregulation has improved service and lowered rates.
On the one hand, there are those customers, supporters of
the bill, who believe that the hand of government regulation
should intrude by placing a virtual cap on prices, on rates, at
180 percent, imposing uniform pricing by severely restricting
differential pricing, and taking away from the railroads the
operational efficiencies of routing prerogatives--policies all
designed to drag rates down, thereby making it impossible for
railroads to ever earn their cost of capital.
On the other hand are those customers who oppose S. 919
because they recognize the capital, massive capital, needs of
the industry, because they recognize the fact that rates have
gone down by an average of 60 percent since 1980 and, according
to the GAO, those reductions have been spread across all
customer segments. They recognize that the level of supply and
demand means that there will be differences in pricing and that
reregulating the railroads through S. 919 would rob them, the
customers, of the opportunity to continue to compete in world
markets by relying on the best freight rail system in the
world.
As Senator Smith so aptly commented at the markup of the
STB reauthorization bill in July, customers understand that
having one railroad is far superior to having no railroad at
all.
Now, I know from our discussions, Madam Chairman, that you
understand these issues as well as anyone, but that you are
indeed concerned about the STB processes, particularly for
small shippers. We understand that concern and that is why we
supported the amendment to the STB reauthorzation bill adopted
in July and reported out of this Committee calling for an
expedited and affordable process at the STB for small shippers.
The Chairman of the STB has indicated today again his
strong desire and intent to develop a workable system for small
shipper cases and you have our commitment to be creative and
cooperative in the STB proceedings, which will hopefully
provide meaningful opportunities for truly small shippers to
have their cases heard.
In closing, let me refer you to testimony before the Senate
Appropriations Committee on September 12, 2000, from Eric
Aasmundstad, then President of the North Dakota Farm Bureau,
who posed the rhetorical question of whether railroads should
even be allowed to operate as for-profit entities. I commended
him then and I commend him today for so succinctly posing the
policy question before this committee: Do the railroads remain
a self-sustaining private industry or do we return to an era of
heavy regulation, capital starvation, poor service, and
eventual bankruptcy or nationalization.
Assuming we all agree, and I am sure we do, on the need for
a viable freight rail network, there are only two places from
which the capital necessary for investment in rail capacity can
come from: the taxpayer or the private sector. I think it is
terribly ironic today that even as we meet here the Senate is
considering legislation that will determine what level of
public subsidy is necessary for Amtrak. Now, as you go to the
Senate floor to debate the pros and cons of spending $900
million or $1.4 billion or even $1.8 billion for Fiscal Year
2004 on the Amtrak system, a system comprised of little more
than 700 miles, remember that freight railroads, with 140,000
route miles, must routinely spend $14 to $15 billion annually--
$14 to $15 billion annually--on maintenance and capital
investment to give our customers the service they need.
So today I am joining with the shortline industry, with
rail labor, and a large array of those same freight rail
customers to implore you to oppose S. 919 and keep the
opportunity and the responsibility for earning investment
capital where it belongs, in the private sector.
Thank you, Madam Chairman.
[The prepared statement of Mr. Hamberger follows:]
Prepared Statement of Edward R. Hamberger, President and Chief
Executive Officer, Association of American Railroads
On behalf of the members of the Association of American Railroads,
thank you for the opportunity to appear here today to discuss issues
related to freight rail competition. AAR members account for the vast
majority of freight rail mileage, employees, and revenue in Canada,
Mexico, and the United States.
Overview
Most of us here today would probably agree that the economic
prosperity of the United States and our ability to compete effectively
in the global marketplace depend on the continued viability and
effectiveness of our freight railroads. Today, the more than 570 U.S.
freight railroads account for 42 percent of the Nation's intercity
freight ton-miles--more than any other mode. Over a rail network
spanning some 143,000 route miles, U.S. freight railroads connect
businesses with each other across the country and with markets
overseas. Our freight railroads are a vital link to our economic
future.
Some of us here today, though, disagree on what steps should be
taken--and avoided--in order to safeguard this vital link and allow it
to continue to serve our Nation's growing freight transportation needs.
I respectfully submit to you that S. 919 and its companion bill in the
House (H.R. 2924)--the so-called Railroad Competition Act of 2003--
represents exactly the wrong approach. It re-injects government control
over wide areas of freight rail operations. It is based on
misunderstandings regarding the extent of the competition railroads
face. And most importantly, it dooms freight railroads to a state of
perpetual capital starvation. By preventing railroads from earning
enough to sustain their systems, this bill would inexorably lead to
deteriorating rail infrastructure, declining rail service, fewer rail
jobs, and eventually the loss of rail service completely on an
increasing number of rail lines. Such an outcome is not what our Nation
needs or deserves.
It can be avoided, though, by maintaining the successful
deregulatory system ushered in by the Staggers Rail Act of 1980. As the
World Bank's railways adviser once explained, ``Because of a market-
based approach involving minimal government intervention, today's U.S.
freight railroads add up to a network that, comparing the total cost to
shippers and taxpayers, gives the world's most cost-effective rail
freight service.'' \1\
---------------------------------------------------------------------------
\1\ Louis Thompson, World Bank Railways Adviser. Quoted in the
Journal of Commerce, July 29, 1998.
---------------------------------------------------------------------------
Railroads Since the Staggers Act
Before I explain in detail why S. 919 is so pernicious to railroads
and to our nation, it is important to dispel the myth that ``. . . the
business model that [railroads] have followed since 1980 . . . does not
seem to have been successful.'' \2\ Consider the following:
---------------------------------------------------------------------------
\2\ ``The Truth About Railroad Claims of Re-Regulation and Their
Fear of Competition,'' prepared by Consumers United For Rail Equity,
July 11, 2003.
Rail intercity freight market share (measured in ton-miles)
has been trending upward over the past 15 years, after decades
---------------------------------------------------------------------------
of steady decline prior to Staggers.
Prior to Staggers, railroads lacked capital to properly
maintain their tracks. More than 47,000 route-miles had to be
operated at reduced speeds because of dangerous track
conditions, and the amount of deferred maintenance was in the
billions of dollars. Since Staggers, Class I railroads alone
have been able to spend well over $300 billion on
infrastructure and equipment, and rail infrastructure
investments per mile of road have risen some 28 percent in
inflation-adjusted terms. Today, the Class I freight rail
network is in better overall condition than ever before.
Rail productivity rose 183 percent from 1980 to 2002,
compared to 10 percent in a comparable pre-Staggers period.
Nearly all of these productivity gains have been passed
through to rail customers (including proponents of S. 919) in
the form of sharply lower rates--down 60 percent in inflation-
adjusted terms from 1981 to 2002--saving shippers, and
ultimately all of us, billions of dollars per year.
Numerous studies have confirmed the sharp drop in rail freight
rates. For example, a June 2002 U.S. General Accounting Office
(GAO) report analyzed rail rates from 1997 to 2000. The GAO
found that ``From 1997 through 2000, rail rates generally
decreased, both nationwide and for many of the specific
commodities and markets that we examined.'' \3\
---------------------------------------------------------------------------
\3\ U.S. General Accounting Office, Changes in Freight Railroad
Rates from 1997 Through 2002, June 2002.
The GAO noted that ``[t]hese decreases followed the general trend
we previously reported on for the 1990-1996 period and, as
before, tended to reflect cost reductions brought about by
continuing productivity gains in the railroad industry that
have allowed railroads to reduce rates in order to be
competitive.'' In a December 2000 report, the Surface
Transportation Board (STB) found that ``inflation-adjusted rail
rates have fallen 45.3 percent'' from 1984 to 1999. The STB
also observed, ``It is important to note that all types of rail
customers, and not just those with competitive transportation
alternatives, must have received some portion of the rate
reductions we have measured here.'' \4\
---------------------------------------------------------------------------
\4\ Surface Transportation Board, Rail Rates Continue Multi-Year
Decline, December 2000.
The rail accident rate has fallen 68 percent since Staggers,
and the employee injury rate is down 74 percent. Prior to
---------------------------------------------------------------------------
Staggers, rail safety was generally worsening.
Rail traffic volume (measured in revenue ton-miles) is up
more than 60 percent since Staggers, far higher than comparable
pre-Staggers traffic growth.
By the 1970s, virtually every major railroad in the
Northeast, including the giant Penn Central and several major
Midwest railroads, had filed for bankruptcy. Most other
railroads were financially weak. Since Staggers, railroads have
improved their financial performance considerably, though as a
whole they still fall well short of earning their cost of
capital.
This is not failure by any definition. Thanks largely to the
deregulatory structure instituted by the Staggers Act, the U.S. freight
rail system today is universally recognized as the best in the world.
From a public policy viewpoint, it makes no sense to make fundamental
changes to a system that has delivered such large, widespread benefits.
Railroad Market Power
Proponents of S. 919 typically maintain that the only competitive
force that matters is rail-to-rail competition, and that service to a
shipper by a single railroad is equivalent to monopoly power by the
railroad over the shipper. This view overlooks the fact that railroads
face extensive competition for the vast majority of their business,
including cases where a shipper is served by only one railroad.
Railroads compete not just among themselves, but in the larger
market for freight transportation services. Most shippers, including
most of those served by only one railroad, are able to negotiate
competitive rates for rail service. Shippers' considerable market
leverage results from a combination of powerful competitive forces. It
is unreasonable to pretend that these forces do not matter. These
forces include:
Intermodal Competition. Shipment via trucks, barges, or
pipelines is a competitive option for most rail customers.
Though railroads currently account for 42 percent of total
intercity ton-miles, they receive less than 10 percent of
intercity freight revenue. The rail revenue share has been
trending downward for decades--a trend hardly indicative of
excessive market power.
Railroads face significant competition from other modes even for
commodities that some claim are ``captive'' to railroads. For
example, U.S. Department of Agriculture figures indicate that
trucks are the primary transportation mode for grain, and the
chemical industry's own statistics show that railroads account
for less than 20 percent of chemical tonnage that is
transported.
Product Competition. Since the demand for rail services is
derived from the demand for the products of rail customers,
competition faced by rail customers in downstream markets often
constrains railroad pricing.
For example, the rates railroads can charge for hauling coal to
electric utilities must be low enough to keep the electricity
generated from the coal competitive, or utilities will generate
(or purchase) electricity from sources other than coal. This
end-product competition exerts substantial pressure on
railroads to keep prices as low, and service offerings as
appealing, as possible.
If a shipper has the option of substituting different products for
those that require rail service, then the shipper can use this
product competition to constrain rail rates. For example, if
railroads attempt to raise soda ash rates too high,
manufacturers of phosphate feeds and fertilizers can substitute
caustic soda--which can easily move by truck--for the soda ash.
Geographic Competition. The ability of many railroad
shippers and consignees to obtain the same product from (or
ship the same product to) a different geographic area also
constrains rail pricing. For example, a poultry producer in,
say, North Carolina can play a railroad delivering feed to it
from Ohio off against local feed producers. Likewise, a
railroad serving a Louisiana plastics facility must price its
transportation service at a level that makes the plastics
produced at that facility competitive at destination compared
to plastics sourced from different states--or different
countries--and transported by other carriers or modes.
If a railroad that serves a particular facility prices its
movements or limits its service offerings in such a way as to
render what is produced there uncompetitive with products made
elsewhere, the railroad would lose the traffic entirely. Since
such an outcome is contrary to the best interests of the
railroad, a railroad will do whatever it reasonably can to
avoid it.
Countervailing Power. Many railroad customers are large
industrial shippers with multiple plants and multiple products,
some of which are served by other railroads and/or modes. These
shippers can obtain price or service concessions by shifting or
threatening to shift traffic among plants, causing the
railroads that serve them to compete against each other or the
other modes serving the plants.
For example, significant consolidation among electric utilities in
recent years increasingly permits bundling the traffic of many
plants into one large ``package.'' A utility with such a
package can enhance its leverage for service to all its
facilities, including those served by a single carrier. The
threat of losing the business is likely to generate price or
service concessions by a railroad wanting to keep or win the
contract, or to expand its current or future traffic volume. In
recent years, consolidation in many other industries such as
chemicals, coal, forest products, and steel has improved
shippers' bargaining power over railroads.
It is not unusual for a single customer to account for a large
percentage of a particular railroad's revenues, especially
within a specific commodity category. This relative importance
and threatened loss of railroad revenues substantially
increases the likelihood that a particular rail customer will
be able to successfully exercise countervailing power in its
negotiations with rail carriers.
Plant Siting and Long-Term Contracts. Shippers can generate
competition between railroads before a plant is built by
considering transportation options and negotiating favorable
contracts when evaluating potential plant locations. For
example, rail access was an important consideration for Toyota
when it recently decided where to locate a new U.S. auto plant.
Moreover, over the long term, shippers can locate or relocate
plants on the lines of different railroads.
Technological, Regulatory, or Structural Change. Potential
changes in the technology, regulation, and/or structure of a
shipper's industry over time could provide leverage over
railroads. For example, the siting of agricultural processing
plants in or near production areas reduces demand for rail
transportation and increases pressure on railroads to remain
competitive.
Moreover, rail-to-rail competition today is vigorous, with rail
customers constantly searching for ways to increase it, using
connections to competing carriers (sometimes through a switching
carrier) or establishing (or credibly threatening to establish) new
connections through ``build outs'' of rail track.
For example, the Burlington Northern and Santa Fe Railway (BNSF)
and a group of chemical shippers are moving forward with plans to build
a new 13-mile line which would connect numerous major plastics and
chemical-producing facilities in Houston with BNSF's network. The
facilities, which ship thousands of rail carloads per year, are now
served solely by the Union Pacific Railroad (UP). And according to
recent press reports, United Parcel Service (UPS), which may be the
single largest customer of the U.S. freight railroad industry, recently
reportedly transferred significant traffic that had been moving on BNSF
to UP instead. These examples are not anomalies. Rather, they are
indicative of the way that railroads compete against each other all
over the country.
What Would S. 919 Actually Do?
Railroads do not fear competition, including rail-to-rail
competition, as long as it is the product of free-market forces.
Unfortunately, S. 919 would artificially manufacture rail-to-rail
competition through increased railroad regulation.
Through a variety of provisions, S. 919 would use the power of
government to force down rail rates for certain shippers at the expense
of other shippers, rail labor, rail stockholders, and the public at
large. In doing so, it would transfer billions of dollars per year from
the rail industry to favored shippers. If this happened, our Nation's
freight railroads--who already offer the world's lowest rates and lag
most other U.S. industries in terms of profitability--would be doomed
to inadequate earnings, unable to make the massive investments required
year after year to meet our Nation's rail transportation needs. Over
time, unless taxpayers stepped in with a bailout, freight service over
many rail lines would simply disappear. Highways would become more
overcrowded and costly to build and maintain, environmental degradation
would rise, safety would deteriorate, and shipping costs would rise.
Policymakers should not let this happen.
Proponents of S. 919 object to the railroads' use of ``differential
pricing.'' Like businesses throughout the economy, railroads price
their services on the basis of demand: shippers with the greatest
demand for rail service pay higher margins than shippers with lower
demand. At first blush, differential pricing may seem unfair or harsh.
In fact, though, it is the fairest, most pro-efficiency, and most pro-
competitive pricing system consistent with the continued functioning of
the rail industry. All shippers, including those who pay a higher
markup, benefit from differential pricing because it maximizes the
number of shippers using the rail network and, therefore, maximizes the
number of shippers who make contributions to railroads' huge fixed and
common costs.
Five major provisions of S. 919 are discussed below. Each of them
would involve a substantial increase in government regulatory control
over the rail industry. Together, they threaten the very existence of
freight railroading as we know it in this country. For this reason, S.
919 and all its provisions should be rejected.
A. ``Bottleneck'' Policy
A central element of S. 919 is a provision that would overturn the
STB's ``bottleneck'' policy. Bottleneck cases are those in which only
one railroad (the ``bottleneck'' carrier) serves either an origin or a
destination, but multiple railroads serve the remaining route.
Proponents of S. 919 present the false image that most rail shippers
enjoy full two-railroad competition from origin to destination. In
truth, a very large proportion of rail shippers are served by just one
railroad. Therefore, bottleneck policy has enormous significance for
railroads.
Existing bottleneck policy is the result of court decisions going
back to the 1920s and regulatory precedent going back even further:
1. As common carriers, railroads must provide rates and routes to
move traffic from an origin to an ultimate destination.
2. Railroads cannot refuse to use multiple-railroad routes that are
reasonably more efficient than their own single-line routes.
3. Absent a significant disparity in efficiency, however, a railroad
does not have to ``short haul'' itself by moving traffic just
to a junction with another railroad if it can move the traffic
all the way to the ultimate destination.
4. A railroad is not required to provide a shipper with a separate
rate for a segment of a through movement.
5. The rate for a through movement can be challenged for
reasonableness under existing maximum rate regulation, and the
reasonableness test is based on the cost for the entire through
movement.
S. 919 would overturn existing bottleneck policy in every major
respect. Upon shipper request, a bottleneck carrier would be required
to short-haul itself--i.e., provide a rate for a movement to, and
interchange traffic at, any junction with another railroad the shipper
so designates. The rate for the short-haul segment would be subject to
maximum rate regulation based on the stand-alone cost of just that
segment, while the rate of the non-bottleneck segment would be driven
down toward variable cost.
By effectively capping rates on segments of a through movement, the
new bottleneck policy would ordain that railroads would not be able to
cover their full costs or replace their assets over time. The shipper
would pay a lower rate, but it is a fallacy to claim, as proponents of
S. 919 do, that the rate reduction is the product of more competition.
Rather, it is the product of more regulation, and it is not
sustainable.
Extended over the entire U.S. rail network, this provision could be
expected to lead to a revenue loss to railroads of more than $4 billion
per year.\5\ No one has convincingly explained how such an enormous
revenue shortfall could be recouped, or how, in the face of such a huge
revenue loss, the rail industry could continue to make the massive
investments required year after year to meet our Nation's current and
future freight transportation needs. S. 919 dooms the rail industry to
a non-competitive outcome that is clearly at odds with the needs of our
Nation.
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\5\ Based on the 2001 STB Costed Waybill Sample. If in 2001 the
rates for all traffic affected by regulation had been held to a
revenue-variable cost ratio of 180 percent, the railroads would have
received $9.2 billion in revenue instead of $13.4 billion, a revenue
loss of $4.2 billion (with no associated reduction in expenses).
---------------------------------------------------------------------------
The bottleneck provision of S. 919 would have other serious
negative effects:
It would lead to an explosion in regulatory proceedings and
in costly behavior oriented toward regulatory ends.
It would compel railroads to splinter traffic over hundreds
of interchanges at the direction of shippers, since shippers
would be able to dictate to railroads the location of
interchanges. This would constitute a return to the ``open
routing'' that characterized the pre-Staggers era and would
reverse the substantial progress railroads have made since then
in creating a streamlined, efficient nationwide network of run-
through trains and efficient blocking.
B. Terminal Trackage Rights and Reciprocal Switching
Existing law provides that the STB ``may require terminal
facilities . . . owned by a rail carrier . . . to be used by another
rail carrier'' and ``may require rail carriers to enter into reciprocal
switching agreements'' if the STB finds either measure ``to be
practicable and in the public interest.''
In a series of decisions, the STB--and the Interstate Commerce
Commission (ICC) before it--have consistently required that the owning
carrier first be found to have engaged in anti-competitive conduct
before granting terminal trackage and reciprocal switching rights. This
ensures that in STB access cases, like comparable court antitrust
cases, relief is predicated on actual competitive conditions and
marketplace demand, rather than simply on regulatory intervention on
request designed to promote artificial competition. The mere fact that
the incumbent is the sole railroad serving a shipper, or that the
incumbent chooses not to grant another carrier access, or prices
differentially, has never been considered a competitive abuse in this
context.
S. 919, though, would upset this structure. It would force the STB,
upon request by a shipper, to order railroads to enter into reciprocal
switching agreements and provide terminal trackage rights. If, as is
likely the case, the railroads involved cannot agree on access terms,
government regulators would set them, including the access fee. S. 919
explicitly eliminates the requirement that a railroad must have engaged
in anti-competitive conduct before such action could be mandated.
This provision of S. 919 could be interpreted as mandating terminal
trackage rights and reciprocal switching whenever it was operationally
feasible--thereby essentially creating forced access on demand in
terminal areas. As in the bottleneck provision discussed above, the
purpose of this provision is to obtain lower-than-market rates by
artificially manufacturing rail-to-rail competition in ways beyond what
a competitive market could justify.
Meanwhile, regulators would be inundated with unwarranted requests
from shippers to grant terminal access. Moreover, regulators would need
to step in to resolve myriad disputes covering priorities for use of
track, operating conditions, and a host of other issues. Complex,
lengthy, and costly disputes over terms of use would be inevitable as
government interference replaced direct negotiation among railroads and
shippers and between railroads. In addition, the complexities involved
in coordination between track owners and operators could have
significant safety ramifications.
C. Final Offer Arbitration
Under S. 919, railroad rate and service disputes could be subject
(at the shipper's sole discretion--the railroad would have no choice in
the matter) to binding ``final-offer arbitration'' (FOA).
The FOA process would be completely outside the STB's jurisdiction.
An arbitrator's decision could be completely divorced from regulatory
precedent and sound economic principles--an unacceptable condition in
any case, but especially in the rail context in which ``final offers''
could differ by millions of dollars. Moreover, there would be no
requirement that an arbitrator take into account the existing statutory
requirement that regulators recognize that ``rail carriers shall earn
adequate revenues.'' \6\
---------------------------------------------------------------------------
\6\ 49 U.S.C. 10701 (d)(2)
---------------------------------------------------------------------------
Railroads know of no other case in which private-sector suppliers
of a good or service are forced by the Federal government to use
binding arbitration to set a price just because the purchaser desires a
lower price. It is no more valid for the government to force binding
arbitration on railroads than it is to force it on chemical companies,
plumbers, supermarkets, or any other business.
This provision too is a frontal assault on railroads' use of
differential pricing because it directs arbitrators to base rate
decisions in many cases on rates paid by rail customers in the most
intensely competitive markets. By definition, these markets have the
lowest rates. But a railroad must have a sufficient mix of low-demand,
low-margin and high-demand, high-margin shippers to cover its huge
common and fixed costs. By using regulatory strictures to eliminate
railroads' high-margin traffic and effectively cap rail rates, this
provision of S. 919 also dooms railroads to a perpetual inability to
cover costs.
Today, railroads and shippers can (and sometimes do) voluntarily
agree to use binding arbitration if both parties deem it desirable.
There is a huge difference, however, between the voluntary use of
binding arbitration and a mandate forced on private businesses by the
power of government. In addition, the rail industry has suggested ways
to make rate cases quicker and less costly to resolve, while retaining
the use of sound, well-established economic principles as a basis for
decisions.
D. ``Areas of Inadequate Rail Competition''
In a provision of striking scope, S. 919 proposes that the STB
designate a state or any part of a state to be an ``area of inadequate
rail competition'' if any of a variety of criteria are met. The
criteria used to define these areas are so broad and vague that all or
most of the country would qualify--an absurdity on its face, given the
intensity of competition railroads face for the vast majority of their
traffic. In ``areas of inadequate rail competition,'' government
regulators could assume control of huge areas of rail operations.
For example, regulators could:
Control current and future rail rates;
Force an owning railroad to allow another railroad access to
its tracks where it could ``cherry-pick'' traffic;
Force an owning railroad to carry freight to a junction with
another carrier at a rate set by a regulator.
Regulators would be expressly prohibited from considering whether
railroads engaged in any sort of anti-competitive conduct before
ordering these actions.
Railroads are open to ways to improve the existing regulatory
regime. However, a return to heavy-handed government regulation--as
dramatically exemplified by the concept of ``areas of inadequate rail
competition''--is anything but an improvement.
E. Interchange Agreements (``Paper Barriers'')
Since passage of the Staggers Act, Class I railroads have spun off
tens of thousands of miles to local or regional railroad operators
whose lower costs and closer ties to their customers and communities
enable them to operate at a profit where Class I railroads could not.
These new carriers have preserved rail jobs and rail service--often in
rural areas--that otherwise would be lost.
At the time of some line sales, the parties involved voluntarily
agreed to a lower sales price in exchange for an agreement by the new
railroad to interchange future traffic solely or largely with the
selling railroad. In effect, the purchase price included a cash
component and a future carload component. S. 919 would prohibit future
line sales from including these types of agreements (sometimes called
``interchange agreements'' or ``paper barriers''), thereby prohibiting
interested parties from voluntarily using a legitimate tool that has
helped preserve rail service on a significant number of rail lines. It
would become more difficult for buyers to purchase and keep marginal
lines in operation, since their up-front costs would increase. As a
result, an increasing portion of the rail network would likely lose
rail service entirely through abandonment, rather than have it
transferred to short line carriers.
Moreover, S. 919 would allow the STB to declare interchange
agreements more than ten years old to be null and void. This would
constitute blatant government interference in the sanctity of private
contracts--akin to the government deciding that the price someone sold
his house for ten years ago was too high and ordering him to rebate
some of the sales price to the buyers. It is another example of a
provision in S. 919 that proponents would never support if applied to
their own firms, but are willing to subject railroads to.
Does S. 919 Reregulate Railroads?
For all the reasons discussed above, it is beyond serious dispute
that S. 919 would substantially increase government control over
freight rail operations in numerous ways--as good a definition of
reregulation as any. The ways that government control would be
increased are not just minor intrusions into rail affairs. If enacted,
they could be expected to lead to the transfer of billions of dollars
of rail revenue each year to favored shippers.
Proponents of S. 919 do not even try to explain how railroads would
be able to recoup this revenue, or how railroads could possibly make
the huge ongoing investments they need in the face of the capital
starvation they would confront. Instead, proponents of S. 919 simply
claim ``there must be a way'' \7\ for railroads to remain financially
healthy under the legislation. Given how critical freight railroads
are, claiming ``there must be a way'' is not good enough.
---------------------------------------------------------------------------
\7\ ``Draft Reply to Railroad Letters,'' June 20, 2003, prepared by
supporters of S. 919.
---------------------------------------------------------------------------
A couple of years ago, a prominent Wall Street analyst remarked
that ``Capital flows to the areas of highest return. If. . .new
regulations change the rules of the game and ensure poor returns, then
the Street will disinvest, (or further disinvest) causing managements
to begin to reallocate cash and begin ``harvesting'' the business. They
will have no choice.'' \8\
---------------------------------------------------------------------------
\8\ Anthony B. Hatch, independent railroad analyst, in a speech
before the American Short Line and Regional Railroad Association,
September 14, 1999.
---------------------------------------------------------------------------
He was right. In our economy, firms and industries must produce
sufficient earnings or capital will not be attracted to them. The
electric utility industry understands this. Just a few weeks ago, in
the wake of the huge blackout that struck the Northeast, the Midwest,
and Canada, the electric industry's major trade association suggested
that ``FERC and the states should utilize innovative transmission
pricing incentives, including higher rates of return, to attract
capital to fund needed investments in transmission . . . [T]he amount
of money that FERC
[currently] allows investors to earn on transmission facilities
still is not in line with what they can earn on other investments.''
\9\ Utilities recognize that ``the rate of return that regulators allow
for investments in new and augmented transmission facilities must be
high enough to be competitive with investors' other options for using
their money or sufficient investment funds will not be forthcoming.''
\10\
---------------------------------------------------------------------------
\9\ Edison Electric Institute, ``Five Steps That Would Help Assure
That We Have the Reliability Standards and the Transmission Capacity We
Need Going Forward,'' August 19, 2003.
\10\ Stanford L. Levin, ``Electricity Competition and the Need for
Expanded Transmission Facilities to Benefit Consumers,'' prepared for
the Edison Electric Institute (September 2001), p. 15.
---------------------------------------------------------------------------
The chemical industry understands this too. For example, one of Dow
Chemical's basic financial goals is to ``earn an average of 3 percent
above our cost of capital.'' \11\ DuPont states that ``Our goal
continues to be to invest in attractive, globally competitive
businesses that generate returns significantly above the cost of
capital.'' \12\ BASF, the world's largest chemical company, notes, ``We
measure our performance and our corporate decision-making against the
return required by our investors--our cost of capital. We strive to
earn a premium above this cost of capital.'' \13\
---------------------------------------------------------------------------
\11\ ``This is Dow Public Report--2000 Results: Economic
Performance,'' accessed on the Internet at http://www.dow.com/about/
pbreports/00results/econ/index.htm.
\12\ Quote from Tony Pompeo, DuPont Canada CFO, in ``CFO's Address
to Shareholders--Annual Meeting 2000,'' accessed on the Internet at
http://www.dupont.ca/english/news/Speeches/
2000_annual_cfo_address.html.
\13\ ``Financial Targets and Management of the BASF Group,'' part
of ``Financial Report 2002,'' accessed on the Internet at http://
berichte.basf.de/en/2002/finanzbericht/finanzziele/?id=V00--
l33vtG**bir100.
---------------------------------------------------------------------------
Railroads agree with this sentiment. Without the ability to cover
total costs and earn an adequate return, railroads--like electric
utilities, chemical companies, or any other firm--would be unable to
maintain (much less increase investment in) their infrastructure and
equipment, resulting in deterioration and/or shrinkage of the national
rail system. That is exactly what S. 919 would do. S. 919 ignores the
fundamental point that rail competition is enhanced only when the
railroads are healthy, not when their earnings, which are already
substandard, are severely and artificially restricted. If S. 919 were
enacted, the already large gap between the rail industry's cost of
capital and its return on investment would only widen--taking railroads
farther away from the financial performance that proponents of S. 919,
including some of the firms in the electric utility and chemical
sectors, expect from their own businesses.
Railroad Customer Service
It is a fact of life in the rail industry that in addition to
facing unrelenting competition, the service requirements of rail
customers are continually becoming more stringent. Railroads recognize
that service shortcomings have been a major factor behind shipper
dissatisfaction in recent years, including shipper dissatisfaction that
has sometimes manifested itself in calls for railroad reregulation.
I am happy to say, though, that railroads have made tremendous
progress in the customer service area. There may be isolated pockets
here and there that have some problems (as one would expect on a rail
network with enough trackage to circle the globe nearly six times), but
overall the U.S. freight rail system today is operating smoothly.
Merger-related service disruptions in both the west and the east are
now a thing of the past, as the synergies and efficiencies that were
the basis for the mergers in the first place are taking hold.
Shippers and others recognize these improvements. Just a few recent
examples:
In an article in the August 18, 2003 issue of Traffic World,
UPS spokesman Norman Black says, ``The most important thing we
see from all of our rail partners is a huge commitment to
customer service. They're doing a much better job. Trains are
running when they say they're going to run, and arriving when
they say they're going to arrive. From a UPS standpoint, that's
all we want.''
In a July 25, 2003 article in The Wall Street Journal, Bill
Zollars, the CEO of Yellow Corporation, one of the Nation's
largest trucking companies, says railroads ``are more focused
on the customer and growing their business than I've ever
seen.''
A February 6, 2003 article in Purchasing magazine notes that
``[R]ail shippers continue to report consistent efforts and
improvements in the level of service they receive from
carriers. . .''
In a Traffic World article on rail service improvements on
January 27, 2003, the rail operations manager at a major U.S.
petrochemical company credits railroads with doing ``an
admirable job of identifying areas of concern and then
addressing the problem.''
Canadian National (CN) received on-time service awards from
Toyota Canada in 2003 and 2002 and was named the ``Canadian
Carrier of the Year'' for 2002 by Quaker-Tropicana-Gatorade. In
addition, CN's Wisconsin Central subsidiary will be a recipient
later this month of a 2003 Quest for Quality Award, having been
selected by the readers of Logistics Management as one of the
Quality Carriers in the Railroads (Standard Rail Service)
category.
In July 2003, Wal-Mart recognized Burlington Northern and
Santa Fe (BNSF) Railway as the recipient of Wal-Mart's annual
``Carrier of the Year'' award. ``BNSF has provided an
outstanding service for Wal-Mart,'' said a Wal-Mart official.
``It is our pleasure to recognize their associates for
commitment to quality and customer service.''
In April 2003, Toyota Logistics Services recognized Norfolk
Southern Railway (NS) with two awards for service excellence
during 2002. Toyota awarded NS a ``Logistics Excellence Award''
for superior quality performance among rail carriers and an on-
time performance award for transportation service. NS was also
named Coors Brewing Company's 2002 ``Transportation Supplier of
the Year,'' the first time NS received the award.
In June 2003, CSX Transportation was awarded the Gold
Carrier Award by Shell Chemicals for the quality of the rail
carrier's overall performance in moving Shell chemicals in
2002. The award marks only the third time in the award's 10-
year history that a rail carrier was so honored. A Shell
official remarked that ``CSXT has worked hard at becoming one
of the few Gold Carrier recipients. We at Shell would like to
give CSXT and its employees a well-deserved congratulation.''
In April 2003, Union Pacific Railroad (UP) was also named a
recipient of Toyota's ``Logistics Excellence Award.'' UP also
earned a General Motors ``Supplier of the Year'' Award for
2002. A GM official remarked that UP's ``performance and
contributions have been critical in helping GM become the
industry's low cost producer of high quality vehicles. They
serve as a role model for other suppliers.''
In a recent communication, a manager at a Louisiana
agribusiness firm wrote: ``I have been the complex manager of
Terral Farm Service in Delhi, Louisiana for ten years. Over
that period of time, we have shipped thousands of rail cars
with Kansas City Southern and before that with Mid South. This
year, the individuals at KCS performed as well as I could ask
for. The service was almost perfect.''
Canadian Pacific Railway's (CP) won the prestigious 2003
Franz Edelman Award for Achievement in Operations Research and
the Management Sciences. The award, recognized as the ``Tech
World Series'' and sought after by operations researchers and
planners around the world, is presented by the Institute for
Operations Research and the Management Sciences. CP won the
award for its work on improved scheduling that yields
significant, direct benefits to the company's customers.
I firmly believe that the overwhelming majority of railroad
customers believe that railroads are meeting their freight
transportation needs efficiently, cost-effectively, and fairly. I also
believe that most rail customers do not support reregulation, and that
many of those who have expressed support for S. 919 would rethink that
support if they paused to consider all the implications of the
legislation.
We have concrete evidence of the fact that many shippers oppose
reregulation. We asked shippers opposed to reregulation to write to
members of this committee to express their opposition. Hundreds of
shippers, large and small, have done just that. They cover the gamut of
rail shippers--auto manufacturers, chemical companies, steel companies,
grain companies, coal companies. Some are ``singly served'' and some
are not.
I'd like to share a few excerpts from those letters with you:
The Alliance of Automobile Manufacturers, a trade
association whose members account for more than 90 percent of
U.S. vehicle sales, wrote: ``Alliance members--as major users
of the rail system--view [S. 919] as an attempt to re-regulate
the rail industry and undo the progress made since the Staggers
Act deregulated it in 1980. We strongly urge the Committee to
reject this legislation and maintain the free market system
that has been beneficial for shippers and the railroads
alike.''
The Port of Los Angeles, one of the largest and busiest
ports in the world, wrote, ``Increased efficiency and improved
service. . .has enabled the rail industry to divert significant
amounts of business from highway to the intermodal option. . .
. None of this would have been possible without the billions of
dollars that the railroads have invested in new technology and
to improve locomotive and car fleets. To maintain these high
standards, railroads will need to continue that level of
investment in the future. However, their ability to do so may
be negatively impacted by the re-regulation legislation
currently being proposed. . ..Our railroads have recovered from
the serious financial troubles, including numerous
bankruptcies, of the 1970s. We cannot run the risk of that
happening again.''
Martco, a Louisiana lumber and forestry firm, wrote,
``Senate Bill 919 is an attempt to reregulate the railroad
industry. . .Initially the bulk shippers and bulk industries
would perhaps benefit by the establishment of some
noncompensatory rate structures. The reduced returns would have
to be addressed and they would, through the passing of
increased rates to the non-bulk and smaller shippers. Thus the
pre-Staggers Act cycle would return: reduced rate for shipper
A, must be met by increased rates or reduced service for other
shippers who then will divert traffic onto our overcrowded
highway system . . . thereby increasing logistics costs to all
parties while further reducing the rail industry route
structure. Soon rail rates for the few large bulk shippers
would have to be increased given the absence of other traffic
to spread cost and hopefully provide a return.''
The president of Schneider National--the nation's largest
truckload motor carrier--wrote that if S. 919 were passed,
``Schneider National and its thousands of shipper-customers
would suffer significantly from the loss of a cost effective
and efficient intermodal rail system and would be forced to
divert much of our volume onto the already crowded highway
system.. . .We believe that additional regulation of the rail
system would have a detrimental effect on the progress achieved
through a free market.''
The CEO of Kokomo Grain in Indiana wrote to express ``strong
opposition'' to S. 919, writing ``[E]ven those shippers that
are only served by one railroad and have limited shipping
alternatives are better served by a business environment that
is not hindered by re-regulation. On the whole, the
deregulation of the railroad industry in 1980 . . . has been a
positive experience for American business. I do not want to see
those gains and benefits thrown aside with a move towards
blanket re-regulation to fix certain competitive concerns of
some shippers that would be best addressed in other fashions.''
The general manager of the Port of Montana wrote: ``S. 919 .
. . would significantly reduce railroad revenues by forcing
upon them governmentally mandated price ``competition'' which
the free market would not otherwise sustain. . . . I urge you
to continue your support of the current rail regulatory
structure. I believe this is the best way our company can
guarantee continued access to a healthy railroad network, a
network which is critical to our company's competitive success
in the domestic and global marketplace.''
Chemical company Dyno Nobel wrote: ``Clearly all shippers
would like to reduce the rates that they pay for transportation
services, but calling for re-regulation of the rail industry is
remarkably short sighted and is a move that we do not support.
In the long run, all rail users will be the losers because the
inevitable result will be to devastate the ability of the
railroads to continue providing their present level of service,
much less to make vitally needed investments for the future.''
Pavers Supply Company in Conroe, Texas, wrote: ``For 33
years we have relied on railroads for transportation of
aggregates used in road construction. Railroads will continue
to be the most efficient means to deliver the products we need.
We strongly urge you to keep our railroad system financially
self sufficient and independent of unnecessary government
regulation by voting your opposition to S. 919.''
Oregon Steel Mills, one of the most diversified minimills in
the United States, wrote: ``[D]ue to the influence of the
unregulated marketplace, rail service is safer, more reliable,
more efficient, and less costly. The situation has been good,
not only for the industry itself, but also for customers like
Oregon Steel Mills, who use rail service extensively. We urge
you to continue your support of the current rail regulatory
structure.''
The Port of Beaumont in Texas wrote: ``The Port of Beaumont
and our customers depend on an economically viable rail network
capable of sustaining itself in today's competitive
environment. Regulation of the entire rail industry is very
short-sighted and ill advised at this time. I strongly suggest
the Senate reject S. 919 and all other proposals that would re-
regulate freight railroads.''
The point is this: for every shipper who supports reregulation,
there are many others who oppose it. And they oppose it because they
rely on rail service and do not want to return to the failed policies
of the past.
Conclusion
The partial deregulation of U.S. freight railroads brought about by
the Staggers Act has worked. Railroads have been able to upgrade their
systems, reinvest hundreds of billions of dollars in productive rail
infrastructure and equipment, provide higher levels of service, raise
traffic volumes, dramatically increase productivity, improve
profitability, and improve safety--while at the same time sharply
lowering rates for shippers.
The proposals for rail reregulation in S. 919 threaten all of these
gains and are contrary to economic logic and sound policy. They would
severely harm rail service, the shippers that rely on that service, and
the national economy. They represent the legacy of failure and should
be rejected.
Senator Hutchison. Thank you, Mr. Hamberger.
Our fifth witness is Mr. Randall Linville, President and
CEO of the Scoular Company.
STATEMENT OF RANDALL L. LINVILLE, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, THE SCOULAR COMPANY
Mr. Linville. Good afternoon, Madam Chair and Committee. My
name is Randall Linville. I am President and CEO of the Scoular
Company in Overland Park, Kansas. Scoular is a medium-sized
private firm engaged in the marketing of agricultural products
throughout North America. We have shipping and receiving
facilities in a number of states.
I appreciate the opportunity to come before this
Subcommittee to express Scoular's view on the proposed Railroad
Competition Act as it might affect grain marketing in the
United States. My personal experience in the grain business
extends over 25 years in which the major Congressional actions
affecting the railroad industry have been the Staggers Act and
the STB. From the perspective of Scoular's businesses, I can
say without equivocation that railroad efficiency,
productivity, service, and innovation have improved
substantially in that time frame.
Railroads provide a vital link, but nonetheless just a
link, in the supply chain for U.S. agriculture. With production
concentrated in the heartland, consumption pulls products to
the coastal areas in response to demand from domestic and
foreign markets. But merely moving products does not add value
to them. The value is added by efficient relocation of supply
to demand. Our success depends on seeing, understanding,
reacting--and reacting to changing market forces.
Artificial pricing influences will serve only to mask the
very market signals that we serve, ultimately impeding our
ability to compete in a global marketplace. There are many
examples of industry adaptation to changing market forces and I
will just cite one. The dairy industry in California has
expanded tremendously since 1980 in response to the growing
population there. Local grain supplies were inadequate for feed
and initially were augmented by rail barley supplies from
Montana. Then, with larger unit size and improved operating
efficiency, California feed mills eventually gained access to
the western corn belt, replacing barley in their rations with
that corn. Just as the corn market adapted quickly to this new
demand, the barley producers adapted by finding export markets
and by converting production to milling wheat for California
flour mills.
These changes did not occur because of railroads. They
occurred because all of the participants in the supply chain
sought the best use for their products at the greatest
efficiency.
I believe that economic development in U.S. agriculture is
occurring as it should. As we increase efficiency and
productivity, we are finding new markets for our products. We
are positioned to increase the market share that is so critical
to the U.S. balance of trade. We know that adaptation never
ends and we have learned much about responding quickly and well
to the market forces shaping supply and demand on a daily and
yearly basis. Adaptation requires creativity and flexibility
and it may cause short-term stress, but adaptation is
imperative if U.S. agriculture is to prosper in the global
economy.
Constant evolution in the agriculture marketplace is a
given. We need to operate in partnership with our carriers,
using their resources to make our businesses competitive and
sharing our market knowledge with them to improve their
operational efficiency. For 20 years we have done this and the
railroads' responsiveness to our needs has never been greater.
This is not to suggest that differences never exist, but
rather that, working business to business with the carriers, we
have been successful in achieving effective and productive
resolution to our differences. Unfettered by regulation,
railroads can and do devote their resources to the optimal
utilization, just as we do with our resources and every
business should be free to do. U.S. agriculture cannot afford
to absorb costs that deliver no benefit. If the Railroad
Competition Act is passed and results in rail carriers serving
markets that they may otherwise find unattractive, or if they
are required to maintain infrastructure in markets without
sufficient rail traffic to generate returns on their
investment, the entire system will be burdened with those
costs. Not only are those costs unfair, they are difficult for
our businesses to absorb. But more importantly, they tax U.S.
agriculture, which is already in a struggle for market share
worldwide.
I strongly believe that we must stay the course and entrust
to American agribusiness its competitive place in the world.
Thank you for inviting me to share my thoughts.
[The prepared statement of Mr. Linville follows:]
Prepared Statement of Randal L. Linville, Chief Executive Officer,
The Scoular Company
My name is Randal L. Linville. I m the President and Chief
Executive Officer of the Scoular Company (``Scoular'') . . .
I have been in the grain business since 1977 and with Scoular since
1984 in various capacities, including merchandising, management and
executive management. I appreciate the opportunity to appear before
this committee to present Scoular's views concerning S. 919 (The
``Railroad Competition Act of 2003'').
Scoular is a privately-owned company that started in the
agriculture business 111 years ago. We consider Scoular to be middle-
market in size and scope, considerably larger than many local or
regional companies and cooperatives, yet smaller and much less
diversified than the major multinational agricultural firms
headquartered in the U.S. Our business is focused on meeting the supply
chain needs of producers and end-users of agricultural products.
Although we are marketing agricultural goods, we bundle these with a
logistical solution that creates the best value for our customer. In
doing so, we regularly use truck, barge, rail, container and vessel
freight.
For purposes of the discussion today, my comments will focus
primarily on our grain business, which is Scoular's core and largest
business. Geographically, Scoular's business spreads across North
America, with subsidiaries in both Canada and Mexico. We operate grain
handling facilities in many states of the U.S., including California,
Montana, Utah, Idaho, Kansas, Nebraska, Texas, Missouri and Ohio.
Scoular's direct business is predominantly domestic, but dependence
on export markets is an inescapable fact of life for U.S. agriculture.
For both bulk commodities and value-added products, production exceeds
domestic demand. This means that competitiveness in the world market is
not a matter of choice for U.S. agriculture, it is a matter of
survival.
The Railroad Competition Act of 2003 comes at an interesting time
in rail history. During my career of over 25 years, the Staggers Act
and the creation of the Surface Transportation Board are the only
significant congressional actions directly addressing the rail
industry. Both reduced government involvement. The evolution of the
rail industry in that time period has been remarkably beneficial. From
the perspective of Scoular's business, I can say without equivocation
that efficiency, productivity, service and innovation have improved
substantially since 1980.
The railroads provide a vital link, but nonetheless just a link, in
the supply chain for U.S. agriculture. U.S. production is concentrated
in the heartland, while consumption is concentrated increasingly on the
perimeters in large coastal population centers and through U.S. ports
to export markets. Like industries that must respond to supply and
demand, the agriculture industry strives to meet these needs in the
most efficient way possible. Scoular believes that freedom from
artificial pricing influence is as critical to the domestic agriculture
markets as we know it to be in global markets.
Let me provide a few illustrations that help demonstrate the role
of rail carriers in the efficiency gains of U.S. Agriculture over the
last few decades.
To meet the demands of a rapidly growing population, the California
dairy industry has expanded. When it outgrew the capacity of California
grain producers to supply it with feed, demand was created for Montana-
grown barley that was shipped by rail to California. As the rail
infrastructure continued to evolve, allowing for larger units to be
shipped on predictable schedules, California feeders gained access to
the western corn belt. Corn gradually replaced barley in the dairy
ration, contributing to improved productivity. To adapt, barley
producers began to ship to the Pacific Northwest for export and also to
produce wheat for shipment to flour millers in the LA basin. None of
this occurred for or because of the railroads. Rather, it is an example
of adaptation that occurs when producers and processors strive to
improve efficiency and productivity.
Consider also the development of the ethanol industry in the U.S.
This evolution has been underway for three decades, driven nationally
by a desire for reduced dependence on foreign oil and locally by an
interest in value-added agriculture. A map of ethanol production sites
would quickly demonstrate that these have been built predominantly in
the corn belt, taking grain off the railroads and diverting it to local
consumption in ethanol plants. I Read recently that a unit train of
ethanol was shipped from South Dakota to california. Again, the
conversion of corn to ethanol in South Dakota was a response to
economic forces well beyond the control of the railroads.
Another example would be the concentration of cattle feedlots in
the southern plains. These evolved because warmer temperatures allow
for more efficient utilization of energy in fattening cattle and the
local supplies of feed were excellent. However, the growth of cattle
numbers coupled with declining water supplies has turned a grain
surplus market into a grain deficit market. Investment in
infrastructure by railroads and private industry has created a cost-
effective way to import the volume of feed grains needed to maintain
cattle production in this region on a basis that will allow it to
compete in the world market.
So what do these illustrations indicate? To me, they indicate that
economic development is occurring as it should in U.S. agriculture. We
are creating more markets for our products. We are increasing
efficiency and productivity. We are positioned to maintain or increase
global market share. We understand that this is a dynamic process that
requires adaptation throughout the supply chain. We know that Montana
barley growers replaced the California dairy shed with alternative
markets. We know that some grain elevators in South Dakota are now
receiving harvest grain and storing it for future use in ethanol
production. We know that cattle feeders on the southern plains have
found a way to stay competitive.
In each of these instances, the producers and processors were
compelled by market forces to adapt, but the temporary strain of
adapting should not mask the beneficial outcome when resources
ultimately find their highest and best use. If legislation had altered
the impact of market forces, adaptation would have been impeded and the
economic disequilibrium that stimulated it would have been prolonged.
The evolutionary changes we have seen and continue to expect
require a railroad industry with the capacity and incentive to adapt
with U.S. agriculture. If Federal law makes it the duty of railroads to
ensure that competition exists for every shipper, railroads will be
forced to divert funds to uneconomic use. Instead of investment where
the market demands improved rail access, they may be creating it in a
market where non-rail alternatives are better. Instead of encouraging a
captive shipper to invest in efficiency improvements, they may have to
take service away in order to provide it elsewhere. Railroads do not
create competition for agricultural products, but they can
substantially impair the ability of those products to compete if they
are unable to respond to market signals.
S. 919 is important to Scoular because we understand how costs are
borne. If the rail transportation system is forced to absorb costs that
are not returned in the marketplace, rail will be unfairly
disadvantaged versus other modes of transportation. Shippers that alone
are not sustainable will be subsidized to the detriment of their
eventual adaptation.
From a corn grower in Minnesota to a flour miller in Los Angeles,
all depend on an efficient and responsive rail transportation system.
Without that, the entire agricultural supply chain will be penalized
and, most importantly, foreign markets for U.S. production will be
jeopardized.
Senator Hutchison. Thank you very much. I thank all of you
for the very good testimony. I would like to start with a
couple of questions and then we will move own the list.
Mr. Nober, on October 8, a Harris County court at law judge
blocked BNSF's attempt to build a new rail line into the
Bayport industrial district. Here is a picture of the Bayport
bottleneck. The rail was proposed to be built here
[indicating], with several people contributing to the cost of
it, and the judge blocked it without giving a reason.
Mr. Hamberger said in his written testimony that this was
one example of actually how competition can work. But in fact
we are now seeing the difficulties of the process of executing
a successful buildout which was ordered by the STB.
My question is: Will STB get involved in the appeal of this
case or what would be your thoughts about it?
Mr. Nober. Well, Senator Hutchison, we certainly are
concerned about the decision that the state court put forward.
The first thing is that I would say the legal situation in this
case is, to be fair, to be honest, muddled. As you said, the
judge--the case that was before the Texas state court was one
to take certain by the City of Houston by eminent domain.
To back up for a minute, when we approve a new rail line
build-in that is a permissive authority. We give them the right
to add to the national freight rail network if they can then
acquire the right of way. They then went to the state court and
Texas has state laws that govern condemnation and has certain
doctrines that apply to that.
Here many, many questions about the railroads' ability to
take Houston city property by eminent domain were raised and,
as I understand it, the judge issued an order denying the
ability to take the case, to take the property by eminent
domain, but without a reason. So until we--we have been in
close contact with that. I have here today our environmental
attorney who handled the appeal. We just got an update on that
15 minutes before the hearing and the answer is we do not have
an opinion from the court yet.
So until we see on what basis the judge blocked the build-
in, whether or not we can get involved in a state court
proceeding I just do not know. We certainly are committed to
seeing this go forward as well and we will do what we can to
protect our regulatory decision.
At the same time, there is also a case in Federal court
going forward challenging the sufficiency of our environmental
impact statement. While we feel we did an over and above job on
the environmental impact review of this case, this has not been
the best month for our environmental impact statements in
court, so we have to be mindful of that as well.
But we certainly stand behind our decision. We believe that
it is an important competitive option here. We think build-ins
are a critical part of our regulatory doctrine and we would
like to see it go forward.
Senator Hutchison. I do think it sort of points out how
hard it is to get competition, and I would prefer to see some
mechanism where you could get a rate, some kind of a rate
across the lines. It would be a whole lot less expensive. But I
realize there are difficulties with that as well.
But you said in your testimony that the only viable rate
cases really come from the coal industry. In these cases it is
estimated that the rail customer normally spends about $3
million prosecuting the case and the railroad spends about $5
million defending, and the case can take 2 to 3 years. That
just does not seem like a viable option in very many instances.
Other than the coal industry, is there any other industry that
really could pursue something that is that expensive and have
any kind of a hope of a real determination in a timely fashion?
Mr. Nober. Well, Senator, it certainly is a concern. It is
one that we have taken many steps to address, I have taken many
steps to address since I got to the board. We have already come
up with one round of changes to our process for looking at
large rate cases to try to take some of the time and expense
and cost out of it. We have looked at the process as a whole
and looked at each individual piece of it to see, what can we
do at every step of the way to try to make it cheaper and
faster, all while preserving the rights, the important rights,
of the parties.
These large rate cases can be fights over hundreds of
millions of dollars, sometimes as much as $300 to $500 million.
So on the one hand 3 or $5 million in legal fees to debate a
case like that is a relatively small amount. On the other hand,
3 to $5 million and 2 to 3 years of time, not to mention we
have records that can generate as many as 700,000 pages of
material, is entirely too much.
We have tried to interject alternative dispute resolution
into this, and we have our first mediation going on right now.
It involves the Burlington Northern and it ends on Sunday. It
has not been settled yet, but I am still hopeful that the
parties will be able to.
We have tried to shorten the discovery timeframes and cut
down on some of the discovery abuses that have gone on. In many
ways it is a process that only a lawyer could love, where the
parties cannot even talk to one another, and we have tried to
put some order into that as well.
We have started having oral arguments in these cases
because by and large we found that the paper records did not
give us the best understanding of what the parties were putting
forward. We recently discovered as a result of that oral
argument that we had misinterpreted some of the evidence and
had to go back and redo it, and we have had to toll the
statutory deadline for a few weeks in order to fix those
changes.
But making the large rate cases quicker and cheaper is
certainly a priority and I think we have taken a lot of steps
toward getting there. We have fights in these cases over the
number of miles between the mine and the power plant. Now, the
last I knew that is pretty much a fixed number, but the parties
would debate it, and they would spend thousands of dollars
fighting about things like that, or how much coal was in the
car. Again, I do not know how much coal is in the car, but I
know how much the shipper paid for. While there may be some
variances, we have tried to standardize those kinds of measures
and get the lawyers out of fighting about them and try to bring
some order to the process, and I think we have been somewhat
successful. There is more that we can do.
Senator Hutchison. Thank you, Mr. Nober.
Senator Burns.
Senator Burns. While we have got you on the hot seat, we
might as well leave you right there. Mr. Nober, there is a
quote here that is sort of made by you that has some of us sort
of--gave us some anxious moments. I quote from you: ``Look, I
am not going to insult your intelligence and tell you I could
not change, that our board could not interpret some of the core
rulings that you want us to make a change.'' You were talking
to some shippers. ``We could, but we are not going to.''
Could that be the core of our problem here? Would you like
to revise and extend?
Mr. Nober. Certainly, Senator. In my testimony I did, I
acknowledged that that is true, that the doctrines that many of
the shippers would like to see changed, which are our
bottleneck doctrine and our Midtek or terminal trackage rights
doctrine, are administrative doctrines and as a matter of law
an administrative agency can change administrative doctrines.
Not everyone on our board has always acknowledged that but I as
a student of Congress will tell you that we certainly can.
Now, whether or not we should and we would are different
questions. I believe that under the law we are required to
balance a whole list of factors when we make decisions and that
those decisions represent the proper balance of factors.
However, are there problems with them? Yes, and the main
problem has to do with on the one hand our board is statutorily
charged with ensuring that railroads are revenue adequate, and
you have heard a great deal about that, and on the other hand
ensuring that shippers' rates are reasonable.
A problem that I see is that, and we have talked about
extensively, is the fact that only large coal shippers have a
meaningful opportunity to bring a rate case to challenge
whether their rate is reasonable. Any other shipper cannot do
that.
So our doctrines have, and I acknowledge, put shippers in
something of a heads I win, tails you lose situation, where on
the one hand if you have a rate that you feel is too high there
is no place to challenge it for being unreasonable, but on the
other hand there is no other remedy available to you. You
cannot order another railroad to come and compete with that, to
have the trackage rights.
Now, I do not think the answer is to order access on
carriers' lines or I do not think the answer is to order
bottleneck rates, either. But I do think the answer is to
provide a meaningful and quick and fair process for determining
whether rates are reasonable, whether small cases are
reasonable, and that is my top priority at the agency.
In fact, I have a fairly good idea of what that process
ought to look like. We have had a hearing on the subject.
Several of the folks here today or their organizations have
testified before us and I think it is difficult, but it is not
impossible to do.
Now, I have not done anything on this because I am a single
board member and it is a significant policy initiative, and I
have tried when I have been as a single board member not to
take new major policy initiatives. I have decided cases that
have deadlines because the agency has to function and the
industry needs us to function, but I have not taken new steps.
Now, we could do that, but I have not yet.
Senator Burns. Mr. Nober, I have never seen you come out
and say that, I would like to do this, or I think the board
should do it. I have never seen a statement along that line
until today. I guess that is what this is all about.
Mr. Linville, you ship grain. Do you pay the shipping cost?
Mr. Linville. Yes, sometimes.
Senator Burns. How much of the time do you?
Mr. Linville. A large percent of the time. We are in the
business of getting it to domestic consumers, delivered across
the U.S.
Senator Burns. If I sell my corn from Galatin, Missouri,
into one of your elevators and you ship it to Portland, Oregon,
do you pay the shipping on that grain?
Mr. Linville. In that case--it would likely go to the
poultry market in Arkansas--but yes.
Senator Burns. I do not care where it goes. Say yes or no?
Mr. Linville. Yes.
Senator Burns. Is that deducted from my negotiated price on
my grain, is that shipping cost?
Mr. Linville. Certainly, the shipping and the handling.
Senator Burns. Then you are not paying for that shipping. I
am paying for it, am I not?
Mr. Linville. We both are.
Senator Burns. This ain't my first rodeo, you know.
[Laughter.]
Senator Burns. But when I sell my grain into one of your
elevators, and that is what you operate, you deduct
transportation costs off of that grain?
Mr. Linville. Certainly.
Senator Burns. Thank you. In other words, I am paying the
freight. And that is another misnomer that we should bring to
light here, that I as a producer pay for the grain.
Now, there was a statement being made by Mr. Hamberger--I
would just like to say, I do not have anything against the
railroads, but we have got to find--would anybody at this table
agree that we do not have a problem?
Mr. Hamberger. Define ``a problem''?
Senator Burns. Do you think----
Senator Hutchison. What is the meaning of ``is''?
[Laughter.]
Senator Burns. I will tell you--would you agree that we
have got a problem?
Mr. Hamberger. I do not agree that captive shippers do not
have competitive options in many cases. I do not believe that
the STB is not an adequate place for them to take their case,
no.
Senator Burns. Anybody else want to comment on that?
Mr. Platz. We have got a problem.
Mr. Whiteside. We have got a problem.
Mr. Nober. We are going to fix the problem.
Mr. Hamberger. When rates have gone down 60 percent since
1980, I am not quite sure what the problem is.
Senator Burns. How about you, Mr. Linville?
Mr. Linville. I think we have a challenge. I think the
marketplace can fix the challenge and I think business to
business can fix the challenge.
Senator Burns. Well, I will just make the case. There will
be another round and I know my time is up, and I will allow--we
have Mr. Rockefeller here, and I am going to stay for another
round.
The point I am trying to make, we have got a problem. It is
pretty evident at this table. And we have kind of give
everybody time to work it out, but nothing is happening, and
that is what I want to pursue in my next round of questioning.
Thank you very much.
Senator Hutchison. Thank you, Senator Burns.
Senator Dorgan.
Senator Dorgan. Madam Chairman, thank you very much.
Let me, Mr. Nober, ask you a few questions. First of all,
let me compliment you for going out and riding on some trains
and seeing the country. I understand you are a Surface
Transportation Board of one, is that right?
Mr. Nober. That is correct, sir.
Senator Dorgan. So it is you as the Chairman, Chairperson,
and you have two vacancies?
Mr. Nober. That is also correct.
Senator Dorgan. So we have a very important regulatory
agency of three people and two of the seats are unfilled at
this point. We are waiting for a Republican and a Democrat
nominee to be approved by the Senate, I understand; is that
correct?
Mr. Nober. I do not believe anyone has been nominated yet.
Senator Dorgan. To come to the Senate from the White House.
How long have these seats been vacant?
Mr. Nober. The Republican seat since March, the Democratic
seat since May.
Senator Dorgan. Does that concern you?
Mr. Nober. Well, yes. But I think that our Board, I on
behalf of the Board, have the power to act alone. As I said,
I----
Senator Dorgan. But you are not acting alone in most cases,
correct? You are waiting--in fact, I can cite you. You are
waiting until you have a Board.
Mr. Nober. It depends on the matter, Senator Dorgan.
Senator Dorgan. You are certainly not taking big, bold
policy actions, I think?
Mr. Nober. No, Senator, I am not. Unless if you all think
that I should, that is a different question. But I understand
that we are a multi-member bipartisan board.
Senator Dorgan. As long as you would make the right
decisions, we would encourage you to do that.
[Laughter.]
Senator Dorgan. Mr. Nober, let me--you talked a moment ago
about revenue adequacy. In your statement you said that, you
know, there is not revenue adequacy, not a single one of our
major railroads is revenue adequate. I had to step out for a
moment, so I did not hear all of Mr. Hamberger's presentation.
I said at the start I like railroads. I had some model
trains when I was a kid. I have ridden on the Galloping Goose,
which is a little train that came through my home town. I love
railroads. But I also like fair prices and I like competition,
I like the market system.
You talk about revenue adequacy. Let me just run through
some headlines: ``Burlington Northern's Profits Rise,''
``Record Revenue for Union Pacific,'' ``CSX Rallies As Core
Revenue Gains, Tops Street's EPS Consensus.'' I can read more
if you would like to hear more. I am sure you have read the
same thing.
Tell me how you decide that the railroads somehow are
operating on a short string, do not meet the revenue adequacy
test?
Mr. Nober. Well, our revenue adequacy test is not--earnings
is just one part of it. What we do is we look at how much--
basically, what is their return on investment and compare that
to the cost of capital. So we look at all the investment base,
their entire investment base, look at that over a 20-year,
depreciated over a 20-year period, and then compare that to
what is the actual opportunity cost of that money, which is
either going to the private capital markets or issuing stock or
preferred stock.
So revenue adequacy is not simply looking at what are the
third quarter revenues and saying, well, their third quarter
revenues are up, therefore the railroads are doing better. That
is one measure. It is certainly what some on Wall Street may
look to. I take it from context you are reading from analysts'
reports.
But on the other hand, revenue adequacy is a different kind
of measure. It looks at whether or not the investments the
railroad is making in itself are higher than they could get if
they made those, if they made investments elsewhere. When we
say they are not----
But you are--I am sorry, Senator.
Senator Dorgan. Go ahead.
Mr. Nober. When we say they are not revenue adequate, we
may railroads could essentially earn more on their capital by
investing in something other than a railroad and it is hard for
them to justify improving their infrastructure when they are in
that circumstance.
Senator Dorgan. Yes, well, that is a wonderful test that is
set up, it seems to me, to victimize consumers. If one thinks
that the railroads are sort of moving along, just barely making
ends meet, go listen to the presentations they make to Wall
Street and then disabuse yourself of that.
You indicate, Mr. Nober--and I am going to ask you the
questions exclusively if I might. I appreciate very much the
testimony, I have read all the testimony by the other
witnesses. I think it is a good cross-section of this debate,
so I appreciate your being here.
But Mr. Nober, you are opposed to S. 919 and you indicate
that you want to take some action somehow to streamline the
complaint process. Apparently you seem to think everything is
pretty good out there, let us not worry too much about it, let
us just allow people to complain more easily than they are now
allowed to complain.
But the small shippers, as you know, you have really no
complaints that have been filed. Do you know why? Because they
do not think the system is honest, they do not think it is up
and up, and they do not think they have got a ghost of a chance
at dealing with you or anybody else in the Federal Government,
and they do not think a regulatory agency is interested in
regulating fairly. So they do not even bother. And if they
bothered, my colleague from Montana can tell you how long it
used to take. It can take 10, 15, 20 years, and then they would
not get a satisfactory result.
So the whole system is broken and you are saying S. 919 is
not an approach that you like. So what do you like? What do you
think, other than just saying, I want to try to fix the
complaint process? I just gave you when I started my
presentation the rates from Bismarck to Minneapolis,
Minneapolis to Chicago. If you want to start, let me just
complain this morning to you, or this afternoon rather: That is
unfair. More than two and a half times, that is unfair; so fix
that. And how would you fix that?
Mr. Nober. Well, Senator, the first question is whether or
not it is unfair and whether or not it is unreasonable. Under
the statute we are required--every shipper who does not have a
competitive option has a right to a reasonable rate. That is
what the statute provides. That is what we are here to do.
Now, I accept that right now only large coal shippers have
the opportunity to say, my rate is unreasonable, and prove it.
And what you have said about the administrative process is
correct. I have heard many of the same things, many of the same
folks that you have heard from, and I agree with that.
So we are trying to come up with, I am trying to come up
with, a process where the vast majority of shippers who are in
situations where the railroad has market dominance over them--
we have to look at that--have an opportunity to come in and
say: my rate was unreasonable.
Now, I will also say, Senator, that just because a rate is
high does not mean that it is unreasonable. There is a lot of
factors that we have to look at, that we should look at, when
we do that, and that we will do when we have a test.
But the arbitration provision in S. 919 is intended to get
quick results, where folks can come in, you can limit--I know
the case you are referring to, 20 years of discovery and
decisions and court decisions in McCarty Farms. It was not the
finest hour for our agency, and in fact the agency that oversaw
that is not even around any more. So I certainly understand the
kinds of concerns. I would not even think of defending that.
But the kind of process that you have in place where, in
your bill, where you have an arbitrator who quickly and surely
can hear the evidence, limit discovery, and give you a quick
decision, I think we can mimic administratively. I think if we
hired an administrative law judge he could hear cases in the
first instance, limit discovery, try to rein in the abuses of
the lawyers on both sides on this, and try to get a decision
out in the first instance.
However, the arbitration provision in your bill does not
require that the arbitrator look at anything, any factors. It
looks at what--it looks at 180 percent of variable cost and
whatever else then the arbitrator would like to look at. The
statute requires us to balance things. It balances the needs of
shippers, which are significant, with the fact that railroads
do need to earn adequate revenues. How that will come out I do
not know.
Senator Dorgan. Mr. Nober, we have been over that, for
God's sake. You think the railroads are not earning adequate
revenues? I mean, what on earth is going on? All you have to do
is look at their reports. Of course they are earning adequate
revenues.
The question is are the shippers one day, after 20 or 30
years, going to get somebody to pay attention to them. With all
due respect--I think you are a good person--what you just told
me would persuade me as a small shipper to never file a
complaint with you, because you say, you know, the test is not
the question whether it is fair, the question is whether it is
reasonable, and you parse words.
The fact is, it is true the ICC is gone because it was dead
from the neck up, but it has a perfect clone.
Mr. Nober. I hope not.
Senator Dorgan. Well, the fact is the reason that you see
some passion up here is we would like to see some action. And
this has gone on year after year after year. And if you are the
one that is making the money, you think it is just fine. If you
are the one that is shelling out the money, it is not fine.
And I am just telling you, if you are shipping a carload of
wheat from Bismarck, North Dakota, and you are paying two and a
half times the price, that by God is unfair, and you cannot
resolve it because nobody out there is willing to resolve it.
There is no regulatory agency willing to embrace it and resolve
it for you. I think there is anger out there among shippers and
the anger is properly directed at a whole series of enterprises
and institutions in the Federal Government that seem only here
to protect the big economic interests.
Now, let me say again, I like railroads. God bless you. I
want you to exist, I want you to be a part of our future. But I
want you to understand that fair pricing is essential for
people all across this country.
Where there is no competition, you must as a regulator step
in and provide some basic protection for small shippers.
Senator Hutchison. Senator Rockefeller.
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
Senator Rockefeller. Thank you, Madam Chairman. Well said,
Senator.
Mr. Hamberger, have you read Senate bill 919?
Mr. Hamberger. Yes, sir.
Senator Rockefeller. Good. I would like to have John
Roberts, who works on this for me, to bring the bill to you.
[Pause.]
Senator Rockefeller. John, you stay there.
Now, I want you to show John the provisions in S. 919 that
cap rates. I want you to, if you have a ballpoint pencil, just
to put them, just to mark a little thing beside it. Or provide
trackage rights, that is allowing one railroad operating over
another's tracks.
[Pause.]
Mr. Hamberger. It is the area where the arbitrator----
Senator Rockefeller. Arbitrating is not what we are talking
about. Just please do what I asked. Caps rates or provides
trackage rights, just mark it where it is. Then when you have
marked it I want you to read it out to me.
Mr. Hamberger. The way that I interpret----
Senator Rockefeller. No. I am saying I want you to mark
those places where--you can say interpret, but where it says
cap rates or----
Mr. Hamberger. The words ``cap rates'' are not used. It is
my belief on pages 18 and 19 where the designation of an area
of inadequate rail competition, which is anybody who pays more
than 180 percent, would have the practical effect of driving
those rates down to 180 percent.
Senator Rockefeller. So it is not mentioned?
Mr. Hamberger. The words ``cap rates'' are not, the two
words are not in there.
Senator Rockefeller. That is correct.
Mr. Hamberger. That is my interpretation of the impact of
this bill.
Senator Rockefeller. Now, providing trackage rights, have
you found that in the bill?
Mr. Hamberger. The trackage rights would be the overturning
of the Midteck, where you then have to allow another carrier
into your terminal.
Senator Rockefeller. That is correct, operating over
another's track rights. Can you find that in the bill?
Mr. Hamberger. The bill talks about ordering access to
terminals without regard to a Midteck kind of finding, and that
again is the practical effect of that provision.
Senator Rockefeller. Practical effect. So there is
speculation.
Mr. Hamberger. There is a lot of speculation in any piece
of legislation, I suspect.
Senator Rockefeller. No, there is not. I do not think there
is----
Mr. Hamberger. People who draft it expect a certain
outcome----
Senator Rockefeller. I do not think there is in this.
Mr. Hamberger.--and I disagree with that expectation of
that outcome.
Senator Rockefeller. And I would remind you that when I ask
you these questions, you made this presentation of all these
petitions and letters that you got, that we know from various
groups that they were caused to have to write those letters if
they wanted to keep their prices from you. That is pretty
disgusting from my point of view. You will deny it, of course.
Mr. Hamberger. Of course.
Senator Rockefeller. And you have not pointed out either
trackage rights or you have not pointed out cap rates. You have
speculated. So that there is nothing about that and the
reregulation that you constantly hammer on in our bill.
So what is the AAR's new definition of ``reregulatory''?
Mr. Hamberger. It is the same definition. I disagree with
your interpretation of what your bill would do. That is what
this is all about.
Senator Rockefeller. But you have not pointed anything out
in the bill.
Mr. Hamberger. My interpretation of your bill is that it
would drive rates down to 180 percent and give trackage rights.
Senator Rockefeller. Of course it would. For 20 years that
has been your interpretation of anything that has been sent up.
I am asking you to point out and you cannot do it.
Mr. Hamberger. Well, I am pointing out, I am, by saying
that anybody who pays rates over 180 percent can have it
declared an area of inadequate rail competition and get those
rates driven to 180 percent. That is the way it is going to
work out.
Senator Rockefeller. That is the way it is going to work
out.
Madam Chairman, I stipulate that the well-paid, ``Inside-
the-Beltway'' Washington lobbyist for the railroad association
was not able to point out either ``cap rates'' or providing
trackage rights and is not able to therefore give any
understanding of the word ``reregulatory,'' how this would be
reregulatory.
You know perfectly well, Mr. Hamberger--we had a pleasant
meeting in my office. You seem to have changed somewhat since
that time. But you all have been playing a vicious game by
operating underneath the radar. When I came to this place there
were 50 class 1 railroads. There are now four, four-and-a-half,
something of that sort, probably to be fewer.
You play a very successful, very tough game. You
negotiate--I voted for John Snow for Secretary of the Treasury
because it was very important to me that he no longer be
associated with the CSX system, because he and others would cut
deals. They would threaten. I had people come to me from the
coal industry, from the steel industry, from the chemical
industry, and talk about the kinds of--and some of the names
are very, very, very large--that they were working under
threats and that sometimes CSX or others would come in and they
would cut a deal. And I can name you some of those companies.
They would cut a deal so they would just keep the pressure down
just enough so that you could continue to operate under the
radar.
You are extraordinarily successful at that. But when you go
to bed every night you need to understand that you are causing
great harm, great peril and economic disadvantage to all kinds
of people all over this country who, for reasons which are not
entirely clear to me, have not been able to galvanize
successfully enough to defeat you.
The STB, I am not going to say anything about the present,
but it has been pretty much the property of the AAR, owned and
operated by the AAR. It may be different now. We will see about
that.
You are a very powerful person. You do a great deal of
damage to this country. You cannot point out in S. 919 and
there is a very good reason for that, is your argument is
fallacious all the way down the line. You do not want any
competition. You do not understand or you choose not to
understand the Staggers Act, the fact that when there is a
single line that bears consequences and that that has to be
done also with the STB.
You just plow ahead. You make lots of money. You have the
evidence against you, as Senator Dorgan was pointing to. It
makes no difference to you whatsoever because you have got a
good thing going.
My great-grandfather would have really liked you and your
people. He would have felt very comfortable, and he believed in
rebates and I will bet if you could do rebates you would do
them, too, or maybe you do. But he would have thought you were
terrific. I will tell you, I am very grateful to him for what
he did for me. I am not at all grateful to you for what you are
doing to my State of West Virginia and shippers and chemical
people and steel people and coal people and farmers all over
this country.
Thank you.
Senator Hutchison. Mr. Smith--let me just ask, did you have
any other comment?
Mr. Hamberger. I resent very much the remarks that the
Senator has made.
Senator Rockefeller. Good.
Mr. Hamberger. Because I do not in any way believe that
this industry is causing the kind of pain and suffering that
the Senator asserted. In fact, this industry is the backbone of
the economy of this country. It moves 40 percent of America's
freight, at a lower rate and safer than it ever has. So to
assert, as the Senator has, that ruin and perdition is
occurring because of this industry, I just totally disagree
with. And I thank you for letting me put that on the record.
Senator Hutchison. Senator Smith.
STATEMENT OF HON. GORDON H. SMITH,
U.S. SENATOR FROM OREGON
Senator Smith. For the record, I have just heard it
asserted--I do not have the facts, but I understand the
railroads are making money now; is that correct?
Mr. Hamberger. The third quarter of this year has
apparently been a decent quarter. The first two quarters were
not. Like every industry and every company, there are good
quarters and bad quarters. The economy--as you know, Senator,
we are a leading edge indicator and in the first 5 months of
this year I am told by our western carriers that we were behind
on projected revenues.
Beginning in July and August, as the bumper crop came in,
as the drought that occurred in Europe impacted world markets,
American farmers were able to sell into those world markets
because they could get to those world markets on rail. We moved
those grain shipments to the ports efficiently. There is some
increase now also in intermodal imports. The Christmas rush
usually peaks in September. It is actually occurring now. And
finally, coal is beginning to rebound as well. Automobiles are
up. So the economy does appear to be moving, based on our car
loading data.
Senator Smith. For the record, I hope the railroads are
profitable. I think that is a good American concept, and so I
hope you succeed. And I hope you are fair. I think some points
that are being made here need to be made, but I also want to be
on record as saying I hope the railroads made a lot of money,
because there is a lot of investment that needs to take place
in the rails of our country or else we are not going to keep up
with 40 percent of the freight moving in this country. And then
that is your responsibility, because that is your lifeblood to
staying in business, and I think we are way behind on
investment in our rails in this country.
So I am concerned about our shippers and I am concerned
about our railroads. We need you both to succeed.
Mr. Nober, as you know, the Commerce Committee reported
legislation to reauthorize STB with an amendment by Senators
McCain and Hollings to address longstanding concerns about
small rate cases. I apologize, I have been covering a research
in the Finance Committee as well, so you may have addressed
this. But I just need to ask the question if you are going to
issue these new rules for small rate challenges to be done
within 180 days following its enactment? The rules would
establish standards for determining what rate cases will be
eligible for the expedited procedures and, equally important,
establish the specific test or tests that will be used in
determining whether the rate is reasonable.
Do you have a comment about the McCain-Hollings amendment
in the reauthorization of STB?
Mr. Nober. Yes, Senator. I certainly support the kinds of
initiatives that were in that amendment. We worked with the
Committee some and commented on it. I certainly believe that
our agency should move as expeditiously as possible on that
subject.
I had hoped to already have those kinds of rules in place
by now. But, as I told the Senators earlier, I have been
reluctant to initiate, take on new policy initiatives, while I
am serving as a single board member. It is my view that our
agency was set up as a multi-member, bipartisan board and that
is a significant step and I think that that should only be done
when we have a fully constituted board or at least more than
one member, rather than just myself.
Now, as I said, if the Senators feel differently then I
certainly would have the board act on that to try to implement
that provision as quickly as possible. But I think it is very
important and, candidly, I think having a swift and meaningful
procedure for shippers to be able to challenge their rates that
apply to all the various levels of shippers and not just large
coal shippers would go a long way toward addressing many of the
core concerns that have been raised today. So I think it is a
critical thing, a critical element for us to do. It is my top
priority, and that is why it has not been done yet.
Senator Smith. Do you have any other recommendations for
us, anything else that you think should be changed in the
Staggers Act that we have not addressed?
Mr. Nober. Senator, I think the Staggers Act really
provides our agency with the ability to balance the kinds of
factors that have been raised today. I do think, as I said
earlier, that without the ability to bring smaller rate cases,
shippers really are in a heads I win, tails you lose situation
with the railroads, where on the one hand if they have a rate
that they think is too high they have no place to challenge it,
but on the other hand they cannot petition to have a different
railroad come in and serve them. That is an unfair situation to
be in, I agree with that.
Would I go as far as some of the proposals here today? No,
I do not think they are necessary. I think that would
fundamentally restructure the economics of the railroad
industry and those are not necessary. The law now provides that
shippers can have a rate that is reasonable and right now many
of them cannot, and we need to fix that.
Senator Smith. Mr. Whiteside, do you have a comment about
this as a provision? Does this help you? It does not go as far
as some on the Commerce Committee I understand are advocating,
but does this help?
Mr. Whiteside. Well, I think----
Senator Burns [presiding]. Pull the microphone over.
Senator Smith. I apologize if I missed your testimony
earlier, but I just want to know if what is being proposed by
Senators McCain and Hollings can help address some of these
problems.
Mr. Whiteside. I think it is a start. I guess the thought I
would have is that we do agree, Chairman Nober and I, on one
thing--that S. 919 would fundamentally change the railroads.
But that is what we think is needed.
Let me just--I have got a note here that I am hunting for,
and I apologize for it. I just want to get it in front of me so
that we can talk a little bit about that.
That is why we are here. The current economic model does
not work. It does not work for the railroads and it does not
work for the shippers. From a wisdom standpoint, it is best I
think for us to leave the decision on this to elected officials
and Members of this Committee. Shippers have repeatedly
expressed the desire to sit down and work out their problems
with the railroads. But the railroads have not been
forthcoming.
The lack of rail competition and its effects are severe in
the areas where we have no competition. I think what we have to
do is recognize that a start with just the fundamentals of the
regulatory process that does not work is not going to be
helpful enough. When Senators Burns and Dorgan and Rockefeller
brought this bill, there is a coalition of 14 groups together
now that support this bill, that comprise 55 percent of all of
the revenues of the railroads.
The problems that surfaced in last year's bill proved to be
distracting, so what they did was that we modified the bill.
Senator Burns came up with a bill that was very focused on what
we were trying to do and it represents the best efforts of the
possible solutions. That is where we think we have to go.
What we are here to do is open the dialogue.
Senator Smith. I appreciate that.
Mr. Whiteside. Thank you.
Senator Smith. Ed Hamberger, I wonder if the association
has taken a position on this amendment?
Mr. Hamberger. Yes, we strongly supported it during the
markup in July.
I would just, if I might, echo Mr. Nober: Heads you win,
tails I lose. Gee, we got some good news third quarter and now
we are being told that we are earning monopoly profits, and
sitting next to me here is someone who says that the economic
model does not work. I do not know. It is one or the other.
I happen to think that the balance is proper, that the STB
is there to provide that balance. And I am pleased, as you have
indicated as well, that finally in this third quarter this year
there has been a little bit of a rebound in the economy in
which our companies have been able to participate.
But as far as the STB amendment that was adopted by this
Committee, we strongly supported it.
Senator Smith. Ed, can you give the Committee any assurance
that--I am sorry if my time is up.
Senator Burns. Go ahead.
Senator Smith. I just have one question to follow up on
this. If the association is supporting of the McCain-Hollings
amendment in the STB reauthorization, is there any assurance
the railroads want to give to us that you will not simply
challenge in court all of the rules and frustrate the
situation?
Mr. Hamberger. One never gives away one's rights. But what
I said in my opening statement was that we want to work with
the STB and come up with an approach. In fact, the chairman has
asked for suggestions from all parties. We have made some.
Others at this table have made some. I am hopeful that we can
begin a formal process.
It is not our intent--I give you that commitment--it is not
our intent to frustrate this process. It is not our intent to
go to court. It is our intent to come up with workable,
affordable procedures at the STB to benefit small shippers.
Senator Smith. I think that is critical, I think for a lot
of reasons that ought to be evident to anybody attending this
hearing today. We have got to get beyond just the parties
coming to Congress to settle these small shipper claims. We
have got to get to a system that is fair and is rational and
that leaves the railroads profitable and shippers with the
chance to be profitable as well. You have got a community of
interests between you. You need each other.
Mr. Hamberger. That is correct, Senator. If our customers
are not profitable, if our customers are not able to compete in
world markets, then we do not get their business. That is the
essence of the partnership that we have formed with many of our
customers.
Senator Smith. Thank you, Mr. Chairman.
Senator Burns. Thank you, and that is a good line of
questions.
While we are at that, if you were a wheat farmer in Montana
or North Dakota you would probably have a different attitude.
He is just a little guy sitting out there on the prairie and he
falls victim to every kind of thing that can happen to him that
Mother Nature wants to throw to him. And then you go down there
and then you sell your grain, and they will quote you a
Portland price or a Minneapolis price and then take the freight
off, and that is when he gets hammered.
And he has not made any money, Mr. Hamberger. I will tell
you that right now, and that is what is causing this hearing
today. That is exactly why we are here.
When looking at S. 919, the exchange you had with Senator
Rockefeller is very interesting. Mr. Whiteside, do you think S.
919 has elements that is going to change--that goes beyond the
extent of the Staggers Act of 1980?
Mr. Whiteside. S. 919 basically restores the provisions of
Staggers in large part. What it starts to do is go back to what
we were trying to accomplish in Staggers and what we talked
about. It was a good bill that this Committee passed, and what
it does is it simply says: Allow competition, but protect those
who become captive in the process.
As we have concentrated and concentrated and concentrated
the railroads, we have larger areas that have become more and
more captive. Today whole states, whole regions, whole
industries are captive. And that is what we have to get back
to.
So what S. 919 does is it starts us down the path of simply
starting to look at what is possible. It opens the dialogue.
Mr. Hamberger. I thought it is fundamentally changing the
industry. That is what you said 5 minutes ago.
Senator Burns. Pardon?
Mr. Hamberger. The gentleman said it fundamentally changed
the industry 5 minutes ago. It does not start a dialogue. It
fundamentally changes the industry. That is what he just said.
Mr. Whiteside. What we are here to do today is to have a
dialogue. What we are here to do is restructure, if you will,
the process that we have been under. It is interesting, when
Senator Dorgan was talking about revenue adequacy and how that
term just gets flipped around and it means different things.
There was a study, and I will give a copy to the Committee of
this study. This was a study by Alfred Kahn, who is known as
the father of deregulation. One of the things he said--this was
given to the STB--the meaningful relationship between STB's
measure of revenue adequacy and the financial wellbeing of the
railroads, there is no meaningful relationship. There is none.
What happens in all of these terms and terminologies is
that when you start working with the real person working in the
field, working in the world, they are having problems with
dealing with a monopoly and they have no recourse. What S. 919
does is start to get that recourse back. It gives them avenues.
Senator Burns. Mr. Hamberger, in your statement in regards
to final offer arbitration you state that you ``know of no
other case in which the private sector suppliers of a good or
service are forced by the Federal Government to use binding
arbitration to set a price because the purchaser desires a
lower price. It is no more valid for the government to force
binding arbitration on railroads than it is to force it on
chemical companies, plumbers, supermarkets, or any other
business.''
Basically, in essence are you saying, pointing out that it
could give special treatment to shippers?
Mr. Hamberger. Final offer arbitration is, as you know,
used in Canada. It is their way of providing some safety net
for the shippers. Our way here is the STB.
Senator Burns. Is it working?
Mr. Hamberger. I think the STB is working. I do not know
what is going on in Canada. But to overlay the STB with a final
offer arbitration plan would be doubly mixing apples and
oranges there. The short answer to your question is yes.
Senator Burns. Do you know of any other--do you know of any
other private entity other than baseball that has antitrust
protections like railroads?
Mr. Hamberger. I have not done a study on that.
Senator Burns. Would you consider that a special treatment?
Mr. Hamberger. The statutory antitrust exemption that the
rail industry has, does not exempt railroads from prohibitions
against collectively fixing raes for the transport of goods. So
I am not quite sure that the issue really is germane.
Senator Burns. Well, I think it is germane. In other words,
you are saying that nobody else has the right to look into the
protection of small shippers, and these corporations and
companies right here that you haul 50 percent of--that are 50
percent of your revenue, that they do not have a right of
recourse to come in and negotiate.
And sometimes theirs is done in good faith and yours is
not. That is the stories we are hearing, Mr. Hamberger, and I
do not drum this up. It comes from a lot of different sources,
other than the folks, other than the folks that grow crops in
my state.
I mean, I know, Mr. Scoular over there, we have got to have
elevators. You have got to have an elevator to have a town,
plus a school and a saloon, or you do not have a town. But
nonetheless, we are getting hammered. Nobody is listening to
us. So as a result of that, thus comes legislation that will at
least bring people to the table in good faith. And if bad faith
is exemplified, then Congress is going to do something to
protect the small shipper, because I do not care how much of a
Republican you are or how much of a Democrat you are; if you
have got a monopoly, we have to deal with it.
Mr. Hamberger. Senator, I----
Senator Burns. Do you agree with that?
Mr. Hamberger.--I would reject out of hand that there is
bad faith in the negotiations between the railroads and our
shippers, and our customers. I believe the small shipper that
you are talking about is exactly what Chairman Nober referenced
and exactly what this Committee passed an amendment on to
address those issues at the STB, to afford an opportunity for
the small shipper's case to be heard in an affordable and
expeditious way, and that is what we support.
Senator Burns. Mr. Dorgan.
Senator Dorgan. Mr. Chairman, thank you.
Mr. Nober, do you agree with Alfred Kahn's assessment that
revenue adequacy has nothing to do with financial well-being of
the railroads?
Mr. Nober. I have seen the study. That is his opinion. Our
statute requires us to measure revenue adequacy and therefore
we do.
Senator Dorgan. But I am asking your opinion, not the
statute.
Mr. Nober. I would be reluctant to disagree with an
economist as eminent as Alfred Kahn. However, my own instincts
tell me that any relationship between the return on capital
that you can get versus the return on capital that a company
can produce is a meaningful measure. Whether or not there are
better ones, I do not know. But whether or not that--if you
look at could a company get more money by investing it in an
entity other than itself, is that a meaningful measure of its
health, I think it is. It is a measure. I am not sure it is--
what it shows in this case, Senator, is that railroads require
a lot of capital, and that is why they show up to not be
revenue adequate. The fact of the matter is it is expensive to
run a railroad.
Senator Dorgan. I have known Alfred Kahn for many years. I
taught economics very briefly and I was able to overcome that
myself. But the statement by Mr. Kahn seems to me to be
perfectly plausible, that the revenue adequacy test that is a
test at the Federal level that we use has nothing to do with
the financial condition of the industry. That is what Mr. Kahn
says.
I was simply asking, what is your opinion of that? Do you
generally agree with that?
Mr. Nober. As I said, my opinion is that a measure that
looks at whether or not a company would make more by investing
in something other than itself is a measure of the financial--
of the long-term health of the industry. Whether or not it is
meaningful in an individual quarter, I do not know, I confess.
Senator Dorgan. From the standpoint of the shipper, it
seems to me they look at this and they think that it is a
rigged game. The railroads can make a substantial amount of
money and you as a regulator will say that they are not revenue
adequate, and that is why you get people looking at this and
saying, ``This is not on the level. Are you kidding me?''
Mr. Hamberger, are you annoyed at being here? I mean, you
seem annoyed.
Mr. Hamberger. No, sir.
Senator Dorgan. OK. I mean, we do not want to annoy you. I
like railroads, as I indicated.
But you obviously have the ability to fix rates. You used
the term ``fix rates'' a while ago. I mentioned the example of
Bismarck to Minneapolis, 400 miles, they charge $2,600 to move
a carload of wheat 400 miles. The same 400 miles, Minneapolis-
Chicago, they charge $900. Now, those who charge the $2,600 fix
the rate, correct? I mean, they are fixing the rate?
Mr. Hamberger. I was using that as a term of art, Senator,
in that I was asserting that there is no antitrust immunity for
railroads to get together to, quote, ``fix rates.'' If you are
asking the question, obviously the railroad has a tariff that
it charges, yes.
Senator Dorgan. That railroad fixes the rate. I am not
using it as a term of art in terms of antitrust. They fix a
rate of $2,600, saying, your carload of wheat, that is what we
are going to charge you from Bismarck to Minneapolis. Now,
people tell me and economists tell me and the Public Service
Commission of North Dakota tells me the only reason that rate
is fixed at that level is because there is no competition. And
the reason it is about one-third of that level from Minneapolis
to Chicago is because there is competition on that line.
Do you understand the angst, then, of a shipper who is
putting a carload of wheat on the rails at Bismarck who says,
why am I more than double-charged the same price? Do you
understand? I am just asking you now as a policymaker and as an
executive with the railroad industry, do you understand the
angst and where it comes from, the origin of it?
Mr. Hamberger. I understand the political pressure that
that exerts on you and Senator Burns, yes.
Senator Dorgan. I am not talking about our political
pressure. I am talking about the angst that comes from
shippers.
Mr. Hamberger. The political pressure would come from the
angst, yes.
Senator Dorgan. And their basic feeling that that is
unfair. Senator Burns just asked the question, if you had some
wheat that you were shipping on that line would you think it
unfair?
Mr. Hamberger. I do not know how I would feel if I was the
shipper. But I do know from where I sit and from where the
railroads sit that it is fair, because economically the
allocation of resources is best done by the supply and demand
model, and if we did not get the return to the railroads such
that they could invest and provide that shipment, provide that
capacity to Bismarck, North Dakota, then it would be even more
unfair because there would be no options for shipment.
Senator Dorgan. You are absolutely correct, I think, that
the marketplace as a allocator of goods and services and a
regulator--not a regulator--a balancing of supply and demand is
an extraordinarily effective mechanism. I do not know of any
that is nearly as effective as the marketplace itself.
But would you not agree, then, that the marketplace with
respect to rail service between Bismarck and Minneapolis is not
a marketplace at all?
Mr. Hamberger. I would not agree to that, of course not.
But I would agree that, if that is an unreasonable rate, that
there should be a process at the STB to determine that. I would
point out, as we were talking about Alfred Kahn, there is
another quote that I will supply for the record. I believe he
said: You cannot expect there to be two airlines to serve
Schenectady, New York. It is an economic supply and demand.
Either there will be enough demand to warrant another airline
or another railroad or there will not. So that is the economics
of the marketplace.
Senator Dorgan. Yes, but the marketplace itself is a
marketplace that works if you have price as a regulating
mechanism and price as a function of competition between more
than one entity will determine the allocation of goods and
services. It is true that you cannot have perhaps two carriers
serving the same route going to Schenectady, New York, but if
you have a monopoly, therefore one carrier, you have to have
some basic price regulation in order to protect against
monopoly abuse or, if not price regulation, then you have to
have a regulatory body that oversees it.
My contention is this: We have a regulatory body that does
not regulate, does not oversee it, because it essentially is
frozen in time.
Mr. Nober, I did not mean to browbeat you. I was not trying
to browbeat you at all. But I have been in Congress I guess
about the same length of time, perhaps just a bit longer than,
Senator Burns and we have been going over and over and over
this issue and nothing ever changes. It does not matter whether
they call the agency the ICC or the STB. It still acts like a
glacier, except a glacier you can actually see move from time
to time.
That is why consumers are so angry and so upset, because
they believe they are being treated unfairly. They do not
dislike the railroad. They very much value the service. But
they do not value the service more than double the cost out of
Bismarck and Minneapolis than a shipper from Minneapolis to
Chicago. They do not value it that much, because they feel that
is an unfair price.
Mr. Whiteside, when you started your testimony I was not
sure which side you were on. Then you very quickly moved to the
right side, I felt, at least from my perspective.
[Laughter.]
Mr. Whiteside. That is good to know, Senator.
Senator Dorgan. But tell me, if you would, your sense of
the answer today by the STB that: Do not pass legislation,
Congress; the STB is available to make changes in the review
process and the complaint process that will be effective and
that will solve your problems. Your response, please?
Mr. Whiteside. We do not feel that the answers are at the
STB. If S. 919 were passed, it would start to make changes in
the marketplace. Introducing S. 919 should start the dialogue,
and that is what is needed here. What is needed here are
fundamental changes.
Senator Dorgan. Yes, well, we have been dialoguing for 20
years.
Mr. Whiteside. Yes, sir.
Senator Dorgan. I submit we need some changes. I am a
little tired of the dialogue.
I just was passed a note. As is always the case, there are
these pettifoggers around here who say that there is no airport
in Schenectady.
[Laughter.]
Mr. Whiteside. Even worse. There is not even one. You were
right all along.
Senator Dorgan. God bless the details.
Mr. Nober. Can I disagree with Alfred Kahn now?
Senator Dorgan. Is there an airport?
Mr. Nober. No. But can I disagree with him if he got it
wrong on Schenectady?
Senator Dorgan. Disagree with whom?
Mr. Nober. Mr. Kahn. No, no; I was making a joke, Senator.
I am sorry.
[Laughter.]
Senator Burns. We are going to have a vote here in about 5
minutes and I want to kind of round this up, because there are
going to be some more questions from other Senators and there
are going to be some more from me.
Senator Dorgan. Let me thank them. I have to leave, but let
me thank you for presiding in the absence of the Chair, and let
me thank the witnesses for being here. We need dialogue, but we
also want some action.
Mr. Whiteside. Yes, sir.
Senator Dorgan. Senator Burns, thank you.
Senator Burns. Well, and I thank my good friend from North
Dakota. We do not vote together on a lot of things, but on some
of these things we get very close to. That is the beast of
politics and the body politic.
On this demand and that line of thinking, Mr. Nober--and I
want to ask all of you--what is your knowledge and experience
or thoughts on the Canadian arbitration of last choice?
Mr. Nober. Well, my understanding is that the Canadian
arbitration system is not frequently used. But the Canadian
rail system is different than ours. It does provide for access
in a much broader way, very similar to what you have in S. 919.
But Canada has many fewer terminal areas. I guess at some point
I could tackle Senator Rockefeller's question about what the
bill does, but this bill has--in our country we have a very
broad definition or a very broad understanding of what terminal
areas are and the areas where companies would be able to get--
railroads would be able to achieve trackage rights. We also
have many more--a much larger network here.
So I think that, while the arbitration provisions in Canada
have not been extensively used, there are differences with how
our networks work and there are some differences in the effect
of other parts of the bill as well.
Senator Burns. Mr. Platz.
Mr. Platz. Yes, Senator, if I can just make a comment about
it. We have operations in Canada, so we have come up against
this. Basically, there is three elements that go into this. It
is the arbitration side of it, the competitive line rates, and
this inter-switching, terminal switching. It forms the basis in
which negotiations can take place between the customer and the
supplier, the railroads and the shipper.
It is really, if you look at any of the surveys, the
literature, on this particular issue, they talk about the
railroad and the customer would much prefer to negotiate one on
one. They do not really want a third party in this. But you
need a structure that allows that to take place.
So what has been created in Canada creates that background,
because both parties know that if they cannot negotiate, they
cannot come to the solution, there is a way to solve it, and it
is actually fairly rapid, the way that works.
Unfortunately, the work that we have going on right now, it
is very, very long to get anything done down here, arduous and
so forth. And on top of that, all of the burden rests with the
shipper, with the customer. He has to prove everything. The
railroads do not have to do anything. He has to prove
everything.
So basically what we need to do is bring some structure to
this. So that is why we are suggesting this arbitration side of
it, as a way to create this environment where negotiation in
fact takes place.
Senator Burns. Do you agree with that, Mr. Hamberger?
Mr. Hamberger. What I wanted to say, I do not know--I do
not have the experience on the Canadian Arbitration system to
judge what Mr. Platz said. But the answer to your question is
that we have some concerns, deep concerns, with the Canadian
system. It does not have any standards as I understand it and
the only party that can invoke final offer arbitration, invoke
arbitration, is the customer. So it does not seem to be a level
playing field certainly.
I would ask that if I could get together with our two class
1's, Canadian National and Canadian Pacific, and put together
some comments for the record on that, if you would indulge us
on that.
Senator Burns. That would be acceptable.
Mr. Whiteside.
Mr. Whiteside. The Canadian system is an interesting
system. It is a duopoly. It is very similar to what we have in
the West in the United States. The Canadian final offer
arbitration system is a system that was designed to level the
playing field and facilitate negotiations between the carrier
and the shipper.
In our experience with some of the companies that we have
in our organizations that have operations on both sides of the
border, they have found in fact that is what it does. The
avenue, from a shipper's standpoint it has proven to be a
proactive, noninvasive tool to facilitate rail-customer
negotiations and it has in fact speeded up those negotiations.
So they like the system. It has not been invoked very often
because the railroads are negotiating. That is where we are
trying to get to.
Senator Burns. Mr. Linville, do you have a thought on that?
Mr. Linville. No, just to say that in the grain industry we
have private arbitration in the National Grain and Feed that
has added non-price issues, service issues, to our arbitration
program and that has worked effectively.
Senator Burns. Well, the economic scale, and this I guess
is the point where I am going to close because we are going to
do something here. I do not know what is going on down there,
but I got my bill passed yesterday, so I feel the load is off.
My State nationally ranks, it is fourth in wheat production
and ninth in winter wheat, second in spring wheat, third in
barley, fourth in durum. They say there is all kinds of demand
for those commodities. But yet we are setting up there at the
end of the line.
My dad taught me a long time ago. He said always keep in
mind and it will never change, and it has not in the last, the
years since I been here, and I just did not exactly arrive on
the last load of pumpkins. But my farmer--and you can say it in
Kansas and you can say it in Missouri and you can say it in
Nebraska, where my wife's folks, they ranch up there in North
Platte, you see them old Scoular cars go scooting through
there. You see them go through Laurel, Montana, knowing,
knowing, that that grain is getting from Omaha or in Kansas to
Portland cheaper than my grain is and it is setting right
there, knowing that.
Agriculture, the producer has always sold wholesale, buys
retail, and he pays the freight both ways. And the only system
we have--and it may be here in S. 919, because we pretty much
established that this is to restore what the Staggers Act meant
and also a way to bring arbitration of the small shipper to the
notice of the railroad or transportation that they have a
monopoly.
I think that is fair. I think that is fair. And that is
basically all S. 919 does. It does not set any rates. it does
not empower anybody any more, other than the fact that it sets
up that framework in order to get that done.
So we are going to push very hard on S. 919 because I
really believe in it. We have got some little people out here
that is being hurt and we just, we cannot talk any more. It is
pretty easy to sit here in this 17 square miles of logic-free
environment and justify why we are here. But when you are
getting hammered it is pretty tough.
I want to thank--and I think a lot of the Burlington
Northern up there. They do a lot of great things in the State
of Montana. But there has to be a way that the small voice can
be heard. And if there is not, then all the goodwill that we do
and all the good things that we perform across the country and
across the world goes for naught. And that is what this was all
about.
I appreciate your testimony and I appreciate your
participation in this dialogue. But if this cannot get it done,
then tell us how. Do not go back to the office and say: We
ain't talking no more; we are just going to use a lobbying
effort to kill it. I will tell you, that may be pretty tough to
do, because there are small shippers everywhere in this nation
that I know of.
So thank you for coming today. Any closing thoughts? Any
closing thoughts?
Mr. Whiteside. I have one thought. We can be pro-
competitive and pro-railroad at the same time.
Senator Burns. I think so.
Mr. Nober. Senator Burns, I would just like to say that I
do believe our agency can solve these problems administratively
and, while I understand the pressures that have led, the
reasons why you want this bill to move forward, I think our
agency can address many of those and I hope that you would give
us a chance to do that.
Senator Burns. My comment to that is: Cowboy up. Get after
it.
Mr. Nober. The team with that slogan lost.
Mr. Platz. Senator, I think time is running out here. I
think jobs are at stake. We are competing in a global economy
now. Every day it becomes more and more obvious how jobs are
leaving the United States. I am not putting this on the back of
rail at all, but rail is a part of making the United States
economically viable in this global economy, and we need to do
something about it.
The model the railroads are following is flawed. They are
putting all of the burden on the customers that have no choice.
That is not right, it is not fair, and in the end it will be
their undoing. So we need to do something, and I think it is in
the hands of the Congress to do it. We need to set policy and I
think that is in your hands, not in the regulatory side.
Senator Burns. Mr. Hamberger.
Mr. Hamberger. Senator, thank you so much for your
attention and interest in our industry and in this hearing
today.
I, to try and paraphrase Mr. Whiteside, say you can be pro-
rail and pro-shipper, and that is exactly what we are. We want
to work with our customers. We want to make them competitive in
world markets. I noticed ACC's testimony. I still think of that
as a basketball league myself, but the American Chemistry
Council----
Senator Burns. I have got to stand up. I did not get that
either.
Mr. Hamberger.--testimony, indicating that of course it is
the increase in natural gas prices, which this energy bill
needs to address and do something about, but that is driving
jobs offshore. We are concerned about those jobs leaving. Once
they leave they will not come back, and our industry depends
upon a strong manufacturing base in this country, and so we
want to work with our customers to make sure that that base
stays as strong as it possibly can.
Thank you.
Senator Burns. Mr. Linville, thank you.
Mr. Linville. Yes, one closing comment. I would say that I
think the challenge that you describe is more acute in States
that have sparse production or low density of production. I
think as the density of production is greater the
industrializing and obtaining efficiencies of the evolving
transportation system is easier to gravitate to.
I have been to Montana many times, really enjoy the state,
but I know it is challenged with production per acre and lack
of production density. Capital will flow to where you have
dense production, grain shipper capital, railway capital. There
are some facts of life that we cannot get around.
So I would submit to you that this may not be at the
doorstep of rail shippers and railways. It may be a rural
development challenge.
Senator Burns. Thank you very much. That is a good thought.
Thank you very much today and thank you for coming and
offering your testimony. There will be some more questions
coming to you in the mail. This hearing is over. Thank you.
[Whereupon, at 4:34 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Questions Submitted by Hon. Ron Wyden to
Hon. Roger Nober
Question 1. Small volume shippers consider the existing rate
complaint process to be too complicated and uncertain to be of any
value. In fact, no one has filed a case under the Surface
Transportation Board's (STB's) small rate case guidelines. What actions
can the STB take to alleviate the concerns of small shippers about
resolving rate disputes?
Question 2. Is the Board's ability to take action to reform the
rail shipper complaint process affected by the current vacancies?
Question 3. Quality of rail service is another significant source
of concern for many of my rail using constituents. Car availability,
fees, on-time arrival and departure are just some of the issues I've
heard about in the past. What relationship do you see between these
kinds of quality complaints and the availability of rail-to-rail
competition?
Question 4. In an interview with Rail Business, you were asked
about the Rail Competition Act, S. 919, and you said ``If Congress
wants to do that, they should have a full debate about it. They should
understand what the ramifications are for the taxpayers and for the
folks that rely on the system.'' Could you elaborate on your comment
and explain what the ramifications are for taxpayers and rail users?
Question 5. I have been contacted by a constituent who operates an
intermodal freight facility about a proposal to create a new
classification of service providers. My questions are: does the STB
currently have authority to create a new classification of service
providers; should there be any new classifications of service
providers, such as the proposal described below; and if not, why?
Answer. As you know, there is a revenue-based definition of
categories of U.S. Railroads found in the regulations of the STB.
Currently, there are three classifications:
Class 1: Carriers with annual carrier operating revenues of $250
million or more
Class 2: Carriers with annual carrier operating revenues of less
than $250 million, but in excess of $20 million
Class 3: Carriers with annual carrier operating revenues of $20
million or less, and all switching and terminal companies regardless of
operating revenues.
My constituent is proposing adding a fourth class for companies
like his which specializes in moving cargo in shipping containers via
rail. Generally speaking, class IV carriers would be short-haul
intermodal service providers in regions located across two or three
states with agreements with Class 1, 2 or 3 railroads for hook and haul
services of less then 600 miles. Class IV intermodal service providers
would be entities which own or lease railcars and terminals and would
provide transportation on a single through bill between shipper and
receiver docks, or between docks and piers. The proposed definition for
the new Class 4 would be: Class 4: Carriers with annual operating
revenues of $100 million or less for short-haul Intermodal rail, and
terminal operations, and other services.
______
Written Question Submitted by Hon. Frank R. Lautenberg to
Edward R. Hamberger
Question. In page one of your testimony, you state that ``most
importantly, it [S. 919] dooms freight railroads to a state of
perpetual capital starvation.'' But according to the AASHTO Bottom Line
report, the freight rail industry will fall $53 billion short in
capital investment over the next 20 years even in the absence of
legislation such as S. 919, just to maintain its current market share.
If the freight railroads don't get Federal assistance in maintaining
their infrastructure over the next 20 years, what will be the effect on
captive shipper pricing? Won't the lack of capital take ``differential
pricing'' to an extreme?
When I asked you about the AASHTO Bottom Line report the last time
you appeared before this Subcommittee, you replied that the freight
railroads are looking forward to working with their public and private
partners to ensure there is sufficient capital investment in our
country's railroad infrastructure. Please provide more detail on the
type of funding conditions/arrangements you look forward to that may
involve public funding of U.S. railroad infrastructure.
______
Written Question Submitted by Hon. Frank R. Lautenberg to
Hon. Roger Nober
Question. What has the STB done to aid municipal commuter rail
operations in gaining access to railroad right-of-way? In general, do
you feel commuter rail holds sufficient public benefits to warrant
additional leverage in dealing with railroad right of way owners to
obtain access?