[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

                              ----------                              
                                                                   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\
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    \1\ Louis Thompson, World Bank Railways Adviser. Quoted in the 
Journal of Commerce, July 29, 1998.
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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.
---------------------------------------------------------------------------
    \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?

                                  
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