[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE HEARING ON
RAIL TRANSPORTATION ACCESS
FOR SMALL BUSINESSES AND
FAMILY FARMERS
=======================================================================
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
MAY 1, 2008
__________
Serial Number 110-90
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
HEATH SHULER, North Carolina STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona TODD AKIN, Missouri
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas STEVE KING, Iowa
DAN LIPINSKI, Illinois JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa DAVID DAVIS, Tennessee
YVETTE CLARKE, New York MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Kevin Fitzpatrick, Minority Staff Director
______
STANDING SUBCOMMITTEES
Subcommittee on Finance and Tax
MELISSA BEAN, Illinois, Chairwoman
RAUL GRIJALVA, Arizona VERN BUCHANAN, Florida, Ranking
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana STEVE KING, Iowa
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
______
Subcommittee on Contracting and Technology
BRUCE BRALEY, IOWA, Chairman
HENRY CUELLAR, Texas DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania TODD AKIN, Missouri
MARY FALLIN, Oklahoma
.........................................................
(ii)
?
Subcommittee on Regulations, Health Care and Trade
CHARLES GONZALEZ, Texas, Chairman
RICK LARSEN, Washington LYNN WESTMORELAND, Georgia,
DAN LIPINSKI, Illinois Ranking
MELISSA BEAN, Illinois BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
______
Subcommittee on Rural and Urban Entrepreneurship
HEATH SHULER, North Carolina, Chairman
RICK LARSEN, Washington JEFF FORTENBERRY, Nebraska,
MICHAEL MICHAUD, Maine Ranking
GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, PENNSYLVANIA, Chairman
CHARLIE GONZALEZ, Texas MARY FALLIN, Oklahoma, Ranking
RAUL GRIJALVA, Arizona LYNN WESTMORELAND, Georgia
(iii)
?
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Chabot, Hon. Steve............................................... 2
WITNESSES
Cleavinger, Mr. David, President, National Association of Wheat
Growers, Wildorado, TX......................................... 3
Keith, Mr. Kendell, President, National Grain and Feed
Association.................................................... 5
Hotchkiss, Ms. Nelle P., Senior Vice President of Corporate
Relations, North Carolina Electric Membership Corporation,
Raleigh, NC, On behalf of the National Rural Electric
Cooperative Association........................................ 6
Weber, Mr. Dan, Chairman, Ceres Solutions, Terra Haute, IN, On
behalf of the Agricultural Retailers Association............... 8
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M.......................................... 22
Chabot, Hon. Steve............................................... 24
Altmire, Hon. Jason.............................................. 25
Cleavinger, Mr. David, President, National Association of Wheat
Growers, Wildorado, TX......................................... 26
Keith, Mr. Kendell, President, National Grain and Feed
Association.................................................... 35
Hotchkiss, Ms. Nelle P., Senior Vice President of Corporate
Relations, North Carolina Electric Membership Corporation,
Raleigh, NC, On behalf of the National Rural Electric
Cooperative Association........................................ 40
Weber, Mr. Dan, Chairman, Ceres Solutions, Terra Haute, IN, On
behalf of the Agricultural Retailers Association............... 47
(v)
FULL COMMITTEE HEARING ON RAIL
TRANSPORTATION ACCESS FOR SMALL
BUSINESSES AND FAMILY FARMERS
----------
Thursday, May 1, 2008
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
1539 Longworth House Office Building, Hon. Nydia Velaquez
[chairwoman of the Committee] presiding.
Present: Representatives Velaquez, Grijalva, Cuellar,
Altmire, Clarke, Ellsworth, Sestak, Chabot, Bartlett, Akin, and
Fallin.
OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ
Chairwoman Velaquez. Good morning. I now call this hearing
to discuss rail transportation access for small businesses and
family farmers.
Small businesses and family farmers in rural America depend
on a reliable transportation system to move their goods. In an
increasingly global economy, rural companies are just as likely
to ship their products across the world as across the country.
A key component in helping these businesses achieve success is
access to an affordable rail system. Whether exporting wheat to
Asia or shipping fertilizer to a small town in Vienna, rural
communities have a critical stake in quality rail
transportation. In many instances, it is the only option for
sending and receiving goods.
Today, we will hear from small businesses and their
representatives who have been confronted with both rising rail
transportation rates and declining service. The Committee will
examine how this problem is affecting entrepreneurs and discuss
ways to address it. Most small businesses do not negotiate
contracts with Union Pacific. However, they certainly
experience the impact of rail rates which have gone up by as
much as 80 percent in the last three years.
The rising cost of rail affects nearly all commercial
activity in rural areas. Family farmers, in particular, are
taking the biggest hit. The payments that wheat and corn
growers ultimately receive are directly tied to rail costs.
With up to one third of wheat costs attributable to
transportation expenses, the situation cannot be ignored. This
is especially true when one considers growing concerns of
arising food prices.
Rail rates have a ripple effect that extend beyond
commodities and throughout the entire rural economy. Local
retailers feel the impact of rising rail transport rates when
they purchase fertilizer, seed, and other equipment. When these
businesses cannot move and receive their products, it impairs
the expansion of the local economy.
Today, increasing costs of rail transportation is also
having an enormous impact on affordable energy supplies. Coal
is the primary source for electric generation in rural areas
and it is shipped across the country on the railways.
Unreliable and expensive rail transportation would only lead to
higher energy prices.
With small businesses already seeing skyrocketing fuel
costs, this transportation problem is creating another major
challenge. At a time when there is major focus in rural areas
with the development of renewable fuels, there must be
infrastructure in place to support this growth. We need to
welcome new opportunities for expanding our rural economies and
assure valuable shipping options are available at competitive
rates.
Clearly, the federal policy framework must be examined to
ensure adequate competition. That is especially true when you
consider the laws on the books regulating rail transportation
were establish at a point in our history when railroads were
not financially viable. The nation's rural businesses have
shown an ability to adopt and change with the development of
new technologies, but to keep their products competitive in the
domestic and global markets, transportation is key. In most
instances that means rail transportation. If such service is
not available at a fair price, American farmers and small
businesses will lose market share. Foreign competitors will
more easily sell their products to U.S. customers and our rural
economy will suffer.
I look forward to hearing about possible reforms to ensure
the continued growth of small businesses in rural America. I
appreciate the witnesses coming here today and I thank you for
taking time off your busy schedule.
I yield to the Ranking Member, Mr. Chabot, for his opening
statement.
OPENING STATEMENT OF MR. CHABOT
Mr. Chabot. Thank you very much, Madam Chair, and thank
you for holding this hearing today on rail transportation
access for small businesses and family farmers. I also want to
thank our witnesses for being here and taking the time out of
their busy schedules to share their views with us on this
important issue.
Railroads have played a crucial rule in the history and
development of our nation and are one of the most important
contributors to our economy today. They were critical to the
development of the American West, and have had some part in
almost all stages of our nation's development. Whether it was
shipping steel used to build the Golden Gate Bridge, which was
fabricated in New Jersey, or transporting the Indiana limestone
and granite which composes the facade of the Empire State
Building, railroads have played a key role in creating the face
of America and maintaining the health of our economy.
Currently, more than 40 percent of our nation's freight is
moved by rail. Many goods Americans depend on and use every day
would never even make it into our homes if small businesses and
family farmers could not ship them via rail. For example, coal
which is used to produce nearly half of the nation's
electricity that lights American homes is shipped by railroads.
In 2006, there were 561 freight railroads operating in America
with an aggregate revenue of $54 billion.
Railroads, which contribute billions of dollars each year
to the economy through wages and purchases, retirement benefits
and taxes are vital to keeping America competitive in the world
market. Freight railroads employed 186,000 people in 2006 and
were one of America's highest paying industries. America's
small businesses and family farm depends on the rail system to
safely and efficiently ship their goods to the American
consumer.
In the past few years, many of these family farmers and
small businesses have voiced concern over the rising cost of
access to these railroads. It is in the best interest of all
Americans that we make sure small businesses and family farmers
continue to have access to affordable transport on American
rail.
Once again I want to thank Chairwoman Velaquez for holding
this hearing and look forward to hearing testimony from all the
witnesses here before us this morning and I yield back the
balance of my time.
Chairwoman Velaquez. Thank you. It's my pleasure to
introduce Mr. David Cleavinger. Mr. Cleavinger is a wheat
grower from Wildorado, Texas and currently serves as president
of the National Association of Wheat Growers. His production
has included wheat, corn, grain, sorghum, seed milo, sorghum
silage, corn and sugar beets, along with stock or cattle. NAWG
works as a team of state wheat grower organizations to benefit
the wheat industry at state and national levels.
Gentlemen, you are welcome, and you will have five minutes
for your testimony.
STATEMENT OF MR. DAVID CLEAVINGER, PRESIDENT, NATIONAL
ASSOCIATION OF WHEAT GROWERS, WILDORADO, TEXAS
Mr. Cleavinger. Madam Chairman and Members of the
Committee, my name is David Cleavinger and I am a wheat grower
from Wildorado, Texas. I currently serve as the president of
the National Association of Wheat Growers and I'm very pleased
to be here today to discuss an issue of great importance to the
wheat growers that I represent.
Wheat growers know that an effective railroad system is
necessary for the success of the wheat industry. By and large,
wheat country is centered away from our waterways and ocean
ports, leaving us primarily dependent on railroads to move our
products to waterway terminals and export facilities.
As the GAO found in a recent study, rates in captive areas
can well be above the threshold of reasonableness established
under the law and utilized the Surface Transportation Board.
Full operating costs to most railroads are about 100 to 140
percent of variable costs. Rates in excess of 180 percent are
considered above the threshold of unreasonableness by the STB
and are therefore challengeable. In some captive wheat growing
areas the rates have run as high as 300 to 400 percent of
variable cost.
Farmers are not in a position to pass their freight costs
along to consumers. In fact, we pay freight on fertilizer and
other supplies we purchase, and pay freight on the wheat that
we ship out. Further complicating our position, these farmers
are not the actual customers of the railroads that haul their
grain. The grain companies buy the producers' wheat and other
grains, and order the freight from the railroad, passing the
cost directly to the farmer. This is an important point,
because of the rights to appeal to the Surface Transportation
Board are granted to the actual rail customers which are the
grain companies.
NAWG and other agriculture industry leaders have requested
oversight by the Surface Transportation Board, as we believe it
is within their charter to do so. But very little progress has
been made. The STB's proposed new revisions to simplify
guidelines are highly restrictive and would make challenge
unreasonable rates virtually impossible for all but a few
facilities shipping small volumes of grain. This frustration
with a lack of regulatory oversight has led us to help develop
and support together with other captive shippers, including the
Alliance for Rail Competition, legislation that would
strengthen the rules of the game for growers. We believe parts
of HR 2125 and Senate Bill 953 would put us in a position to be
treated as a customer should be treated.
H.R. 2125 contains language addressing areas of inadequate
competition, common carrier obligation, bottlenecks, and
terminal access.
It would also develop a system of arbitration of rate and
service issues. While we support these bills we also know that
these issues will take time to move through the congressional
process, so paying heed to the old saying ``if you're not at
the table, then you are on the menu'', we have begun a process
of problem resolution with one of the four major Class 1
railroads. Corn, soy, and wheat growers and other interests,
along with representatives from BNSF Railways, have formed the
Ag Business Rail Council. Our first meeting was in February,
and I will have to say we were treated like customers, rather
than as a third-party who has been picking up the freight.
The agenda included discussion of railcar allocation,
harvest congestion, differential pricing, revenue to variable
cost ratios, and what constitutes a ``reasonable freight
rate.'' some of these topics will require considerable homework
on our part, but we are determined to find solutions for our
growers. This is a forum to educate the railroad about the
needs of producers. It will also enhance our understanding of
the rail freight business, with the ultimate goal of finding
mutually beneficial solutions.
Wheat industry leaders have been working on rail rate and
service issues for over 30 years. We believe the complexity of
this issue has been a deterrent for many of the parties
including Congress. It would be easy to throw in the towel and
say ``we're tired of messing with this'', but we can't do that.
Opportunities exist to increase service to American
agriculture, such as the new STB accountability, HR 2125, and
coalitions like the Ag Rail Business Council.
We understand that new railroads are not going to be built,
so competition in that sense is unrealistic. What we can
accomplish is accountability on all sides, to find good service
at reasonable rates.
Madam Chairman, thank you again for allowing me to be here
today and I am here to answer any questions that you have.
[The prepared statement of Mr. Cleavinger may be found in
the Appendix on page 26.]
Chairwoman Velaquez. Thank you, Mr. Cleavinger.
Our next witness is Dr. Kendell Keith. Dr. Keith is
president of the National Grain and Feed Association. He has
served for 21 years as NGFA president in charge of the overall
direction and has 900 company members in the grain, feed, and
processing sectors. The NGFA, founded in 1896, is a broad-
based, nonprofit trade association that represents and provides
services for grain feed, and grain-related commercial
businesses.
Welcome.
STATEMENT OF MR. KENDELL KEITH, PRESIDENT, NATIONAL GRAIN AND
FEED ASSOCIATION
Mr. Keith. Chairwoman Velaquez, Ranking Member Chabot, and
Members of the Committee. I am Kendell Keith, president of
NGFA. We do have 900 member companies most of which are small
businesses throughout the U.S.
One of the paramount concerns for U.S. agriculture and
small business in rural communities is that overall rail
shipping capacity in the U.S. is not meeting the growth and
demand. While the cost of rail service is a matter of concern,
more significant is whether there will continue to be
predictable service at all in some locations. For that reason,
NGFA is supporting legislation that would provide a tax credit
for investments in rail infrastructure.
Railroads are rationing rail transport capacity in today's
marketplace, often through demarketing strategies that price
rail service above economic levels. At the same time, some of
the railroads are investing in new infrastructure to serve the
growing demand for transportation. But a serious question is
will the railroads invest in new infrastructure at the rate
that would be desirable by consumers and the customer base of
the railroads? We think legislation would help in this regard.
In the grain-based agricultural industry, railroads have
been encouraging grain elevators and grain users for a number
of years to build the infrastructure to ship longer trains.
This also has caused us increasingly concentration of grain
handling at fewer loading points which means farmers have fewer
points to deliver grain to. So the farm-to-market distance is
increasing on average, leading to more traffic on highways and
local road systems. The added cost of highway repairs, of
course, is borne by the taxpayer.
With the constrained rail capacity, we have seen higher
freight rates in grain in the last three years. Revenue per
grain rail car has increased between 27 and 52 percent for the
major U.S. rail carriers. I might add that that includes both
fuel surcharges as well as the rates on the cars themselves.
Part of this rate increase is related to the fuel surcharge
issue, but mostly it is tied to increased demand for
transportation. We're not judging whether this level of rate
change is justifiable or reasonable, but we do think that such
rate increases suggest the need to monitor the situation and
consider how increasing rail rates may affect rural communities
in small business. And the situation of higher rail rates
underscores the need to review whether there are effective
tools available to shippers to deal with unreasonable rail
rates.
The Surface Transportation Board is in the process of
making some changes to federal rules that govern the challenge
of rail rates. But it's been 13 years since the U.S. Congress
passed the Interstate Commerce Commission Termination Act which
specifically directed the STB to provide a way for shippers to
challenge rates in so-called small rate cases. In that 13
years, no small rate case has been completed which provides
ample evidence that the STB for most of that period has been
unresponsive to the needs of rail customers in the clear
direction given by the U.S. Congress.
There are three cases now pending under STB's new small
rate case guidelines. We believe the new STB rules will also
prove to be of little use to shippers. This is because the
agency chose to cap the potential benefits of such rate
challenges at such a low level that it will discourage shippers
from bringing cases. We think this approach by the STB will
fail to achieve the market discipline on rates intended by
Congress and unfortunately also fail to improve the business
relationship between railroads and their customer. Thank you
again, and we look forward to questions.
[The prepared statement of Dr. Keith may be found in the
Appendix on page 35.]
Chairwoman Velaquez. Thank you, Dr. Keith.
Our next witness is Ms. Nelle P. Hotchkiss. Ms. Hotchkiss
is Senior Vice President of Corporate Relations for the North
Carolina Electric Membership Corporation. She's testifying on
behalf of the National Rural Electric Cooperative Association.
NRECA was founded in 1942 and is the national organization
representing cooperative electric utilities. Welcome.
STATEMENT OF MS. NELLE P. HOTCHKISS, SENIOR VICE PRESIDENT OF
CORPORATE RELATIONS, NORTH CAROLINA ELECTRIC MEMBERSHIP
CORPORATION, RALEIGH, NORTH CAROLINA, ON BEHALF OF THE NATIONAL
RURAL ELECTRIC COOPERATIVE ASSOCIATION
Ms. Hotchkiss. Madame Chairwoman, Ranking Member Cabot,
and Members of the Committee: My name is Nelle Hotchkiss and I
am the Senior Vice President of Corporate Relations for the
North Carolina Electric Membership Corporation. Our
membershipconsists of 26 electric cooperatives serving over 2.5
million consumers in 93 counties of the 100 counties in North
Carolina. I appreciate the opportunity to speak before you
today about the issue of rail transportation and the importance
of adequate rail competition in my state and across this
nation.
As member-owned, not-for-profit organizations the
obligation of rural electric cooperatives is to provide a
reliable supply of electricity to all consumers in our service
areas at affordable rates. We take our obligation to serve very
seriously. The personal and economic health of our members, our
communities, and our nation depends on it.
Electric Cooperatives are dependent on the railroads for
the transportation and delivery of coal. Simply put, we do not
believe that America's four major railroads are meeting our
transportation needs in the most efficient and dependable
manner. Electric cooperatives and other rail customers do not
receive reliable rail service at reasonablerates. The Surface
Transportation Board or STB, the government agency charged with
the regulatory responsibility for the nation's railroads, is
not addressing crucial rail customer rate and service problems.
Some utilities are being forced to buy more expensive
foreign coal because they can't rely on railroad deliveries
from the Powder River Basin, the richest source of low sulfur
coal in the world.
Electric cooperative consumers in North Carolina and around
the country have experienced deteriorating rail service and
sharply increased rates. For example, from 2002 to 2007, North
Carolina's electric cooperatives experienced a 45 percent
increase in the coal freight component of our energy cost
which, in turn, was reflected in the wholesale rate of power.
That increase calculates to over $8.7 million in higher costs
during this time frame than have been borne by our end
customers: residents, small farmers, and small businesses.
Service problems and high rail costs occur primarily in areas
where shippers are captive meaning they have no transportation
option but to use a single railroad.
Captive rail customers are shippers who must rely on those
single railroads to deliver their products. These customers
usually move bulk commodities such as coal, grain or lumber, or
certain materials that, due to size or characteristics, cannot
be moved on our nation's highways.
Historically, 20 to 30 percent of the nation's rail
movements have been ``captive'', with many of these movements
covering rural America. Today, in a capacity-constrained rail
system, a majority of rail movements may lack competition.
The nation's antitrust laws are meant to protect consumers
and the overall public interest from anti-competitive behavior
by businesses. The railroads are exempt from antitrust laws and
do not play by the same rules. The railroads' antitrust
exemptions are antiquated, have no public policy justification,
and allow anticompetitive conduct. The resulting lack of
competition, together with ineffectiveness of the STB, have
allowed freight railroads to reap huge profits with no market
consequences or legal accountability for their unreliable
service or exorbitant rates and fees.
There are solutions however. The railroads must be covered
by the nation's antitrust laws, just like other industries and
the STB must be more responsive to the public interest and
concerns of rail customers. Legislative activity in the 110th
Congress has moved to give America the railroad system it needs
for the 21st century, and to correct current railroad abuses.
Madam Chairwoman, thank you for conducting today's hearing.
We look forward to working with this Committee and all other
stakeholders to resolve these critical rail issues in an
objective and constructive manner. And I'd be happy to take
questions.
[The prepared statement of Ms. Hotchkiss may be found in
the Appendix on page 40.]
Chairwoman Velaquez. Thank you, Ms. Hotchkiss.
And now I recognize Mr. Ellsworth for the purpose of
introducing our next witness.
Mr. Ellsworth. Thank you, Madam Chairwoman. It's an honor
for me to introduce one of my constituents from the great State
of Indiana. Before I do that though I'd like to take just a
second. Mr. Weber and I were talking before the hearing and he
inquired about the Farm Bill. Since a lot of farmers and
ranchers are small business owners, I think it concerns this
Committee that we do pass a Farm Bill. It does come out of
conference and the President has signed that. We talk about
stimulus packages. If our farmers and ranchers knew what their
future held, that might be the stimulus package that we need.
So I hope that we can get that out and I'm cautiously
optimistic that we have a deal cut and that the President signs
that and we can deliver good news to you.
With that, it's my honor to introduce, like I said, a
constituent, someone who hails from the great State of Indiana,
Mr. Dan Weber. Mr. Weber is chairman of the Agriculture
Retailers' Association, otherwise known as ARA. He currently is
vice president of agronomy with Ceres Solutions in Terre Haute,
Indiana, which is also in my District. The company serves more
than a dozen counties with agronomic inputs, energy, grain
marketing and a wide variety of other products and services for
producers and consumers.
ARA serves agriculture retail and distribution businesses
by ensuring a profitable business environment for members.
Mr. Weber, thank you for coming and the floor is yours.
STATEMENT OF MR. DAN WEBER, CHAIRMAN, CERES SOLUTIONS, TERRA
HAUTE, IN, ON BEHALF OF THE AGRICULTURAL RETAILERS ASSOCIATION
Mr. Weber. Thank you for the introduction, Congressman
Ellsworth.
Madam Chairwoman and Members of the Committee, thank you
for inviting me to testify today on behalf of the Agriculture
Retailers Association concerning rail transportation access for
small business and family farmers. I'm Dan Weber, Vice
President of Agronomy, with Ceres Solutions LLP, a cooperative
selling crop inputs and application services in the State of
Indiana. I am also Chair of the Board of Directors for the ARA
which represents a significant majority of the nation's ag
retailers and is located in Washington, D.C.
Ceres Solutions is an agricultural cooperative owned by
farmers, operating 26 agronomy retail locations serving 5,000
agricultural producers in Western Indiana with crop inputs and
application services. I began my role in the agronomy division
of Ceres Solutions in February 2007. My background includes 34
years in agriculture retail sales and management, wholesale
fertilizer, crop chemicals and seed distribution in the Midwest
Region. Ceres Solutions' key agronomy products marketed to
farmers are nitrogen, phosphates and potash.
Rail services played a critical role in the distribution of
the necessary crop inputs in the past and was a reasonable cost
effective transport alternative. In my job I oversee the
procurement and receipt of about 125,000 tons of fertilizer
with 40,000 tons of that being rail delivered into our
facilities.
In doing business with the railroads for the past three and
a half decades, I have experienced a deterioration in the
service to the agriculture industry. In the 1960s, the industry
moved away from animal manures and bag fertilizer to bulk and
spray applied fertilizer. These new fertilizer retail
facilities were built next to the railroads. Railroad service
to these facilities was acceptable through the '70s, but
beginning in the '80s, the railroad began to abandon service to
many of the smaller communities and business operations. By the
1990s, most of their service to the smaller communities was
lost.
Now, the railroad is giving preference to the unit car
receivers. Unless you are a large distribution center
fertilizers are typically shipped to your retail operations in
small quantities because of the short side tracks and the
storage limitations at our retail operations.
As an example, one railroad just announced the rates of the
phosphate shipments from Florida which will increase in June by
10 percent for single car shipments while unit train shipment
of 65 cars will increase six percent and unit train shipments
of 85 or more cars will increase only 3 percent.
An example of excessive fees is the railroad's practice of
arbitrarily invoicing for services. If one of our retail
locations received less than 25 freight cars per year, we
received an invoice of $6,000 for an annual side track
connection charge. Most of our facilities in the country
average six cars annually.
Furthermore, the railroad has changed their tariffs without
giving receivers adequate warning. This practice can result in
huge investment losses for our business that have expanded or
changed their business model based on the expected tariff or
car credits that were in place and we thought would continue.
We've learned to get their promises in writing.
One difficulty in dealing with the railroad fees and
tariffs is that small business owner has little recourse to
challenge the railroad's decisions because of the cost of
arbitration and the long length of time the process requires.
In my opinion, the railroads increased poor service is caused
by: one, the railroads' unwillingness to carry toxic-by-
inhalation chemicals which is like our anhydrous ammonia; two,
because of their monopoly status on our industry, and third,
the lack of oversight by the Surface Transportation Board.
ARA has a number of recommendations in the written
testimony, but a few are: increase the transparency in the
charges and rates, reform the STB to make it more accountable
and responsive and review the railroads' antitrust exemption
status.
Please remember that for every rail car that is eliminated,
that we receive fertilizer in, we add four semi-trucks to the
road to move that same volume.
Thank you, Madam Chairman for allowing me to testify and I
will be willing to answer any questions the Committee may have.
[The prepared statement of Mr. Weber may be found in the
Appendix on page 47.]
Chairwoman Velaquez. Thank you, Mr. Weber.
Mr. Cleavinger, I would like to address my first question
to you. With rising food prices, there has been a great deal of
discussion as to what is driving grain and corn prices. Do you
believe increasing rail costs are part of the reason we are
seeing higher commodity prices?
Mr. Cleavinger. No. Rail costs have nothing to do with the
price of the commodity paid by on the top side. We've seen a
reduction of $4 per bush in wheat in the last two months, yet
we haven't seen a reduction in bread costs. So the commodity
prices have nothing to do with--on the top side have nothing to
do. They have to do with what the farmer actually gets for his
wheat, but not what the top side.
Chairwoman Velaquez. Can you explain to us how do rates,
rail rates generally affect the bottom line for farmers?
Mr. Cleavinger. What we are paid for wheat comes off, the
freight cost comes off our per bushel wheat. Like where I am,
we take the futures market and subtract the freight costs to
get what I'm paid for a bushel of wheat. So that's how an off-
rate cost comes off that, including rail, trucking, whatever it
takes to get it to the market.
Chairwoman Velaquez. Dr. Keith, I understand you believe
that the Surface Transportation Board, STB, is not being
proactive in their case management. What are some examples of
delivery problems your shippers are facing?
Mr. Keith. Well, one of the most common complaints we get
is when facilities will order a train to be delivered for
loading. There are restrictions on how long you have to load.
Generally, it's 15 hours or you start to incur penalties. And
so you try to plan for the arrival of the train and you try to
have labor available, but it is still very unpredictable when
some train will be delivered and sometimes they're delivered on
Friday night at midnight and those kinds of things, so it
forces the labor situation at your facility to be more
difficult to manage.
We're also getting some complaints about slow approval of
new switches to gain access to rail service, in particular, in
new ethanol facilities where they're trying to ship both the
ethanol product as well as the DBG's byproduct.
Chairwoman Velaquez. Can you talk to us as to how STB
handles those types of complaints?
Mr. Keith. The STB has a formal complaint process that you
have to go through if you want to lay out arguments. They've
also got an informal complaint process that you can go to a
particular office and sometimes get quick resolution. On things
like this, though that have a significant impact on a business,
generally, you go through a formal complaint process and those
formal complaints can take a long time. That's part of the
problem. There was a complaint that was on storage of tank cars
that lasted five years from start to finish. And it just
shouldn't take that long.
We think the STB is starting to improve in some areas in
trying to expedite some, but when it takes five years of
litigation, it gets costly. It sours relationships with your
carrier and we should be able to do better than that.
Chairwoman Velaquez. Ms. Hotchkiss, one of the problems
you mentioned is how the lack of rail car access creates
unpredictable or limited coal shipments. Has this problem
become so severe that rural electric co-ops are seeking
alternatives to coal?
Ms. Hotchkiss. Madam Chairwoman, this problem--I wish we
could do it that quickly or it's like taking off your coat and
putting on another coat. When you build a power plant it's
built specifically to burn a particular fuel, in this case
they're impacted by this problem, our coal plants. So to seek
an alternative fuel for those particular plants is really not
an option. So what we try to do is when inventories get too
low, sometimes we have to buy on-the-spot market which is very
expensive and that flows right now to consumers in costs. Or we
have to import coal from foreign sources and ultimately it is
cheaper to do that which to me just doesn't make sense when we
are so rich in that particular mineral resource.
Chairwoman Velaquez. So you don't see in the foreseeable
future rural electrical co-ops start shifting towards
alternative sources of fuel?
Ms. Hotchkiss. Well, I think if this particular problem
isn't solved, as well as other challenges that we face in the
electric industry that perhaps aren't specific to this
particular problem, we will be looking at other sources, for
instance, natural gas, perhaps. But then you have capacity
problems and pipeline issues that they have to be built out for
that. So there isn't a really good solution. Our view is that
these exorbitant costs and poor service and poor resolution
process at the STB needs to be resolved so we can bring a
better value to our consumer. Because right now that's not
bringing a value to the consumer.
Chairwoman Velaquez. Thank you. Mr. Weber, I heard when
you say that you have been involved for almost 34 years or 35
years. Can you compare service and rates from when you began
your business with today? What are some of the changes you have
seen?
Mr. Weber. Madam Chairwoman, I think the major change is
the shift from the local yard having the control to position
our cars versus going to a regional control. The local no
longer makes that decision. The cars may be sitting in their
yard, but they're taking direction from a regional distribution
control.
I think that's the major--before we could talk to the local
and tell them what we expected as far as needing a car in so
many days or where we were at in movement. Now we don't have--
we don't have access to that regional guy, they don't answer
the phones. You get recordings instead of people.
Chairwoman Velaquez. With utilization of new technology,
is rail service better today than it was 35 years ago?
Mr. Weber. No. Do you want me to expand on that? I don't
think so. I think we have more difficulty getting, specially
the two and three-car shipments than we ever have. But I
understand the economics. The railroad wants to push for the
multiple cars, 65-car plus units, 85 cars. Much more economical
for them, but that's not what our facilities were built around.
Most of them were built around two and three car receiving
locations in the '60s and '70s and okay it has not improved.
It's deteriorated.
Chairwoman Velaquez. Mr. Chabot?
Mr. Chabot. Thank you, Madam Chair. Mr. Cleavinger, I'll
start with you, if I can.
As you had mentioned the rates of reasonableness for
shipping have been established by law and are to be used by the
STB to evaluate rail rates. The current threshold for the rate
of unreasonableness is 180 percent of variable costs. You also
stated that some rates in wheat growing areas are as high as
300 to 400 percent above the variable costs. So just a couple
of questions. Could you sort of explain what is meant by
variable cost, what goes into that and how are shippers in
these areas handling the situation right now and how do they
make ends meet and what attempts have been made to remedy the
situation?
Mr. Cleavinger. Well, the AJL Studies were done in 2006,
so a lot of this information was from that time period. That's
the most recent data we've had. And I stated that some, they
have been as high as 300 to 400 percent. With some negotiations
we've had with the railroads, they are working. We've had one
huge problem in Montana in that state as far as rates go and
they are working to get those rates down and I think a lot of
it has--is a direct result of our going to the railroads and
through this process of bringing legislation forward. Had this
legislation not been brought forward, there was no incentive to
address rate issues. So all those variable costs are passed on
to the producer and also was stated a lot of these efficiency
that the railroad has become more efficient with shuttle
trains, it has been at the expense of the producer because
instead of delivering our wheat to a local facility, we've had
to truck it further distances to get to a shuttle facility and
putting more costs on producers. So I think that's an important
point to make.
The railroad has become more efficient and rates have gone
down on shuttle facilities, but it's larger shipments and it
has put more costs on the producers.
Mr. Chabot. Thank you very much. Dr. Keith, if I could go
to you next. You had mentioned one of the costs that have to be
dealt with is the fuel surcharges which have been going up.
Mr. Keith. Yes.
Mr. Chabot. And I assume that that's related to the
overall additional increases in energy that consumers are
dealing with at the gas pump or that our truckers are dealing
with with diesel. It's costing us much more. And my question
would be getting to what we, as Congress, or what we as a
nation ought to be doing about that, would you agree that one
thing, one of the problems is that we're too dependent on
foreign sources of energy, we need to go after what we have
accessible to us and that two of those places that we do have
access to that we've put off limits are up in Alaska and ANWR
and in the Outer Continental Shelf. It's a debate we have
around here all the time and I don't know if you'd like to
weigh into it.
Mr. Keith. Yes. Dependence on foreign oil is a national
problem and we think it's time to get down to business on
solving the problem in practical ways. We don't think that the
railroads are out of line by wanting to recoup some of their
increased costs. It is the cost of doing business. However,
some of the formulas that they had at one stage were extremely
biased toward their revenue bottom line and those things, we
think have been largely corrected.
We're a little disappointed that the STB did not require
the railroads to provide more information about how they
compute surcharges across modes because you cannot compare the
surcharges applied to grain and compare that whether it's fair
compared to coal or intermodal. You simply don't have the data.
That was another STB ruling that we were a little disappointed
in.
Mr. Chabot. Thank you. Ms. Hotchkiss, you had mentioned in
your written testimony that rail transportation is often
unreliable and that this contributes to the loss of customers.
In your past experiences what have the railroads done that make
them unreliable? Do you have any particular instances?
Ms. Hotchkiss. What we have experienced nationally is not
dissimilar to what the other gentlemen here on this panel have
discussed. Time frames that they were supposed to have
delivery, we had one instance where a major railroad put an
embargo, basically just stopped delivery for a while and
there's Catch-22s in that because of certain contractual
situations. You can't go to another hauler. And so you're
forced perhaps to truck it in and has already been mentioned,
if you have to truck it in, you're looking at four or five
trucks on the road as opposed to a rail car.
We had tried to meet the railroads in a way of actually
paying for the building out of infrastructure when we get into
the short line situation. We have paid literally paid for the
rail cars. We've tried to get the lighter rail cars that
they're asking us and the longer ones for aluminum. So
basically, we feel like we keep trying to help and we keep
trying to be a good customer and we're not necessarily getting
the same response back. And that has just continually been an
issue. And so when we run into low inventory situations, we
have to find alternative ways to either get the coal there or
we have to buy on-the-spot market. We just don't have it. Those
are things that wreak havoc on our systems.
Mr. Chabot. Thank you very much. I should probably note
you mentioned Catch-22. I heard this morning on NPR that I
believe today is Joseph Heller's--would be his birthday who
wrote the book Catch-22 that that comes from. I knew everyone
would appreciate me bringing that to their attention.
Finally, Mr. Weber, what type of special handling do the
goods that you ship require and are they more difficult to
handle and I assume that has something to do with the increased
cost as well. Is that correct?
Mr. Weber. Somewhat. The rail cars they use for coal is
the same we use for fertilizer. The same rail cars they use for
grain are the same ones we use for fertilizer. They just sweep
them out, clean them and they'll load grain going back to the
receivers.
The only one that has a special use is the pressurized
vessels for anhydrous ammonia. That is a specific use vessel
and that adds more cost. The railroad has been asking for a
waiver where they wouldn't be held accountable if there was an
accident on the rail system and anhydrous was released. They
were wanting to cap their liability there. If they do that,
they need to do the same for truckers. We have to employ four
more trucks for every rail car we don't receive. Right now, I
have real difficulty finding enough trucks when that rail car
doesn't show up because there's the difficulty in the drivers--
availability of drivers and the NH3 bottles themselves that we
need for transport.
Mr. Chabot. Thank you. And just to make sure I have this
clear. The general breakdown would be about--if you had four
tractor-trailer trucks, you're talking about the trucks that
would equal, in general, one railroad car?
Mr. Weber. Right.
Mr. Chabot. Thank you very much. I yield back, Madam
Chair.
Chairwoman Velaquez. Mr. Sestak.
Mr. Sestak. Thank you, Madam Chairwoman. I think I only
have three questions. I apologize I wasn't here and if you
mentioned this, I hope you don't mind my asking again.
The question I have is mainline railroads began to rent out
or do other short line railroads. There were certain agreements
made, you might say certain restrictions at times made to
what's known as you well know, paper barriers. What is your
take, if I might ask, you two gentlemen, about this impact
for--on rail-to-rail competition in the sense that--I mean
should there be some movement towards disallowing these to help
this ability to bring down price?
Mr. Cleavinger. Obviously, if there's an agreement that
only one railroad can carry freight and they have to carry that
freight and other competition is not allowed, it affects what
cost will be involved in that freight carrier. So those paper
barriers of allowing only that short line to carry that freight
causes anti-competition.
Mr. Keith. Our view is that sometimes paper barriers are
necessary on a temporary basis, maybe for a three or five-year
period because it affects the value of the line. And the
railroad may be faced with situations do we abandon the line or
do we spin it off and if they spin it off and it's affordable
to operate for a short line operator, then we think there may
be some justification for a short period of time. But maybe the
burden of proof should shift. If you've got one of these and it
extends beyond say five years, the burden of proof should be on
the carrier to demonstrate why it's necessary to have an
agreement like that in perpetuity.
Mr. Sestak. So you're saying after a while it may be bad
public policy to not allow shippers to utilize all potential
routing options?
Mr. Keith. Yes, and to the extent you can create
competition by forcing--
Mr. Sestak. Is this something STB should look at?
Mr. Keith. They already have looked at that.
Mr. Sestak. Have they looked at it well?
Mr. Keith. My conclusion is the way the STB decided on
this was that they decided not to establish any firmer rules or
guidelines than what exist today.
Mr. Sestak. Got it. Let me ask that question along the
same line, if you don't mind, bottlenecks, through rates. Has
that also had a similar impact upon the cost so that somebody
ships from Washington, D.C., Chicago, but it goes to Pittsburgh
and so you could off-load or short line or something there, but
you do not ever see that they are permitted only to show you
what the through rate is rather than showing you what the
competitor might do here. There's this--would that help at all?
You know what I'm talking about.
Mr. Keith. There's no question that competition affects
rates.
Mr. Sestak. But is this a problem, this bottleneck through
rate issue on the cost again, it's something we should be
looking at?
Mr. Keith. It's probably more of a problem in the energy
than it is in agriculture per se, but yes, there's places where
it does create issues.
Mr. Sestak. Ms. Hotchkiss, did you have a comment on that,
since you mentioned energy?
Ms. Hotchkiss. Yes, sir. Bottleneck rule has been a
problem. One particular cooperative in Arkansas had experienced
this and a third-party independent carrier was willing to do it
and they could not and it does increase the cost. There's no
doubt about it.
Mr. Sestak. Are they precluded from it or are they self-
precluded from it because they know somebody else will--they
could be two main lines doing this, but one main line from
Pittsburgh, he may have--from Chicago, but he knows that if he
offers a separate rate, he's going to be jammed on the other
side. Is that wrong?
Ms. Hotchkiss. No. I mean I think there are times when
there may be a situation that does exist and needs to be
addressed, but I think there have been abuses using this.
Mr. Sestak. Is this something STB should look at?
Ms. Hotchkiss. Absolutely.
Mr. Sestak. Do they do it well now?
Ms. Hotchkiss. The ruling so far have not been in favor of
the shippers.
Mr. Sestak. My last question is probably more
philosophical, but the common carrier obligation under Title
49, what do you believe is reasonable obligation? Has the STB
interpreted that correctly, do you think under Title 49 to
provide real services at a reasonable request of obligation? Do
you know what I'm asking, sir?
That's kind of a subjective phrase.
Mr. Keith. We are concerned because we've got capacity
limits today and because we're not seeing an expansion of
capacity in rail that we're going to run into more and more
service problems dealing with this issue. I think the issue, in
particular, though may be a sensitive one for the chemical
industry.
Mr. Sestak. Is that?
Mr. Keith. The chemical industry in situations where the
railroads would like to see some relief from the common carrier
obligation because of what they perceive as the risk involved
in hauling that type of freight, but that's really not in my
area of expertise.
Mr. Sestak. I guess and this is something--I'm done for
time. I'm sorry.
Chairwoman Velaquez. Time has expired.
Mr. Bartlett.
Mr. Bartlett. Thank you very much. Two of the reasons that
your costs are going up are lack of competition and the
increase in energy costs. It's very attractive when looking at
the increasing energy costs to question why we haven't drilled
in ANWR and offshore and on our public lands. I for one am glad
that we have not drilled there because I have 10 kids and 16
grandkids and 2 great grandkids and I'd like to have a little
energy for their generation, thank you.
The world has now reached its maximum capability for
producing oil. That happened in our country in 1970. It has
happened in the world now. IEA and AEA, the two big
organizations that track this have verified that with their
data. There's a finite amount of oil in the world. It is not
infinite. If we drilled ANWR it would be ten years before any
of that hit the market. It is not a solution to our current
problem. I'd just like to get that on the record, Madam
Chairman. There are solutions to our current problem. Drilling
in ANWR or offshore or public lands is not one of those
solutions.
Your rates are up for shipping. Are the railroad companies
making exorbitant profits?
I haven't seen their profit sheets, but I would doubt that
they're making exorbitant profits. So we have to look at why
the rates are up. Is their cost shifting? Are some of their
customers getting lower rates and they are disadvantaging you
by increasing your rates?
Before we know how to solve a problem, we have to know what
the problem is. I don't really know what the problem--you have
a problem and that is unreliable service and rates that are too
high. But I don't know why the service is unreliable and why
the rates are too high. Clearly, lack of competition and Mr.
Cleavinger, I was very interested in your first graph. It
looked like a tennis elimination. We start out with a whole lot
of railroads and now we're down to four. Country-wide, we're
now down to four railroads.
Madam Chair, I don't know what the ultimate solution is,
but clearly, clearly, we have got to have competition.
Unfortunately, we have been moving away from rail to trucks
which are just a little handier and when oil was $10 a barrel
and I remember buying gasoline six gallons for a dollar, six
gallons for a dollar back during the Depression. I can remember
that. It didn't make any difference that it was five times more
expensive than moving by truck than it was by rail because it
was so darn cheap to move it either way because energy was so
cheap. That's not true today. And unfortunately, we have
allowed our rail system to deteriorate. We have had a Rails to
Trails program. I'm glad for that, as I mentioned, when I said
hello to you because now that means those road beds are still
there and now in the future, Madam Chair, we may have a very
aggressive Trails to Rails program, as we take those roadbeds
and put rails back on them.
I don't know what the problem is and until we know what the
problem is we don't really know how to get a solution. You have
a problem. That is your rates are too high and your service is
unreliable and I think it's incumbent on us to try and find out
why and what can be done about it, to turn back the hands of
time and to start over and to keep in place the enormous rail
system that we have. Now unfortunately, we have developed an
infrastructure in our country which is essentially
unsustainable in a carbon-deficient world. We have nowhere near
the rail transportation that Europe has, for instance, and the
developing countries are now putting in rail transportation
because that's their first transportation.
So I am very interested in this hearing. Thank you, Madam
Chairman for holding it. I just don't know what the problem is.
And until I know what the problem is, I don't know how to
address the problem.
I thank you all very much for your testimony. We
appreciate, for the record if you can, your analysis of what
you think the problem is and how we can solve these problems.
If they're cost shifting, we need to stop that. If someone else
is getting good service and you're getting lousy service
because of discrimination against you, we can help stop that.
But we don't know what the problem is and until we know, we
don't know how to solve the problem.
So thank you very much for your input and Madam Chair,
thank you for holding this hearing and I yield back.
Chairwoman Velaquez. Ms. Fallin, are you ready? If not, I
could go on and ask some questions. Are you ready to ask your
questions now?
Ms. Fallin. I might just ask a few. Thank you. I wish I
could have made it to your testimony a little earlier, but I
had some other commitments, but I appreciate all of you being
here today. In my State of Oklahoma much of our state was built
with railroads throughout our rural communities and were very
important to the beginnings of our state and of course, now as
has been mentioned, we're seeing a decline in access and
available and infrastructure. I also serve on the
Transportation Committee, and so we talk about rail a lot and
all modes of transportation for our nation. And as was
mentioned by Congressman Bartlett, we are experiencing some
challenges with our energy industry and how do we supply the
energy that our nation needs and the world needs. I can
disagree with him though on the need to look at other energy
sources and more exploration of production. I hope we do do
that as a nation.
And as we continue to look at alternative sources of fuel,
are there any other alternative sources of fuel that can be
used in the rail industry that maybe Congress could help
encourage? I know that your main source of energy on the rails
are usually coal. That may not be in your expertise, but do you
see any other forms of energy that could be used to power the
rail systems and help you transport your goods and services?
Ms. Hotchkiss. As the energy person here, I don't know
that I could address specifically to provide an alternative
fuel to the actual railroad itself. I will tell you they also
move material that we use for the operation of our nuclear
plants. And to provide--these are base load plants. These
provide power 24-7 and rail is very important in that aspect,
so to switch to different types of fuels for us away from more
conventional fuel which we use for base load at this time with
the technology that we have today, we are still going to be
dependent on the rails for quite some time.
I'd like to take a moment to address something that Mr.
Bartlett said is that we would love to see more transparency
with the STB, to find out why some of these costs are so high.
So I absolutely agree with you, sir. I think that is part of
the concern that we have. We have these decisions come down and
we're not exactly sure why they made that decision and
typically they're not helpful to us. But you'd have to ask the
railroads as far as alternatives to be able to literally move
the trains down the track. I don't know enough about that
industry to tell you.
Mr. Keith. Diesel is the primary fuel for locomotives, but
there has been some technological gains in diesel fuel
utilization and I mean the engines that they're making today
are much more efficient than they were say ten years ago. And
so as we try to expand capacity, the addition of new
locomotives will help the fuel efficiency.
Today, with current technology, there's really not a good
replacement for diesel, at least at this stage. There are
concepts in development, but it's probably going to be diesel
for quite a while.
Ms. Fallin. I was meeting with a railroad concern a couple
of weeks ago and they were talking about the cost mile per
gallon in transporting of services and goods on trucking versus
the railroad and we're saying when you look at the miles per
gallon per transport that the rails actually have a better cost
factor when it comes to delivering products and services versus
the diesel engine of a truck. And I don't know if you've ever--
of course, you may not be able--I don't know if your industries
can use trucking at all, but I'm sorry I missed all your
testimony, but have you ever looked at the cost comparison
between shipping on rails versus shipping on the road?
Mr. Weber. We receive probably the 125,000 ton. We use
40,000 ton by rail and the rest is by truck. And we--the cost
to do the trucking for us is more of a time issue. We can get
more timely delivery with a truck. Rail is still the cheapest
delivery because our product comes from the phosphate mines in
Florida, the Canadian potash mines and then we have four
nitrogen producers left in the United States and one large one
in Canada. All of our product travels long distance. We bring
the product primarily to a central hub distribution center.
Then we have to truck it out of there if we cannot receive
direct distribution by rail from the production. And so, yes,
we use trucks and it is more expensive for us, but it sometime
is the only way we can put product into our ag retail
facilities.
Ms. Fallin. Is that because of availability of rail or is
it sometimes based upon congestion, like we talk a lot about
congestions on our highways and how congestion is time and it's
money when it comes to shipping products and goods.
Mr. Weber. I would say that in listening to the railroad
systems and some of their comments, congestion is an issue
because so much more product is moved by rail than it was ten
years ago. It is much more economical for them to ship a 65 or
an 85-car unit to an area and then allow us to truck it rather
than to continue as we have had in the past with a two- and
three-car receivers. The two- and three-car receivers is still
my cheapest way of receiving product. From an economic and a
rail congestion perspective, they are doing the things that are
going to make them the most money and that is the unit trains.
But that is not what we have invested in from our ag retail
facilities since the 1960s. We were building these facilities
on two- and three-car receiver locations.
Ms. Fallin. Thank you so much. I think it takes a
combination of both, rail and trucking to make it all work.
Mr. Weber. It is now, yes. I agree with you.
Ms. Fallin. Thank you.
Chairwoman Velaquez. Dr. Keith, as demand for rail
transportation grows, our rail shipping network will continue
becoming strained, creating capacity constraints.
From your experience what is the best way to address the
issue of limited rail capacity?
Mr. Keith. Well, to the extent that you can, we think you
should rely on the industry, private industry making decisions
as to where we need capacity most. If you look at railroad
where capacity constraints exist, it's not even throughout the
system and the railroads really know best where their
constraints are most serious and need to be dealt with.
We support this concept of an investment tax credit, at
least on a limit basis because we think it would speed the
investment decisions. We think we would get more bang for the
buck early on in the process and we're quite fearful that if
start to get another growth spurt in this national economy that
we're going to see constraints like we've never seen before if
we don't build infrastructure soon.
Chairwoman Velaquez. To expand rail capacity, do you think
that only by investment and commitment coming from railroads or
do you think that a combination of the federal government and
the private sector?
Mr. Keith. We think the federal government has some
involvement and some responsibility, frankly, from a national
network for transportation. The federal government doesn't want
to have to build more and more highways because we've run out
of rail capacity and pushed freight on to highways. And so
there's a national interest here, we think, but we also think
we need a system of monitoring how those investments were made
and to make sure that we are expanding capacity and we're not
just replacing old ties and infrastructure. We need new
capacity.
Chairwoman Velaquez. Any other of the witnesses would like
to comment?
You all agree on this? Okay.
Ms. Hotchkiss, you discuss the problems that small shippers
face in the agriculture industry and you discuss the lack of
transparency of STB. Do you think that within the authority
that was granted to STB that they can make the changes or do
you believe that a legislative fix is needed, and if it's
needed, what are the legislative options that are before us,
which one addresses the issues that you raise?
Ms. Hotchkiss. Well, thank you, Madam Chairwoman for that
question. We have--I would agree with Dr. Keith that the STB is
working on things. Our concern is that it perhaps won't go far
enough or that perhaps these conversations are going on the
Hill that that conversation now is taking place at STB.
Our particular thought in what would make our consumers, I
think, more comfortable and our customers more comfortable
would be that Congress look at reforming the STB. Chairman
Oberstar has Bill 2125 and that would make STB more accessible
to rail customers.
One of the things I wanted to bring to light, especially
for small business, to go through the formal process. It can
cost $175,000 just to file a case. That doesn't include the
money that goes--it goes into the millions of dollars to
actually see that case through when we're looking at two and
three and four and five years of working on one issue. So we do
believe that legislative and reform legislation is necessary.
There is also the Antitrust Enforcement Act, HR 1650. That
was reported out of House Judiciary yesterday and we are
supportive of that legislation as well. When the Staggers Act
was changed in 1980, this was a problem that antitrust
exemptions continued and I think it can help address some of
the issues we've talked about today.
Chairwoman Velaquez. Any other of the witnesses would like
to comment on any legislative fix to the problems facing?
Mr. Cleavinger. We just believe if the STB is accountable
and fixes some of these problems that we've seen and actual
accountability on their end and rate cases, as Ms. Hotchkiss
said, they're very expensive to file and they haven't been very
effective up to this date, so if we would require STB to be
more accountable we feel like that would be part--help part of
the problem.
Chairwoman Velaquez. Thank you. Mr. Chabot, do you have
any other questions?
Mr. Chabot. Yes, more a comment than a question.
Unfortunately, the gentleman that I wanted to respond to had
left the room, but I'll be brief and I was going to be kind in
any event, but relative to whether or not we should go after
the energy that is contained in ANWR up in Alaska or in the
Outer Continental Shelf, the--excuse me, the gentlemen
mentioned what well, even if we passed it now, we wouldn't get
it for ten years or some--that's what he said, but we don't
know the exact number. It would be a number of years down the
road until we actually got it. This legislation has been before
this Congress for over the last ten years and unfortunately,
the Congress has decided to keep that off limits. So had we
voted this way--Bill Clinton vetoed legislation when it went to
his desk some years ago that would have included ANWR, so had
we done it back then we'd have the access to that oil now so
that would be reflected in the amount that we have available to
us here and would be reflected in the energy costs that we're
paying and the gas that we're paying at the gas pumps.
And also, I would note that even if we--since we didn't
take that action back then and I argue we should have, even if
we did take the action now, much of the price reflected at the
gas pumps that's killing consumers in this country right now is
speculative in nature. So if we pass this now, I think you
would see that reflected very quickly even though we wouldn't
necessarily get the oil to them now because what happens out
there is people are betting on what it's going to be down the
road, and right now people think it's going to be higher and
higher. And if we continue to put large amounts of our oil that
we know about off limits, ANWR, Outer Continental Shelf, it's
going to continue to go up and there are other things that we
need to do as well, like make it possible to build oil
refineries, once again in this country. We've made that
virtually impossible. The last one we built is back in '76.
We had over 300 oil refineries in this country at that
time. Now we have fewer than half that. We have 148. So even if
we have enough crude, we can't refine it quickly enough. These
boutique fuels that have to be dealt with makes it that much
more difficult to solve this problem. And I am very much for
what many of my colleagues on the other side of the aisle would
also be for and that's alternative sources of energy, whether
it's wind, solar, biomass, all those, hydrogen fuel cells. We
do need to put money into those technological advances
somewhere down the road. But until those occur, the fact is we
in this country, as other countries around the world, we're
very dependent upon gas and diesel and the rest, and unless we
do something about it, we're going to have some real problems.
And that, I think, is reflected in the weakness of the
economy to some degree and whether we're in a recession and we
argue about that all the time, whether we're in a recession,
apparently 81 percent of the American people, according to some
poll I saw recently, think we are in one, and of course, it
depends on the definition. The definition that's accepted is
two quarters of negative economic growth and one just came out
indicating that it was low growth, but it wasn't negative. So
apparently, by definition, we're not in a recession, but
whether we are or whether we're not, it's tough times out there
for a lot of people. One thing that we could do to help is at
the gas pump and that's why I'm so supportive of going after
what we have ought to have gone after a long time ago and
that's ANWR and the Outer Continental Shelf.
Does anybody want to comment? You don't have to. Okay,
thank you very much, and I yield back.
Chairwoman Velaquez. Ms. Fallin?
Ms. Fallin. Amen.
Mr. Chabot. Let the record reflect that the gentle lady
from Oklahoma said amend.
Chairwoman Velaquez. Let me just say that we will continue
to monitor this issue and look at what the Transportation
Committee is doing regarding Mr. Oberstar's legislation. One
possibility might be to bring some of the railroad executives
here and STB to answer some of the concerns that have been
raised here.
With that I ask for unanimous consent that Members will
have five days to submit a statement and supporting materials
for the record. Without objection, so ordered. This hearing is
now adjourned.
Thank you.
[Whereupon, at 11:18 a.m., the hearing was concluded.]
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