[Senate Hearing 113-616]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 113-616

   FREIGHT RAIL SERVICE: IMPROVING THE PERFORMANCE OF AMERICA'S RAIL
   
                                 SYSTEM
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                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                         
                      SCIENCE, AND TRANSPORTATION
                      
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 10, 2014

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


                                      ______

                       U.S. GOVERNMENT PUBLISHING OFFICE 

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK BEGICH, Alaska                  DAN COATS, Indiana
RICHARD BLUMENTHAL, Connecticut      TIM SCOTT, South Carolina
BRIAN SCHATZ, Hawaii                 TED CRUZ, Texas
EDWARD MARKEY, Massachusetts         DEB FISCHER, Nebraska
CORY BOOKER, New Jersey              RON JOHNSON, Wisconsin
JOHN E. WALSH, Montana
                    Ellen L. Doneski, Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
   
   
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 10, 2014...............................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Thune.......................................     7
Statement of Senator Cantwell....................................    53
Statement of Senator Booker......................................    54
Statement of Senator Johnson.....................................    56
Statement of Senator Klobuchar...................................    58
Statement of Senator Blumenthal..................................    60
Statement of Senator Nelson......................................    61
Statement of Senator Wicker......................................    62
    Letter dated August 22, 2014 to Hon. Roger F. Wicker from Joe 
      McHugh, Vice President, Government Affairs and Corporate 
      Communications, National Railroad Passenger Corporation....    63

                               Witnesses

Hon. John Hoeven, U.S. Senator from North Dakota.................     1
Hon. Heidi Heitkamp, U.S. Senator from North Dakota..............     3
Arthur Neal, Deputy Administrator, Transportation and Marketing 
  Program, Agricultural Marketing Service, U.S. Department of 
  Agriculture....................................................    10
    Prepared statement...........................................    11
Jerry D. Cope, President, South Dakota Grain and Feed Association 
  and Marketing Manager, Dakota Mill & Grain.....................    13
    Prepared statement...........................................    15
Calvin (Cal) Dooley, President and Chief Executive Officer, 
  American Chemistry Council.....................................    24
    Prepared statement...........................................    25
Shane Karr, Vice President, Federal Government Affairs, The 
  Alliance of Automobile Manufacturers...........................    31
    Prepared statement...........................................    32
    Letter dated July 8, 2014 to Hon. Daniel R. Elliott III, 
      Chairman, Surface Transportation Board from Rob Portman, 
      Co-Chair, Senate Auto Caucus and Carl Levin, Co-Chair, 
      Senate Auto Caucus.........................................    34
Edward R. Hamberger, President and Chief Executive Officer, 
  Association of American Railroads..............................    35
    Prepared statement...........................................    37

                                Appendix

Written Testimony on behalf of the National Rural Electric 
  Cooperative Association........................................    73
Letter dated September 10, 2014 to Hon. John D. Rockefeller IV, 
  Hon. John Thune, Hon. Richard Blumenthal and Hon. Roy Blunt 
  from Cary Cohrs, Chairman of the Board, Portland Cement 
  Association, and President, American Cement Company, LLC.......    76
Letter dated September 24, 2014 to Hon. John Rockefeller and Hon. 
  John Thune from Cory Martin, Director, Government Relations, 
  American Bakers Association....................................    77
Letter to Hon. John D. Rockefeller IV and Hon. John Thune from 
  Fred Fournier, Executive Director, M&G Polymers USA, LLC.......    79
Response to written question submitted by Hon. Amy Klobuchar to 
  Arthur Neal....................................................    80
Response to written questions submitted by Hon. John D. 
  Rockefeller IV to:
    Jerry D. Cope................................................    80
    Calvin (Cal) Dooley..........................................    81
    Shane Karr...................................................    83
Response to written questions submitted by Hon. Amy Klobuchar to 
  Edward R. Hamberger............................................    86
Response to written questions submitted by Hon. John Thune to:
    Arthur Neal..................................................    87
    Edward R. Hamberger..........................................    88
Response to written question submitted by Hon. Dan Coats to 
  Edward R. Hamberger............................................    89

 
   FREIGHT RAIL SERVICE: IMPROVING THE PERFORMANCE OF AMERICA'S RAIL 
                                 SYSTEM

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                     WEDNESDAY, SEPTEMBER 10, 2014

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:32 p.m. in room 
SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. Good afternoon, everyone. We're having a 
hearing, which is going to be led off by two bright lights from 
Hollywood, and they're both from North Dakota and they both 
have very strong feelings. I know one of them particularly well 
because she's right next to me in my office, and I've never 
seen her without strong feelings. And John Hoeven, I know you 
do, too.
    So in order for you to speak, you've got to try and hold it 
to 3 minutes, which for Senator Heitkamp is going to be really 
tough. But we're going to start with you, Senator.
    Senator Hoeven. Are you starting with me?
    Senator Heitkamp. Which one?
    The Chairman. I don't care.

                STATEMENT OF HON. JOHN HOEVEN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Hoeven. Thank you, Mr. Chairman. I appreciate being 
here with my colleague Senator Heitkamp, and also to Ranking 
Member Thune from our sister state of South Dakota. Great to be 
here with you. Thanks to both of you for holding this hearing. 
I think it's very, very important.
    We just had the Surface Transportation Board, Chairman Dan 
Elliott and the commissioners, out in Fargo, North Dakota, on 
this very same subject. So STB is working on the issue now, as 
they should be. We appreciate the Commerce Committee of the 
Senate doing the same. So again our thanks.
    I'll try to stay within the three minutes you specified, 
except the timekeeper has given me five. So already I'm a 
little confused as to whether I get three or five.
    The Chairman. That person is going to be looking for a job.
    [Laughter.]
    Senator Hoeven. Understood.
    It's amazing how my clock suddenly went to three.
    [Laughter.]
    Senator Hoeven. I can make my point in three minutes. The 
point I want to make is this: The railroads need to bring more 
resources to meet the needs in North Dakota. We have a growing 
state and we're moving not only ag products right now--we've 
got the harvest that's under way, so we've got more coming--but 
with energy and with growth in other areas, manufacturing and 
so forth in our State, we need more capacity on the part of the 
railroads.
    This is the point that I've made to them directly. This is 
the point I made to the STB. This is the point I want to make 
to you here today. They need to bring more cars, more 
locomotives, more people. And they need to build more track.
    We're the fastest growing state in the country and the 
railroads need to bring the resources, which not only serves 
our shippers, but ultimately the railroads. They're going to 
have more business, so they'll benefit as well.
    But right now the need is particularly critical for our ag 
shippers, both because of the current backlog and because we've 
got harvest under way. So we need it for coal and for oil and 
gas and for other commodities as well, but it is a very acute 
problem right now for our farmers.
    Now, BNSF has put forward a very substantial resource plan 
to address the need. That includes $5 billion of investment 
this year all in for the whole system. It means about 500 
locomotives, 5,000 new railcars, 125 people at least in North 
Dakota--excuse me, 250 more workers in North Dakota, about $400 
million in additional track in North Dakota. So it is a 
substantial commitment. So we need to monitor that and make 
sure that that happens and that that investment does meet the 
need. They cover about, I would say, 75 percent of the volume 
in our state.
    CP needs to make that same commitment. I've had the CEO of 
CP in Minot, North Dakota. We had a meeting. They talked about 
investing $150 million over the next year. But they have not 
provided us with a specific resource plan. Also, they're 
working on changing their ordering system for shippers ordering 
cars. That may work, but it's got to be fair. They can't cancel 
orders on shippers, and it needs to be a transparent process so 
that we understand how it works and so that we have accurate 
reporting.
    So that still needs more work. That's got to happen. Time 
is a critical factor because, as I say, we are in harvest right 
now. So it is my request that the Commerce Committee here of 
the U.S. Senate work with the STB and with us and others, our 
shippers, to make sure that the railroads follow through with 
these resource plans, that BNSF continues literally on the 
track that they're headed down, which means a bigger railroad 
in our State. And we need to see that same kind of commitment 
from CP with substantially more detail and better reporting and 
a better ordering system, particularly for our ag shippers.
    Again, I want to thank you, Mr. Chairman, and also the 
Ranking Member and the members of this committee, for working 
on this very important issue at this time. We look forward to 
continuing to work with you.
    The Chairman. Excellent, excellent. And you came within the 
seven minutes precisely.
    Senator Heitkamp.

               STATEMENT OF HON. HEIDI HEITKAMP, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Heitkamp. Mr. Chairman and Ranking Member Thune----
    The Chairman. Say that again.
    Senator Heitkamp.--thank you so much----
    The Chairman. You called me ``Mr. Chairman.'' What you 
usually call me is not repeatable.
    [Laughter.]
    Senator Heitkamp. Are you going to take that off my three 
minutes?
    The first thing I want to say is thank you. Our producers 
in North Dakota and I know South Dakota, because we hear from 
those folks just over the border and we know that this 
continues to be a problem in Montana as well, Minnesota as 
well, our producers are in dire straits. I talked to a 
Minnesota farmer yesterday who told me that his basis 
adjustment on his corn brings him down to $2.25 a bushel. His 
cost of production is four dollars. And half of that or at 
least a dollar-plus of that is because of transportation.
    So we have a very real impact in North Dakota. I was with 
six shippers just standing around talking and those six 
agricultural entrepreneurs, those farmers, I will tell you told 
me that collectively they have suffered a half a million dollar 
loss to their bottom line because they haven't been able to 
move crops timely.
    So this isn't just about who gets preference and having 
your feelings hurt. This is about the very real economic 
consequences of what's happening in farm country in our state 
and across the Northern Tier across the board. So we need to 
somehow achieve some kind of balance.
    I will tell you I think our producers have been 
tremendously patient about what they're willing to kind of 
understand, given the tremendous infrastructure demands in 
North Dakota. But that patience is wearing thin.
    So one of the problems that we've had is getting accurate 
information on exactly where we are in terms of the 2013 crop, 
what's going to happen with 2014, and how much it will cost our 
producers. But beyond that, the one thing that I will tell you 
I am most concerned about is that we will be back here in 
another year having the exact same discussion, only we'll have 
3 years of crop that will be either on the ground or in bins in 
my state, with producers struggling to try and figure out how 
they're going to get the money to put in next year's crop. This 
isn't make-believe. This is real, and it's a very real problem.
    So I want to applaud you for the work that you are doing 
here. But one thing that I do want to say is that from this 
process, engaging the STB as we have, I think we've come to 
learn that the STB does not have very many tools at its 
disposal for addressing shipping delays. And I'm glad that your 
reauthorization bill allows for STB to initially instigate an 
investigation without a complaint or without a lot of Senators 
saying we need attention to this problem. But I believe the STB 
could use more authority and use more power to resolve the 
issues beyond demanding reports and more data.
    Obviously, we want to know exactly where we're at, and 
we're very appreciative, especially for the resources 
Burlington Northern has brought to this crisis and this 
problem. Burlington Northern I think in many ways gets it, that 
this is a permanent problem, we're going to continue to ship 
crude by rail, we're going to continue to see bumper crops and 
increased yields in our state, which is going to put more 
stress on track time.
    I believe that we need to have the same kind of reaction 
and the same kind of response in terms of dollars, as Senator 
Hoeven has said, and where those dollars are going to be 
deployed from CP if we're truly going to resolve this for all 
of the ag producers in my state.
    So I want to thank you again for your attention to this 
issue. It's critical. It is very timely as we entering the 2014 
harvest. I'd be glad to answer any questions about what we have 
seen in North Dakota.
    The Chairman. With your permission, this [indicating] is a 
John Thune masterpiece and it shows--[indicating] this was the 
pile of wheat and this is now. But I had one of John's staff 
people draw in where it probably is now. In other words, it's 
here, but actually it's up to here, and it was probably higher 
before that. And you can't see the building where it's meant to 
be stored or anything. It's just symbolic of the kinds of 
things that happen in a smaller state when you depend on 
certain things and then the STB isn't there for you.
    Senator Heitkamp. Mr. Chairman, if I could add to that, 
we're looking at wheat there, but soybeans denigrate very 
quickly, and we've got to get them to market. So as dire as 
that is, as that pile of wheat is, if those were soybeans 
basically what you've done is you've condemned that crop. So, 
understanding that we go into freeze with that pile, that has 
huge economic consequences to those producers.
    The Chairman. You've both been excellent and I totally----
    Senator Thune. Could I, while we still have them here, just 
quickly direct a question to them?
    The Chairman. Of course.
    Senator Thune. Generally, I know you both had an STB 
hearing, as you mentioned, last week in North Dakota. You've 
been tracking this issue very carefully for a long time. The 
question really has to do with whether you believe action would 
have been taken as quickly this year by the railroads to 
address this crisis had it not been for Members of Congress and 
the STB working to help address and deal with those service 
challenges?
    I ask that question because one of the things that we hear 
is that the industry is making investment, which they are, but 
I find it hard to believe that we would have seen the kind of 
action that we needed to see taken had it not been for the 
agency and for the attention, obviously, the Congress has paid 
to this issue.
    Senator Hoeven. We've been pretty aggressive on this issue, 
and BNSF has responded and they have given us a very detailed 
plan. Their CEO, Matt Rose, has been up to our state on 
multiple occasions and has been--even back in February when we 
were working on catching up on moving fertilizer, they changed 
their hauling system. They assigned unit trains to move 
fertilizer and so forth. They came forward with a detailed 
resource plan. They started reporting their delinquencies on 
the website. They've reduced their delinquencies to about 1,000 
cars right now about 10 days past due.
    So they have responded. They have been proactive. That's 
the concern--and of course they need to continue to do more, so 
we're continuing to work with them.
    But on the CP side we're not seeing that. Their reporting 
up until recently is not transparent. We can't tell what their 
delinquencies are. Now they're reporting about a 7,500-car 
delinquency, but an average of 13 weeks. So we still can't 
decipher exactly what that means. They're changing their 
ordering system. Some of our shippers are worried that they're 
getting orders canceled. They've talked about a $150 million 
resource plan this year to catch up, but we don't have the 
details or the time lines on that.
    So what we're saying is we need--not only do we need to 
continue to be proactive until we get that, but so does the 
STB. That's why what you're doing here is on the mark, is to 
make sure that we're able to take, all of us, including STB, a 
proactive stance if somebody is not responding proactively to 
solve what has been a problem, an ongoing problem for a period 
of time.
    We get that if the problem just happened somebody has to 
react. This has been going on long enough now that that 
reaction should be in place already.
    Senator Heitkamp. If I can just add a couple comments to 
that, I think it's a matter of whether the STB believes this is 
permanent, whether this is a one-time glitch in the system or 
whether we're going to have a need for a permanent increased 
buildout. I happen to believe we need a permanent increased 
buildout.
    Given the history of siting pipelines in this country, 
we're going to continue to move oil on the rails. Your 
committees have already discussed the safety issues. But we're 
at 1.1 million barrels a day pretty much in North Dakota. We 
think that's going to grow another 20, 30 percent. Where is 
that oil going to move? It's going to move on the tracks. It's 
going to move in pipelines, but it's also still going to move 
on the tracks.
    So we need to accommodate all the captive shippers. I 
believe that without the attention of the Congressional 
delegations in the Northern Tier, without the focus of the STB 
at least as it relates to one railroad, we would not be as far 
as where we are. But I will tell you that the big concern that 
I have is that still what we're hearing is they don't get that 
this is a permanent problem and needs huge amounts of capital 
infusion in order to solve it.
    The Chairman. I thank you. They will claim that they don't 
have the money and John Thune and I will jump up and down 
vigorously and protest that they do.
    Thank you both for coming.
    Senator Heitkamp. Thank you, Mr. Chairman.
    The Chairman. You made excellent presentations.
    Senator Hoeven. Thanks to the Committee.
    The Chairman. As we all knew you would.
    In the regular order now. Before I begin, I want to 
heartily and vigorously commend Senator Thune for his 
leadership on rail service issues. It's one of those instances 
where we each come from two small states and we have not that 
great a variety of major products, and in each case we're 
watching our products get clobbered by a system which nobody 
chooses to either initiate improvements or to regulate 
improvements.
    I know these past several months have been really hard on 
your constituents, Senator Thune. I look forward to continuing 
to work easily and well with you, as we have in the past.
    I initially took an interest in rail policy after hearing 
from West Virginia shippers who expressed frustration with high 
rates and poor service. That began 30 years ago and my progress 
has been measured in quarter-inch segments. That's how much 
progress we've made on this. They have been highly frustrated 
about high rates and poor service. What you probably don't 
know, however, is that these complaints were in place 30 years 
ago, as they are today. And yet here we are today trying to 
confront the same issues that have plagued shippers for several 
decades.
    The rail industry looks far different than it did 30 years 
ago. Competition in the industry has decreased. Before 
enactment of the Staggers Act in 1980, there were approximately 
40 large railroad companies. Today that figure would be closer 
to seven, so competition is down, and profits are up.
    In passing the Staggers Act, Congress recognized the need 
for a robust freight rail system. The Staggers Act was a big 
favor in many respects to the industry because it recognized 
that they had to spend capital in order to be able to do the 
system properly. Well, they got the capital, but they haven't 
necessarily used it properly.
    That law made sweeping regulatory changes which gave the 
railroad industry an opportunity to improve its finances and 
the ability to compete against other transportation modes. So 
that part they like a lot. The Staggers Act also sought to 
provide, and I quote, ``the opportunity for railroads to obtain 
adequate earnings to restore, maintain, and improve their 
physical facilities while achieving the financial stability of 
the national rail system.'' Well, make no mistake; in that 
regard, the Staggers Act has worked.
    In 2010, I released a Commerce Committee majority staff 
report which found four Class I railroads that dominate the 
railroad rail shipping market and that they are achieving 
returns on revenue and recognizing operating ratios that rank 
them among the most profitable businesses in the entire United 
States economy.
    I released a follow-up majority staff report last November 
which corroborated the 2010 findings: that freight railroads 
continue to set new financial records on a quarterly basis, and 
these companies continue to raise their dividends and buy back 
record amounts of stock. So cash is not the problem.
    But not everybody is as well as they are. In this world 
we're meant to have sort of a balance, those who transport, 
those who are shipping. There has to be some kind of balance. 
The STB hasn't found a way to do it. We can't get anything to 
do it to pass. But again, not everybody is doing so well. Many 
of the witnesses here today have struggled to remain 
competitive as rail service declines and rates increase, and 
the situation continues to get worse.
    For several months now, the agricultural, coal, chemical, 
and automotive industries, among others, have been experiencing 
serious service delays on rail, sometimes on the order of 
months. You can't blame everything on the winter. You just 
can't do that, sorry. It's not just industry. Passengers are 
also feeling the effects. Amtrak's long distance trains around 
the country are being severely delayed.
    Whether it has been extreme winter weather, a surge in 
Bakken crude oil production, a recovering economy, or a 
combination of factors, we must do more to move our grain to 
market, coal to power plants, automobiles to consumers, and 
passengers to their destinations than we currently are. For 
many shippers this is their livelihood and it's too important 
to not do anything. Therefore I look forward to hearing from 
the railroads on what is being done to alleviate these freight 
logjams as soon as possible, and I hope I don't hear the phrase 
``We need more money in order to build better infrastructure 
for the future,'' because I already have that, buddy.
    Don't get me wrong. That's incredibly important for our 
Nation's long-term economic prosperity. But we need all hands 
on deck to address this problem now.
    The Surface Transportation Board has taken some steps to 
address these issues, especially the service hardships faced by 
many shippers in the last year. Having talked to constituents 
in my home state and Ranking Member Thune, I know it has been 
truly appreciated. However, these efforts--I believe STB needs 
to change its fundamental perspective. We know that the 
railroads are financially strong. It's time for the STB to 
refocus its mission on providing regulatory balance to support 
the businesses and the people who use the rail network.
    That is why earlier this week I introduced, along with my 
good friend and distinguished Ranking Member John Thune, a bill 
aimed at increasing the efficiency and effectiveness of the 
board. It's a good bill. That means it probably won't pass. I 
say that with practiced cynicism. But it's still a good bill 
and it will pass. I look forward to working with interested 
stakeholders as we move forward this legislation.
    This is a huge, huge topic for me. It's sort of a matter of 
integrity of our states, Ranking Member Thune, and the floor is 
yours.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman. Thanks for holding 
the hearing and I appreciate hearing from our colleagues in 
North Dakota. I only wish we could figure out a way to 
directionally drill up into the oil in North Dakota to bring it 
down into South Dakota. But I have often said that North Dakota 
has oil, Wyoming has coal, Montana has some of both, and in 
South Dakota we have pheasants. But we also raise a lot of 
agricultural commodities. We raise corn, wheat, and soybeans, 
and we have to have a way to get that to the marketplace, and 
that requires railroads. It's the most efficient way to move 
freight like agricultural commodities.
    Our state has been so interested over the years in this 
subject that back in the late 1970s when the railroads were 
abandoning South Dakota, the Milwaukee Road and the Chicago and 
North Western Railroad, our state had to take some pretty 
drastic action. They imposed a temporary sales tax and actually 
acquired the railroad, not the power and the rolling stock, but 
the track, the rails, the ties, the right of way, and all that, 
and then contracted for operations with the Burlington 
Northern, at that time Burlington Northern, now BNSF Railroad, 
to operate that railroad.
    So it has been since then privatized to the Burlington 
Northern. But it's an example, I think, of what states like 
ours have to do to maintain viable railroad and freight 
transportation. As I will mention, I did serve as State Rail 
Director back in the 1990s and have an interest in railroading 
that goes back a lot farther than that. My grandfather on my 
dad's side came here from Norway back in 1906 and worked on 
building the railroads as they were moving across South Dakota, 
and my grandfather on my mom's side actually was killed in a 
railroading accident. He was a railroader as well.
    So it's very important to the history of our state. It's 
very important to the present of our state and it's going to be 
very important to the future of our state, because our number 
one industry is agriculture.
    So I appreciate you holding this hearing. I want to thank 
all the witnesses for being here and willing to testify today. 
I especially want to thank Jerry Cope from Dakota Mill and 
Grain in Rapid City, South Dakota, who will be testifying on 
behalf of the National and South Dakota Feed Associations.
    Since the beginning of this year, South Dakota and many 
other states have been particularly challenged by rail service 
delays, network congestion, and locomotive and railcar 
shortages which have affected a wide range of shippers, 
including the agricultural community. From farmers and grain 
elevators to auto manufacturers, energy providers, retailers of 
all kinds, rail transportation challenges have affected the 
economy nationwide. Higher transportation costs can also 
increase the cost of products to market and at the point of 
export, decreasing our global competitiveness.
    As a former South Dakota rail director under the late 
Governor George S. Mickelson in the early 1990s, I know 
firsthand the importance of effective rail access for not only 
agricultural producers, but other shippers. In all my years of 
working on rail matters, I've never seen producers more 
concerned than they are now regarding the restricted capability 
to move grain to the marketplace. It's my hope that this 
hearing will continue to bring attention to the rail service 
backlog that South Dakota shippers and shippers nationwide are 
currently facing and encourage continued discussion about both 
short-term and long-term solutions to address these issues.
    I also want to know that not all of the blame should be 
placed on the rail carriers, because some events have been 
outside of their control. That being said, these issues did not 
arise overnight and some railroads have been better than others 
at addressing the challenge head-on.
    In South Dakota alone, this year's harvest and what remains 
of last year's is expected to exceed the statewide grain 
storage capacity by as much as 18 percent. Grain has already 
been stored on the ground, as you noted from this particular 
picture right here. That was the wheat harvest that occurred 
earlier this year. What's so alarming about that photo is that 
it happened early in the crop year and we've got much larger 
corn and soybean harvests coming on this fall.
    Projections from the U.S. Department of Agriculture 
estimate that South Dakota's 2014 wheat harvest is going to be 
at 108 million bushels, a 14 percent increase over the three-
year average, and soybean and corn crops are also expected to 
be unusually large, potentially record-setting. Even with these 
high yields the increased negative basis due to inadequate 
transportation and the inability to timely move these crops 
from grain-handlers could result in more than $300 million in 
lost value to South Dakota corn, wheat, and soybean producers.
    As winter approaches, ethanol plants will also become 
vulnerable to rail delays. Because of the nature of ethanol 
production, plants cannot simply be shut down during winter 
months. South Dakota ethanol producers, like Glacial Lakes and 
Redfield, rely on adequate services to prevent pipes from 
freezing and major structural damage to their operations.
    In addition, South Dakota's Big Stone Power plant has 
indicated that they're running below capacity because they 
simply can't get enough coal to fuel the most efficient 
operation. Coal stockpiles are alarmingly low and rail service 
simply hasn't provided adequate coal supplies.
    The Surface Transportation Board has taken several steps to 
address these rail service challenges, including issuing a 
number of orders designed to increase transparency. On June 20, 
the Board issued a grain order to provide additional 
transparency and ensure both Canadian Pacific and Burlington 
Northern Santa Fe Railroads had plans for reducing their grain 
car backlogs.
    While the STB has been working hard to address the current 
rail service issues facing South Dakota and other states in the 
Northern Tier of the United States, this crisis has highlighted 
some of the inefficiencies that currently exist at the STB. On 
Monday, Chairman Rockefeller and I introduced Senate Bill 2777, 
the Surface Transportation Board Reauthorization Act, which is 
a first step in addressing these inefficiencies so that the STB 
can better assist shippers and railroads when problems arise.
    This hearing marks a continuation of my ongoing efforts to 
work not only with the STB, but with the railroads and the 
shippers directly, to address the challenges that agricultural 
producers and other businesses have experienced beginning last 
winter when the harsh cold snarled the movement of trains and 
caused the significant delays that shippers and railroads are 
still working to remedy.
    Mr. Chairman, thank you, and thanks to our witnesses for 
being here today and testifying and having what I think is a 
very important hearing, particularly in light of the economic 
impacts and consequences that will occur if we aren't able to 
effectively and in a timely way move the harvest that's coming 
this fall.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Let's go to our panel: Mr. Arthur Neal--are we all in place 
here and I can just go right down the list--is the Deputy 
Administrator of Transportation and Marketing Programs at the 
Agricultural Marketing Service, U.S. Department of Agriculture. 
Mr. Jerry Cope, who I think is not a 100 percent happy person 
on this particular subject, is the Vice President of Marketing 
at the Dakota Mill and Grain, Inc. You indicated that's a South 
Dakota company.
    Mr. Calvin Dooley is President and Chief Executive Officer 
of the American Chemistry Council. Mr. Shane Karr; Mr. Karr is 
the President of Federal Government Affairs of The Alliance of 
Automobile Manufacturers; and Mr. Ed Hamberger is President and 
Chief Executive Officer of the Association of American 
Railroads.
    So let's start, Mr. Neal, with you.

        STATEMENT OF ARTHUR NEAL, DEPUTY ADMINISTRATOR,

             TRANSPORTATION AND MARKETING PROGRAM,

                AGRICULTURAL MARKETING SERVICE,

                 U.S. DEPARTMENT OF AGRICULTURE

    Mr. Neal. Chairman Rockefeller, Ranking Member Thune, and 
members of the Committee: thank you for the opportunity to 
submit this statement on behalf of the U.S. Department of 
Agriculture for today's hearing on ``Freight Rail Service: 
Improving the Performance of America's Rail System.'' It is our 
hope that the information we provide will prove helpful as you 
examine the current state of U.S. freight rail service.
    I serve as the Deputy Administrator of the Transportation 
and Marketing Program for USDA's Agricultural Marketing 
Service, whose mission is to facilitate the efficient, fair 
marketing of U.S. agricultural products, including food, fiber, 
and specialty crops. Within AMS, the Transportation Services 
Division serves as the expert source for economic analysis on 
agricultural transportation from farm to markets. As a part of 
USDA, we inform, represent, and assist agricultural shippers 
and government policymakers through market reports, regulatory 
representation, economic analysis, transportation disruption 
reports, technical assistance, outreach to stakeholders, and 
responding to inquiries.
    AMS does not have regulatory authority over transportation 
issues. However, the Secretary of Agriculture is charged with 
the responsibility under the Agricultural Adjustment Act of 
1938 and the Agricultural Marketing Act of 1946 to represent 
the interests of agricultural producers and shippers in 
improving the transportation services and facilities, among 
other things by initiating and participating in Surface 
Transportation Board proceedings involving rates, charges, 
tariffs, practices, and services.
    Since October 2013, AMS has reported that railroad service 
to railroad grain shippers has been inadequate, characterized 
by long delays, missed shipments, burgeoning backlogs, and 
higher costs. The problems have centered on Canadian Pacific 
Railway Company and BNSF Railway Company. Service problems have 
been widespread in Minnesota, Montana, North Dakota, and South 
Dakota. As a result, STB held a public hearing on April 10, 
2014, to hear how shippers have been impacted and how BNSF and 
CP railroad executives will address the problems.
    USDA submitted comments about adverse impacts on grain 
shippers, including grain piling up on the ground outside 
elevators awaiting rail transportation and some grain shippers 
either paying ocean vessel demurrage charges or missing vessels 
that departed before the delayed grain shipments could be 
loaded.
    On June 20, 2014, based on concerns about the slow pace of 
progress, STB directed CP and BNSF to publicly file plans to 
resolve their backlogs of grain car orders, as well as provide 
weekly status reports until the backlogs were eliminated.
    Last week, STB held a field hearing in Fargo, North Dakota, 
to further review the current state of the issue. Based on the 
testimony provided by nine panels and the questions and answers 
between STB and panelists, issues still remain with railcar 
shortages and service delays.
    USDA's current analysis indicates grain production and 
grain stocks this harvest season are expected to exceed 
permanent grain storage capacity by an estimated 694 million 
bushels in seven States, which include South Dakota, Indiana, 
Missouri, Illinois, Ohio, Michigan, and Kentucky. This level of 
storage capacity shortage is higher than any year since 2010, 
which had an 805 million bushel shortfall in permanent storage 
capacity distributed throughout the top 14 grain-producing 
states. Because 2013 grain is reportedly still in storage and 
waiting to be moved before the 2014 harvest, it is critical to 
move as much of the 2013 grain crop as quickly and efficiently 
as possible.
    USDA is concerned that railroad service to grain shippers 
may not recover in time for the 2014 harvest. Should this 
happen, grain elevators could run out of storage capacity, 
grain could be stored on the ground and run the risk of 
spoiling, and the costs of inadequate rail service would 
continue to accrue.
    In conclusion, U.S. agricultural producers rely on a 
transportation network that is reliable, efficient, and safe. 
USDA will continue to monitor and report on the rail challenges 
faced by U.S. agricultural producers and shippers, and I would 
be happy to answer any questions on the record that you may 
have.
    Thank you.
    [The prepared statement of Mr. Neal follows:]

        Prepared Statement of Arthur Neal, Deputy Administrator,
 Transportation and Marketing Program, Agricultural Marketing Service, 
                     U.S. Department of Agriculture
    Chairman Rockefeller, Ranking Member Thune, and members of the 
Committee, thank you for the opportunity to submit this statement on 
behalf of the U.S. Department of Agriculture (USDA) for today's hearing 
on ``Freight Rail Service: Improving the Performance of America's Rail 
System.'' It is our hope that the information we provide will prove 
helpful as you examine the current state of U.S. freight rail service.
    I serve as the Deputy Administrator, Transportation and Marketing 
Program, for USDA's Agricultural Marketing Service (AMS) whose mission 
is to facilitate the efficient, fair marketing of U.S. agricultural 
products, including food, fiber, and specialty crops. Within AMS, the 
Transportation Services Division serves as the expert source for 
economic analysis on agricultural transportation from farm to markets. 
As part of USDA, we inform, represent, and assist agricultural shippers 
and government policymakers through: market reports, regulatory 
representation, economic analysis, transportation disruption reports, 
technical assistance, outreach to stakeholders, and responding to 
inquiries.
    AMS does not have regulatory authority over transportation issues. 
However, the Secretary of Agriculture is charged with the 
responsibility under the Agricultural Adjustment Act of 1938 and the 
Agricultural Marketing Act of 1946 to represent the interests of 
agricultural producers and shippers in improving transportation 
services and facilities by, among other things, initiating and 
participating in U.S. Surface Transportation Board (STB) proceedings 
involving rates, charges, tariffs, practices, and services.
    STB is the agency that Congress charged with resolving railroad 
rate and service disputes and reviewing proposed railroad mergers. STB 
is an independent regulatory adjudicatory agency, although it is 
administratively affiliated with the Department of Transportation.
A Building Problem
    Since October 2013, AMS has reported that railroad service to U.S. 
grain shippers has been inadequate, characterized by long delays, 
missed shipments, burgeoning backlogs, and higher costs. The problems 
have centered on Canadian Pacific Railway Company (CP) and BNSF Railway 
Company (BNSF). Service problems have been widespread in Minnesota, 
Montana, North Dakota, and South Dakota.
    As a result, STB held a public hearing on April 10, 2014, to hear 
how shippers have been impacted and how BNSF and CP railroad executives 
will address the problems. USDA submitted comments about adverse 
impacts on grain shippers, including grain piling up on the ground 
outside elevators awaiting rail transportation, and some grain shippers 
either paying ocean vessel demurrage charges or missing vessels that 
departed before the delayed grain shipments could be loaded. Later in 
April, STB issued an order to the rail companies to reduce the backlog 
of fertilizer deliveries in order to meet spring planting timeframes.
    On June 20, 2014, based on concerns about the slow pace of 
progress, STB directed CP and BNSF to publicly file plans to resolve 
their backlogs of grain car orders, as well as provide weekly status 
reports until the backlogs are eliminated.
    Last week, STB held a field hearing in Fargo, North Dakota, to 
further review the current state of the issue. Based on the testimony 
provided by nine panels and the questions and answers between STB and 
panelists, issues remain with railcar shortages and service delays. As 
stated previously, STB is the only regulatory body with the authority 
to act on freight rail economic issues. During the field hearing, 
several participants requested that the STB issue a service order. 
Under the Interstate Commerce Commission Termination Act (ICCTA), the 
Board has the authority to take temporary action to restore rail 
service, including direct service orders on the movement of traffic, 
requiring joint or common use of railroad facilities, or prescribing 
temporary routes establishing priority preference.
Current Situation
    USDA's current analysis indicates grain production and grain stocks 
this harvest season are expected to exceed permanent grain storage 
capacity by an estimated 694 million bushels (about 3.5 percent of the 
expected U.S. record harvest) in seven states, which include--in 
decreasing order of storage capacity shortage--South Dakota, Indiana, 
Missouri, Illinois, Ohio, Michigan, and Kentucky. This quantity is the 
equivalent of 173,500 jumbo covered-hopper rail cars, 13,219 barges, 
881 15-barge tows, or 762,600 truckloads. Some of the impact could be 
mitigated by temporary storage; under special circumstances with 
unusually large crops, USDA sometimes allows emergency and temporary 
storage of grain, with the storing entity continuing to be financially 
responsible for the quantity and quality of the grain.
    South Dakota could be short of grain storage capacity by 197 
million bushels (20 percent of storage capacity); it is estimated to 
have the greatest grain storage shortage in addition to continued rail 
service delays due to competition for rail capacity. Indiana is 
estimated to be short by 196 million bushels (15 percent), Missouri by 
109 million bushels (15 percent), Illinois by 83 million bushels (3 
percent), Ohio by 55 million bushels (6 percent), Michigan by 33 
million bushels (7 percent), and Kentucky by 20 million bushels (7 
percent).
    These levels of storage capacity shortage are higher than any year 
since 2010, which had an 805 million bushel shortfall in permanent 
storage capacity distributed throughout the top 14 grain-producing 
states. Because 2013 grain is reportedly still in storage and waiting 
to be moved before the 2014 harvest, it is critical to move as much of 
the 2013 grain crop as quickly and efficiently as possible.
    Of particular concern is the area served by the former Dakota, 
Minnesota, and Eastern Railroad (DM&E) that traverses South Dakota 
between Tracy, MN, and Rapid City, SD, and provides the main rail 
service to the state. This section of track was purchased by CP in 2007 
and sold on May 31, 2014, to Genessee & Wyoming Inc. (G&W). G&W created 
a new short line railroad, the Rapid City, Pierre, and Eastern Railroad 
(RCP&E), to serve this section of track, which includes many grain 
shippers. AMS does not have access to the terms of the sale but 
understands that CP agreed to provide a certain number of grain cars 
and locomotives to RCP&E during a transitional period after the sale.
    USDA is concerned that railroad service to grain shippers may not 
recover in time for harvest of the 2014 crops. Should this happen, 
grain elevators could run out of storage capacity, grain stored on the 
ground would run the risk of spoiling, and the costs of inadequate rail 
service would continue to accrue.
    According to its September 5 report to STB, BNSF had 2,231 grain 
cars past due an average of 8.9 days, up 10 percent from the 2,029 it 
reported the prior week. Forty-two percent of the past due grain cars 
are located in North Dakota and are 8 days late. BNSF also reported 599 
past due grain cars in Montana and 268 in South Dakota. Canadian 
Pacific (CP) reports that customers have removed 23,968 open requests 
for grain cars from its system, leaving open requests of 6,762 as of 
September 5. Grain car requests in North Dakota were reported to be 
12.54 weeks late, while those in Minnesota were 18.76 weeks late. CP 
fulfilled 2,331 grain car orders during the week and reported that new 
requests for grain cars totaled 2,010. Of the fulfilled orders, only 
384 grain car orders were moved on the Rapid City, Pierre & Eastern 
Railroad (RCP&E) line in South Dakota.
    This lack of rail capacity is having effects on other U.S. 
transportation modes. For example, barge operators expect strong demand 
for their services during this year's harvest, especially in October, 
when there is widespread harvesting of the corn and soybean crops. As 
of September 2, the average barge rate from the Illinois River to the 
Mississippi River Gulf for October delivery was 773 percent of tariff 
($35.84 per ton), 43 percent higher than the 5-year average. The 
October St. Louis barge rate was 763 percent of tariff ($30.42 per 
ton), 56 percent higher than the 5-year average. Grain shippers may 
decide to buy barge freight for October now, or wait until then and buy 
at the weekly rate, which could be higher or lower than the October 
rate being quoted now. The last time rates exceeded these levels was in 
2008, when flooding interfered with barge logistics on the Upper 
Mississippi and Illinois Rivers.
    On a positive note, on August 27, 2014, the Port of Vancouver and 
the North Dakota Department of Agriculture signed a memorandum of 
understanding (MOU) to ship products such as lumber, paper, cement, and 
fertilizer east to North Dakota and return them to the Port filled with 
North Dakota products such as wheat, corn, soybeans, peas, flax, and 
other specialty crops. This MOU addresses railcars that are often 
returned to the Port empty and helps alleviate the railcar shortage in 
North Dakota. The Port has indicated it plans to purchase 180 railcars 
and ship two shuttle trains per month, with the first full railcars 
returning to the Port from North Dakota as early as mid-September. The 
Port is working with BNSF Railway on the project and may expand service 
under the MOU if demand grows.
Conclusion
    U.S. agricultural producers rely on a transportation network that 
is reliable, efficient, and safe. USDA will continue to monitor and 
report on the rail challenges faced by U.S. agricultural producers and 
shippers. I would be happy to answer any questions for the record you 
may have. Thank you.

    The Chairman. Thank you, Mr. Neal.
    Mr. Jerry Cope, as I indicated, Vice President of 
Marketing, Dakota Mill and Grain, South Dakota.

 STATEMENT OF JERRY D. COPE, PRESIDENT, SOUTH DAKOTA GRAIN AND 
  FEED ASSOCIATION AND MARKETING MANAGER, DAKOTA MILL & GRAIN

    Mr. Cope. Thank you, Chairman Rockefeller, Ranking Member 
Thune, members of the Committee. I'm honored to be here on 
behalf of South Dakota Grain and Feed Association, the company 
I work for, and the National Grain and Feed Association.
    South Dakota and ag are very closely linked. It's our 
number one industry. We rank in the top ten of the major crops 
produced in the United States. However, our state is 
landlocked. The railroads are our lifeline, our link to the 
economy. Right now we're served by two railroads, the 
Burlington Northern Santa Fe and the Rapid City, Pierre, and 
Eastern. Without them, our farmers don't have an economy, don't 
have a life.
    In my submitted testimony I talked about where we were, 
where we are today, and where we want to go, where we think we 
need to be. But we recognize as an organization that if we're 
going to offer ideas for the future we have a responsibility to 
also offer ideas on how to get there.
    Last winter railroad service was decreasing over time and 
by spring we were faced with an inventory of twice the normal 
both on and off farm as we faced a record harvest, which we're 
experiencing in South Dakota right now. What this meant to 
farmers is cash-flow. We had calls from banks asking when the 
railroad was coming because they had farmers with notes due.
    In addition to that, as that went on the railroads were 
actually paid for poor performance. How that happened was 
there's a secondary market in the Burlington Northern and it 
ended up equaling the cost of freight to get from South Dakota 
to the Pacific Northwest. It ended up, once you added the car 
costs along with the tariff rate the cost from South Dakota to 
the Pacific Northwest was twice what that same bushel of grain 
would cost to get from the Pacific Northwest to Korea.
    In the case of the Canadian Pacific, they did sell the line 
to Rapid City, Pierre, and Eastern that was created in May, and 
that was actually a bit of good news for us. The Rapid City, 
Pierre, and Eastern has been very forthcoming and is putting 
forth a lot of effort to clean out our backlog. But they still 
have to hand off to the Canadian Pacific, which is still in a 
state of disarray.
    Today we're still faced with that backlog, both in the 
elevator and in farmers at home. I was talking to one of my 
fellow elevators on the way out. He told me, he said: You know, 
if all I get is the same amount of cars I've gotten every week 
through next May, I don't have to buy another bushel of grain; 
all I'll do is empty out my elevator, with one more penny of 
business for my customers or for myself. So the cash-flow still 
continues.
    When it comes to things like quality, we're having some 
problems with South Dakota wheat, but if elevators are full we 
don't have any room to blend or clean that grain, so that grain 
faces a risk of not even being marketable.
    We could invest in storage, but the problem we run into 
with that is investments of millions of dollars are made based 
on railroad predictability. If we have to weigh the costs 
versus the risk and we can't rely on the railroad, then do we 
actually invest the dollars?
    The reality today is that BN is doing better. They're not 
where we think we need them to be and we think we can solve 
that with some reporting metrics. The CP, unfortunately, 
committed to providing power and cars to the RCP&E, but elected 
not to do it until the spotlight was shown on them by the STB.
    For the future, what we think we need is transparency. We 
don't want to know the BN's day to day business or the CP's, 
but we need some pertinent facts and reporting. One thing that 
the BN has done, it has started to report turn times. What that 
means is when cars go from origin to destination and back. Now, 
they're reporting good turn times, except we've asked them to 
dig a little deeper and report turn times out of South Dakota 
and North Dakota to PNW and back, because their turn times that 
they're reporting are actually a little bit better than we're 
experiencing because they're lumping in stuff in Washington and 
western Montana that's closer. So that number is not quite 
true.
    One thing that's happened is freight is a management tool 
for the elevators, but now it's become a hard limit on the 
amount of business we can actually do. So the effects are 
twofold, to the farmers and to the elevator.
    We have a saying in our company: The problem with 
communication is the illusion that it actually happens. That 
sounds tongue in cheek, but it's really not, because without 
that clear communication and honest and factual and real-time 
communication we don't know what the other side is doing, which 
leads to a lot of uncertainty. We need the railroads at the 
table and we need them to have skin in the game. What I mean by 
that is if we get charged for not loading cars is it reasonable 
that they should suffer no consequences for failing to deliver?
    The Surface Transportation Board reauthorization is a good 
thing. The board's ability to communicate to one another and 
having a broader base aboard is common sense in today's day and 
age, and to be able to investigate issues without a formal 
complaint will help the shippers.
    In conclusion, I want to assure you we are not asking for 
government regulation, we're not asking for preferential 
treatment for grain. We want to make sure that we're not 
marginalized, but we need all the stakeholders--the 
commercials, the railroads, the government, the farmers--to 
stand at the crossroads, identify an action plan, decide how 
they're going to measure that plan, assess the measurements, 
and then move forward from there.
    Chairman, I thank you for this opportunity today and I'd be 
glad to answer any questions.
    [The prepared statement of Mr. Cope follows:]

Prepared Statement of Jerry D. Cope, President, South Dakota Grain and 
      Feed Association and Marketing Manager, Dakota Mill & Grain
Introduction
    Thank you Chairman Rockefeller, Ranking Member Senator Thune and 
members of the Committee for the opportunity to testify today. My name 
is Jerry Cope, and I am the President of the South Dakota Grain and 
Feed Association and am also the Marketing Manager for Dakota Mill & 
Grain. The South Dakota Grain and Feed Association (SDGFA) is a 
voluntary membership trade association that represents the grain 
dealers and feed manufacturers in South Dakota. SDGFA has over 300 
members consisting of grain elevators; feed and feed ingredient 
manufacturers; biofuels companies; grain and oilseed processors and 
millers; exporters; livestock and poultry integrators; and associated 
firms that provide goods and services to the Nation's grain, feed and 
processing industry. SDGFA is also one of 26 state and regional 
affiliates of the National Grain and Feed Association (NGFA). Dakota 
Mill & Grain is a private grain and agronomy company headquartered in 
Rapid City, South Dakota with 9 locations and over 500 customers in 
western and central South Dakota who primarily farm, ranch, feed 
livestock. I am testifying today on behalf of South Dakota Grain and 
Feed Association but also serve on the NGFA's Board of Directors and 
its Rail Shipper/Receiver Committee.
    Agriculture is South Dakota's number one industry and we rank in 
the top ten in the Nation in nearly all crops. We are a landlocked 
state with only 2 rail carriers to access both domestic and foreign 
markets for the many agricultural products our farm customers produce. 
The Burlington Northern Santa Fe (BNSF) runs east to west across the 
top of South Dakota and north to south from Aberdeen in the northeast 
to Sioux City, IA. The newly formed Rapid City, Pierre & Eastern 
(RCP&E), a short line subsidiary of the Genesee and Wyoming (G&W), runs 
east to west through the center of South Dakota from Brookings to Rapid 
City. The RCP&E terminates in Tracy, MN, just east of the South Dakota 
and Minnesota border where it interchanges with the Canadian Pacific 
(CP). The RCP&E was formed by the sale of the old Dakota Minnesota & 
Eastern line from the Canadian Pacific (CP) to G&W in May of 2014. 
Destination markets are often beyond the practical reach of trucks 
making rail service a critical lifeline for the livelihood and economic 
well-being of our state. South Dakota exports the majority of the crop 
production by rail to terminals in the Pacific Northwest, the Gulf of 
Mexico, livestock feeders in the Southwest and flour mills in the 
eastern half of the United States. Approximately 45 percent of the corn 
grown in SD is processed in state. The refined ethanol and corn by-
products are exported by rail to population centers in the west and 
east and the by-products to feed markets across the country. Over 75 
percent of the wheat, soybeans, sorghum, sunflowers and birdseed grains 
are exported by rail either to domestic markets or for export.
    Rail service disruptions, delays and bottlenecks began last fall 
and worsened over the winter. These service disruptions over the past 
12 months have impacted our state greatly, and made it necessary to 
identify and address problems in our rail service. Actions by the 
Surface Transportation Board (STB), Senator Thune, our affiliated state 
and national organizations have served to bring this issue to the 
forefront and to hold railroads accountable for restoring service to 
acceptable levels.
    Our industry group believes that if we are going to voice concerns 
then we also have a responsibility to cite relevant facts on where we 
were before the service meltdown began last fall, where we are today, 
and offer a roadmap of what is wanted, expected and needed, as well as 
provide suggestions on how to improve rail service.
Where we were
    To begin, I would like to review where we were before we began to 
experience serious rail service disruptions last fall--well before the 
harsh winter weather--and before the Surface Transportation Board (STB) 
initiated its rail service proceeding (EP 724) in April to look into 
the matter. I believe my company was typical of others in the state. We 
were behind by over one thousand cars, leaving farmers and elevators 
backlogged with over twice the normal grain inventory as we approached 
spring planting. South Dakota typically carries over about 20 percent 
of the wheat produced in a given year; 5 percent of the corn and 5 
percent of the soybeans. Going into the spring the inventories both on 
and off farm were 25 percent or more of wheat and 20 percent of the 
corn. We had almost no regular communication with the railroads and if 
there was a plan to solve the backlog, it was not one that we could 
identify. The major carrier in the state, BNSF sells freight 
commitments in a primary market auction and shippers needing the 
freight buy it to procure a ``deck'' of freight. They often then trade 
the freight in a secondary market to manage storage space at elevators; 
timing of harvest; farmer selling and sales logistics. All types and 
sizes of grain rail shipments are sold in the primary freight auctions. 
Most common is shuttle or 110-car commitments, but larger elevators 
also utilize trains called Domestic Efficiency Trains (DET) which are 
110 car units of usually wheat that are be loaded at one origin then 
split into multiple, smaller units at a central point for distribution 
to specific flour mills. Smaller elevators can also participate by 
utilizing 24-car units and single cars. Historically, the secondary 
market for this freight trades in a range of 15 cents a bushel below 
tariff to 50 cents per bushel above. However, last spring and into the 
summer, Secondary Freight car costs were roughly equal to the freight 
rate. $5,000 per car or a $1.25 per bushel was paid for cars--doubling 
the freight rate for corn shipped to the Pacific Northwest. These costs 
had escalated over time and elevators absorbed some of the cost along 
the way but eventually the secondary freight market costs were 
reflected in a lower basis and cash price paid farmers in South Dakota 
and the upper Midwest of 50-cents per bushel or more. Wheat costs were 
75-cents to a $1.50 per bushel in lost opportunity to sell for 
immediate flour mill demand which required availability of railroad 
cars versus selling for delivery two months or more down the road. 
Additional risk was that exporters, processors and flour mills were 
depending on timely delivery of product. Sellers risked the cost of 
buying in obligations and end users risked running out of product. 
Ironically, the secondary freight car market rewarded carriers for poor 
performance--the bigger the delay, the larger premium was for freight. 
Railroads will argue that day-to-day secondary freight market premiums 
do not go to them but to the owner of the freight and they are right. 
However, the urgency to secure adequate freight for this fall's harvest 
resulted in some BNSF shuttles selling for up to a $2.5 million to $3 
million dollar premium in the shuttle auctions. To date, total premiums 
paid to BNSF in auctions for their freight beginning this fall is over 
$160 million (table 1)--all money that DID go the railroad. Through 
this crisis, there was little or no communication from the railroads. 
Simply put, we were without a voice.
Table 1


Table 1--Continued


    Table 1--Results of BNSF auctions since January of 2014. Taken from 
the BNSF website September, 2014
Table 2


Table 3


Table 4


    Table 2-3-4
    From NGFA Testimony at STB Public Hearing on Rail Service Issues, 
STB Docket No. EP-724. 4/10/14
Where we are
    Now, in the aftermath of the STB's involvement and advocacy, as 
well as the combined efforts of Senator John Thune, South Dakota Grain 
and Feed Association, NGFA and the state affiliated grain organizations 
in Montana, North Dakota and Minnesota, we are being heard when it 
comes to addressing what is a logistics and operations issue for all 
the railroads involved, especially the Class I's. As a result of this 
increased communication, additional reporting of service metrics 
required by the Board, active monitoring by the Board and actions by 
some of the major carriers in this region, there is some easing of 
fears as we are able to see the railroads plans for the long term and 
modifications regarding their day to day operations. It may not always 
be what we want to hear, but it is a first step. With the required 
reporting to the STB from the BNSF and Canadian Pacific, there is now 
more transparency to see what the carriers are doing and what they plan 
to do. There has also been improved communication between these two 
Western carriers and us, their customers. The CP's specific reporting 
on their performance providing power and cars to the RCPE has provided 
a benchmark for a weekly gauge to measure their progress doing what 
they committed to do when they sold the western end of the DM&E line.
    Today, progress has been made towards cutting the backlog of car 
orders our region. While this is great news, it is still a very serious 
situation. Needing a train every five days in order to clean out the 
backlog and get ready for fall harvest but getting one every ten 
prohibits accomplishing either of those objectives.
    In regard to the CP's performance reports, until recently, it had 
not provided the locomotives it had committed to under the terms of the 
sale of the DME line to RCP&E. (The CP had committed to providing an 
agreed amount of cars on weekly basis in addition to locomotive power 
so that the RCP&E could effectively service their new line in South 
Dakota.) By not fulfilling this commitment, it left the RCP&E unable to 
clear their rail lines of loaded cars. This resulted in loaded cars 
sitting at RCP&E elevators for a week or longer, causing buyers to shy 
away from buying more RCP&E origin cars until they see that the ones 
they have already bought are moving. This situation is made worse at 
the interchange at Tracy, MN when the CP either hasn't shown up as 
scheduled or didn't come with as many locomotives as it previously 
committed; in which case the RCP&E really had no choice but to use 
their locomotives to help move the loads beyond Tracy -if they were 
available at all. This throws the RCP&E out of balance. The RCP&E then 
has crews that were scheduled for RCP&E local work out moving loads on 
the CP. It requires more locomotive horsepower to move loads than 
empties which again changes the RCP&E balance of power, crews and cars 
on its line. While the CP has provided a share of the cars that RCP&E 
has ordered, they have not until very recently provided the power 
promised. Although the CP has begun to fulfill its commitments and 
extra trains have even been added to help clear the backlog on the 
RCP&E, the full effect is yet to be seen in terms of cars on track to 
load. Unfortunately, the CP did not respond until required to do so by 
the STB. Until the CP honors all of its commitments on an on-going 
basis the problems will only get worse in South Dakota.
    On top of that, crop yields are expected to be at record highs this 
year. This year's wheat yield in South Dakota is running approximately 
double of normal. Even though our state's total wheat acres are down 
from the five-year average and the final yield is yet to be determined, 
total production will, at worst, be slightly above the five-year 
average but more likely 10 to 20 percent above. The USDA forecast for 
South Dakota corn production is the same as 2013; however, another well 
respected private firm forecasts corn to be a record at 10 percent 
above last year's production. Production of other crops such as 
soybeans, sorghum, sunflowers, oats and millet look just as promising. 
Given these projections, and at the BNSF's and CP's current pace of 
service recovery, the backlog will continue and possibly even increase 
through next summer. There is no room for even a minor hiccup in rail 
service this fall and winter--including weather, competing demand or 
anything else.
Table 5


    Table 5--From USDA 6/30/14 June Acreage and Stocks Report

    If there is no change in the pace of rail service, the storage of 
this abundant crop will create challenges. In my travels through 
western South Dakota, there are farmer piles of wheat ranging from 
20,000 bushels to over 200,000 bushels. Elevators have open ground 
piles of grain waiting to be shipped. Unfortunately, the same weather 
that has led to doubled yields has also caused disease issues in some 
of the wheat. In certain instances, quality issues will require 
blending and cleaning of diseased wheat to make it marketable. With 
elevator storage capacity full and waiting for cars, space to segregate 
and blend does not exist, leaving open the risk that less than ideal 
quality wheat may not be marketable--which negatively impacts local 
producers who have taken the risk of planting those very crops. While 
secondary freight costs have relaxed from their peak levels, the bids 
elevators are offering consistently reflect allowances for crop-quality 
risks and the freight costs they are incurring. Basis cost for the risk 
of quality, contractual obligations and freight is a lesson learned 
from the experiences of the past 12 months. The risk factor is 
reflected in bases bids of approximately 30 to 50-cents for harvest 
delivery. The CP railroad, RCP&E and the processing industry do 
actively auction their freight but they, we shippers, buyers and the 
producers are all affected by the secondary market. Secondary market 
costs are an indicator of market pricing and risk because high freight 
costs are inversely proportional to freight availability--the higher 
the extra cost of rail freight, the less freight there is to go around 
which in turn impacts the elevator industry's ability to handle grain.
Table 6


    Table 6--Representative central SD Cash bids for new crop 2014 corn 
posted on publicly available company websites
Table 7


    Table 7--Secondary BNSF freight bids and offers from public 
TradeWest Brokerage wire 9/5/14

    Is it an option for companies to expand storage? Over the past 15 
years hundreds of millions of dollars have been invested in South 
Dakota grain and fertilizer facilities based on expectations of 
reasonable and predictable rail service. Investments in rail facilities 
at grain elevators can easily run from over $3 million dollars for a 
minimal amount of bins and a 25 car track upgrade to over $30 million 
for a state of the art shuttle shipper and fertilizer receiver. As an 
industry we have to ask ourselves when does the risk outweigh the 
reward given the unpredictability of transportation services.
Where we need to be
    Moving forward, it is hoped that the stringent oversight of the 
agricultural rail service crisis will continue as the recovery in 
service hopefully continues and ultimately returns to more normal 
levels. In the long term, continued vigilance and the spotlight on this 
crucial issue will facilitate needed communication between the 
railroads and the state, where one did not exist before. Hopefully, 
this same communication can come into play when railroads are making 
investment decisions to increase capacity. The BNSF has responded to 
the heightened awareness with announcements to add locomotives and 
double track around North Dakota's oil fields. We hope that the CP will 
follow through with their commitments also.
    While oversight from the STB, efforts by agricultural producer and 
shipper organization, and the leadership efforts of Senator John Thune, 
the ranking member of the Senate Committee on Commerce, Science and 
Transportation, has helped and will be needed moving forward, ease of 
doing business and safeguards against overregulation also are 
important. Certainly, the rail business environment can be improved by 
implementing reasonable processes and rules to make it easier to bring 
justifiable grievances regarding rail service, as well as rates and 
charges to a timely conclusion. Direct government intervention in 
railroad operations is not our goal. But this can be accomplished while 
still not encumbering railroads with regulatory constraints that make 
it uneconomic for them to invest in their systems to more efficiently 
handle grain and to enable our industry to continue to serve our farmer 
customers as their link to domestic and foreign markets.
How do we get there?
    In addition to oversight, continued reporting of service metrics 
are important and necessary. We have a saying in our company that the 
problem with communication is the illusion that it actually took place. 
While seemingly tongue in cheek, it speaks to a real problem. 
Communication has to be open, honest and real. Action plans, progress 
reports and relevant scorecards from railroads on a real time basis are 
needed. Real time is defined as weekly or at least bi-weekly. 
Scorecards that outline targets and then follow up with a transparent 
analysis and frank summary of the results will not only help identify 
areas of improvement for the railroads but provide the affected grain 
industry planning tools of predicting future performance based on past 
results. In this region we would like to see the BNSF continue 
publicizing its plans and following up with the STB, affected states 
and customers. The CP needs to continue its reporting especially 
regarding the RCP&E commitments so that all stakeholders are aware and 
the RCP&E can make real progress addressing the backlog on their line. 
The recent addition for BNSF and CP to report shuttles by region 
(specifically the three states of ND, MN and SD) is a helpful metric 
and we're pleased that you followed through with the request made by 
Senator Thune in July, which mirrors a recommendation from NGFA. 
Further, NGFA is in ongoing discussion with rail carriers on how to 
determine additional service metrics to show that agricultural 
shipments are not being disadvantaged at the expense of other, higher-
value products hauled by rail.
    In addition to reporting, there needs to be one-on-one discussions 
between railroads and their customers to comprehensively outline what 
is needed and expected. Customers have the responsibility to honor 
commitments but the end goal is a team effort. We also believe 
additional manpower is needed to operate along the rail. Rail workers 
hours of service regulations are more stringent than those of trucks. 
Could hours of service regulations be relaxed during this period of 
service recovery so that while still operating in a safe and 
responsible manner, additional hours would help improve car movement?
    Proposed changes in the Surface Transportation Board 
Reauthorization Act of 2014 are important to help the STB keep up with 
changes in the transportation network we are experiencing and see going 
forward. The highlights of the bill include increasing STB's 
investigative authority so it can launch its own investigations before 
a complaint is filed; making it easier for Board members to 
communicate; and improved alternative dispute resolution practices; all 
of which are all positive steps.
Conclusion
    Again, let me stress, we are not asking for direct government 
intervention and we are not asking for preferential treatment for 
grain. We just want to ensure that we are not disadvantaged or that 
grain is marginalized in the rail freight picture. Challenges faces the 
rail freight framework have reached the point where it is not 
productive to place blame, condemn or debate who was right and who was 
wrong. We stand at a crossroads where we need to determine a course of 
action that works for the benefit of all stakeholders. Thank you for 
your time today entertaining input from us. The members of the SD Grain 
& Feed Association appreciate your proactive stance and efforts to 
improve the dire situation of rail freight service for grain in SD.

    The Chairman. Thank you, sir, very much.
    Mr. Calvin Dooley is the President and Chief Executive 
Officer of the American Chemistry Council. Welcome.

STATEMENT OF CALVIN (CAL) DOOLEY, PRESIDENT AND CHIEF EXECUTIVE 
              OFFICER, AMERICAN CHEMISTRY COUNCIL

    Mr. Dooley. Thank you, Mr. Chairman, Ranking Member Thune, 
members of the Committee, for allowing me to testify today. ACC 
and our member companies would particularly like to thank you, 
Mr. Rockefeller and Mr. Thune, for your introduction of the 
Surface Transportation Board Reauthorization Act of 2014. We 
would agree in your assessment that it is a very good bill 
because it does address numerous longstanding issues with the 
STB and will help make freight rail service more competitive 
and more reliable.
    The American business of chemistry is the second largest 
customer of the U.S. rail freight system. Thanks to the shale 
gas revolution here in the United States, we're going to see 
the most dramatic increase in our production in history, and 
we're going to be even more reliant on freight rail 
transportation.
    To succeed, we need efficient rail service, we need 
competitive shipping rates, and we need, importantly, a timely, 
effective, and an equitable way to resolve disputes between 
freight rail shippers, companies and shippers. We would 
acknowledge that the Staggers Act of 1980 has been successful 
in many ways and ACC and our member companies have no interest 
in re-regulating the rail industry. But it is time to 
acknowledge that the freight rail service landscape has changed 
dramatically in the 34 years since the adoption of the Staggers 
Act.
    For example, the consolidation among Class I railroads has 
left only seven in operation today, with four rail companies 
controlling almost 90 percent of all shipments. Today, more 
than three-quarters of U.S. rail stations are served by only 
one rail company. And unlike the 1980s when many railroads were 
grappling with bankruptcy, today's railroads are in a strong 
financial position.
    The consolidations are correlated to significant increases 
in rail rates. Rates increased more than 93 percent between 
2002 and 2012, three times the rate of inflation. A recent 
study that we conducted found that in 2011, 57 percent of all 
rates exceeded the 180 percent recoverable variable cost, which 
is an important number because that is the number STB uses to 
determine whether or not there's legitimate cause to consider 
these rates as excessive.
    Even more importantly is that what we also found in 2011 is 
37 percent of all chemical shipments were 300 percent of the 
RVC. What is also more troubling to us is the trend, because in 
the most recent 5-year period we saw almost a 50 percent 
increase in our chemical shipments that were over that 300 
percent of the RVC.
    ACC recently joined with 23 other manufacturing, 
agriculture, and energy groups to outline a series of STB 
reforms that would ensure access to competitive rates, and many 
of those reforms that we suggested are dealt with in the 
legislation that you and Senator Thune introduced.
    Just to highlight a few of those that we think are most 
important:
    The bill will make important organizational changes to 
streamline processes and facilitate more timely decisions by 
the STB. The board itself estimates that a standalone cost 
challenge today takes three and a half years to complete and 
can cost over $5 million. That's a financial barrier to 
resolution.
    The legislation requires a review of rate bundling 
practices. Why this is important is because railroads often 
group tariff rates with lower tariff rates in a single 
contract. Because nontariff rates cannot be challenged, 
shippers are faced with a Catch 22, as they must accept higher 
tariff rates on all the contract routes in order to challenge 
the rates on those routes that they find excessive.
    The legislation would provide STB with guidance that 
current revenue adequacy and standalone cost rules need review 
and possible revision. Both rules are based on the outdated 
notion that rail carriers are financially strapped. Yet by 
nearly all economic measures today's rail carriers are 
financially stable. Warren Buffett does not invest $44 billion 
in a company that is not revenue adequate. Yet current STB 
policies stack the deck against shippers' ability to 
successfully challenge rates, even when they have exceeded 900 
percent of the RVC. Even the economist who developed the 
economic basis for the standalone cost rule has recently stated 
it has no economic viability today.
    The legislation calls on STB to proceed with a competitive 
switching rulemaking. Shippers would then have access to 
competing quotes and service from other railroads which are a 
short distance from the point of shipment.
    The bill requires that STB develop a new arbitration 
program and raise the caps on damages, and we are confident 
that an effective arbitration alternative will drive carriers 
and shippers to equitably resolve rate disputes.
    These reforms will foster a healthy, efficient, and 
affordable freight rail system, which is in the interest of 
both rail companies and shippers. We thank you for your 
leadership and look forward to working with you and our 
transportation partners to advance the STB Reauthorization Act 
of 2014.
    [The prepared statement of Mr. Dooley follows:]

    Prepared Statement of Calvin (Cal) Dooley, President and Chief 
             Executive Officer, American Chemistry Council
    My name is Cal Dooley. I am the President and CEO of the American 
Chemistry Council (ACC), the national trade association representing 
chemical manufacturers in the United States. I am testifying today on 
behalf of our member companies and the nearly 800,000 men and women who 
make up America's business of chemistry. I am very pleased to be here 
to discuss steps needed to promote and improve the performance of 
America's freight rail system.
    First, I would like to thank Chairman Rockefeller and Ranking 
Member Thune for their leadership on this very important issue and for 
introducing the ``Surface Transportation Board Reauthorization Act of 
2014.'' The legislation addresses numerous long-standing issues that 
have prevented the Surface Transportation Board (STB) from serving as 
an effective venue to resolve disputes between rail service providers 
and shippers.
    To be clear, this legislation does not seek to reregulate America's 
freight rail system. In fact, it would make freight rail service more 
competitive, which is in the interest of large shippers, such as the 
chemical industry, and our economy as a whole.
    The chemical industry is the second largest customer of the U.S. 
freight rail system. Thanks to the shale gas revolution our industry is 
projected to grow significantly in the coming years, with $125 billion 
in new factories, expansions, and restarts already announced, meaning 
that our reliance on the rail system will only increase in the future.
    Chemistry creates the building blocks for countless consumer goods, 
industrial processes and specialty materials that must be transported 
across the country and ultimately around the world. Efficient rail 
service; rational shipping rates; and when necessary, a timely, 
effective, and equitable way to resolve disputes between freight rail 
companies and shippers are critical to our success. However, a review 
of the facts suggests that many shippers currently are not benefitting 
from any of the three.
    A recent survey of ACC members found that rail issues factor 
heavily into domestic investment decisions. In fact, more than a 
quarter of ACC members report that rail transportation issues have 
hindered domestic investments.
    Publicly available data from the railroad industry shows that rail 
rates have increased more than 93 percent between 2002 and 2012, about 
three times the rate of inflation. ACC recently commissioned a study 
(summary attached) to explore the full economic impact of these 
increases. The study found that in 2011, 57 percent of all rail rates 
exceeded 180 percent of the revenue-to-variable cost ratio (RVC)--an 
important measure because any rate greater than 180 percent RVC could 
be subject to STB review for potentially being unreasonably high. In 
fact, a quarter of rail rates exceeded 300 percent RVC.
    This means that many commodity shippers pay a very high premium to 
transport their products--premiums that totaled over $16 billion in 
2011. For perspective, a quick Google search will inform you that $16 
billion can pay House and Senate salaries for 172 years or cover almost 
100 percent of NASA's annual budget. In more relevant terms, ACC's 
economists project that a $16 billion chemical industry investment 
could support 54,000 direct and indirect jobs.
    This issue deserves Congressional attention. Significant resources 
are being diverted from research and development, operations, 
investment, expansion, and hiring to pay extremely high rail shipping 
rates. Congress created the STB to help ensure that railroad companies 
reap adequate returns but also to promote effective competition in the 
form of fair and reasonable and accessible and efficient service. 
Unfortunately, the Board has been unable to meet its mission. The bill 
introduced by Senators Rockefeller and Thune will help change that.
    The Staggers Rail Act of 1980, which deregulated the freight rail 
industry, has been successful in many ways, but the freight rail 
service landscape has changed dramatically since its passage. 
Consolidation has reduced the number of Class I, railroads from 26 in 
1980 to only seven today, with four essentially operating like regional 
duopolies that control 90 percent of the market. Today, more than 
three-quarters of U.S. rail stations are served by only one rail 
company, leaving customers captive to a single freight rail provider 
with no alternative if service or rates are unsatisfactory.
    ACC recently joined with 23 other groups representing a wide range 
of U.S. manufacturing, agricultural, and energy interests to express to 
the Committee our concern that the railroad industry is not providing 
the level of service we need at competitive rates. We outlined a series 
of reforms that will increase access to competitive freight rail 
service and modernize the STB to make it a more effective agency. The 
``Surface Transportation Board Reform Act of 2014'' takes significant 
steps to address many of the issues that have plagued the freight rail 
system, including the following:

   The STB's rate review standards are complex, overly-
        burdensome, and prohibitively expensive for many shippers. The 
        barriers for bringing a case before the STB are so high that 
        very few of our member companies can justify the time and 
        expense. The Board estimates that a stand-alone cost challenge 
        takes more than three and a half years and $5 million to 
        complete. ACC members have experienced cases that take even 
        longer and cost much more to challenge. These costs and delays 
        are simply prohibitive for many manufacturers, particularly 
        small companies.

    This legislation would make important changes to the organization 
        that will facilitate communication between commissioners and 
        more timely action.

   Rate bundling by railroads is a deterrent to seeking relief 
        from the STB. Many times, railroads ``bundle'' a mix of rates 
        into a single all-or-nothing contract proposal. Contract rates 
        are typically lower than standard tariff rates, just like the 
        actual price of a car is typically less than the sticker price. 
        But only tariff rates can be challenged at the STB.

    In order to challenge an unreasonable rate on one or more specific 
        routes, a shipper has to accept much higher tariff rates on all 
        routes covered by the contract. The premium for these tariff 
        rates may exceed the amount the shipper would hope to recover 
        if it wins the rate case. This bundling effectively deprives a 
        shipper of its only recourse against unreasonable rates, and we 
        believe it should be corrected by the STB, as it would be a 
        violation of antitrust laws in other industries. This 
        legislation calls for a review of the impact of rate bundling 
        practices.

   The STB's stand-alone cost and revenue adequacy rules are 
        outdated, impractical, and serve as obstacles to rational rate 
        relief. The Staggers Rail Act imposed two rules that today 
        require review and possible revision. First, the Act sought to 
        ensure that railroads were revenue adequate, meaning that 
        returns on investment were high enough to ensure the railroads 
        remained solvent and profitable. Unlike the circumstances in 
        1980, the rail industry today is more than financially sound. 
        The industry is setting records for operating ratios, operating 
        income, and earnings per share. Railroad stocks have outpaced 
        the broader market for years.

    Despite their economic performance, two recent attempts by ACC 
        members to challenge rates of the rail industry's longest-
        tenured revenue-adequate carrier were unsuccessful, even when 
        rates exceeded 900 percent of the railroad's variable cost. 
        This legislation provides guidance to the Board that progress 
        is needed on revenue adequacy rule-makings.

    Second, current STB rules require that in order to win a rate 
        challenge, a shipper must prove that it could build and operate 
        its own railroad from scratch for less than the railroad is 
        charging. Not only is this rule irrational, it is extremely 
        burdensome. To prove such a thing, a shipper must engage a 
        virtual army of lawyers, economists, and consultants to create 
        an entire railroad on paper.

    This requirement has even been criticized by Professor Gerald 
        Faulhaber, who originally defined the economic basis for stand-
        alone cost saying, ``the economic models upon which the stand-
        alone cost test were developed bear no relation to the current 
        freight industry,'' and the STB's use of stand-alone cost ``has 
        no economic validity.'' Even the current Chairman of the STB 
        acknowledged in a recent decision that ``we should never be 
        satisfied with a process that is so expensive and time 
        consuming for all parties.''

    This legislation will streamline rate case procedures and requires 
        a report on rate methodology. Hopefully these steps will result 
        in a more rational approach to justifying a rate case.

   Competitive Switching is non-existent as an option for 
        shippers. Competitive Switching would allow rail shippers to 
        gain access to another Class I railroad within a short distance 
        of their facility if they are unsatisfied with their current 
        carrier. It would also allow shippers to obtain competing 
        quotes from carriers, rather than forcing them to use one 
        railroad. The Staggers Rail Act envisioned competitive 
        switching, but it has never been allowed at the STB because of 
        a decision in the mid-1980s that effectively precludes its use 
        by shippers. There is currently a case pending on this issue at 
        the STB, but it has languished for more than four years.

    We have long advocated for the STB to proceed with a rule-making to 
        make competitive switching a more accessible solution for 
        shippers. The legislation provides guidance to the STB from 
        Congress that the Board should move forward with such a rule-
        making,

   Current STB rules make arbitration an ineffective means to 
        resolve disputes. The STB's current cumbersome process does not 
        create an incentive for parties to come to consensus and find 
        solutions. To be more effective, the Board should move to a 
        binding final-offer arbitration system. Similar approaches are 
        utilized by the Canadian rail system to resolve rate disputes, 
        as well as by professional baseball to resolve salary issues.

    Under a binding final-offer approach, the shipper and the railroad 
        each present a final proposal for the rate in dispute. At the 
        end of the process, the arbitrator must choose one of these 
        proposals, giving each side the incentive to converge towards a 
        fair and practical solution. This straightforward reform would 
        help level the playing field, swiftly and fairly resolve rate 
        disputes, and lower administrative costs for shippers and 
        railroads.

    The legislation acknowledges the problems with the current 
        arbitration program, requires the STB to develop new 
        arbitration procedures, and raises the cap on damages to a more 
        reasonable level.

    A healthy, efficient, and affordable freight rail system is 
essential to the success of the chemical industry, many other 
manufacturers, and the U.S. economy overall. We firmly believe that 
greater competition and a more equitable approach to resolving rates 
are not mutually exclusive with a thriving, profitable freight rail 
system. It is true that there are other modes of transport, but that 
does not preclude the freight rail system from operating in a 
competitive and efficient manner.
    Every policy reform we support is consistent with the policy goals 
set forth by the Staggers Rail Act. Unfortunately, the freight rail 
industry routinely opposes any reforms that would allow for more 
competition between railroads, including any operational changes that 
would give customers increased access. They have even opposed rules 
that would make the trucking industry more competitive.
    We greatly appreciate the leadership this committee has shown on 
this important issue. We look forward to working with you to advance 
the ``Surface Transportation Board Reform Act of 2014,'' and we remain 
committed to cooperating with the Committee and our transportation 
partners to foster a strong freight rail system that serves both 
railroads and shippers well.
                                 ______
                                 
                     Summary of Freight Rail Study

     Analysis of the Premium Railroads Charge Shippers--March 2014

Introduction
    U.S. producers depend on rail service to ship their products to 
their customers. Over the past decade, railroads consolidated and 
government rules protected railroads from competition, causing freight 
rail rates to skyrocket more than 76 percent--nearly three times the 
rate of inflation and three times as much as truck rates have 
increased. While a strong rail industry is vital to the U.S. economy, 
excessive rates can be a burden on U.S. manufacturing and provide a 
competitive advantage to foreign producers. To better understand these 
impacts, Escalation Consultants quantified the premiums railroads 
charge U.S. manufacturers in a report entitled, Analysis of Freight 
Rail Rates for U.S. Shippers.
Methodology
    For this study, Escalation Consultants examined Class I railroad 
rate data from the Surface Transportation Board's (STB) Public Use 
Waybill sample for all major commodity groups shipped by rail. Data was 
analyzed for 2011, the most recent year available from STB, and for 
2005. Escalation Consultants calculated the railroad's revenue-to-
variable-cost ratio (RVC) for each shipment that originated or 
terminated in the U.S. RVC is an important indicator for freight rail 
rates because a rate greater than 180 percent RVC is subject to 
potential STB review for being unreasonably high.
    For each group of related commodities, Escalation Consultants 
calculated the average rate for shipments below 180 percent RVC (those 
assumed to be competitive) and the average rate for shipments above 180 
percent RVC (those potentially non-competitive and subject to STB 
jurisdiction). The difference between these average rates is presented 
as the shipper's rate ``premium.'' Escalation Consultants further broke 
down the potentially non-competitive rates by RVC ranges (180-240 
percent, 240-300 percent, and above 300 percent) to show the impact of 
the highest rates on the total premium. Data are reported for all 
commodities combined, as well as for major commodity groups and 
individual products within each group.
Summary of Findings
    These key findings are based on the Public Use Waybill sample 
provided by the railroads to the STB:

   In 2011, more than half (57 percent) of all rail rates 
        exceeded the 180 percent RVC.

   The average rate for carloads above 180 percent RVC was 
        $1,335 higher than the average rate for carloads below 180 
        percent RVC, meaning that shippers paid a 53 percent premium 
        for these shipments.

   As a result, the total premium paid by commodity shippers in 
        2011 exceeded $16 billion.

   The commodity groups with the largest total rate premiums 
        were coal ($5.2 billion), chemicals and plastics ($4.5 
        billion), and transportation equipment ($1.2 billion).

   Many rates were far above the STB's jurisdictional threshold 
        of 180 percent RVC; for example, nearly one quarter (23 
        percent) of rates exceeded 300 percent RVC, or three times the 
        railroad's variable cost.

   From 2005 to 2011, the total premium paid by commodity 
        shippers increased 90 percent while the carload volume declined 
        by 1.1 percent.
                                 ______
                                 
                    Rail Customer Letter to Congress
                                                      July 10, 2014
Hon. Harry Reid,
Majority Leader,
United States Senate,
Washington, DC.

Hon. Mitch McConnell,
Minority Leader,
United States Senate,
Washington, DC.

Dear Majority Leader Reid and Minority Leader McConnell:

    In April, a broad coalition of railroad customers representing a 
range of U.S. manufacturing, agricultural, and energy industries wrote 
to your office to highlight the need for rail policy modernization. 
Today, we write to you in support of the attached specific reforms that 
would increase competition among railroad companies and make the 
Surface Transportation Board (STB) a more effective and efficient 
regulatory body.
    The lack of competition for rail services has become a critical 
problem for American industry, as more than three-quarters of U.S. rail 
stations are now served by just one major rail company. This 
consolidation has given the remaining railroads unprecedented market 
power, and has denied many rail-dependent companies the benefits of 
cost-effective and reliable rail transportation service. Unreasonable 
rate increases, service breakdowns, and diminishing competition, all 
act as headwinds on the many industries that require rail to do 
business in the United States.
    In the past, the rail industry has inaccurately portrayed efforts 
to reform rail policy as ``reregulation.'' This coalition does not 
support a return to the 1970s when all freight rates were automatically 
subject to strict government scrutiny. Because the Nation's freight 
rail network is vital to the strength of the economy, this coalition 
supports policies to create a more competitive and market-based system, 
while ensuring the STB has procedures to settle disputes efficiently.
    There is no question that the United States needs a strong rail 
network to compete globally. Railroads are a remarkably efficient means 
for transporting bulk commodities over long distances. According to the 
Association of American Railroads (AAR), rail companies can now move 
one ton of freight 476 miles on one gallon of diesel fuel. 
Surprisingly, these increases in productivity have coincided with sharp 
increases in rail rates and declining service performance.
    Several factors have contributed to the increasing imbalance in 
railroad market power, most importantly the dramatic consolidation of 
the Nation's freight rail network since Congress passed the Staggers 
Rail Act of 1980. There were 26 Class I rail companies in 1980; now, 
four corporations control more than 90 percent of the market. Staggers 
helped the industry regain profitability, but unchecked consolidation 
has led to dramatic increases in rates. In fact, according to AAR data, 
rates spiked 94.8 percent from 2002 to 2012, which outpaces increases 
in inflation and truck rates by about a factor of three. Furthermore, 
the STB held an emergency hearing and intervention this spring to 
address systemic rail service problems, while rates increases continue.
    The STB process for rate cases can and should be improved by 
Congress. Although railroad rates may be challenged for being 
``unreasonably high'', shippers large and small who desire to bring a 
rate case face tremendous economic barriers. A major case at the STB is 
extremely complex, involves a multimillion dollar investment in lawyers 
and consultants, and takes several years to obtain a decision. During 
the rate case, shippers are forced to pay extremely high tariff rates 
in the hopes of recouping those costs at the end of the case if they 
are successful. Many shippers cannot afford to challenge a rate at the 
STB under current procedures, and for those that can afford it, the 
economics of filing a complaint are dubious.
    Simply put, the current policies do not achieve the goals that 
Congress established in 1980, including promoting effective competition 
between rail companies, maintaining reasonable rates where there is an 
absence of effective competition, and providing expeditious resolution 
of all proceedings. In our view, it is the responsibility of Congress 
to ensure that the STB is perceived as an effective and viable 
intermediary between railroads and their customers who currently have 
no truly competitive option to ship.
    We hope you will take a look at the attached document where we have 
outlined specific policy proposals that would help to modernize the 
U.S. rail policy framework. We look forward to working with Congress 
and the rail industry to ensure the Nation's freight rail works--both 
for rail companies and the large and small American businesses that 
rely on them.
            Sincerely,

Agricultural Retailers Association
Alliance for Rail Competition
American Architectural Manufacturers Association
American Chemistry Council
American Forest & Paper Association
American Public Power Association
Chlorine Institute
Consumers United for Rail Equity (CURE)
Rdison Electric Institute
The Fertilizer Institute
Growth Energy
Institute of Scrap Recycling Industries, Inc.
Louisiana Chemical Association
Manufacture Alabama
National Association of Chemical Distributors
National Rural Electric Cooperative Association
Plastic Pipe and Fittings Association
Portland Cement Association
PVC Pipe Association
Resilient Floor Covering Institute
SPI: The Plastics Industry Trade Association
Steel Manufacturers Association
The National Industrial Transportation League
The Vinyl Institute

Enclosure

cc:

The Honorable John Boehner

The Honorable Nancy Pelosi

The Honorable John Rockefeller IV

The Honorable John Thune

The Honorable Richard Blumenthal

The Honorable Roy Blunt

The Honorable William Shuster

The Honorable Nick Rahall II

The Honorable Jeff Denham

The Honorable Corrine Brown
                                 ______
                                 
                         Rail Policy Proposals
Enhance Efficiency of STB Operations

   Allow direct communication between STB Commissioners: 
        Government ``sunshine laws'' prohibit a quorum of the STB 
        (currently, any two members) from discussing pending matters 
        with each other, forcing members to work via staffs. Congress 
        should address this problem by expanding the STB to five 
        Commissioners or by providing a limited exception that allows 
        appropriate discussions of pending issues by STB members.

   Study STB staffing and resource requirements: Congress 
        should initiate a study to determine whether the STB has 
        adequate resources to fulfill its statutory mission.

   Eliminate railroad revenue adequacy determinations: As 
        demonstrated by the industry's high levels of capital 
        investment and shareholder returns, the STB's annual ``revenue 
        adequacy'' calculations for Class I carriers are no longer 
        necessary and may inappropriately shield railroads' pricing 
        power from STB scrutiny. Congress should eliminate this 
        outdated requirement.

   Publicly report the status of STB proceedings: Rail 
        stakeholders would benefit from regular reports from the STB 
        detailing the status of pending rate cases, rulemakings, and 
        complaints. Reports should include key STB actions and expected 
        timelines for final resolution.
Reform STB Rate Challenge Procedures

   Review the STB's rate-reasonableness standards: Congress 
        should direct the STB to review its three types of rate-
        reasonableness reviews. Significant concerns involve not only 
        the cost and length of STB reviews, but also the fundamental 
        principles on which each standard is based. Reformed standards 
        should recognize that the Staggers Rail Act's goal of restoring 
        financial stability to the U.S. rail system has been achieved.

   Provide arbitration as an alternative means to resolve rail 
        rate challenges: The STB's rate review procedures are costly 
        for railroads and shippers and, therefore, are rarely used. 
        Binding arbitration, which has been used successfully under 
        Canadian law, could provide a quicker and less expensive 
        approach to resolve rail rate disputes.

   Prohibit ``bundling'' of contract rates that can prevent 
        rate challenges: In some instances, a railroad will ``bundle'' 
        rates in a single contract proposal for a group of origin-
        destination pairs and refuse to quote tariff rates for 
        individual movements. This all-or-nothing approach effectively 
        forces a shipper to agree to the complete package of contract 
        rates and deprives them of the ability to challenge specific 
        rates that it believes are unreasonable. The STB must be 
        empowered to address this problem and fulfill its mandate to 
        resolve rate disputes.

   Review STB commodity exemptions: Since passage of the 
        Staggers Rail Act, numerous categories of rail traffic have 
        been exempted from STB oversight. The rail industry and the 
        state of rail competition have changed significantly since many 
        of these exemptions were granted. Congress should direct the 
        STB to conduct a comprehensive review of existing commodity 
        exemptions and remove any exemptions that are no longer 
        appropriate.
Remove Barriers to Freight Rail Competition

   Provide competitive switching to shippers: Competitive 
        switching agreements facilitate the efficient movement of 
        traffic between carriers and are critical to a competitive rail 
        system. Consistent with existing authority under the Staggers 
        Rail Act, the STB should be directed to provide competitive 
        switching service to shippers, without requiring evidence of 
        anti-competitive conduct by a rail carrier from which access is 
        sought. The availability of switching should not preempt STB 
        authority to review rates.

   Allow shippers to obtain service between interchange points 
        on a rail carrier's system: Current STB policies and precedents 
        effectively block many shippers served by a single Class I 
        railroad from obtaining competitive service. In order to 
        provide effective competition among rail carriers, a Class I 
        rail carrier should be required to quote a rate and provide 
        service between points on that carrier's system where traffic 
        originates, terminates, or may be reasonably interchanged.

    The Chairman. Thank you, sir.
    Mr. Shane Karr, Vice President, Federal Government Affairs 
of The Alliance of Automobile Manufacturers.

  STATEMENT OF SHANE KARR, VICE PRESIDENT, FEDERAL GOVERNMENT 
       AFFAIRS, THE ALLIANCE OF AUTOMOBILE MANUFACTURERS

    Mr. Karr. Thank you, Mr. Chairman, Ranking Member Thune, 
members of the Committee. I appreciate the invitation today to 
testify on behalf of the Alliance and our 12 member companies 
who collectively produce three out of every four new vehicles 
sold in the U.S. each year.
    I think you invited me here because rail is an essential 
component of my industry's national supply chain. Seventy 
percent of new vehicles move by rail each year and that's 
roughly $5 billion a year in freight charges. Unfortunately, 
auto manufacturers are increasingly encountering the same 
persistent rail service issues that you've been hearing about. 
They threaten not only my sector and the 8 million jobs that 
auto manufacturing supports, but I would argue that they 
threaten the broader economic recovery as well.
    Of course, there is a lot of focus on this winter, but the 
fact is my members have been seeing systemic problems that have 
been progressively worsening over the past few years. They 
would tell you that this winter merely exacerbated underlying 
service problems, and I think the evidence is the continuation 
of those problems well into the summer months of this year.
    Let me talk about the two most common problems we're 
seeing: lack of available railcars to transport vehicles and 
then when we do have railcars, continuing significant delays in 
actual movement. Let me dimensionalize those two things for you 
for my sector.
    Last year, there were over 83,000 railcar shortages over 
the course of the entire year in 2013. I think we would all 
agree that sounds like a pretty big number. But in the first 6 
months of this year alone, January through June, we experienced 
almost 182,000 railcar shortages. What that has meant for us is 
that we have seen stranded basically between 140,000 and 
200,000 new vehicles on an ongoing basis for roughly four and a 
half months, starting in March through June, so well past the 
winter months. For comparison, we never hit the 140,000 mark in 
all of 2013.
    Even when we have had cars available to move, we're still 
seeing significant delays. Again, kind of controlling for the 
winter, if you just look at the summer months, June, July, and 
August, we have seen on an ongoing daily basis, roughly 2,100 
railcars per day that are delayed 48 hours or more.
    As a result of these persistent disruptions, my companies 
are spending tens of millions of dollars either to store new 
vehicles until they can move by rail or find alternative modes 
of transportation, which generally means trucking. For example, 
in my written statement I cite one of my companies at one of 
their facilities who has spent 13 million incremental dollars, 
which equates to about $184 per vehicle coming out of that 
facility, in order to store vehicles or move them by truck.
    Unfortunately, many of my companies are sort of looking at 
this world and not seeing service improvements in the near 
future, and thus are moving to lock in alternative modes of 
transportation or additional storage. This is a suboptimal 
solution, and maybe that's a euphemism, for a number of 
reasons, I think, from your perspective. Number one, frankly, 
there just isn't sufficient long haul trucking available in the 
U.S. even if we wanted to make that shift en masse to handle 
that quantity of goods over those distances.
    Number two, the increased cost of that shipping ultimately 
ends up being passed down to consumers.
    Number three, I think the overall shipping community very 
clearly in that world becomes much more vulnerable to fuel 
price spikes and supply vulnerabilities.
    In closing, I did want to mention the efforts of Senator 
Portman and Senator Levin, who are co-chairs of the Auto 
Caucus, to raise this issue and our sector's concerns in front 
of the STB. We attached a letter that they sent earlier this 
year to my written statement. I also want to reiterate again 
that we really appreciate being invited to this hearing and we 
look forward to working with you as you decide how to address 
this issue.
    [The prepared statement of Mr. Karr follows:]

 Prepared Statement of Shane Karr, Vice President, Federal Government 
           Affairs, The Alliance of Automobile Manufacturers
    Thank you, Chairman Rockefeller, Ranking Member Thune and members 
of the Committee. The Alliance of Automobile Manufacturers (Alliance) 
is a trade association of twelve car and light truck manufacturers 
comprised of BMW Group, Chrysler Group LLC, Ford Motor Company, General 
Motors Company, Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi 
Motors, Porsche Cars, Toyota, Volkswagen Group and Volvo Cars. 
Together, Alliance members account for roughly three out of every four 
new vehicles sold in the U.S. each year. Auto manufacturing is a 
cornerstone of the U.S. economy, supporting eight million private-
sector jobs, $500 billion in annual compensation, and $70 billion in 
personal income-tax revenues. On behalf of the Alliance, I appreciate 
the opportunity to comment on the significant freight delays that have 
been negatively impacting the auto industry.
    Rail is an essential component of the automotive industry's 
national supply chain. Auto manufacturers ship tens of thousands of 
vehicles daily in North America, primarily on U.S. railroads. According 
to the Association of American Railroads, railroads transport about 70 
percent of finished motor vehicles, and automotive traffic represents 
nearly $5 billion in annual railroad freight charges.
    Automakers utilize a combination of rail and trucking to transport 
finished vehicles from assembly plants to dealer lots and ports. 
Generally, shipping vehicles by rail is the more economical means of 
transporting vehicles over long distances, and in some instances, rail 
is the only feasible option to haul significant volumes of vehicles 
over long distances.
    Over the past several years, as the auto industry has rebounded 
from the economic downturn, auto manufacturers unfortunately have 
encountered persistent rail service issues. By far, the greatest 
logistics problem faced by auto manufacturers is the carriers' failure 
to provide a sufficient supply of empty railcars to transport finished 
vehicles. Automakers have also incurred significant delays in the 
movement of railcars loaded with finished vehicles. In this regard, it 
appears that the priority of auto shipping has become less than that of 
other shippers.
    The most recent rail industry service problems have caused an 
unprecedented disruption in the ability of auto manufacturers to 
deliver vehicles to their customers. As a result of the rail service 
disruptions, auto manufacturers are spending tens of millions of 
dollars a month to find other means of moving stranded vehicles or to 
store them until rail service is available. For example, since January 
one automaker has spent an incremental $13 million, or approximately 
$184 per vehicle, on vehicle transportation for one assembly plant 
alone due to the lack of available empty railcars.
    These vehicles should have been transported much sooner via 
contracted rail services to dealerships for sale or delivery to 
consumers. For a significant portion of 2014, vehicle inventory worth 
billions of dollars sat in rented storage yards all around North 
America. In early April--at the height of this crisis--more than 
200,000 vehicles were held in storage yards in and around automotive 
assembly plants. Where possible, automakers have had to look to 
alternate, more expensive means to move vehicles to dealers. Automakers 
had been optimistic that the excess vehicle backlog would be eliminated 
during the summer months when many assembly plants halt production for 
model changeover, giving the rail companies the opportunity to ``play 
catch up.'' And while the backlog has been reduced, automakers continue 
to suffer regular railcar shortages and remain concerned that we are 
entering the fall and winter seasons still in a deficit position.
    All automakers, regardless of which carrier they use to ship 
vehicles, have been adversely impacted by rail service disruptions. 
Additionally, this problem is not limited to the upper Midwest; rather, 
it is systemic throughout the country. While many auto manufacturing 
assembly plants are located in regions that experienced an especially 
severe winter (e.g., Illinois, Indiana, Michigan and Ohio), auto 
manufacturers with assembly plants in other parts of the country, 
particularly in the South and Southeast, also experienced shipping 
delays and vehicle storage problems.
    While this winter may have been more disruptive than in prior 
years, service problems did not start with the winter of 2014. Auto 
manufacturers annually encounter service delays during the winter 
months, and we understand that the rail network is highly connected 
such that severe weather in Chicago can have ripple effects throughout 
North America. But, in this case, extreme weather merely exacerbated 
underlying problems stemming from a lack of capacity--in cars, as well 
as crews and locomotive power. Extreme weather was not the reason that 
thousands of multilevel railcars that were needed for loading at 
automotive assembly plants throughout North America were in storage in 
early February.
    Some maintain that the fundamental problem is the structure of the 
rail industry and corresponding lack of competition among the Class I 
railroads. There is no question that freight volume is booming. As the 
Committee well knows, rail shipments of crude oil have grown 
exponentially in the last several years and are forecasted to continue 
to increase. The agriculture harvest last year was particularly good, 
adding to the demand. And, happily, the auto sector is booming again as 
well. Last month's seasonally adjusted sales were the highest we have 
seen since 2006, and many automakers are taking steps to up their North 
American production capacity. These are all extremely positive 
indicators for a recovering economy, but their potential benefit is in 
significant danger of being blunted by the shipping delays and high 
costs of storing product, or relying on alternative, more expensive 
forms of transportation.
    In a competitive market, an influx of demand would be met by an 
influx of increased supply (in this case new capacity), but as 
previously indicated, to many in the shipper community, it seems as 
though supply is very slow in coming in the rail sector. The Class I 
railroads tout large investments in capacity, but for many in the 
shipper community, it is difficult to sort out what is actually new 
capacity for existing shippers (such as automotive) versus maintenance 
of existing service or service for new shippers.
    Many shippers, including many Alliance members, are becoming 
increasingly concerned that these service problems are not going away 
anytime soon, and they are adjusting their logistics planning 
accordingly. One large Alliance member notes that in response to delays 
this year, it had to rebalance shipping from one of its large plants 
from 85 percent rail-15 percent truck to 60 percent rail-40 percent 
truck. In light of what that company is seeing in the rail sector, it 
is taking steps to lock in truck contracts, expecting a similar ratio 
going forward several years.
    While diverting vehicles from rail to truck may provide some 
logistical relief, this approach has its inherent limitations; in 
certain situations it is simply not feasible to haul significant 
volumes of vehicles for very long distances via truck. Shifting goods 
from rail to truck is also less efficient and more costly. The 
increased costs of ``forcing'' automakers to shift goods from rail to 
truck will eventually be passed down to consumers. It also makes the 
overall shipping community more vulnerable to fuel price spikes and 
supply vulnerabilities. To the extent that that rail service becomes 
less and less reliable, these concerns will be magnified and pressure 
for Congress or the STB to intervene will become more acute.
    Automakers are encouraged by the attention this Committee as well 
as the STB is giving this critical issue. Additionally, we also 
appreciate the efforts of Senators Levin and Portman, Co-Chairs of the 
Senate Auto Caucus, to draw attention to this important issue. In a 
July 8, 2014, letter to the STB (attached), the Senators highlighted 
the impact freight rail delays are having on the auto industry and 
urged the STB ``to closely monitor this situation and work with the 
railroads to find a timely solution.'' \1\
---------------------------------------------------------------------------
    \1\ Levin, Carl and Portman, Rob. Letter to the Honorable Daniel R. 
Elliott, III, Chairman, Surface Transportation Board. July 8, 2014.
---------------------------------------------------------------------------
    While auto manufacturers and rail carriers communicate on a regular 
basis to discuss rail service issues, many of our members are growing 
increasingly dissatisfied with the responses (or lack thereof) that we 
are getting to our concerns. As Congress considers what, if any, steps 
it can or should take to address the concerns of other industries 
affected by recent rail service disruptions, automakers want to make 
sure our concerns are recognized and included in those considerations. 
We look forward to working with you on these issues.
                                 ______
                                 
                               Attachment
                                       United States Senate
                                       Washington. DC, July 8, 2014
Hon. Daniel R. Elliott III,
Chairman,
Surface Transportation Board,
Washington, DC.

Dear Chairman Elliott:

    As Co-Chairs of the Senate Auto Caucus we are writing to bring to 
the Surface Transportation Board's attention serious freight rail 
delays negatively impacting the auto industry. These concerns were 
brought to the Surface Transportation Board's attention in a letter 
from the Auto Alliance dated April 17, 2014. We wish to reiterate the 
issues raised in the Auto Alliance letter and urge the SIB to closely 
monitor this situation and work with the railroads to resolve the 
delays.
    We understand that winter weather often results in seasonal rail 
service delays and that this winter was particularly severe. However, 
additional factors have exacerbated rail service disruptions 
nationwide. These include a shortage of railcars and an inadequate 
response to ameliorate this shortage, the annual month-aver-month 
growth in auto production and auto exports as the industry rebounds 
from recession, and the boom in crude oil shipped by rail that is 
absorbing significant rail capacity.
    While rail service delays are being felt across industry sectors 
and across the country and need to be addressed, it is a particularly 
urgent matter for the automotive industry. According to an April 23 
Wall Street Journal article, the industry faces a backlog of nearly 
160,000 finished automobiles on the ground awaiting rail transport. 
This backlog costs automakers tens of millions of dollars in storage 
fees and alternative means of transporting vehicles and has resulted in 
vehicle shortages at some dealerships across the country. This 
situation has significantly impacted the ability of automakers to 
deliver products to consumers.
    We should be doing everything we can to support the resurgence of 
American manufacturing which is fed in large part by the comeback of 
the U.S. auto industry. This includes making sure the rail 
infrastructure on which America's manufacturers rely is operating 
efficiently and effectively. We urge the Surface Transportation Board 
to closely monitor this situation and work with the railroads to find a 
timely solution to the rail service deficiencies currently plaguing the 
U.S. transportation system.
    Thank you for your consideration.
            Sincerely.

Rob Portman
Co-Chair. Senate Auto Caucus
Carl Levin
Co-Chair. Senate Auto Caucus

    The Chairman. Thank you, sir.
    Finally, Mr. Ed Hamberger, who's the President and Chief 
Executive Officer of the Association of American Railroads, 
which I often refer to as the most powerful under-the-radar 
lobbying group in Washington, D.C. Welcome.

STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, ASSOCIATION OF AMERICAN RAILROADS

    Mr. Hamberger. Mr. Chairman, thank you. Senator Thune, 
Ranking Member Thune, members of the Committee, thank you for 
the opportunity to be here.
    Senator--Mr. Chairman, rather--we were talking at a hearing 
last year where we agreed that we have not always seen eye to 
eye on the issue of economic regulation of the freight rail 
industry, but I observed at that time and would like to 
reiterate today that I appreciate your leadership in those 
areas where we have worked together and thank you for your 
years of public service. So thank you.
    I hope that my written statement, and I want to emphasize 
it in my oral statement, conveyed to you the fact that this 
industry recognizes that our customers are not getting the 
service to which they have become accustomed and which they 
need to serve their customers. It is a responsibility that we 
undertake to restore that service. It has occurred, as Senator 
Thune mentioned, not just because of rail service issues, but 
also some issues outside of our control. Nonetheless, it is our 
responsibility to get back to the level we need to get back to.
    I would like to address that issue and, with your 
permission, Mr. Chairman, also address some things not in my 
written testimony that I have heard here today.
    Let me start with capacity and service. On the one hand, 
this is a good news story. In August 2014, just last month, we 
moved more merchandise overall than we have since October 2007, 
before the recession. So the economy is coming back. We hope to 
move 17 million new automobiles this year. On the intermodal 
side, we're going to take 13 million trucks off the road as we 
grow intermodal at 6, 7 percent for the year.
    But we have problems. We did not see the surge in traffic 
coming. Many of our customers did not, either. In fact, last 
August there were tens of thousands, over 50,000, grain cars in 
storage. And then in the fourth quarter the demand hit. The 
weather--you mentioned it, Mr. Chairman. Yes, it snows every 
year. But this particular year in Chicago was a record cold and 
record snow. We are a network industry. One-third of our 
traffic originates, terminates, or transits through Chicago. 
When Chicago has problems, the entire network--it ripples 
through the entire network.
    Another issue that I mentioned is the commodity mix. What 
does that mean? Well, what it means is that for years we've 
been building quadruple tracking into the Powder River Basin 
around Gillette, Wyoming, so we can move coal. In 2013, we 
moved 1.4 million less carloads of coal than we did in 2008. 
Now, we can't just pick that track up in Gillette and move it 
to Minnesota, Missouri, or South Dakota, West Virginia. It 
takes time to go out there and build new capacity where the 
marketplace says we need it.
    That's exactly what we're trying to do. We're spending $26 
billion, 40 cents of every revenue dollar. We've hired 4,800 
new employees, net new employees, in the first 6 months of this 
year. But it takes time for all of that to work its way into 
the system.
    In Chicago, which I mentioned, we have had a task force 
looking at how to automate all the data that we collect there 
so that we can put in new protocols, move into higher levels of 
alert more quickly than we did last year, hoping that that will 
help alleviate some of the network fluidity issues rippling out 
from Chicago.
    I mentioned the fact that we're putting $26 billion, 40 
cents of every dollar, and that can only happen if we have the 
ability to invest. It is private sector money. It is not 
Federal money. I am not here asking for more Federal money 
because we invest our own money. We go into the private capital 
markets and we borrow it and we invest that which we earn.
    I do acknowledge that Chairman Rockefeller and Senator 
Thune introduced your bill on Monday. We are still taking a 
look at it. We have several concerns as introduced, but, as we 
always do, we'd like to sit down and see if we can't reach 
common ground with you as you move to mark up next week.
    I would like to take issue, however, with some of the 
things my good friend Cal Dooley said about how rail rates are 
hurting his members. It is exciting that his members have 
announced 197 new projects of $125 billion in the United 
States. Many of those plants will be served by railroads. Some 
of those will only be served by one railroad. But yet, the 
investments are going forward. We will be an enabler of those 
investments, not an impediment to them.
    Cal mentioned average rail rates spiking and he's right. 
They have gone up, according to this chart, over the last 
several years, all the way back to where they were in 1988 in 
inflation-adjusted terms, 17 percent below where they were in 
1981. So they've spiked all the way back to where they were in 
1988.
    One of his employees testified on the House side in May 
that the United States is currently the most attractive place 
in the world to invest in chemical manufacturing. All this 
investment occurring at the same time that our rates have gone 
all the way back to where they were in 1988. I would suggest 
that we're the most attractive place to invest for chemicals, 
because of--not in spite of, but because of the rail service 
that we provide and the rates that we charge.
    There were two hearings at the STB--let me close quickly, 
Mr. Chairman; I apologize for running over--in March and April. 
The one in March was on the NITL proposal to require mandatory 
reciprocal switching. There was a disagreement between the 
railroads and the proponents of that proposal over what the 
magnitude of the impact would be, but both sides agreed that 
there would be an impact in money leaving the rail industry and 
going to the shipper community, there would be an impact on 
fluidity, a negative impact, because of the increased switching 
of cars.
    Then a month later there was a hearing on service issues 
and what could be done to improve service. Well, the message 
coming out of that hearing was much different. The message 
coming out of that hearing could frankly be best summed up by 
the statement of Lucas Lentsch, Secretary of Agriculture for 
South Dakota. He said, quote: ``Farmers have spent the capital 
to increase production. Grain companies have spent the capital 
to handle this new production. And now it is up to the 
railroads to spend the capital to get this production to 
export.'' Well said, and our members are doing just that, 
spending their money, $26 billion, to get grain to export, 
chemicals from the plant to the customers, automobiles from the 
manufacturing plant to the showrooms.
    But that can only happen if we can earn the revenue to 
reinvest. I urge you to understand that the balanced regulatory 
system that is there at the STB is the foundation which allows 
those investments, and if you undermine that foundation you 
undermine the ability to make those investments, and that will 
have a negative impact on capacity and the economy. So I ask 
you to keep that paramount as you take a look at legislation 
and other issues going forward.
    Thank you, Mr. Chairman. I appreciate your leniency on the 
time and look forward to any questions.
    [The prepared statement of Mr. Hamberger follows:]

    Prepared Statement of Edward R. Hamberger, President and Chief 
          Executive Officer, Association of American Railroads
Introduction
    On behalf of the members of the Association of American Railroads 
(AAR), thank you for the opportunity to discuss the performance of 
America's freight rail system. AAR's freight railroad members account 
for the vast majority of freight railroad mileage, employees, and 
traffic in Canada, Mexico, and the United States. AAR's membership also 
includes Amtrak and commuter passenger railroads. This testimony is on 
behalf of the AAR's freight railroad members.
    Comprehensive, reliable, and cost-effective freight rail service is 
critical to our Nation. Our nation's freight railroads are proud that 
that is exactly what they generally provide. Indeed, America's freight 
rail system is second to none in the world.
    That said, it is also clear that, for a not insignificant group of 
rail customers, rail service in recent months has not been of the 
quality they have come to expect, or that railroads themselves expect. 
Rest assured, railroads are working tirelessly to remedy these 
challenges. Substantial progress has been made, and while challenges 
remain, railroads are fully committed to maintaining progress toward 
restoring service levels that rail customers deserve.
    And while I do not mean to minimize in any way the very real 
challenges that some rail customers are facing, it is important to note 
that U.S. railroads today are moving a tremendous amount of freight. In 
fact, average weekly U.S. rail volume, defined as carloads plus 
intermodal containers and trailers, was higher in August 2014 than in 
any month since October 2007. The intervening recession reduced freight 
traffic by about 20 percent. However, railroad spending on their 
networks remained comparatively high through these years, and increased 
over the last few years as volumes began to return.
    The actions railroads are taking today will result in our Nation's 
rail network being stronger and more resilient than ever, providing 
railroads the opportunity to improve their operations and become better 
able to provide the efficient, reliable, and cost-effective freight 
transportation service that rail customers, and our nation, need in 
order to continue to prosper.
    In the testimony below, I will discuss general issues related to 
the design and operation of rail networks, and discuss some of the 
specific factors that have contributed to recent rail service 
challenges. Foremost among these factors is a significant, rapid 
increase in demand for service--driven by commodity markets, expanding 
economic activity, and the related expansion of the domestic energy 
industry--that neither railroads nor their customers fully anticipated 
and that, in some cases, has proven challenging to handle with the 
resources available. Increasing demand included a different mix of 
traffic than previously, and some of this new mix has utilized areas of 
the rail network that had not previously seen such high traffic levels. 
In addition, this demand increase was accompanied by an unusually 
severe winter and subsequent thaw, as well as numerous spring flooding 
events, which continue to negatively impact rail operations in certain 
locations.
Network Planning and Management Complexity
    Unlike other network industries that transmit fungible products 
(e.g., electricity is the same, no matter who generates it) or products 
that can readily be routed to particular customers using automated 
equipment (e.g., electronic signals for telecommunications), railroads 
must move specific rail cars carrying specific commodities from 
specific origins to specific locations and must do so outdoors, in all 
types of weather. To accomplish this, railroads devote enormous 
resources to planning and operations.
    Even under the best of circumstances, day-to-day fluctuations have 
an impact on rail operations. Trains can be late or early for many 
different reasons, such as crew availability, customer facility 
fluidity, bad weather, grade crossing or other accidents, and even the 
maintenance and construction of rail infrastructure itself. Flexibility 
is built into plans and operations, but this flexibility is reduced as 
demand on the network increases, and no plan can fully predict or 
accommodate all eventualities for all portions of a rail network.
    As volumes increase, a number of factors make rail networks 
exceedingly complex to plan and manage and are worth noting here:

   Train types. Trains of a single type can often be operated 
        at similar speeds and with relatively uniform spacing between 
        them. This increases the total number of trains that can 
        operate over a particular rail corridor. This situation, 
        however, is relatively rare. Far more common is for trains of 
        different types--with different lengths, speeds, and braking 
        characteristics--to share a corridor. When this happens, 
        greater spacing is required to ensure safe braking distances 
        and to accommodate different acceleration rates and speeds. As 
        a result, the average speed drops and the total number of 
        trains that can travel over a rail corridor is reduced.\1\
---------------------------------------------------------------------------
    \1\ It's no different on a highway, where efficiency is maximized 
when similar vehicles travel at similar speeds.

   Service requirements. Different train types and customers 
        have different service requirements. For example, premium 
        intermodal trains demand timeliness and speed; for bulk trains 
        (e.g., coal or grain unit trains), consistency and coordinated 
        pick-up and delivery is the priority; customers who own their 
        own rail cars will want railroads to implement strategies which 
        help them minimize fleet-related costs, for example by 
        maximizing the number of ``turns'' (loaded to empty to loaded 
        again) the rail cars make; passenger trains require high speed 
---------------------------------------------------------------------------
        and reliability within very specific time windows; and so on.

   Maintenance. The need for safe operations is ever present, 
        and proper line maintenance is essential for safe rail 
        operations. In fact, because of higher rail volumes and a trend 
        toward heavier loaded freight cars, the maintenance of the rail 
        network has become even more important. Railroads have no 
        desire to return to the days when maintenance ``slow orders'' 
        (speed restrictions below the track's normal speed limit) were 
        one of the most common causes of delay on the rail network. 
        That's why maintenance is one of the most important parts of 
        any railroad operating plan. It necessarily consumes track time 
        that otherwise could be used to transport freight.
        
        

   Traffic volumes are not always foreseen. When planning their 
        operations, railroads use past experiences, customer-provided 
        forecasts, economic models, and other sources to produce their 
        best estimate of what demand for their services will be well 
        into the future. Railroads use those traffic forecasts to gauge 
        how much equipment, labor, and other assets they need to have 
        on hand. As with any prediction of future events, these traffic 
        forecasts are imprecise predictors of markets. After a certain 
        amount of traffic growth beyond what was anticipated, available 
        resources will be fully deployed, and additional assets (some 
        requiring long lead times--see below) will be needed.

   Traffic mix. The U.S. and global economies are constantly 
        evolving. Firms--even entire industries--can and do change 
        rapidly and unexpectedly. The collapse of the construction 
        industry when the housing bubble burst in 2007 and the recent 
        rapid growth in ``new energy'' production are just two 
        examples. These broad, often unanticipated economic changes are 
        reflected in changes not only in the volumes (see above 
        paragraph) but also in the types and locations of the 
        commodities railroads are asked to haul. If the commodities 
        with rail traffic declines traveled on the same routes as 
        commodities with traffic increases, the challenges these 
        changes presented to railroads' operating plans have less 
        impact. However, when traffic changes occur in different 
        areas--as is usually the case and certainly has been the 
        pattern in recent years--the challenges to railroads' operating 
        plans are magnified.

   Resource limitations. Like firms in every industry, 
        railroads have limited resources. Their ability to meet 
        customer requirements is constrained by the extent and location 
        of their infrastructure (both track and terminal facilities) 
        and by the availability of appropriate equipment and employees 
        where they are needed.

    Terminals--where trains are sorted, built, and broken down, similar 
        in certain respects to airline hubs--are a case in point. If a 
        train cannot enter a terminal due to congestion or some other 
        reason, then it must remain out on a main line or in a siding 
        where it could block or delay other traffic. The ability of a 
        terminal to hold trains when necessary and to process them 
        quickly is one of the key elements in preventing congestion and 
        relieving it when it does occur. Thus, one of the most 
        important factors in increasing capacity for the rail network 
        is enhancing the fluidity of terminals. Unfortunately, 
        terminals are often one of the more difficult areas in which to 
        add capacity, in part because they are frequently in, or near, 
        urban areas. Expansion generally means high land and, 
        potentially, high mitigation costs. Even in less urban areas, a 
        rail terminal is rarely considered positive by nearby 
        residents, and its development or expansion to accommodate 
        freight growth is usually the subject of intense debate.\2\
---------------------------------------------------------------------------
    \2\ Transportation infrastructure projects across modes are often 
victims of interminable permitting delays. A project by CSX railroad to 
expand its Virginia Avenue tunnel just a few blocks from here is a case 
in point. We urge policymakers at all levels to implement permitting 
reform to improve our existing network of railroads, highways, and 
waterways to enhance our Nation's competitiveness and reduce 
unnecessary costs and delays.

   Need for long lead times. It's an unfortunate reality that 
        many of the constraints railroads face--particularly those 
        involving their physical network--usually cannot be changed 
        quickly. For example, it can take close to two years for 
        locomotives and freight cars to be delivered following their 
        order; six months or more to hire, train, and qualify new 
        employees; and several years to plan, permit, and build new 
        infrastructure. Rail managers must use their best judgment as 
        to what resources and assets will be needed, and where, well in 
        the future. Usually, this process works well, but when those 
        judgments are off, serious problems can ensue. When these 
        judgments must also deal with the uncertainties of rapid and 
        historically unstable market changes, such as the recent 
        emergence of energy products moving by rail, the probability of 
---------------------------------------------------------------------------
        successful forecasting is even further reduced.

    On a related point, firms in every industry walk a fine line when 
        it comes to capacity. Generally speaking, if firms take too 
        long to bring back idled capacity or to build new capacity, 
        they risk shortages and lost sales. That's the case in terms of 
        some rail operations right now. On the other hand, if firms 
        build capacity on the hope that demand will increase, they risk 
        that the demand will not materialize and they will be saddled 
        with added, and wasted, costs. Like other firms, railroads must 
        balance these risks, and different railroads may come to 
        different decisions as to how much ``surge capacity'' is needed 
        and where to locate such capacity on their networks. 
        Nonetheless, significant investment has and will be made in 
        railroad operating assets.

   Regulatory Requirements: Throughout all aspects of their 
        operations, investments, and planning, railroads must navigate 
        the ever-growing series of Federal regulations which 
        cumulatively can have a dragging impact and constrain railroad 
        capacity. For example, while railroads are fully committed to 
        implementing the requirement for positive train control (PTC) 
        on approximately 60,000 miles of their networks, implementation 
        of this technology comes with not only a financial, but also an 
        operational cost. As PTC continues to be developed and 
        implemented in the field, significant service disruptions will 
        result, as each segment of track on which PTC will be installed 
        must be taken out of service for periods as long as ten hours. 
        Consider the fact that PTC is largely being installed along 
        heavily-used main lines and it's easy to understand the 
        dramatic reduction in capacity that will result.

    Beyond PTC, railroads continue to work through the vast number of 
        new regulations mandated in the Rail Safety Improvement Act of 
        2008, including those related to hours of service and training 
        standards which impact the availability of train crews. 
        Further, operational restraints on certain commodities, such as 
        speed restrictions on trains carrying crude oil, can have a 
        reverberating effect on overall traffic movement. One only need 
        imagine a slow truck on a two-lane highway and the traffic 
        backups that can ensue. The fact is that, while most of these 
        regulations in and of themselves do have some impact on 
        operations, when taken together they can result in a 
        substantial negative impact on capacity.

   Railroads are networks. Last, but not least, the 
        significance of the network aspects of rail operations cannot 
        be overemphasized. Disruptions in one portion of the system can 
        quickly spread to distant points. Railroads are not unique 
        among network industries in this regard--weather problems at 
        one airport can quickly cause problems at many other airports, 
        for example. But unlike airline networks, where the overnight 
        hours can usually be used to recover from the previous day's 
        problems, rail networks operate 24 hours a day, 7 days a week. 
        Thus, incident recovery must be accomplished at the same time 
        that current operations are ongoing and while the other factors 
        mentioned above continue to come into play. That's why, in 
        extreme cases, recovery in rail networks can take months. The 
        winter of 2013/2014 is one such extreme case that is discussed 
        further below.

    In light of the factors summarized above and many more, railroads 
try to design effective operating plans that resolve the thousands of 
competing customer interests that make daily use of railroad resources. 
They also do their best to make incremental changes to operating plans 
where possible--for example, by changing the routing of business 
through a particular railroad's network so that more traffic is routed 
to less congested areas. But because of the complexities involved, new 
operating plans often require components (for example, adding critical 
new infrastructure) that can take months to implement. And when 
capacity is constrained, as it is in certain geographic areas on the 
rail network today, disruptive incidents are more common and recovery 
takes longer than when the network is not fully utilized.
Railroads Are Working on a Variety of Fronts to Increase Capacity and 
        Service Reliability
    As noted at the outset, railroads know that, for many of their 
customers, rail service in recent months has not been at the level they 
expect. Railroads are working tirelessly to address this, including by 
making robust investments in equipment and employees, which are the 
rail assets that can be most readily adjusted to match capacity.
Massive Spending on Infrastructure and Equipment
    Of the many different factors that affect how well a rail network 
functions, the basic amount and quality of infrastructure and equipment 
are among the most important. That's why freight railroads have been 
expending, and will continue to expend, enormous resources to improve 
their asset base.
    Rail spending for these purposes has never been higher than it is 
right now. After spending more than $25 billion in both 2012 and 2013 
on capital expenditures and maintenance expenses related to their 
track, signals, bridges, tunnels, terminals, locomotive, freight cars, 
and other infrastructure and equipment--more than ever before--Class I 
railroads are projected to spend at least $26 billion for these 
purposes in 2014 (see Chart 1). Despite the ``Great Recession'' and 
slow recovery, railroads continued to plow record amounts of funds back 
into their networks.


    In fact, given their intense efforts to address service issues and 
recent announcements by several railroads that they are increasing the 
amounts they originally planned to spend this year, it would not be 
surprising if total spending in 2014 exceeded $26 billion. In 
aggregate, railroads have put hundreds of additional locomotives and 
thousands of additional freight cars in service in recent months, all 
with an eye toward resolving service issues and meeting customer needs.
Hiring New Employees
    In addition to equipment and infrastructure, personnel are a key 
determinant of rail capacity and service, and railroads have been 
aggressively hiring and training new employees. Like every other major 
U.S. industry, freight railroads saw a reduction in employees during 
the ``Great Recession,'' but there has been a significant recovery in 
rail employment since then, including a sharp surge since the beginning 
of 2014 when existing service problems began in earnest. Class I 
railroads had 4,852 more employees in July 2014 than in January 2014, a 
3.0 percent increase (see Chart 2).


    Rail employment growth is even more impressive in the category most 
relevant to resolving the service issues: the number of ``train and 
engine'' employees, which consist mainly of engineers and conductors 
who operate trains, was up 4.1 percent (2,738 employees) from January 
2014 to July 2014 (see Chart 3).


    To put the rail employment growth in perspective, employment across 
the U.S. economy rose just 1.1 percent from January 2014 to July 2014. 
To the best of our knowledge, no major industry has seen higher 
employment growth since the beginning of this year than the 4.1 percent 
increase in train and engine employment, and only a small handful have 
seen employment growth greater than the 3.0 percent seen by freight 
railroads overall. As we have seen, even this high level of employment 
growth has not been sufficient to meet demand in some locations and 
railroads continue to hire and train additional people to ensure that 
the resources will be available in the future to properly meet customer 
requirements.
A Surge in Demand for Rail Service
    In recent periods, substantial growth in demand for rail service 
across industrial sectors has been a key factor behind the service 
issues facing certain segments of the rail industry. This growth has 
not only occurred rapidly, it has been in markets and locations that 
are, in many cases, different from where the rail industry has 
experienced past growth. This market shift phenomenon happens in many 
industries, but it is particularly difficult for railroads to deal with 
since railroads cannot simply pick up track and move it from one 
location to another. Railroads must build new infrastructure from 
scratch to deal with these market changes.
    From January 2012 through February 2014, monthly year-over-year 
growth in U.S. rail carload traffic averaged -1.7 percent. However, 
from March 2014 through August 2014, year-over-year monthly rail 
carload growth averaged a much more robust 4.8 percent, thanks to a 
variety of factors such as (among other things) the record grain crop 
last year, recovery in demand for coal to generate electricity 
(discussed further below), and better general economic conditions.
    Likewise, rail intermodal traffic has surged in 2014 as well, with 
average monthly year-over-year growth of 7.3 percent from March 2014 
through August 2014, up from an average of roughly half that from 
January 2012 through February 2014.
    Chart 4 shows average weekly U.S. rail carloads plus intermodal 
units from January 2006 through August 2014. Note the dramatic increase 
since early 2014. Growth has been so strong, in fact, that, as noted 
earlier, average weekly U.S. rail volume (carloads plus intermodal 
containers and trailers) was higher in August 2014 than in any month 
since October 2007.


    The surge in rail traffic was challenging because it was ubiquitous 
and largely outside the scope of forecasted demand estimates, by 
railroads and their customers alike, and frequently did not occur in 
traditional markets or geographic areas. As discussed above, railroads 
are like other firms in that they plan to have assets on hand 
sufficient to handle expected business, but in this case customer 
demand was underestimated. Service performance and network velocity are 
adversely affected when a crew base and locomotive supply are planned 
for lower traffic volumes than actually occur. That's why railroads 
have been taking steps such as hiring significant numbers of additional 
train crews, providing incentives to existing employees to delay 
vacations and retirements, taking locomotives and freight cars out of 
storage, accelerating repair activity to increase the supply of 
locomotives and freight cars, reallocating capital budgets to support 
higher locomotive purchases, and much more.
Crude Oil
    There has been a great deal of discussion in recent months about 
the growth in the movement of crude oil by rail, and how rail crude oil 
shipments are allegedly ``crowding out'' grain and other rail 
commodities.
    As I discussed in detail in testimony to this committee on March 5, 
2014, thanks to the ``shale boom,'' U.S. crude oil output has risen 
sharply in recent years and is expected to continue to grow (see Chart 
5). Much of the recent increase in crude oil production has occurred in 
North Dakota, where crude oil production rose from an average of 81,000 
barrels per day in 2003 to close to a million barrels per day today. 
Most of North Dakota's crude oil output is transported out of the state 
by rail.


    The development of shale oil represents a tremendous opportunity 
for our Nation to move closer to energy independence. The widespread 
benefits this would entail include reduced reliance on oil imports from 
unstable countries whose interests do not necessarily match up well 
with our own; increased economic development all over the country; 
thousands of new well-paying jobs; tens of billions in savings in our 
Nation's trade deficit every year; and substantial amounts of new tax 
revenue for governments at all levels.
    Rail has a critical role in delivering these crucial benefits to 
our country. As recently as 2008, U.S. Class I railroads originated 
only 9,500 carloads of crude oil. By 2013, that had grown to 407,761, 
equal to around 11 percent of U.S. crude oil production.
    That said, one must be careful when looking to ascribe blame to 
crude oil for the service problems railroads are currently facing, 
which, as discussed below, became especially acute during and after 
this past winter. As Chart 6 shows, Class I railroads originated 
229,798 carloads of crude oil in the first half of 2014, up 11.7 
percent (24,058 carloads) over the 205,740 carloads originated in the 
first half of 2013. That's a considerably slower rate of growth 
compared with 2011 and 2012 trends. Crude oil accounted for just 1.6 
percent of total Class I carload originations in the first half of 
2014.\3\
---------------------------------------------------------------------------
    \3\ Data in this section come from a different source of rail 
traffic data than the source used to produce Chart 4 above. This 
alternative data source is not as timely as the source used for Chart 
4, but it includes much more commodity detail, allowing the break out 
of crude oil and other commodities that is not possible using the other 
data source. In addition, unlike the first data source, the alternative 
data source used in this section includes the U.S. operations of 
Canadian railroads, which for grain and crude oil specifically are 
significant.


    Moreover, the 24,058 more originated carloads of crude oil in the 
first half of 2014 works out to less than 1.5 new train starts per day, 
on average. Surface Transportation Board data indicates that there are 
approximately 5,000 train starts per day. Thus, recent new crude oil 
train starts are a small fraction of total train starts nationwide.
    Crude oil is also a small portion of total recent traffic 
increases. Class I railroads originated a total of 645,704 more units 
in the first half of 2014 than in the first half of 2013.\4\ The 24,058 
additional carloads of crude oil are just 3.7 percent of the total net 
first-half increase. By comparison, as Chart 7 shows, in the first half 
of 2014 compared with the first half of 2013, Class I railroads 
originated 182,425 more carloads of ``miscellaneous mixed shipments'' 
(most intermodal is in this category), 118,500 more carloads of grain, 
84,118 more carloads of coal, 41,310 carloads of crude industrial sand 
(this includes frac sand), 24,735 carloads of motor vehicles and parts, 
20,949 more carloads of chemicals, and 18,246 more carloads of dried 
distillers grain (DDGs, a byproduct of ethanol production used as 
animal feed). Again, crude oil is not a significant source of overall 
rail traffic growth so far in 2014 over 2013.
---------------------------------------------------------------------------
    \4\ Units consist of carloads and intermodal containers and 
trailers, though the exact breakdown is not clear.


    This is not to say that crude oil transport is not having an effect 
on the transport of other commodities, especially in certain geographic 
areas where crude oil volumes are much more concentrated than 
elsewhere. But rather than saying that crude oil is crowding out other 
traffic, it is more accurate to say that, right now, on some railroads, 
on some lines, rail capacity is a scarce resource. Railroads are doing 
everything they can to increase the supply of this resource. But as 
noted earlier, infrastructure creation takes time, even for urgent 
programs. For the time being, on congested rail lines, all commodities 
railroads are hauling are competing with each other for available 
capacity. Railroads do their best to address the needs and desires of 
all of their customers on an individual basis, but they must keep 
foremost in mind the need to maximize velocity across their networks, 
as a whole, to the benefit of all customers. Conflicting demands for 
the use of rail capacity are inevitable and railroads are doing what 
they can to minimize them, but when they occur, some rail customers are 
bound to prefer a different outcome. Any time there is a scarce 
resource and demand exceeds supply, someone is bound to be left 
unhappy.
Coal Traffic Has Been Higher Than Anticipated
    In addition to leading to sharply higher crude oil production, the 
``shale boom'' has also led to sharply higher natural gas production 
and, consequently, lower natural gas prices from what they once were. 
That has made electricity generated from natural gas much more 
competitive vis-aa-vis electricity generated from coal.
    However, as Chart 8 shows, over the past 18 months or so, not only 
has the coal share of U.S. electricity generation stopped falling, it's 
actually risen, as utilities that had been generating electricity from 
natural gas switched back to lower-priced coal. According to the U.S. 
Energy Information Administration, in the first half of 2013, coal 
accounted for 764 million megawatthours of U.S. electricity generation, 
equal to 39.1 percent of the total. In the first half of 2014, coal 
accounted for 806 million megawatthours, or 40.1 percent of U.S. 
electricity generation. This past winter in particular, the price of 
natural gas spiked, leading to greater than expected demand for coal 
and the sharply higher rail coal volume shown in Chart 7.


Extreme Weather Wreaked Havoc on Railroads, Especially in Chicago
    The railroad ``factory floor'' is outdoors and nearly 140,000 miles 
long. As such, railroading is arguably more susceptible to weather-
related problems than any other major industry. Thanks to their 
experience and the skill and professionalism of their employees, 
railroads are usually adept at handling weather events of all types. 
That said, extreme weather events, particularly sustained extreme 
weather events, can wreak havoc on rail operations. For example, 
extremely cold weather can force railroads to dramatically shorten the 
length of their trains, while snow accumulation can make it difficult 
to keep rail yards functioning. In much of North America, this past 
winter was one very long, very severe extreme weather event, with both 
record cold temperatures and record precipitation.
    While this past winter was unusually harsh in much of the country, 
it was especially so in the Chicago area. Chicago has been a crucial 
nexus in the North American rail network for over a century. Today, 
nearly 1,300 trains (500 freight and 760 passenger) pass through the 
region each day. In fact, around one-fourth of the Nation's freight 
rail traffic passes through or near Chicago. As such, when railroading 
becomes difficult in Chicago, it quickly becomes difficult throughout 
the rail network.
    According to the National Weather Service, Chicago experienced its 
coldest four-month period on record between December 2013 and March 
2014, with an average temperature of 22 degrees and a record number of 
days (26) at zero degrees or below. Chicago's 82 inches of snow this 
past winter was the third-highest in history and well over double the 
annual average of the previous 20 years.
    Moreover, during ordinary winters, there is usually time between 
storms to do some clean-up. Railroads typically ensure that their 
winter staffing levels are adequate to deal with these problems. 
However, that was often not the case this year due to short intervals 
between storms. In Chicago, for example, once the bad weather started, 
there was never a real opportunity for railroads to get their 
operations back to normal before the next severe cold spell or winter 
storm hit. The problems in Chicago and elsewhere in the Midwest were 
compounded by the fact that the severe weather occurred unusually far 
south this year so that the geography needing relief was much larger. 
Usually, the southern regions have served as relief valves during 
northern disruptions, and early last winter diversion of trains into 
this region was being planned, where possible. However, that outlet was 
not generally available much of the past winter. For example, a series 
of ice storms in a band between Atlanta and Memphis made it unsafe, 
sometimes impossible, for train crews to get to work in this region or 
for maintenance crews to properly tend to the many day-to-day problems 
requiring resolution in a properly operating railroad. The result was 
rail congestion in an area which has typically been available to 
relieve problems created by winter weather further north.
    Now, it's true that, as some rail critics have charged, ``winter 
comes every year,'' but to claim that this past winter was typical is 
to be disingenuous. I respectfully submit to you that, if we had a 
``normal'' winter this year, the capacity challenges we have seen would 
likely be at a significantly lower level. We should also remember that 
the challenges which have faced rail operations in many key areas were 
further exacerbated by widespread, regional spring flooding that was 
largely the result of the severe winter.
    As noted above, when capacity is constrained, disruptive incidents 
are more common and recovery takes longer than when the network is not 
fully utilized. In a nutshell, that explains why the events of this 
past winter continue to affect rail operations today.
Improving Rail Operations in Chicago
    Rail capacity has long been constrained in Chicago. Indeed, 
improving capacity utilization and the efficiency of rail operations in 
the Chicago region is the reason for the Chicago Region Environmental 
and Transportation Efficiency Program (CREATE), which has been underway 
for several years. CREATE is a multi-billion dollar program of capital 
improvements aimed at increasing the efficiency of the region's rail 
infrastructure. A partnership among various railroads, the City of 
Chicago, the state of Illinois, and the Federal Government, CREATE 
includes 70 projects, including 25 new roadway overpasses or 
underpasses; six new rail overpasses or underpasses to separate 
passenger and freight train tracks; 36 freight rail projects including 
extensive upgrades of tracks, switches and signal systems; viaduct 
improvement projects; grade crossing safety enhancements; and the 
integration of information from dispatch systems of all major railroads 
in the region into a single display. To date, 20 projects have been 
completed, nine are under construction and 19 are in the design phase.
    Railroads are confident that, as CREATE proceeds, rail operations 
in Chicago will become more fluid and better able to withstand shocks 
such as those presented by extreme weather. Railroads are also taking 
additional steps outside of the CREATE framework to add resiliency and 
efficiency to Chicago area rail operations.
    For example, right now railroads are investigating processes that 
will allow them to automate and centralize the reporting of various 
operating metrics regarding the status of rail operations in Chicago, 
such as dwell time, rail car inventory, the number of trains 
``holding'' at a particular location, the number of cars delivered per 
day, the number of cars en route to Chicago, and corridor velocity. The 
goal is to provide railroads with a common understanding of actual 
problems and, hopefully, provide warning of potential problems so that 
railroads can take steps ahead of time to minimize them.
Current Service Issues Are Not a Good Reason to Increase Government 
        Control of Rail Operations
    It is unfortunate that some groups are seeking to take advantage of 
the current rail service problems to advocate for far-reaching changes 
to the regulatory regime under which railroads operate that would 
result in a much greater government role in freight rail operations.
    That would be a profound mistake. As described above, railroads are 
already working very hard to remedy the service issues they face and 
are confident they will succeed. Looking ahead, railroads know that 
they will have to continue to expand their capacity to meet growing 
transportation demand. Recent forecasts from the Federal Highway 
Administration found that total U.S. freight shipments will rise from 
an estimated 19.7 billion tons in 2012 to 28.5 billion tons in 2040--a 
45 percent increase (see Chart 9).


    Railroads are the best way to meet this demand, and they're getting 
ready today to meet the challenge. They will continue to reinvest huge 
amounts back into their systems, as long as a return to excessive 
regulation does not prevent them from doing so.
    It is beyond the scope of this testimony to discuss in detail the 
many ways in which railroad reregulation is misguided. In short, it 
would force railroads--through what amounts, in one way or another, to 
price controls--to lower their rates to favored shippers at the expense 
of other shippers, rail employees, and the public at large. Billions of 
dollars in rail revenue could be lost each year. Artificially cutting 
rail earnings in this way would severely harm railroads' ability to 
reinvest in their networks. The industry's physical plant would 
deteriorate; essential new capacity would not be added; and rail 
service would become slower, less responsive, and less reliable at the 
very same time that rail customers are demanding more rail capacity and 
more reliable rail service. It makes no sense whatsoever to enact 
public policies that would discourage private investments in rail 
infrastructure when our Nation needs more of it.
Conclusion
    America today has the best freight rail network in the world. That 
said, it is clear that, for a variety of reasons, rail service to some 
rail customers is not at the high level they expect. Railroads are 
fully aware of this, and they are taking the necessary steps to meet 
current capacity demands and invest for future growth. Railroads have 
no greater goal than to provide safe, efficient, and cost effective 
service to their customers.

    The Chairman. Thank you very much, Mr. Hamberger. And I 
apologize to my colleagues. I still have to give you that book 
about Stanford, and I'm sorry about USC. We like sports. So 
does he.
    I want to sort of focus on the Surface Transportation Board 
in my first questioning. For years I've been pushing them to be 
proactive and to efficiently address issues raised by shippers 
and to restore--a word that I care about--the balance between 
railroads and shippers. I think they have clearly leaned toward 
the railroads and I see that, one, as not their right. But when 
I bring things up, I'm mostly met by deaf ears.
    So I have a couple questions for shippers. How have past 
decisions at the STB--Mr. Dooley, I might start with you, but 
anybody. How have those decisions limited competition for 
shippers, number one?
    The Board has started a number of what they call 
proceedings, but it doesn't appear that the Board has completed 
many of those proceedings, which is a technique, a very good 
bureaucratic technique, to start something, but then not quite 
finish it. What actions are most important in your judgment for 
the board to complete? Anybody. This is to all of you.
    Mr. Dooley. Thank you, Mr. Chairman. I first off just want 
to preface my remarks here, is that, to something that Mr. 
Hamberger said, is that there should be nothing inconsistent 
with ensuring that the rail industry is financially healthy and 
making investments in their infrastructure and having an STB 
that has the policies in place that can ensure that we have an 
effective, timely, and equitable way to resolve rate disputes.
    That's what we're asking. That's what we think's embodied 
in your legislation. And that's why we think the legislation's 
important, because, to your question, STB has not taken action 
on a number of issues or has adopted policies that simply are 
no longer consistent with the landscape we find ourselves in.
    Competitive switching is a good example. They have been 
dealing with competitive switching and investigating that for 3 
years, over 3 years. They have not made one proposal on how 
they should fix it. So they've been continuing to gather 
information. They need to be directed or given guidance by 
Congress to allow for a simple thing as competitive switching, 
which works very effectively in Canada.
    We would also say when you look at even the revenue 
adequacy challenges that require somebody that is going to be 
challenging a rate, that they have to do a calculation to what 
it would cost to build an independent rail line that could 
provide the service at a cost that would be different from an 
incumbent rail line. That is almost an impossible task.
    They've also adopted policies which put caps on the amount 
of remedies that you can get which are so low in many instances 
that it doesn't make any sense for anyone to challenge.
    On the case of rate bundling, they haven't even begun to 
address that, which is kind of like a situation where a company 
is subject to entering into negotiations with the rail 
companies, the rail companies have the opportunity to 
unilaterally establish tariff rates for the different routes of 
shipment. The company can say, we've reached a pretty good 
agreement on 90 percent of those rail rates, but, you know, 
there are these ten over here that are excessive and they're 
tariff rates. They are held hostage in advancing a rate 
challenge unless they agree on those 90 percent of those lines 
that they have reached an accommodation or an agreement with, 
to sacrifice that agreement to pay a higher tariff rate. 
They're held hostage in terms of the financial impediments to 
seeking a resolution or a fair and equitable resolution of a 
rate dispute.
    The Chairman. I thank you for that. It was crisp and 
strong.
    I'm not going to ask my second question because I've 
overrun my time. So I'm going to go to Senator Thune.
    Senator Thune. Thank you, Mr. Chairman.
    Mr. Cope, can you kind of help us understand why rail is 
such an important part of the system for getting the grain 
harvest to market? What are the costs and benefits relative to 
other modes of transportation?
    Mr. Cope. Yes, Senator. In the case of South Dakota--and I 
know I'm talking all about South Dakota, but I think we're 
indicative of the entire Upper Midwest in some respects, the 
whole grain system in the U.S.--the problem, if you can call it 
that, with rail is that it is our central link to many of the 
exporters. The guys in the central U.S. also have the river, 
the barges that they can use. But for us in South Dakota it's 
just cost prohibitive to go by truck. I know this year truck 
rates have gone up, trucks are hard to find.
    In the case of some birdseed products that we handle, those 
are typically sold FOB, which means we sell it to the buyer, he 
brings--he provides the cars. Well, this year when rail got so 
backed up some of these plants were in danger of running out. 
And this also extended to some corn and ethanol plants. They're 
in danger of running out, so they went out and hired trucks.
    We had trucks going as far away as Fort Pierre, South 
Dakota, to Georgia to make deadlines, at the buyer's expense. 
Now, it didn't directly come out of our pocket, but his 
effective rate was two to three times what the rail rate was. 
Now, what do you think happened the next time he came around to 
bid South Dakota grain? It does come back to haunt us. So 
that's the problem with the trucks.
    Another thing that's happened with trucks, it extends to 
things like some of the DOT rules and regulations that are out. 
There's a real shortage of drivers and that's real, is getting 
qualified drivers. But when you have a continued system of more 
and more regulations that make it real onerous to get those 
drivers, that's just one more thing in the way.
    When it comes to the river system, thanks for passing 
legislation out of the Senate and out of the House to fund some 
of our locks and dams on the rivers, because it's all an 
integrated process; trucks, rail, and barge. So we need that 
system as well.
    But in the center part of the United States, like South 
Dakota, rail is the most efficient and it's really the only way 
to get to the market. So if we don't have that, we don't have 
an economy.
    Senator Thune. We had a big problem in South Dakota this 
last year during the spring. There was a real concern about 
getting fertilizer shipments there in time to plant the 2014 
crop during that short planting window. Now that the focus is 
on the harvest this fall, I'm wondering if there are concerns 
about receiving your fall fertilizer shipments and if you're 
working with the railroads to address that?
    Mr. Cope. Well, fortunately the main fertilizer season is 
in the spring time. But it is a concern. If you're backlogged 
in one commodity, you're backlogged on all. So we have been 
talking to our suppliers on how to best get it there in the 
fall. Right now that's probably the expensive truck option. But 
it's just something that once that backlog is started we kind 
of feel like we're in a 100-meter dash here, but we're starting 
from the 150-yard line. How do we catch up? How do we work 
through that backlog?
    It's going to be fertilizer. If we have any hiccups at all 
through the winter, it's going to be grain, and we're going to 
be back to ground zero again next spring.
    Senator Thune. Mr. Hamberger, you talked about Chicago. We 
hear about Chicago all the time. I'm wondering what lessons the 
railroads learned as a result of last winter's impact on rail 
service, especially through the major hub at Chicago, and if 
the railroads have implemented any best practices or found any 
opportunities to improve efficiency that could improve the 
situation if we experience a similar winter this year or next? 
What's being done to address this huge choke point we have in 
Chicago?
    Mr. Hamberger. What we're doing is trying to coordinate in 
a much more automated basis the data that each railroad 
collects on its own. That is to say, how many trains are 
waiting, how many trains are held for crew, how many trains are 
coming in from Montana, when are they expected in? Those data 
will then set up metrics that will trigger automatic rerouting, 
automatic special handling, if they exceed a certain amount. 
Right now that is done orally and the protocols were not as 
enforceable as they will be this coming year.
    Senator Thune. Mr. Dooley, you talked about some of the 
rail inefficiencies in the chemical industry. Can you describe 
some of the financial impacts, what that means to some of the 
folks who you represent?
    Mr. Dooley. The study I referenced--and it's in my written 
as well as my oral testimony--is that when we did an analysis 
in 2011, we did a calculation on those shipments that were over 
180 percent of the RVC. That totaled about $4.2 billion in 
rates, what we would refer to as rate premiums in excess of 
that 180 percent of the RVC.
    But what is more troubling to us, as I mentioned, is that 
it was almost $3 billion of that was over 300 percent of the 
RVC, and that trend line that showed almost a 50 percent 
increase in a 5-year period of shipments over 300 percent of 
RVC.
    Now, I don't want to suggest that all those rates are 
inappropriate and are not justified based on market conditions. 
But what I do suggest is that there has got to be a meaningful 
recourse for shippers to avail themselves to. Right now STB has 
in place financial impediments to seeking recourse and 
regulatory impediments to seeking recourse.
    A $4 billion annual hit on our industry is not 
insignificant, and that is money that is not going into other 
investments that show a return to our economy.
    Senator Thune. Thank you.
    Mr. Chairman, my time has expired. We have other members 
who are here and want to ask questions.
    The Chairman. We do, and Senator Cantwell will be next.

               STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Thank you, Mr. Chairman. Thank you to you 
and the Ranking Member for holding this important hearing, 
because this is to me about our economy overall.
    I want to start with a company in our state which was an 
agricultural shipper, Cold Train. They're located in Quincy, 
Washington, and they announced that they were suspending their 
service due to poor BNSF rail performance, decreased on-time 
reliability, reduction in train services, and nearly doubling 
in transit times. So from 2013 to 2014 BNSF's on-time shipments 
dropped--they went from 90 percent of on-time to less than 5 
percent.
    So this is the company. They obviously ship a lot of our 
apples and cherries and potatoes and carrots in refrigerated 
containers to the Chicago market, and they were guaranteed a 
fast delivery time. In fact they had such a successful business 
that in 2010 they shipped about a thousand of those containers. 
And then they went to 2013, to 7,000 containers. So they 
obviously were expecting to do more.
    But with this very poor performance, they basically went 
out of business and announced that they were going to cut off 
80 jobs.
    So that's what's happening to us in the Northwest. So I'm 
very empathetic to my colleagues from the Dakotas. Clearly this 
isn't just about a bumper crop. We've seen a huge increase in, 
obviously, crude production on these rails as well.
    But you were, Mr. Hamberger, talking about the increase in 
investment. I think you said something like $26 billion in 2014 
and $25 billion in the previous years. But yet this is what's 
happening. We're losing jobs. So I guess I have a couple of 
questions for you. First, you are not interested in having--I 
just want to make sure I understand where the railroads are 
coming from. You're certainly not going to make this about 
price, right? You're not going to try to decrease the volume or 
pick customers based on price, are you? You're not going to 
increase the price just to disqualify customers?
    You have volume, you have increased volume. So my question 
is are you going to raise the price to try to sort out that 
demand?
    Mr. Hamberger. Senator, I'm not trying to be nonresponsive, 
but I'm a trade association, and we are covered by the 
antitrust laws. I really cannot speak about what a member's 
pricing policies are. So I can't really talk about price. It's 
something that we don't--I just can't talk about.
    The Chairman. That's convenient.
    Mr. Hamberger. I talk about average prices that we have 
charged looking back. But what a particular railroad is doing 
in the marketplace is not something that I have knowledge of or 
visibility into.
    Senator Cantwell. Here's what I'm going to say to that. I 
don't believe your investment figures are sincere figures when 
on the one hand, according to this committee's majority staff 
report that was issued last November, Class I railroads 
reported an approximately $68 billion in freight revenues----
    Mr. Hamberger. Yes.
    Senator Cantwell. So you made a lot of money. And I know 
Mr. Dooley, even though he didn't mention it, had a report 
earlier this year that showed that the commodity shipper 
increased their costs from 2005 to 2011, an increase of 
something like 90 percent. So you're sitting here telling me, I 
just can't invest fast enough. You're making a ton of money, 
and what's happening is people are losing their jobs and we 
can't get products to the market on time, and he's paying a ton 
more money.
    Mr. Hamberger. In fact, Senator--you may have been out--he 
is not paying a ton more money. He's paying 1988 rates. That is 
way below what he paid in 1981. Yes, they went up. They also 
went up consistent with the input costs of what it cost us to 
run the railroad. So the increase is very consistent with what 
the increase in costs for us are. But it's still only back to 
1988 rates.
    We are investing 40 cents of every dollar, including 
maintenance, back into the network. As I also tried to mention, 
we have some stranded investment where we invested, for 
example, in quadruple tracking going into the Powder River 
Basin. That cannot be picked up and moved. So one railroad has 
announced they're spending $400 million in North Dakota alone. 
Some of that investment, it takes time to put the track in. It 
takes time to get the employees trained.
    Senator Cantwell. I appreciate your answer, but I see Mr. 
Dooley over there and I want to give him a shot, because I 
think you're not taking into consideration the rate of 
inflation in these costs. But the bottom line is we're losing 
jobs and we've got product that's not being delivered in a 
timely fashion. The question here is you're making a lot of 
money and we don't see our businesses being protected.
    Mr. Dooley, am I right about that number?
    Mr. Dooley. You are. I would just reference, we have no 
interest in going back to the pre-Staggers Act days when 
government regulation created a lot of inefficiencies and 
higher rates in the rail industry. We don't want to see re-
regulation. But when you look at the numbers, when you see the 
increased consolidation in the rail industry--the last major 
consolidation was in 2001. After that consolidation, when you 
have four rail lines that are controlling 90 percent of the 
shipments, from 2001 to 2011--and this is very comparable to 
their own data that AAR puts out--there has been an increase in 
excess of 90 percent, three times the rate of inflation, by 
rail rates for shippers.
    Senator Cantwell. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Cantwell.
    Senator Booker.

                STATEMENT OF HON. CORY BOOKER, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Booker. I just want to thank the Chairman and the 
Ranking Member for their leadership on this issue. It's really 
an issue that doesn't just affect the West or the Dakotas or 
West Virginia, but also New Jersey. Our state is very, very 
freight-dependent and, with one of the third busiest ports--
with the third busiest port in America, it's an issue that's of 
great concern.
    I've introduced a bill focusing on multimodal freight 
investment, to try to relieve some of the congestion, not 
just--pressure and congestion, not just on rail lines, but also 
on highways. Having that kind of broader strategy, which I know 
Senator Cantwell and others have been pushing, I think is 
really critical.
    I have a lot of concerns, but don't need to repeat some of 
the questions and good points that were made. In the short time 
that I have, I just want to switch to an issue that is very 
much on the minds of New Jersey residents. We've seen an 
incredible increase in the movement of Bakken crude by rail, 
which is impacting communities all across the Nation. I'm 
really happy for the Department of Transportation for taking 
steps to address this movement of Bakken crude.
    However, I know we can do more to provide first responders 
with all the information they need to respond in terms of the 
safety in the case of potential derailments or spills. In 
Paulsboro, to be very specific, in New Jersey, in 2012 we had a 
train derailment that released 20,000 gallons, not of the 
Bakken crude, but of chemicals, causing an immediate emergency 
evacuation all along that area, and it affected the long-term 
health and it has had long-term health and environmental 
impacts.
    What the incident does for me is just underscores the 
importance of addressing the movement of hazardous materials by 
rail, not just the Bakken crude. So, Mr. Hamberger, following 
the Paulsboro accident the National Transportation Safety Board 
recommended increased disclosure of toxic substances when they 
travel through communities, residential communities like we see 
in New Jersey, with over 1,000 miles of rail in it, to equip 
the first responders really to respond to this. Having been a 
mayor and knowing, having a lot of concerns when I was there 
about how we would actually be able to respond adequately, 
especially if we didn't know what was passing through our 
communities, so I agree with the assessment of the urgency and 
have asked the DOT to provide further guidance on how to ensure 
critical information gets in the hands of local first 
responders more quickly and efficiently.
    You've noted, Mr. Hamberger, that the rail industry is 
voluntarily taking steps, which is actually encouraging to me, 
to increase transparency. You're trying to make--at least 
you're stating that you're trying to make information about 
toxic substances more available on line to responders in the 
event of an accident. So I just applaud that a lot.
    But I still have this very big concern that many of our 
first responders might need to know this information and have 
access to this information prior to an accident, especially 
because it better equips localities to begin to prepare for 
accidents should they occur or, frankly, when they occur.
    So I'm just wondering if this is a change that you could be 
making, from reactive to giving proactive information? I'm just 
curious what the industry's view on that is.
    Mr. Hamberger. Thank you very much, Senator. Our view is 
that it is AAR policy for our members to make available to 
every emergency responder all hazardous materials that are 
coming through that community, to go over with them what are 
the emergency response techniques. We trained 20,000 emergency 
responders last year alone, an additional 2,000 at our 
Emergency Response Training Center, sort of a graduate course 
for emergency responders, if you will, at our center in Pueblo, 
Colorado. Each of our members actually has a training train 
that goes around and stops in different communities and gives a 
little bit more in-depth training. But it is certainly our goal 
to make sure that every emergency responder knows in advance 
what is coming through and what the appropriate response is, 
hopefully getting around to giving them hands-on training as 
well. And the online; we're targeting hopefully by the end of 
this year that that online will be up and running.
    Senator Booker. Just last, really quickly, are there 
investments that we're making to prevent these kind of 
accidents, which unfortunately we've seen from time to time 
throughout the country?
    Mr. Hamberger. Yes, sir, there are. In the area of 
prevention, we are doing increased inspections of rail. We're 
putting roadside detectors out so that when a train goes by we 
can actually detect acoustically if there is a bearing defect. 
We also have laser beam readers to try to see cracks in the 
wheel before the wheel splits apart. And obviously maintaining 
the track and maintaining the bridges is high on the agenda as 
well.
    We are, of course, putting in Positive Train Control, which 
did not come into play, I don't think, in the accident in 
Paulsboro. Then one of the other very important things is 
making sure our employee base is well trained and that they 
would know what to do in the event of an incident as well.
    Senator Booker. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Booker.
    Now, Senator Johnson.

                STATEMENT OF HON. RON JOHNSON, 
                  U.S. SENATOR FROM WISCONSIN

    Senator Johnson. Thank you, Mr. Chairman.
    Mr. Hamberger, I would like to just explore and understand 
the capacity crunch a little bit better. We've heard a shortage 
of railcars. We've heard delays, that type of thing. In your 
testimony on page 9, you have chart 4. It shows the average 
weekly U.S. total railcar loads. On this chart, it starts in 
2006, which was really, it looked like, kind of a record year 
in terms of--at least on this chart, it was the highest year. 
It obviously declined dramatically in 2009 and has been 
steadily increasing since that point in time.
    So it doesn't appear that even in 2014 we're back to 2006 
levels just in terms of the rail shipments.
    Mr. Hamberger. We are back to October 2007 when you combine 
intermodal and all other carloads. We are about back to where 
2007 was, yes.
    Senator Johnson. Again, I realize we're shipping a whole 
lot more oil by railcar. But those are specific types of cars. 
You mentioned there were 50,000 grain cars in storage. So 
where's the capacity crunch or the car shortage in terms of 
grain shipment?
    Mr. Hamberger. It's not just cars. It is velocity and, as 
Mr. Cope talked about, how many turns do you get out of a car. 
The more cars out there, it actually tends to slow down the 
network. So you want to have a network that has a higher 
velocity getting through. That requires personnel as well as 
locomotives. So it's a combination of all four of those that 
affect the ability to get the service level up.
    Senator Johnson. Again going back to 2006, we've 
experienced these rail volumes in the past, correct?
    Mr. Hamberger. Yes, sir. But there has been----
    Senator Johnson. Did we have the type of disruptions, the 
types of delays, back then?
    Mr. Hamberger. We were investing at that time and since 
that time to address that kind of shipment. One of the big 
increases here is intermodal, which is a different pattern of 
shipment. As I mentioned, the railcar--the 1.4 million less 
coal cars coming out of the Powder River Basin. There is an 
increase in grain. I think we're moving more grain than we ever 
have.
    Senator Johnson. Is that also intermodal, then? Is that one 
of the capacity constraints, is the intermodal transfer 
terminals?
    Mr. Hamberger. Terminals are a big issue, absolutely. 
Having some of the investments that we are trying to make, like 
one right down here on Virginia Avenue--it's taken CSX 6 years 
and they haven't quite yet gotten the final environmental 
impact statement. It is their biggest pinch point on their 
north-south line. It is a one-track tunnel that cannot 
accommodate double-stacked intermodal trains. There are no 
Federal dollars going into it. The Federal interest is that for 
one week during construction they will close a ramp onto 295. 
It has been 6 years to get that.
    Senator Johnson. That's one anecdotal example, but isn't 
basically what you're saying since 2006-2007 there has just 
been a change in the mix?
    Mr. Hamberger. Change in the mix has played a role, yes, 
sir.
    Senator Johnson. And it's a less efficient mix from the 
standpoint of being able to move cars around?
    Mr. Hamberger. It's a different mix. I don't know if I'd 
say less efficient. It's a different mix. Another example might 
be when the ethanol burst onto the scene that was a change in 
shipping patterns. I'm told that Iowa became a net importer of 
corn, which changed shipping patterns as well. So you just have 
to address your operating plans and address----
    Senator Johnson. Let's go back to your pricing chart. I've 
seen that, from 1988. Explain what happened? Explain that 
chart?
    Mr. Hamberger. Well, the chart indicates that as the 
industry was able to achieve efficiencies once Staggers passed 
in 1980, that we were able to pass along those productivity 
increases to our customers. Rates went down dramatically. Then 
as----
    Senator Johnson. How did they go down in relationship to 
inflation? Did they actually decline?
    Mr. Hamberger. This is inflation-adjusted, so----
    Senator Johnson. OK, so you totally adjusted, inflation-
adjusted. You've taken that into consideration.
    Mr. Hamberger. Yes, sir.
    Senator Johnson. So rates declined by what percentage point 
before they started to go back up?
    Mr. Hamberger. I don't have it memorized, but it went down 
at one point 50 percent, inflation-adjusted. And it's still 
overall in the 40 percent range. I don't know what it was for 
chemicals per se. But then the market was able to bear some 
increase coming back. The productivity increases also helped 
improve service. So that is where the market is right now.
    Senator Johnson. Mr. Dooley, were rates wildly out of whack 
in the eighties?
    Mr. Dooley. Well, what I would say is that you had a 
railroad infrastructure landscape then, because of very heavy-
handed government regulatory approach, that we would contend 
precluded some level of productivity and efficiencies, that 
resulted in rates that were higher than they should be.
    We think the Staggers Act has a lot of good aspects to it 
in terms of contributing to a more competitive environment in 
the rail industry, that has contributed to enhanced 
productivity. But when you get to a point, though, is when you 
see that increased consolidation that allows for greater market 
dominance, that we are concerned now that we are seeing some of 
the impacts of that, which is requiring that we revisit the STB 
and those policies to allow for an effective and equitable and 
timely rate dispute process.
    Senator Johnson. Just yes or no: Are you disputing Mr. 
Hamberger's characterization of the rates, inflation-adjusted--
--
    Mr. Dooley. I wouldn't dispute that, but I would say that 
you can go look at a lot of industries and products that 
consumers are consuming and services they're consuming and you 
go back to 1980 and you do an inflation-adjusted, you would see 
a chart that wouldn't be that much different in a whole lot of 
industries. I mean, this is not dramatically different.
    Senator Johnson. I'm just trying to get the facts, because 
there seems like there was disparity in the information. But 
you're both--depending on what time period you pick, you're 
both correct in terms of what the pricing is.
    Mr. Dooley. Yes.
    Senator Johnson. OK, thank you.
    The Chairman. That's it?
    Senator Johnson. That's it. I'm out of time, right?
    The Chairman. Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman.
    This is an important issue in our state. We've been talking 
a lot about the Dakotas, but in fact Minnesota is the fourth 
largest agriculture exporting state in the country. We have 
seen all-time record highs, $6.8 billion in ag exports over 
2012, not to mention manufacturing a lot of other goods as 
well. And this is starting to be a real drag on our economy.
    A recent University of Minnesota study found that from 
March to May 2014 rail delays cost our corn growers $72 
million, soybean growers $18.8 million, and wheat growers $8.5 
million. In total, all of this delay, which of course can get 
passed on to the consumer, just for these products, corn, 
soybean, wheat, was $100 million.
    So this is a real issue for us. I am totally aware of what 
we've gotten, the good out of having the more domestic oil, as 
well as the natural gas out of North Dakota. It's brought our 
manufacturing costs down. But I also think we have to find a 
way out of this.
    Mr. Cope, I wanted to start with you on the fact that if 
this continues I'm afraid it's going to actually impact our 
export market. Do you think it's possible that the people who 
are using these kinds of grains would turn to other producers, 
like Brazil and Argentina?
    Mr. Cope. Thank you, Senator. You bring that up and just 
recently I know U.S. Wheat has expressed some concern. The 
United States has worked very hard over the last how many years 
to be known as a country of--not last resort, that's the wrong 
word--a country that could be the most dependable, the most 
dependable shipper. Even if other countries could buy their 
wheat, for instance, from other countries cheaper, they always 
knew that if they had to come to the United States they could 
get it. That's in real jeopardy right now. We've lost some 
business because of that very thing of exporters, either on the 
Gulf or in the Pacific Northwest, not being able to fill 
commitments.
    It comes all the way back, and the same thing is true in 
corn and beans. We've had some exporters that have paid some 
huge fines or contract cancellations by not being able to 
perform.
    Senator Klobuchar. All right.
    Mr. Hamberger, one of our bigger concerns next to these 
commodities is propane. You've probably heard about this. Not 
related to government, a decision was made by a company to 
reverse the direction of a propane pipeline. We are going to be 
able to use not nearly as much pipeline transport of propane. 
Then we're stuck with trucking, more trucking. We got the Army 
Corps, it's such an emergency, to give immediate authority for 
a transport station in Benson, Minnesota.
    But this is a real problem, and I just wondered what the 
protocol is, if your members have a protocol in place to ensure 
when we're dealing with propane that's used to heat homes, not 
to mention dry out corn, how we're going to get it?
    Mr. Hamberger. I know that was a major problem last winter 
and our members did work in several states with the Governor's 
office to try to make sure that capacity was available to bring 
propane in. We don't have an AAR protocol per se, but I'd like 
to get back to your office with how my members--I do know they 
all participated in various efforts through the Governor's 
office.
    Senator Klobuchar. I know we are really planning ahead with 
storage, which is good. We're storing more of it to get it in 
ahead of time, getting bigger storage facilities. And if the 
winter's mild, maybe we can make it through. But----
    Mr. Hamberger. That's not a plan.
    Senator Klobuchar.--to make sure you have a plan going 
forward, when last winter we had a day that was colder than 
Mars, I think that would be helpful.
    Iron Range. This is not probably what you'd think I'd be 
focusing on here because we've got a focus on the farm and ag, 
but we are a major producer of taconite. As you can imagine, 
the Great Lakes shipping season is very short because of 
weather. It's finite. It's going to close for shipping in just 
a few months. Yet right now we have 250,000 tons of iron ore 
stockpiled. Another one--that's just from one mining company. 
Another has 85,000 tons stockpiled as a result of rail service 
disruptions. In total we have 2 million tons of iron ore 
pellets that we want to send out and make money for our country 
and get more jobs, that are just sitting there in a pile.
    I hope that you would be willing to look into this, because 
we have a situation where winter is coming and we have only a 
finite shipping time.
    Mr. Hamberger. Of course, Senator. Let me go back and talk 
to my members and give you a report.
    Senator Klobuchar. All right. Thank you very much.
    Mr. Hamberger. Thank you.
    The Chairman. Thank you.
    Senator Blumenthal.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thanks, Mr. Chairman, and thank you to 
you and Ranking Member Thune for having this hearing on a 
profoundly important issue, an issue that is important not only 
to the Western and Midwestern states, but also to the 
Northeast, because it affects not only the movement of freight, 
but also the movement of passengers, who, after all, use the 
same tracks.
    In fact, in some parts of the country increasingly the 
burdens of freight are delaying the movement of passengers. 
That is troubling most especially for the Northeast, where the 
movement of passengers, commuters, riders, is an essential 
feature of moving people to work. On-time performance on 
Amtrak's long distance routes is at 51.4 percent for the 
current fiscal year to date, which is a decline of over 20 
percentage points compared to last year. That means people are 
in effect stuck on tracks waiting for freight trains to pass 
before an Amtrak train can move. And that's because outside of 
the Northeast, Amtrak operates most of its service on tracks 
owned by the freight railroads. Even in the Northeast, where 
they may be owned by the non-freight companies, there's still 
the danger and reality that the movement of freight may impede 
the movement of passengers.
    When a freight train railroad network breaks down, it 
affects not only the movement of important goods--and a number 
of my colleagues have described how important it is--but it 
keeps real people and their families from getting to where they 
need to go conveniently and reliably.
    So my question to all of you, but let me begin with Mr. 
Hamberger, is: What efforts are your members making, Mr. 
Hamberger, to improve the on-time performance of passenger 
trains operating over your track?
    Mr. Hamberger. Thank you, Mr. Chairman, for that question. 
Two things that I'm aware of. One, and of course the biggest 
one, is that as our freight customers are impacted, so are our 
passenger customers, as you point out. So the first and most 
important thing is to get the fluidity of the network back to 
where it needs to be. That is, again, making the investments 
and hiring the personnel needed to do so.
    Second, I just want to emphasize that we have a statutory 
obligation to make sure that Amtrak has priority in dispatch, 
and I know my members are focused on that. I know that Joe 
Boardman, Amtrak President, has been meeting with his 
colleagues at each of the freight railroads talking about what 
can be done on specific routes. So I think there's a lot of 
communication going back and forth between the freight rail 
host railroad and the Amtrak leadership.
    Senator Blumenthal. Is there a body or, you put it, a 
framework to assure that that obligation to passengers is 
fulfilled? In other words, you've described an informal process 
of consultation or conversation between Mr. Boardman----
    Mr. Hamberger. I don't have a direct answer for you on 
that. I just know that that is the marching orders given to the 
dispatch center, because that is the statutory obligation. I 
know that some railroads do have--their morning report is, how 
are we doing on Amtrak on-time performance. And when that 
morning report, when that's part of your morning report, 
obviously you're focused on that.
    Senator Blumenthal. Let me ask you in the time, the short 
time I have remaining, about another issue that's raised in 
your testimony, investment in infrastructure. Projected to be 
$26 billion?
    Mr. Hamberger. Including maintenance, yes, sir.
    Senator Blumenthal. $25 billion in each of the----
    Mr. Hamberger. Two previous years, yes, sir.
    Senator Blumenthal. Is that sufficient? And what should we 
be doing to support additional infrastructure, which I consider 
to be the challenge of our time?
    Mr. Hamberger. Again, thank you for that. It is 
dramatically higher than all manufacturing. It's a 17 percent 
cap--cx rate, compared to about 3.5 percent for all 
manufacturing. So we are committed to putting money back into 
the infrastructure.
    At one point, the industry was proposing an investment tax 
credit for new infrastructure for new capacity. Given the 
budgetary times, that didn't proceed too far.
    But the third issue and the one that I mentioned to Senator 
Johnson would be how we can make these investments more 
effective. One of those ways would be to have, as the Congress 
did for surface transportation highways, have regulatory reform 
and streamlining. We'd like to see that for rail projects as 
well. The CSX project I was mentioning is $70 million above 
what they had targeted because of the delays.
    Senator Blumenthal. Thank you very much. I look forward to 
working with all the members of the panel. I think there's a 
lot of extraordinarily important ground that we're not going to 
cover today, raised by your testimony, and it has been very 
thoughtful and helpful. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, sir.
    Mr. Nelson, Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you, Senator.
    Mr. Hamberger, think ahead to 2016, the opening of the 
expanded Panama Canal, the increased cargo that will go to East 
Coast ports, the lessened cargo that will be shipped by rail 
from the West Coast to the East Coast. How's that going to 
either alleviate or create gridlock?
    Mr. Hamberger. Senator, you've put your finger on an issue 
that Chairman Rockefeller was prescient enough to hold a 
hearing on last year. That is what will that impact be? I will 
quote the then-Deputy Secretary of Transportation, who said: 
``We don't know who the winners and losers are going to be. 
We'll find out in 5 years.''
    That's one of the challenges that this industry has: Do we 
anticipate that there in fact will be, as some project, a 5, 10 
percent shift from West Coast to the East Coast? Others say 
that has already occurred and that it really depends. Will the 
canal open on time? What will the tolls be? What will the 
maritime companies' decisions be on continuing the 360 around 
the globe?
    So we are making investments. I know that the western 
railroads are anticipating that there still will be an increase 
in intermodal. I know the eastern railroads are working with 
their ports to try to determine what ports will have what 
capacity and will we be able to serve them. It is at this point 
still an unknown as to what the exact impact will be, and it 
will no doubt be what not everybody has thought, which will 
then create a need for quick investment and ability to adjust 
to the market as that comes on-line.
    Senator Nelson. Well, how does this affect the gridlock in 
the Midwest that has been the subject of most of this hearing?
    Mr. Hamberger. One of the issues that may arise to help 
would be that some of the export of grain and perhaps 
taconite--I don't know--could go out of the Gulf Coast rather 
than across the Northern Tier to the Pacific Northwest. I've 
read reports that that is a possibility, that then would 
alleviate some of the congestion going to the Pacific 
Northwest. But again, that is speculation at this point.
    Senator Nelson. We'll talk about this later----
    Mr. Hamberger. Yes, sir.
    Senator Nelson.--because your answer is we don't know. 
Well, we don't want to get into the crunch in 2016.
    Mr. Hamberger. Agreed.
    Senator Nelson. So to be determined.
    Mr. Hamberger. To be determined, yes, sir.
    The Chairman. Senator Wicker.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you, Mr. Chairman. Senator Nelson 
yielded back 2 minutes and we hardly knew what to do with 
ourselves.
    Mr. Hamberger, let me follow up on Senator Blumenthal's 
line of questions with regard to Amtrak and the members of your 
organization. I agree with much of what he said, and I also 
would point out that when members of AAR can work with Amtrak 
they should do so, because we all have to work together.
    Now, I've been trying for 20 years to get a flag stop in 
Marks, Mississippi, a small, rural, underserved community in 
Quitman County. We used to have a flag stop some 30 miles to 
the east in Batesville and that line closed. We now need to 
have it in Marks. We have encountered resistance from CN in 
this regard.
    It would be the only stop between Memphis and Greenwood and 
we need to get it done. It would serve the entire North Delta 
region. Amtrak is for it. The Mississippi Delta Council is for 
it. The state government is for it. Our entire delegation is 
for it. Mississippi DOT supports it.
    I've met with CN and I've also visited with you about it, 
Mr. Hamberger. But let me bring you up to date. We sent a 
question for the record in following the April rail safety 
hearing, which got bounced over to CN. It just seems to me they 
don't want to fool with us on this relatively minor, 5-minute 
stop we'd like for Amtrak to make in Marks, Mississippi.
    We got a letter on August 22, 2014, from Amtrak responding 
to some concerns published by CN. CN says the flag stop would 
impair rail operations, freight rail operations, and also they 
express concerns about on-time performance.
    So we asked Amtrak what they thought about it. Mr. Chair, 
I'd like to have Amtrak's letter of August 22 placed into the 
record at this point.
    The Chairman. So ordered.
    [The information referred to follows:]

                    National Railroad Passenger Corporation
                                    Washington, DC, August 22, 2014
Hon. Roger F. Wicker,
United States Senate,
Washington, DC.

Dear Senator Wicker:

    Thank you for your letter of July 25 regarding your ongoing 
interest in establishing a stop for the City of New Orleans service at 
Marks. We are mindful of the interest you have shown in this proposal 
in your 20 years in Congress which, coincidentally, covers nearly the 
same period since the train was rerouted through Marks from the old 
route through Batesville (September 10, 1995).
    You shared with me a letter you received from Ms. Karen Borlaug 
Phillips, Vice President, Public & Government Affairs, Canadian 
National Railway (CN), from April2, 2014. In her letter, Ms. Phillips 
raises two general points against the stop at Marks. First, CN's 
position continues to be that a stop at Marks would ``impair'' their 
freight operations on that route. Currently, the schedule for the 
southbound train calls for 122 minutes to run 125.2 miles from Memphis 
to Greenwood (average 61.6 mph), with 3 minutes extra recovery time 
into Greenwood. Northbound, the schedule calls for 125 minutes to run 
from Greenwood to Memphis (average 60.1 mph), with another 28 minutes 
of recovery time into Memphis. Also, the southbound train dwells at 
Memphis station for 23 minutes and the northbound train for 30 minutes. 
Based on the time needed to decelerate, stop, and accelerate at similar 
stations, we believe the stop at Marks would consume approximately 5 
minutes. Because of the recovery and dwell time, and because the 
passenger speed limit over most of the segment (79 mph) is higher than 
the freight speed limit (60 mph), it is difficult to see exactly how a 
passenger stop that may total 5 minutes will impair slower freight 
trains, even at Marks where there is single track.
    The other general concern raised in the letter had to do with CN's 
ability to meet the on-time performance requirements of the Passenger 
Rail Investment and Improvement Act of 2008 (PRIIA). As stated above, 
because of the existing recovery and dwell times and the differential 
in train speeds, it is difficult to see how the added stop would affect 
CN's abilities to provide good on-time performance. CN stated that 
although there is a case related to PRIIA and on-time performance that 
may yet be heard in the Supreme Court, ``Amtrak continues to issue 
reports each month comparing Amtrak performance on CN's lines to the 
[PRIIA] on-time performance standards and provides this information to 
the [Federal Railroad Administration] and others.'' It is true that on-
time performance statistics are published in a Monthly Performance 
Report on Amtrak's website and also shared with the FRA and with 
Congressional authorizers and appropriators. Among the statistics 
published is minutes of delay per 10,000 train-miles, organized by 
route and by the several host railroads, including CN. In the interest 
of meeting Congressional directives and providing information to the 
public in a transparent manner, Amtrak also published delay per train-
mile statistics, among host railroads, for several years prior to the 
passage of PRIIA in 2008. The main difference between now and then 
(pre-PRIIA) is that today's reports have more route-level detail and 
show how results compare to the PRIIA standard of 900 minutes of delay 
per 10,000 train-miles. Even in the absence of that particular 
standard, however, it would be appropriate for us to continue 
publishing this information.
    With your letter, you provided a timeline of activities and 
contacts from 1995 to 2014 relating to the proposal for the stop at 
Marks, apparently prepared by Quitman County. There appears to be a 
two-year gap in the record, from July 2012 to March 2014. It is my 
understanding that this gap results from a decision by the City of 
Marks, along with its partner, Quitman County, to investigate an 
alternative location proposed by the CN. However, we believe that the 
City now has resumed its earlier position, that it does not want the 
station to be at any location other than the center of Marks, and that 
the initial capital cost and ongoing maintenance cost of a second 
track, as desired by CN, is too great and is unnecessary. The renewed 
activity is reflected in the timeline you provided, which includes 
communications between Quitman County and Amtrak through June 11. 
Amtrak officials also met with the Quitman County representative on 
August 4.
    Amtrak remains very interested in cooperating with the City of 
Marks and Quitman County for a stop at Marks. We would support, as we 
have done in the past, any proposal to bring representatives of the 
parties concerned together for a personal update on each party's 
position and to discuss ideas for moving the proposal forward in a way 
that is not unreasonably burdensome to any party.
    Thank you again for your letter as well as your ongoing support for 
passenger rail service in Mississippi and across the Nation.
            Sincerely,
                                                Joe McHugh,
                                                    Vice President,
                   Government Affairs and Corporate Communications,
                               National Railroad Passenger Corporation.

    Senator Wicker. Amtrak says there's validity to these 
concerns, and basically they support this with data. Amtrak 
explains that the current schedule of the route from Memphis to 
Greenwood, the southbound train dwells at the Memphis station 
for 23 minutes and the northbound train for 30 minutes, in 
addition to 3 minutes of recovery time on the southbound route 
and 28 minutes of recovery time on the northbound route.
    The letter says in paragraph 2: ``It is difficult to see 
how a passenger stop that may total 5 minutes will impair 
slower freight times, even at Marks, where there's a single 
track.''
    They go on to say in paragraph 3: ``Because of the existing 
recovery and dwell times and the differential in train speeds, 
it is difficult to see how the added stop would affect CN's 
abilities to provide good on-time performance.''
    I want to continue visiting about this. I'm determined to 
get it done and it seems to me that your member, CN, should be 
willing to work with us on that. So I want to ask you, if you 
can answer it now, fine. But if you need to answer it on the 
record, that would be just fine, too, because I appreciate the 
way that you work with us on this committee. Why can the Marks 
flag stop not be accommodated, given that it would take just 5 
minutes of the ample dwell time and ample recovery time on both 
the south and northbound routes?
    I know you don't speak for CN, but they're a member of AAR, 
and, if you would, please respond to the data provided by 
Amtrak so that we can come to some positive resolution of this 
issue, which has been plaguing my state for almost two decades.
    Mr. Hamberger. Let me respond partially here today, if I 
may. I did touch base with CN in anticipation of this hearing 
and they of course said they are well aware of your desire to 
establish this and they're very willing to establish a flag 
stop at Marks and want to work with you and Amtrak to see how 
that can be done. I don't have the data that you're requesting. 
Let me work with CN and respond for the record if I may.
    [The information referred to follows:]

Response to Senator Wicker's Question on the Proposed Amtrak Flag Stop 
                              at Marks, MS
    As Senator Wicker notes, AAR is not a party to the discussions that 
have been taking place between CN, Amtrak, and the City of Marks, MS 
regarding the creation of an Amtrak flag stop in Marks on CN's single 
main line track.
    CN does not maintain that the Marks flag stop would definitely 
impair its operations on this line. Instead, I understand that CN is 
concerned that sustained impairment of CN's freight or Amtrak's 
passenger operations on this line could occur and CN wants to have in 
place a mechanism for determining if such impairment occurs and, if so, 
a solution for remedying that impairment.
    With respect to freight operations, rail traffic on CN and 
throughout the entire North American rail industry has increased 
significantly in recent years. The flag stop at Marks would be 
established on CN's single-track main line--instead of on a separate 
track or siding, as CN normally requires--on CN's important corridor 
between Memphis and New Orleans. CN must ensure its continued ability 
to provide timely and efficient freight service to its customers on 
this line, including its customers in Mississippi.
    Likewise, CN must meet Amtrak's on-time performance requirements 
under the terms of CN's operating agreement with Amtrak as well as the 
joint FRA/Amtrak on-time performance metrics issued pursuant to the 
Passenger Rail Investment and Infrastructure Act of 2008 (which are 
under Supreme Court review). Amtrak continues to assess host carrier 
performance under these metrics, and CN believes it must ensure that 
any new Amtrak service on its lines--including the Marks flag stop--is 
structured so that CN is able to meet these on-time performance 
requirements.
    Therefore, given the potentially significant consequences of any 
impairment of CN's freight or Amtrak's passenger operations on this 
line, CN believes it is essential that a mutually agreed upon remedy be 
in place to address any impairment that may occur once the flag stop 
comes into effect. If no systemic impairment of freight or passenger 
operations occurs, the remedy will not prove necessary.
    I understand that representatives of CN, Amtrak, the City of Marks, 
and Quitman County met on September 15, 2014 with Senator Wicker to 
discuss how to progress this matter. CN informs me that Amtrak provided 
proposed changes to the northbound and southbound schedules for its 
City of New Orleans service to accommodate this flag stop. CN and 
Amtrak have agreed upon the new schedules, and CN has provided to 
Amtrak a proposal for metrics to determine any impairment of freight or 
passenger operations that may occur as a result of the Marks flag stop 
and the process for dealing with any such impairment. Amtrak is 
currently reviewing CN's proposal.

    Senator Wicker. Well, that's very welcome news. So I would 
hope that perhaps you and CN and Amtrak could visit with me. 
We're not real active on the floor these next few days. Perhaps 
we could meet and accommodate their desire to move forward on 
this very needed stop.
    I thank you, Mr. Chairman.
    The Chairman. No, I thank you. I think that is just a 
gorgeous pursuit, and I'm betting that you're going to get 
that.
    Senator Wicker. It's a very small thing to ask in 20 years, 
Mr. Chairman.
    The Chairman. Yes.
    Senator Wicker. And I would hope that the Chair and the 
Ranking Member would come and visit us in the Mississippi Delta 
and see all that we have to offer. We'd take you to the B.B. 
King Museum. We'd take you to the Shack-Up Inn. We'd fry you 
some catfish or grill you a steak.
    Senator Thune. That's what I'm talking about.
    The Chairman. I come from a strong Baptist family and this 
guy is Norwegian.
    [Laughter.]
    Senator Wicker. Is this a great country or what?
    The Chairman. All right. Senator, I really thank you for 
that because it's sort of classic--a little ask, a ton of 
money, no response.
    Mr. Hamberger, last fall my staff prepared a report, as I 
indicated, on the financial condition of the largest Class I 
freight rail companies. It was based on the public financial 
information that your companies share with your investors. It 
found that your companies are setting records for earnings and 
operating ratios almost every quarter. It found that your 
companies are generating record higher earnings for your 
shareholders. It also found that your companies are buying back 
record amounts of stock shares, which also rewards your 
shareholders.
    You pretty much get what you want and stop what you want 
around here, it has been my experience over 30 years. So the 
question I'm going to ask you is, you're doing a great job for 
your shareholders. What about these folks sitting to your 
right? Why can't your companies do a better job for their 
customers? Why are shippers not benefiting from the excellent, 
extraordinary financial condition of freight railroads?
    Mr. Hamberger. Thank you, Mr. Chairman, for allowing me to 
respond to that, because there is a disagreement in some of the 
findings of that study that we have. We believe that the 
appropriate study, the appropriate metric of profitability, of 
how well you're doing economically, is the return on invested 
capital. We are an incredibly asset-rich, asset-based industry, 
$180 billion, and that's just book value, of assets in the 
ground in the network. So we believe that the appropriate 
metric is a return on invested capital.
    We are at 7.74 percent return on invested capital. The 
Fortune 500 is 12.93. So we are not even halfway, a little bit 
over halfway, toward what the Fortune 500 average is of 12.93 
percent return on invested capital. That's what we have to go 
to the capital markets to say, give us money to invest and buy 
more assets, and here's your return, 7.74. We need to be able 
to improve that return on invested capital.
    With respect to the dividends and share repurchases--and 
this is material that was just filed last Friday over at the 
STB by Union Pacific, so I'm using Union Pacific data--for 
their free cash-flow, 63.2 percent of it's going to capital 
expenditures, 14.7 percent is going to dividends, 22.1 percent 
to share repurchases.
    For the S&P 500, those numbers are 44.8 percent for capital 
expenditures, 21.7, fully 50 percent more, for dividends, and 
share repurchases of 33.6 versus 22, again 50 percent more, and 
that's the S&P 500. So we think that we are in fact spending 
63.2, at least for Union Pacific, on investments to serve our 
customers.
    The Chairman. I have noticed over the years the techniques 
that you all use to disperse collated Congressional negative 
reaction, which you richly deserve, by techniques that you use. 
And I've told you this before, but it hasn't gotten through 
very well. I can remember a number of--I've been working on 
this for 30 years and you only have 3 more months of me, so you 
can be happy about that--but individual presidents of major 
railroads who would come to me and, because I was really upset, 
for example--and I've used this example in this chamber 
before--of Weirton Steel. They were losing a ton of money. They 
only had one railroad going in. They were charging them amazing 
amounts of money.
    So what the president, who later became Secretary of the 
Treasury--I think in the last hearing I said I voted for him 
three times just to make sure he was out of CSX--granted my 
request, solved my problem. It's a very good technique. It's 
like if you solve Mr. Wicker's problem, which you could do, 
then the world is fine.
    The problem, of course, is the world isn't fine. In a 
sense, you're buying off individual troublemakers by settling 
their problems. I remember when a whole bunch of coal mines, 
which is sort of like your wheat and soybeans, in central West 
Virginia closed down because the railroads involved there just 
declined to participate in moving the product because they 
didn't feel they could get enough money for it. And that put a 
lot of people out of business.
    So what I want to ask you is that the Surface 
Transportation Board is supposed to assess whether or not you 
have adequate revenue. We've been discussing this for 30 years. 
Rail companies are enjoying record earnings and record margins. 
Do you believe that you have adequate revenue?
    Mr. Hamberger. I believe the board determined for 2013 that 
five of the Class I's had achieved revenue adequacy for 2013.
    The Chairman. I did not understand the last part.
    Mr. Hamberger. That five Class I railroads were deemed 
revenue adequate for 2013.
    The Chairman. Were deemed revenue adequate?
    Mr. Hamberger. Yes, sir.
    The Chairman. OK. Could I get a response to that from some 
of the other members, panelists? In a sense, he's saying the 
wherewithal is there.
    Mr. Dooley. Yes, but I think that's one of the--and even in 
the legislation that you've introduced, it's really calling on 
STB to evaluate the way that revenue adequacy is utilized in 
resolving a rate dispute. That is a hurdle for a company to 
challenge a rate or to go to STB for rate dispute resolution, 
because part of the revenue adequacy requires them, again, to 
do this calculation in terms of what would be the cost to 
construct a whole new rail line, put together a rail operation, 
and can you do that at a cost less than an incumbent railroad?
    Well, of course you probably cannot do that. And that 
almost becomes, again, a regulatory impediment, let alone the 
cost to construct that study, which becomes a financial 
impediment, to accessing a rate dispute process that can be 
concluded in a timely and in an equitable manner.
    So the whole issue on revenue adequacy--we think that back 
in 1980 when the Staggers Act was implemented, when the rail 
industry was struggling, revenue adequacy was a good policy 
probably. It was probably something that was pretty thoughtful 
about the Members of Congress to include that in the STB and 
the Staggers Act. It has changed. The rail industry has 
changed. It is now financially solvent. They're making a lot of 
money. And STB needs to change their policies.
    Unfortunately, they haven't been willing to do that 
independently, and that's why we think it's so incumbent and 
why we so applaud you and Senator Thune for introducing 
legislation that will ensure that Congress is demanding that 
they make some of these modest reforms that can again ensure 
that shippers have access to a timely, effective, and equitable 
rate resolution process.
    The Chairman. Mr. Hamberger says he has problems with that 
legislation.
    Mr. Hamberger. Yes, sir. Specifically on the arbitration 
provision, one of the issues there is you're providing 
arbitration of service, which means an individual arbitrator 
will be making decisions about service options and service, 
directing a railroad to do something in the service area 
without taking a look at the entire network. We don't think 
that that is going to lead to increased service and increased 
fluidity, but just the opposite. That would be one of the 
areas.
    But let me also respond, if I might, to what Mr. Dooley has 
said several times. He has mentioned the full standalone cost 
ratemaking procedure. About half of those that have gone to 
conclusion have been decided for the shipper, about half for 
the railroads. There are two additional ways that a shipper can 
come and seek relief. One is a simplified standalone cost and 
the other is known as the three-benchmark. They are much less 
expensive to do and have much quicker timeframes.
    In addition, the board has voluntary arbitration, which no 
shipper has taken advantage of, and they also have another 
arbitration process that they've adopted recently, where either 
a shipper or a railroad can say: I am making myself available; 
I am opting in for arbitration. One of our railroads has done 
that and since having done that, has not gotten any 
arbitrations filed against it.
    So there are any number of other options available through 
the Board, including the informal processes that the Board has, 
to allow a shipper to bring a case or to go to the board for 
relief.
    The Chairman. You've got the money. The world is working 
exactly as you want it. You're doing better than you ever have 
before. And jobs are a big problem in America. Efficiency, the 
Panama Canal thing, is actually a big issue. You can't go to 
trucks because it would destroy the highway system. I know that 
from coal trucks in West Virginia.
    To you, sir: The railroads have you where they want you and 
there's not much that I've been able to do about it. And I 
regret that greatly. I consider it a failure on my part to 
expose certain things and techniques. I can talk about them, 
but it doesn't seem to make that much difference. And you've 
done very well, Mr. Hamberger.
    So what I want to do is to wish myself a very interesting 
retirement, which I'm going to have. I've already worked on 
that. And I think that the world is gradually going to shift 
against thinking like yours, and I think that when that does 
happen that you will be surprised and you will be unready. 
You'll have the money to be ready, but you won't have the 
willingness to do something about it. And I think we'll have a 
different situation here. So that is my hope.
    Senator Thune.
    Senator Thune. Thank you, Mr. Chairman.
    With respect to the legislation, I think that we had 
discussed this previously, that the arbitration provisions are 
voluntary, and I think that's been made explicit. So that 
should alleviate some of the concerns that were expressed by 
Mr. Hamberger about our bill.
    I do think that my observation has been, and as I acted 
once in this arbitration process between serving in the House 
and serving in the Senate, that the standalone cost model is an 
extremely time-consuming, expensive, complicated, and difficult 
process to undertake for a shipper or a shipper group, and 
particularly small shippers.
    And most shippers, as was pointed out, are served by one 
railroad. When you have competition, obviously, the rate 
structure is very different. But when you're served by one 
railroad, that's the mechanism that was put in place to ensure 
that STB could be a referee, so to speak, and make sure that 
nobody is gaming the system.
    So I think trying to simplify that, trying to come up with 
a streamlined way in which shippers could gain access to that 
process and at least have some of these issues addressed, 
hopefully resolved, is what we're trying to accomplish with the 
legislation. And I hope in the end we can get some broad, 
bipartisan support for it, because I do think the STB is in 
need of reform. I think expanding the number of members on the 
Board, allowing for different and better ways in which they can 
communicate in trying to resolve issues, perhaps anticipate, 
troubleshoot ahead of time. There are some things that we can 
fix and that I would hope everybody could get on board with.
    I just wanted to sort of close this out, for the record to 
have Mr. Cope explain, because I think this is important and 
sometimes I think it gets lost in translation, how the freight 
cost factors into a typical shipper. I'll use agriculture 
because that's what we're most familiar with and that's what 
you're most familiar with.
    But in a state like South Dakota, where we've got sort of 
historically low commodity prices, the cash price of corn is 
under $3.00, what, $2.75. On the board it might be $3.50, but 
what you're able to pay a farmer who brings in a truckload of 
corn, of soybeans, to put on the rail to move to its ultimate 
destination, that's the price that you're going to pay them. 
And the basis, the transportation or freight cost is the 
difference.
    We did just a back of the envelope calculation for this 
year based on the number of bushels we think we're going to 
produce in South Dakota this year; combined wheat, corn, and 
soybeans, and what the basis is today or for delivery in 
September of this year versus September of 2013, is 28 cents a 
bushel more for the freight cost, which means that's about $311 
million less that's staying in the farm economy and the 
farmers' pockets, at a time when we have historically low 
commodity prices to start with.
    So you can see the economic angst that gets created in a 
state like South Dakota or other states who are experiencing 
similar difficulties. I don't confine this just to grain 
movements. I think it's true for a lot of commodity movements.
    But if you could, Mr. Cope, sort of explain how that 
process works when you as a shipper, how the basis works and 
what that means in terms of actual dollars and cents going 
back, staying in the pockets of the farmer, versus going into 
transportation costs. And I might add, when there is shortage 
of supply of cars or locomotives, high demand, the price goes 
up, and so you're going to pay more for transportation costs, 
which means again less that stays in the farmers' pockets.
    So could you again, for many of us who don't understand 
exactly how the economics of this all works, explain how this 
impacts a typical farmer in a state like South Dakota.
    Mr. Cope. Sure. Thank you, Senator. Well, as you aptly put 
it, your basis--it's complicated, but it's simple, all at once. 
It's the difference between the underlying futures market and 
the cash price. Where that comes from, it's basically 
transportation, it's the elevator's margin, and those are 
really the two things, transportation all along the way. But 
anything that affects transportation's going to go into that 
bucket.
    So you're right, there are a lot of things that affect 
basis--weather, demand, time of year. But I think it's pretty 
clear that, if you look back over time or even look not even at 
the last year, just from April until now, that the overall 
basis level has widened. I wouldn't want to get into an 
argument about hard numbers. I think the important things are 
the trends, the trends of that.
    So the basis has widened, and that means less price paid to 
the farmer, because if you've got your futures market here and 
you've got your cash price here, the difference is the basis. 
So if the cost of freight goes up relative to everything else, 
that has to lower the cash price. That's less price in the 
farmer's pocket.
    It depends on the day. I guess you used the figure of 28. I 
did some looking when putting this testimony together, pretty 
quickly come up with 30 to 35 cents. It's ranged as much as 50 
or 60, it's ranged as little as 10. I will say that the 
commercial elevators absorbed a lot of that increase in cost of 
freight in the winter and spring in general, because 
uncertainty on when's it going to snap back, competitive 
issues, a whole host of things, and some just trying to be 
fair.
    So as the cost of freight went up, the basis has to go down 
to account for that. Now, when I talk about cost of freight 
there are two things in there. One is the tariff rates, and on 
grain in particular it's all tariff-based. You can go onto any 
railroad's website and see what the rates are from point A to 
point B. They also charge a fuel surcharge based on highway 
fuel that is tacked onto that rate.
    Then in the case of the Burlington Northern, people will 
buy freight commitments for a year or maybe a shorter time. 
Most commonly they'll buy freight commitments for a year, and 
they'll pay--and that's an auction. You can go on BN's website 
and see what the history of their auctions were.
    As you own that freight--when I talked about freight being 
a tool and now it's become a hard limit that impacts your 
ability to do business, companies would buy that deck of 
freight thinking, I know I'm going to need some over the course 
of a year, but I don't know exactly when I'm going to need it, 
so I'm going to tie into this bucket of freight, and I'll trade 
in and out of it as time goes. So if I come to a time where you 
need it, I don't, I might sell you that train commitment, and 
vice versa, I'd buy it back from you when I need it.
    That price fluctuates up and down, and the main thing that 
drives that is car availability. Weather will impact it, but 
car availability is what drove it this last winter. We had 
cars--when I said cars traded in the secondary market the same 
as the tariff rate, they're trading up to $5,000 a car.
    We were talking about it the other day. That's like every 
car you see in that train is like buying an acre of land in 
central South Dakota. It's a lot of money. You're talking 
millions just for the right to ship that train. So somebody has 
got to pay that. Now, it might be the commercial elevator, it 
might be the farmer. In this case it has been a combination of 
both. Somebody's got to account for that, because no matter 
what you paid for that commitment, that's a check you write, 
but you also have to pay the STB their tariff rate.
    So if that makes sense, that's kind of how that cost of 
freight can fluctuate. Now, the railroads will argue that that 
secondary market doesn't go to them, that $5,000 a car did not 
go to them. And they're absolutely correct, it didn't. But what 
it did do when it rolled around to this summer and the freight 
for this next year was up for auction, people were nervous, 
they were scared: Are we going to get freight, are we not? So 
what they've done is translated that secondary cost of freight 
into the primary auction that went back to the railroad.
    Looking back just since January 1, the Burlington Northern 
I know has collected over $160 million in that. Now, I'm not 
going to argue that that's bad. That's a free market, it's a 
free world. People bid that. But the underlying thing is the 
uncertainty and unpredictability of railroad performance is 
what drove that.
    Now, somebody's got to pay that bill and, like I said, it 
ended up being a shared cost. If those premiums are being paid 
for trains, that's either something grain companies have to 
absorb--I can guarantee you that grain margins aren't good 
enough to handle all that. So it gets passed back to the 
farmer.
    So I think those costs are real. I said I wouldn't get hung 
up on whether it's 28 cents or 30 or 40, but I think in general 
we ball-parked it at 30 to 50 cents a bushel. That's a real 
impact and that's out of the farmer's pocket.
    Senator Thune. And that's an increase, when you say 30 to 
50 cents?
    Mr. Cope. Yes, increase in effective freight, decrease in 
effective cash price paid to the farmer.
    Senator Thune. The numbers I used were based on a September 
delivery for corn to an elevator in central South Dakota, based 
on 2013 rates and what we think the 2014 rate is going to be. 
That's the 28-cent number I came up with.
    But at that rate, you're talking again about $311 million 
less in the farm economy, in the farmers' pockets, and more in 
transportation, which again, as you point out, there are lots 
of factors that contribute to that.
    That's what we're talking about here. When you have a 
shortage, you don't have the availability of cars, the price 
goes up, and that has very real-world consequences, which is 
why so many of my constituents and the others who are 
represented here today spoke out, because they're hearing the 
same things that we are. And they're particularly concerned 
about car availability with what we expect is going to be a 
bumper crop coming in here in the next few weeks, and what that 
might mean to the basis, again, and how that's going to impact 
the ultimate return that a farmer receives.
    Mr. Chairman, I thank you.
    I appreciate all of you sharing your thoughts today. I hope 
that we can work in a constructive way to try and resolve some 
of these issues. I think our legislation and the STB reforms 
are an attempt to do that, perhaps not a perfect attempt. It 
never is, but if we can get folks to work with us I think we 
can come up with a more efficient, hopefully, system that 
better recognizes some of these issues in advance and hopefully 
avoids and prevents some of the disruptions that we've seen in 
the last year in my state and other states.
    So thank you.
    The Chairman. Well said.
    Hearing is adjourned.
    [Whereupon, at 4:43 p.m., the hearing was adjourned.]
                            A P P E N D I X

      Written Testimony on behalf of the National Rural Electric 
                        Cooperative Association
    Chairman Jay Rockefeller, Ranking Member John Thune and members of 
the Senate Committee on Commerce, Science and Transportation, thank you 
for allowing the National Rural Electric Cooperative Association 
(NRECA) to submit testimony on the hearing, ``Freight Rail Service: 
Improving the Performance of America's Rail System.
    NRECA is the national service organization for more than 850 
Distribution and 65 Generation and Transmission (G&T) not-for-profit 
rural electric utilities that provide electric energy to over 42 
million people in 47 states. Kilowatt-hour sales by rural electric 
cooperatives account for approximately 11 percent of all electric 
energy sold in the United States. Coal accounts for approximately 74 
percent of the power produced by G&T members and 55 percent of all 
electric cooperatives electricity requirements.
    As you know, a wide range of commodity shippers have experienced 
rail delays in the last year. Dependable rail service is critical to 
all commodities, and congestion drives up the costs of products and 
hurts local economies. We all want a strong, robust rail network. We 
recognize the challenges facing railroads, including weather, higher 
than normal grain harvest, and the recent increased demand for crude 
oil. We appreciate the steps the Surface Transportation Board (STB) has 
taken to address these delays by holding two hearings on rail service 
issues in Washington, D.C. and most recently in Fargo, ND.
    The testimony to follow provides background on rail service 
delivery issues from Dairyland, Sunflower and Arkansas Electric 
Cooperative Corporation. It incorporates previous testimony provided to 
the STB on behalf of NRECA and Consumers United for Rail Equity and at 
the Department of Energy Quadrennial Energy Review Panel by Sean Craig, 
Fuel Manager at Dairyland Power Cooperative. We are providing accounts 
of experiences of our members from this past year.
Dairyland Power Cooperative
    Dairyland, like other electric cooperatives, operates as not-for-
profit. Dairyland's directive from its member-owners is to provide 
affordable and reliable electric service not profits to investors. They 
are responsible to ensure that energy is delivered reliably and at the 
lowest reasonable cost.
    Electricity in the Dairyland system is generated primarily at coal 
facilities but the co-op has a diverse energy portfolio that includes 
natural gas, hydro, wind, solar, biomass, and biogas. Dairyland's 
generation resources allow its members to supply over 14 percent of 
their consumers' retail load from renewable sources.
Recent Rail Service Issues
    Low sulfur Powder River Basin (PRB) coal is the primary fuel source 
for Dairyland and a number of other base-load generation facilities 
(see attached map). These facilities are essential to provide reliable 
electric service year round. Fuel delivery to these facilities is 
dependent upon reliable rail service. Burlington Northern Santa Fe 
Railroad (BNSF) delivers coal for Dairyland to the John P. Madgett 
(JPM) facility in Alma, Wisconsin, on lines that are captive to the 
BNSF. BSNF also delivers coal to a Mississippi River terminal in 
southeast Iowa, which is then loaded on barges and delivered to 
Dairyland's Genoa Station #3 facility (Genoa).
    Reliable delivery service is necessary to ensure coal is available 
in sufficient quantities to produce power to meet demand. Coal delivery 
problems require Dairyland to use higher cost generation and/or 
purchase power on the open market, often at a premium, to meet members' 
energy needs.
    Dairyland currently owns 250 rail cars and leases six more. They 
lease a full train set (about 125 rail cars) for shipments to the 
Mississippi River terminal in Iowa. The combined coal deliveries in any 
given year range from 2.0-2.4 million tons, or roughly 130-160 train 
loads.
    Approximately 90-100 train loads are delivered to JPM annually. 
Average turnaround time (ATT) is defined as the time it takes for a 
train to make a round trip from the mine to the offload site and back 
again to the mine. Prior to 2014, ATT averaged six to eight days, which 
generally meets the fuel needs for the JPM plant. The station can 
unload an average train set in about six hours which provides three to 
four days of generation. In preparation for supply disruptions, the 
goal is to have between 30 and 50 available days of operation on hand 
to sustain reliable generation.
    Annual deliveries range from 50-65 train loads to the Southeast 
Iowa Mississippi River terminal for the Genoa Plant. One train fills 
nine to ten barges. ATT for shipments to this terminal prior to 2014 
averaged five to seven days, fulfilling the shipping goals to meet the 
annual need for generation.
    Two barges provide one day of generation. In order to meet 
Dairyland's generation needs for its' members throughout the year it is 
critical to have reliable rail and barge transportation from carriers. 
To prepare for supply disruptions Dairyland's goal is to have 165-195 
available days of operation on hand prior to the end of October to 
provide generation for the winter. Since the Upper Mississippi River 
usually freezes, the typical barge delivery season is from March 
through October, roughly 30 to 35 weeks. Once winter is over and the 
river thaws, inventories can be rebuilt at Genoa again for the next 
season.
2013-2014: Unsatisfactory Rail Performance
    Earlier this year, Dairyland staff was in frequent communications 
with BNSF staff about delivery shortfalls. BNSF acknowledged 
Dairyland's concerns, acknowledged they (BNSF) were not meeting 
expectations, but were slow to provide a solution.
    In July, Dairyland contacted both the Surface Transportation Board 
and members of the Congressional Delegations in the four states in 
which they operate. Without exception, every delegation member 
responded by communicating to the STB and/or the BNSF of the need to 
quickly accelerate coal deliveries for the Genoa plant.
    In 2012 Dairyland experienced a six to eight day ATT at the JPM 
plant and an ATT of five to seven days at the Genoa Plant. Since August 
2013 service has been inconsistent and failed to match the 2012 ATT at 
both plants. The BNSF year-to-date through September at the JPM plant 
has been 11 days ATT and the ATT has averaged about nine days at Genoa.
    Through August of this year, the BNSF has failed to deliver 30 
percent of Dairyland's expected fuel needs. Dairyland did not increase 
their expected fuel needs from 2013, therefore, their expectations for 
2014 deliveries did not change.
    Trucking PRB coal from Wyoming to either location is not a viable 
alternative. To equal one train set of coal 630 truckloads would need 
to be delivered, equating to 87,000-104,500 truckloads to deliver their 
annual supply. This is logistically and financially unworkable with a 
nonprofit electric cooperative's mission to provide affordable service 
to its members and would cause a tremendous burden on the already 
overtaxed interstate, state and local highway systems.
    Dairyland continues to work with the railroad in an attempt to 
resolve these issues. It is in the best interest of Dairyland and their 
members to have a good working relationship with BNSF since they play a 
very important role in helping to provide reliable and reasonably 
priced electricity to the region. Since the beginning of August, the 
BNSF has worked to address deliveries at the river terminal serving 
Genoa and JPM.
2014: Poor Rail Performance Impacts Dairyland's Operations
JPM
    Since January 1, monthly average coal inventory on hand for 
Dairyland has ranged from 12-33 days, and dipped to as low as nine 
days--well below the Dairyland target of 30-50 available days of 
operation on hand. Dairyland was forced to find solutions to ensure 
they had enough coal on the ground to meet generation load and reliable 
electric service for the Midcontinent Independent System Operator 
(MISO). Unfortunately, rail service to the Alma site has continued to 
deteriorate. August deliveries were less than any prior month this 
year, even less than during the polar vortex of last winter. At the end 
of August, coal inventory at Alma is 50-70 percent below the target 
range.
Genoa
    Rail shipments to the Southeast Iowa Mississippi River terminal 
since March had not built inventory at a rate to keep pace with barge 
shipments to Genoa needed to meet power generation. If this trend had 
continued, Dairyland's Genoa power plant would have run out of coal and 
would be unable to generate power after January 2015. Dairyland is 
pleased to report that BNSF service to the Mississippi River terminal 
for barge loading to Genoa has improved and the BNSF should be 
commended for its response. There were more trains delivered in the 
month of August than during the months of May, June, and July combined. 
Due to the BNSF's efforts to increase deliveries to the terminal in 
August and September the inventory shortage has been reduced from 50 
percent to approximately 10 percent.
    In the previous years, during reduced demand periods, Dairyland was 
able to shift train sets for several deliveries to the Mississippi 
River terminal rather than JPM. This year, Dairyland was not able to do 
this because JPM's inventory were also low and they did not want to 
risk the inventory going even lower which would have left Dairyland 
with two plants with insufficient coal supplies.
Sunflower Electric Cooperative
    Sunflower Electric Cooperative (Sunflower) is located in Holcomb, 
Kansas, and is a consumer-owned, nonprofit corporation operated 
cooperatively by six rural electric distribution cooperatives that 
serve people located in 32 central and western Kansas counties. 
Sunflower provides wholesale power to its members generated by six 
power plants including the only base load coal-fired electric 
generating unit (EGU) in the area, the Holcomb EGU.
    Holcolm EGU is captive to BNSF for its coal supply deliveries; 
there are no other reasonable options to transport coal from the PRB. 
Since September of 2013, Sunflower has seen ATT for its coal deliveries 
rise dramatically, sometimes over 11 days. Considering one train load 
provides Holcomb with only three-to-four days of coal, Sunflower's 
inventory pile is continuously decreasing.
    Sunflower's Board policy and Risk Management strategy is to have a 
30 day minimum inventory of coal. To maintain these best practices, 
Sunflower curtailed generation from March 14, 2014, through June 17, 
2014 to save inventory for the summer peak period. As of mid-July, 
Sunflower had approximately 20 days of inventory.
    If rail service for the remainder of the year does not improve, 
Sunflower could be required to limit generation again this fall and its 
coal inventory will still reach zero days by the end of December, 
creating a potential reliability issue for the Southwest Power Pool 
(SPP), of which Sunflower is a member. Without substantial improvement, 
this delivery service problem will affect electric generation 
reliability well into 2015.
Arkansas Electric Cooperative Corporation
    Arkansas Electric (AECC) is a membership-based generation and 
transmission cooperative that provides wholesale electric power to 
electric cooperatives, which in turn serve over 500,000 consumer 
member/owners, located in each of the 75 counties in Arkansas and 
surrounding states. In order to serve its 17 member distribution 
cooperatives, AECC has entered into arrangements with other utilities 
within the state of Arkansas to share generation and transmission 
facilities. For example, AECC holds ownership interests in the White 
Bluff plant at Redfield and the Independence plant at Newark, each of 
which typically uses in excess of 6 million tons of PRB coal each year. 
In addition, AECC holds ownership interests in the Flint Creek plant at 
Gentry and the Turk plant at Fulton, each of which typically uses about 
two million tons of PRB coal each year. Because of the large volume of 
coal consumed by these plants, the need for long-distance rail 
transportation to move this coal, and the rail captivity of three of 
these plants, AECC and its members are very dependent on rail service 
in order to provide reliable and economical electrical service.
    In 2013 through the severe winter weather of 2013-2014, the major 
freight rail service problems seemed to be somewhat confined to the 
upper Midwestern portion of the United States. BNSF and Canadian 
Pacific (CP) seemed to be most affected. Certainly Arkansas did not see 
coal shipments affected at that point. However, as 2014 began to unfold 
AECC started seeing slower ATT and lower throughput of coal to its 
power plants. AECC experienced ATT increases of as much as 30 percent 
and coal inventories drop by up to 50 percent. At one point an AECC 
plant had just 16 days of coal inventory.
Conclusion
    We are grateful that the Committee on Commerce, Science, and 
Transportation held this timely hearing on current rail service issues. 
Furthermore we thank Chairman Rockefeller and Thune for introducing S. 
2777 the Surface Transportation Board Reauthorization Act of 2014. 
Although the bill will not address the immediate concern with coal 
deliveries for our members outlined in the examples above, in the long 
run, if enacted, the bill will make freight rail carriers more 
responsive and rail service more competitive. We believe this 
legislation is a good first step in the right direction for practical 
reforms without adding regulation. It should help the STB to be more 
efficient, thus making a more robust and responsive freight rail 
network.
    The bill does not require direct government intervention and 
doesn't reregulate (emphasis added) America's freight rail system. The 
bill allows the STB to be proactive and grants them investigatory 
authority therefore the Board doesn't have to rely solely on shipper 
complaints. Other provisions include establishing a voluntary 
alternative dispute resolution process as presented in the managers 
amendment; required complaints be compiled at the STB; streamline rate 
cases; and require quarterly reports of unfinished proceedings. One 
provision agreed upon by both shippers and the railroads would allow 
board members to talk to each other so long as they disclose those 
discussions with two days of meeting. NRECA supports S. 2777 the 
Surface Transportation Board Reauthorization Act of 2014.


                                 ______
                                 
                                Portland Cement Association
                                 Washington, DC, September 10, 2014

Hon. John D. Rockefeller IV,
Chairman,
Committee on Commerce, Science, and Transportation,
Washington, DC.

Hon. Richard Blumenthal,
Chairman,
Subcommittee on Surface Transportation,
Washington, DC.

Hon. John Thune,
Ranking Member,
Committee on Commerce, Science, and Transportation,
Washington, DC

Hon. Roy Blunt,
Ranking Member,
Subcommittee on Surface Transportation,
Washington, DC.

Dear Chairman Rockefeller, Ranking Member Thune, Subcommittee Chairman 
Blumenthal, and Ranking Member Blunt:

    Thank you for holding today's hearing, entitled ``Freight Rail 
Service--Improving the Performance of America's Rail System.'' On 
behalf of the Portland Cement Association (PCA), I wish to share the 
views of America's cement manufacturers.
    Our industry is hopeful that this hearing will lead to improvements 
in service levels from the railroads. Current service levels are 
delaying the delivery of our products, impacting construction jobs that 
could have a ripple effect in our Nation's economic recovery.
    Cement is to concrete what nails are to wood. It acts as the glue 
that builds our bridges, roads, dams, schools and hospitals. The 
distribution of cement often occurs over hundreds of miles, and it must 
be done with carefully timed precision. A disruption in rail 
transportation and distribution can greatly influence the efficient 
delivery of cement; this can result in projects being delayed or 
cancelled. Rail carriers are vital to the movement of cement, 
representing approximately 65 percent of cement movements on a per ton 
basis. Steep increases in rail rates, particularly over the past 
decade, have impacted cement shippers negatively wiping out efficiency 
and other gains.
    Since passage of the Staggers Rail Act of 1980, the rail industry 
has dramatically changed. In 1986, there were 23 Class I rail carriers 
in the United States. Today, there are seven Class I rail carriers of 
which four control over 90 percent of the U.S. market. About 80 percent 
of rail stations are now served by just one Class I carrier. Rail 
industry consolidation and a lack of competition amongst rail carriers 
and from other modes of transportation have given the rail industry 
very strong market power. For shippers that need to transport their 
products over long distances, motor carriers; for example, are 
typically a noncompetitive option, especially as fuel prices have risen 
over the decades.
    As the market power of the rail industry has grown, the importance 
of the Surface Transportation Board (STB) being able to provide a 
counterbalance has also increased. Yet rate and service cases are so 
expensive and cumbersome that many shippers often do not have the time 
or money to file a case.
    It also is unfortunate that so many commodities are forbidden from 
even having a rate or service case come before the STB. This is due to 
antiquated commodity exemptions, which no longer make any sense in 
today's marketplace. For a variety of reasons that made sense in the 
1980s, the Board's predecessor, the Interstate Commerce Commission 
(ICC), engaged in a broad campaign to exempt certain goods from the 
protections of the law. Among these were exemptions for the rail 
transportation of cement, paper and forest products, clay, concrete, 
glass, stone products, and motor vehicles. In the decades since these 
exemptions were imposed, much has changed, both in the law and in the 
rail transportation marketplace. This is why the STB has been actively 
reviewing the issue of exempt commodities (Ex Parte 704) since 2011. 
PCA strongly supports the STB moving forward to modernize its list of 
exempt commodities.
    Thank you again for holding today's hearing. Please feel free to 
contact me by e-mail at [email protected] or Justin 
Louchheim at jlouchheim
@cement.org.
            Sincerely,
                                                Cary Cohrs,
                                             Chairman of the Board,
                                           Portland Cement Association,
                                                         President,
                                          American Cement Company, LLC.

Cc: Members of the Committee on Commerce, Science, and Transportation
                                 ______
                                 
                                American Bakers Association
                                 Washington, DC, September 24, 2014

Hon. John Rockefeller,
United States Senate,
Washington, DC.

Hon. John Thune,
United States Senate,
Washington, DC.

RE: U.S. Senate Committee on Commerce, Science, and Transportation 
            Hearing: Freight Rail Service: Improving the Performance of 
            America's Rail System

Chairman Rockefeller and Ranking Member Thune:

    The American Bakers Association (ABA) would like to thank you for 
holding a hearing to scrutinize the lack of adequate rail service in 
the Northern Mid-West. While this issue has definitely impacted the 
ability of farmers and grain elevators in this area to ship wheat and 
other farm commodities in a timely and efficient manner, the effect of 
the backlog in grain shipments does not end there. Bakers have also 
struggled in receiving flour shipments in a timely fashion, which is of 
major concern for an industry that depends heavily on certainty in 
transportation in order to provide a variety of baked products for 
America's families.
    The American Bakers Association (ABA) is the Washington D.C.-based 
voice of the wholesale baking industry. Since 1897, ABA has represented 
the interests of bakers before the U.S. Congress, Federal agencies and 
international regulatory authorities. ABA advocates on behalf of more 
than 1,000 baking facilities and baking company suppliers. The baking 
industry generates more than $102 billion in economic activity annually 
and employs more than 706,000 highly skilled people.
Impact to the Baking Industry
    Beginning fall 2013, railroad service in the Northern Mid-West 
states was characterized by long delays, missed shipments, increasing 
backlogs and higher costs for those industries captive to rail. While 
shipping slowed dramatically due to extreme winter weather, the backlog 
has not improved since then. Joining with the concerns still held by 
farmers, grain elevators and millers, bakers too do not see an adequate 
response by the railroads to ensure that delivery concerns are 
addressed before a record fall harvest puts more pressure on capacity 
or winter weather returns.
    Bakers are dramatically affected by the decrease in efficiency as 
they depend on timely shipments from millers for their flour needs. 
Hard Red Spring Wheat is used as a primary ingredient to most breads 
and specialty baked goods. The majority of Hard Red Spring Wheat is 
grown in Montana, North Dakota, South Dakota and Minnesota, all states 
that are land locked and dependent upon the railroads for shipping 
grain to end users across the country. While shipping wheat by truck is 
always suggested as an alternative, it would take four trucks to equal 
the capacity of one grain rail car, making trucking much less efficient 
than rail service. In addition, there is not enough trucking capacity 
in the U.S. today to make up for rail inefficiencies, making rail a 
critical lifeline for the baking industry. Bakers are captive to the 
railroads due to the inability of grain millers to gain access to Hard 
Red Spring Wheat by any means other than rail.
    In addition, Bakers typically only have two to three days' worth of 
flour storage on premises. When shipments of flour from millers are 
delayed due to backlogs in wheat shipments by rail to the milling 
facility, bakers struggle to find alternative flour sources. In some 
cases, bakers have shut down lines and reduced staff to accommodate for 
a lack of flour to bake products. Finished product has also been 
delayed when being shipped to the marketplace due to delays in 
fulfilling product orders and in intermodal transport.
    Conservative estimates show that the railway shipping crisis may 
cost the baking industry millions of dollars this year alone if 
concerns are not addressed. Unfortunately with the current pace of 
service recovery, the backlog will most likely continue and possibly 
even increase in severity and impact on the industry through next 
summer.
Solutions to Address the Shipping Crisis
    ABA strongly supports the efforts by Chairman Rockefeller and 
Ranking Member Thune to pass the Surface Transportation Board 
Reauthorization Act of 2014. Giving the Surface Transportation Board 
(STB) authority to launch investigations before a costly complaint is 
filed is a critical step in holding railroads accountable for the lack 
of adequate service. In addition, making it easier for STB members to 
communicate and improving the dispute resolution process are necessary 
to improve the STB's ability to serve all parties reliant upon railway 
shipping.
    ABA supports recent steps by the STB to increase transparency, 
requiring Burlington Northern Santa Fe and Canadian Pacific to offer 
weekly progress reports on backlogs and plans for improvement. 
Specifically, ABA believes more transparent information on rail cars 
that are past due, the average number of days late and unit train 
turnaround times are critical to solving the shipping crisis. This 
includes information on all shipping categories, including agriculture, 
coal, intermodal, energy and automotive. In addition to reporting, ABA 
urges the railroads to adopt a more open line of communication with its 
customers to ensure that all parties are working together to ensure 
proper and timely delivery of goods. Moving forward, it is ABA's hope 
that stringent oversight will continue until the shipments return to 
more normal levels.
Conclusion
    U.S. bakers rely upon a transportation network that is reliable and 
efficient. Unfortunately, this network has failed the baking industry 
in the past year. While progress has been made towards cutting the 
backlog of rail car orders in the region, it remains a very serious 
situation.
    ABA appreciates the proactive leadership of the Senate Committee on 
Commerce, Science, and Transportation to address freight rail service 
concerns in the U.S. ABA stands ready to serve as a resource and assist 
the Committee and the STB in solving the continuing shipping crisis.
            Sincerely,
                                               Cory Martin,
                                    Director, Government Relations,
                                           American Bakers Association.
                                 ______
                                 
                                      M&G Polymers USA, LLC

Hon. John D. Rockefeller IV,
Chairman,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Hon. John Thune,
Ranking Minority Member,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Chairman Rockefeller and Senator Thune:

    I am writing today on behalf of M & G Polymers in strong support of 
legislation you have both sponsored, S. 2777, the Surface 
Transportation Board Reauthorization Act of 2014. Our recent experience 
pursuing a rate remedy at the Surface Transportation Board convinces us 
that the reforms you have recommended in this legislation are needed if 
the Board is to be an accessible forum for resolving commercial 
disputes between the railroads and their customers.
    M&G Polymers is a leading producer of polyethylene terephthalate 
(``PET'') resin in North America with our principle domestic production 
facility located in Apple Grove, WV. We employ 144 and generate circa 
$500,000,000 in annual revenues at our Apple Grove facility. 
Unfortunately, we are served at our facility by a single railroad, the 
CSX Railroad. Our customers want to receive our PET ``pellets'', which 
are used to make plastic bottles by soft drink manufacturers and 
others, by rail and penalize us significantly economically if our 
products cannot be delivered by rail.
    Several years ago, shortly before our rail transportation contract 
with the CSX expired, we attempted to negotiate a new contract that 
would allow is to remain competitive in our markets and for our plant 
to remain economically viable. Having very little negotiating leverage, 
the CSX demanded a steep increase in our contract transportation rates. 
Since the proposed contract rates would cripple the economic viability 
of our Apple Grove facility, we requested that the CSX provide a tariff 
rate that we could challenge at the STB as being unreasonably high. As 
normally happens in such cases, the tariff rate provided by the CSX was 
even higher than the proposed contract rate and we were required to pay 
the tariff rate while we challenged its reasonableness at the STB.
    The rate challenge became extremely costly, including not only the 
cost of the litigation but the additional cost of paying the high 
tariff rate during the pendency of the challenge, and extremely 
lengthy. After four years, with only a decision in hand that we were 
indeed subject to the market dominance of the CSX--in other words we 
proved we were captive to that single railroad for our transportation--
and facing another year or more of litigation on the reasonableness of 
the rate, we were forced to settle the complaint and move on. This 
experience convinced us not to expand our operations at Apple Grove 
and, indeed, our high rail transportation costs at Apple Grove remain a 
cloud over the economic viability of that plant.
    Based on this experience and our ongoing experiences with those of 
our railroad carriers that hold us captive, we are particularly 
interested in and supportive of Sections 6, 7, 8, 9 and 10 of the 
proposed legislation. These provisions strengthen the investigative 
authority of the Board and address some of the shortcomings of the 
current rate challenge processes of the Board. We also support Sections 
12 and 13 of the legislation that will inform Congress and the public 
of some of the important activities of the Board with regard to 
complaints about service and the status of unfinished Board regulatory 
proceedings. Finally, we support the proposed ``Sense of the Congress'' 
provision in Section 14 of the Act.
    Freight railroads exist to transport products and commodities to 
market reliably and on reasonable terms. Freight railroads serve no 
other purpose. Where a market exists for railroad services, commercial 
negotiations can be expected to result in reasonable service and 
reasonable terms. Where a railroad is the sole provider of a necessary 
service, as in our case in West Virginia, then the shipper often cannot 
negotiate reasonable terms and an independent forum reasonably 
accessible by shippers is required to ensure reasonable service at 
reasonable rates. We believe that the Board, under its current rules, 
processes and precedents, is not reasonably accessible to shippers to 
resolve in a reasonable period of time our commercial disputes with 
those railroads to whom we are captive. S. 2777 addresses some of the 
shortcomings of the Board today and would make the Board more 
reasonably accessible to shippers.
    Thank you, Chairman Rockefeller and Senator Thune, for your 
leadership on this issue. We stand ready to help you in any way we can 
to make the needed changes in law and policy that are contained in S. 
2777.
            Sincerely,
                                             Fred Fournier,
                                                Executive Director.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                              Arthur Neal
    Question. During the reauthorization of the Farm Bill I worked to 
include a provision that would authorize a joint rural transportation 
study expanding upon a similar study mandated by the 2008 bill. My 
study language directs the USDA and Department of Transportation to 
examine rural transportation issues, including captive shipping, so 
that we can identify ways to help farmers and ranchers move their 
products more quickly and efficiently. Mr. Neal, does the USDA have an 
expected timeline for finishing the report?
    Answer. USDA believes an efficient and effective transportation 
system is critical to supporting our Nation's economy. The 2014 Farm 
Bill mandated that USDA and the Department of Transportation complete 
an updated study on rural transportation issues, including freight 
transportation of agricultural products, renewable fuels, and other 
issues of importance to the economies of rural communities. The update 
of this study has been assigned to USDA's Agricultural Marketing 
Service. Similar to the previous study, AMS has entered into a 
cooperative agreement with Washington State University to assist with 
development of the study update. The study team has been assembled and 
work has begun to conduct the update. Provided there are no unexpected 
difficulties that arise during the update process, USDA hopes to 
complete the study in 2016.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                            to Jerry D. Cope
    Question 1. I have worked for years to have the Surface 
Transportation Board (STB) proactively and efficiently address issued 
raised by shippers and to restore balance to a network that I believe 
favors the freight railroads. Unfortunately, I don't believe the STB 
has done enough on this front. How have past decisions at the STB 
limited competition for shippers?
    Answer. The STB has previously been viewed as a rubber stamp for 
the RR's. Many past board members went from the STB to working for a 
Class I. Fuel Surcharge issues were reluctantly addressed and then 
after extensive lobbying from National Grain and Feed Association and a 
suit by one of the major grain companies. Addressing rate challenges 
and other issues such as competitive switching and bottleneck rates 
still need to be taken up by the Board.

    Question 2. The STB has started several proceedings, but it doesn't 
appear that they have completed many. What actions are most important 
for the Board to complete?
    Answer. That is hard to answer because the STB website doesn't list 
actions or proceedings as completed. It requires knowledge of the case 
and what signals completion rather than categorizing actions as 
pending, in progress or complete. (I verified this through a staffer).

    Question 3. I continue to have concerns that the Surface 
Transportation Board has not used its full authority to identify and 
address problems. The ongoing service crisis is a prime example of this 
problem, where the STB has held hearings and required reports but has 
not changed underlying regulations to provide meaningful relief. 
Meanwhile, crops are lying on the ground, coal shipments aren't being 
made, and businesses are suffering. A lack of responsiveness by the STB 
can be disastrous for businesses in our communities that rely on rail 
service. How have inefficiencies and delays at the STB damaged 
businesses in your industries?
    Answer. The commercial grain handlers lost opportunity when we 
couldn't handle grain last winter and spring. Both farmers and 
commercial grain handlers lacked cash flow which increased credit 
lines, interest costs and forced expensive short term storage 
decisions. Total cost was in the millions to the affected states.

    Question 4. What could the Board have done to address rail service 
issues before the problem became critical?
    Answer. Under the current rules the board couldn't address the rail 
service problems until a complaint was officially filed. A complaint 
was not filed right away because when problems are just starting to 
develop, it is hard to know if it is short term or the beginning of 
something longer. The grain and fertilizer industry typically takes a 
conservative approach and does not blow the whistle at every turn. 
However, the RR's overall lack of communication and transparency that 
created the uncertainty in the beginning was a root cause of the 
problems that developed. Would the board of had the ability to 
investigate without a complaint being filed and had there been more 
board members so the outreach could be more broadly based, the problem 
could have been addressed earlier and some of the issues perhaps 
avoided or at the very least worked through with more understanding.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                         to Calvin (Cal) Dooley
    Question 1. I have worked for years to have the Surface 
Transportation Board (STB) proactively and efficiently address issued 
raised by shippers and to restore balance to a network that I believe 
favors the freight railroads. Unfortunately, I don't believe the STB 
has done enough on this front. How have past decisions at the STB 
limited competition for shippers?
    Answer. To provide just one example, the STB's outdated and 
misguided rules on competitive switching actually run counter to the 
Staggers Rail Act of 1980 and prevent shippers from obtaining service 
from a second railroad. While Congress has long envisioned competitive 
switching as a way to promote a competitive rail system, no shipper has 
ever obtained competitive switching since the STB's rules were adopted. 
It is extremely frustrating for shippers that depend on a single 
carrier to be prevented from seeking competitive service--not by a 
statutory provision, but because of the way the Board has chosen to 
interpret the law.

    Question 2. The STB has started several proceedings, but it doesn't 
appear that they have completed many. What actions are most important 
for the Board to complete?
    Answer. The STB has the authority to take on these issues and 
already has begun to do so, but it is simply moving too slowly. 
Competitive switching is a clear priority. The STB has been evaluating 
this issue in its Docket Ex Parte 711 for more than three years, 
receiving extensive data and stakeholder input. But the STB has yet to 
issue even a notice of proposed rulemaking.
    Another major priority is the development of a workable rate-
reasonableness process based on a revenue adequacy standard. The STB 
has long recognized that when a railroad is revenue adequate, the 
railroad should not be allowed to continually charge much higher rates 
to its captive shippers.
    The Board, however, has never applied this revenue adequacy 
standard in rate cases. The STB continues to rely on the stand-alone 
cost process, which is overly complex, burdensome, and expensive. This 
process shields highly profitable railroads from market forces and 
shippers are left with no competition and no effective remedy for 
unreasonable rates.
    ACC strongly supports legislative changes and the ongoing efforts 
at the STB to promote competition in the rail industry and to make the 
Board and its procedures more accessible to shippers for all sectors of 
the U.S. economy. We think that the provisions in the ``Surface 
Transportation Board Reauthorization Act of 2014'' would help keep the 
STB focused on resolving many of the key issues that are important to 
shippers.

    Question 3. I continue to have concerns that the Surface 
Transportation Board has not used its full authority to identify and 
address problems. The ongoing service crisis is a prime example of this 
problem, where the STB has held hearings and required reports but has 
not changed underlying regulations to provide meaningful relief. 
Meanwhile, crops are lying on the ground, coal shipments aren't being 
made, and businesses are suffering. A lack of responsiveness by the STB 
can be disastrous for businesses in our communities that rely on rail 
service. How have inefficiencies and delays at the STB damaged 
businesses in your industries?
    Answer. The business of chemistry is set to expand dramatically in 
the United States. The discovery of vast new supplies of shale gas has 
changed the economics of chemical manufacturing in this country. As a 
result of this competitive advantage for the chemical industry, it is 
anticipated that the U.S. will gain more than 700,000 new jobs and $274 
billion in new economic output.
    If the United States is to fully realize these potential 
investments, it is imperative that chemistry companies have access to a 
reliable and competitive freight rail networks that will effectively 
move our products along the supply chain and throughout the economy.
    Sharply rising freight rail rates are taking a heavy toll on 
American producers. According to research conducted by Escalation 
Consultants, the total rate premium for all commodity shippers in 2011 
exceeded $16 billion. These premiums are having a big impact on our 
industry in the U.S. For example, a survey of ACC members found that 
more than a quarter of ACC members report that rail issues have 
hindered domestic investments.
    A key driver for rate increases over the last decade is the lack of 
a competitive market for rail service. Massive consolidation and 
railroad practices have allowed the railroads to exert market dominance 
over their customers. These practices include ``bundling'' rates as a 
way to preclude shippers from exercising their right to ask the STB to 
review rates. And, in some instances, railroads protect each other's 
market power by not bidding on traffic that they could carry. Another 
factor is the inability of shippers to make use of the STB as a 
workable venue to handle rate issues.
    If businesses have to absorb these freight rail costs, it cuts into 
their ability to create jobs, products, and exports. If consumers have 
to bear those costs, they have less to spend and to put into the 
economy.
    Companies in the business of chemistry operate in a highly 
competitive global industry that operates on tight margins. According 
to ACC's survey of chemical manufacturers, the soaring cost of rail 
shipping is driving investment decisions and negatively impacting a 
company's ability to compete in a global economy. Furthermore, an 
economic analysis conducted by ACC found that, if the $3.9 billion 
freight rail premium on chemical shipments were eliminated, the 
chemical sector could create up to 25,000 more jobs with $1.5 billion 
in new wages and $6.8 billion in new economic output.
    The U.S. chemical industry needs a financially strong private rail 
industry, and Congress agrees. Congress has tasked the Board with 
overseeing many important aspects of the railroad sector. ACC member 
companies are hampered by the many difficulties and the high costs of 
bringing matters to the Board for resolution. For chemical shippers, 
STB cases are complex, expensive, and time-consuming to resolve. In 
fact, the barriers for bringing a case before the STB are so high that 
very few of our member companies can justify the time and expense. The 
Board itself estimates that a stand-alone cost challenge takes more 
than three and a half years and $5 million to complete. This 
predicament is daunting for a large company and nearly insurmountable 
for a small or medium-sized company. ACC members have experienced cases 
that take even longer and cost much more to challenge. More competition 
and the introduction of free market forces can help pre-empt the need 
to file a rate case, reduce the need for government intervention, and 
improve rail service overall.

    Question 4. What could the Board have done to address rail service 
issues before the problem became critical?
    Answer. A number of ACC member companies experienced rail service 
delays during the past winter of 2013-14. When the Board held its 
public hearing on ``U.S. Rail Service Issues'' on April 10, the 
chemical industry spoke about the effects, which were not limited to 
the two carriers that were the primary focus of that hearing. ACC also 
addressed rail service at this Committee's hearing on September 10, as 
well as in meetings with STB officials.
    The Board has remained engaged on rail service issues, and it also 
held a public hearing in North Dakota in September. We realize that the 
Board cannot resolve rail service issues itself. Moreover, we 
appreciate that the Board has ordered the Class I railroads to provide 
various kinds of additional data in a timely manner.
    While ACC applauds those efforts, we remain concerned for several 
reasons. First, what were initially characterized as winter problems 
did not clear up with warm weather. In fact, the carriers are 
indicating that their difficulties are of a longer-term nature. While 
our members are very concerned about the upcoming winter, throughout 
this year many chemical companies have been experiencing difficulties 
receiving raw materials, shipping products to customers, and/or getting 
freight cars back for reloading.
    Second, despite the Board's early focus on two carriers, there have 
been problems with every Class I railroad. The Board has expanded its 
attention beyond those two carriers, but our members are troubled by 
the persistence of these service issues and the length of time that 
they might last. In addition, some carriers have not been transparent 
about their problems and their plans, which makes it even more 
difficult for chemical shippers and their downstream customers.
    In short, ACC members find themselves in the same predicament as 
other shippers. They continue to suffer from rail service problems and 
continue to have serious concerns about their ability to ship their 
products by rail and being able to meet their obligations to their 
customers. What they have experienced was not by any means confined to 
the issues that arose during the winter months. Quite simply, rail 
service has not yet recovered, and it is unlikely that it will improve 
soon unless the STB and Congress take action.

    Question 5. The Surface Transportation Board has been far too slow 
in addressing important issues like competitive switching. One of the 
reasons is that the railroads have repeatedly raised concerns that 
changing pricing ``adversely affects all shippers and the Nation's 
economy.'' From your testimony, the opposite seems true. Can you 
explain how a lack of competitive switching is adversely impacting 
shippers?
    Answer. Congress has long envisioned competitive switching as a way 
to promote rail competition. However, under outdated STB rules, no 
shipper has successfully obtained switching. When only one major 
railroad serves a facility, it can effectively block a shipper from 
obtaining competing service, even if a second railroad is only a few 
miles away. This lack of competition gives railroads dramatic market 
power and leaves shippers with few options. As one of our members 
explained during a recent STB hearing, competitive switching has the 
potential to improve rail service, provide better routing options, and 
establish competitive rates.

    Question 6. Before taking action, the STB has stated that they want 
to make sure the railroads are able to adequately invest in their 
infrastructure. Would competitive shipping impair this ability?
    Answer. While we do not support a return to the 1970s when all 
freight rates were automatically subject to strict government scrutiny, 
we also do not support current policies that protect railroads and 
override free market forces at the expense of shippers.
    More than 30 years ago, Congress enacted the Staggers Rail Act of 
1980 that helped the railroads thrive and, ultimately, drove down 
rates. Since then, railroad freight traffic has nearly doubled, 
investment in rail infrastructure has increased, and the economic 
strength of the rail industry is greatly improved. At the same time, 
the rail industry has consolidated, reducing the number of Class I 
railroads from 26 to seven, with four largely dominating the market 
(two in the east and two in the west).
    Despite the direction of Congress, however, the full mandate of the 
Staggers Rail Act was not completed, and, subsequently, rail policies 
have not been able to keep up with the massive consolidation of the 
railroads. The majority of ACC member facilities have access to only 
one major railroad. Yet the same policies protecting railroads remain.
    With these dramatic changes in the state of the rail sector, it is 
appropriate for Congress and the STB to re-evaluate and modernize the 
U.S. rail policy framework. Rail reform that increases competition and 
levels the playing field between shippers and railroads would help 
strengthen the U.S. economy and the railroad industry itself.

    Question 7. Wouldn't the railroads also see benefits from 
competitive switching?
    Answer. The best solution for all stakeholders is more free market 
competition, not more regulation and government protections for 
railroads. Consistent with the Staggers Rail Act, the STB should work 
to promote ``effective competition among rail carriers'' wherever 
possible. The government has always provided oversight where there is 
no competitive option for shippers. To provide this oversight 
effectively, STB processes must be more practical and less burdensome. 
The reforms we support will help create a more competitive and market-
based freight rail system that will reduce the need for government 
involvement, while ensuring the STB has procedures to settle disputes 
efficiently. The results for the country would include more jobs, more 
exports, more competitiveness in global markets, and lower prices for 
consumers. And yes, ACC believes that the railroads themselves would 
thrive under the conditions of true competition.
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                             to Shane Karr
    Question 1. I have worked for years to have the Surface 
Transportation Board (STB) proactively and efficiently address issued 
raised by shippers and to restore balance to a network that I believe 
favors the freight railroads. Unfortunately, I don't believe the STB 
has done enough on this front. How have past decisions at the STB 
limited competition for shippers?
    Answer. Two major policy decisions, in particular, have significant 
limiting effects upon rail competition.
Competitive Access
    The first major policy decision was the agency's decision not to 
exercise its full discretion to grant reciprocal switching. At 49 
U.S.C. 11102, Congress authorized the agency to grant trackage rights 
or reciprocal switching when ``practicable and in the public interest'' 
or, in the case of reciprocal switching, ``where . . . necessary to 
provide competitive rail service.'' In an early decision interpreting 
this statute, the ICC noted that that ``Congress' aim in creating 
section 11103(c) of the Staggers Act was to provide a competitive 
counterbalance'' to the broadened rate freedom that was also part of 
the Staggers Act reforms.\1\ Del. & Hudson Ry. v. Consol. Rail Corp.--
Reciprocal Switching Agreement, 367 I.C.C. 718, 729 (1981). In 
determining the ``public interest,'' the agency noted that 
``[a]dditional rail competition is a clear public benefit from the 
proposed operation, one which is endorsed by the rail transportation 
policy announced in the Staggers Act.'' \2\ But just four years later, 
the ICC abandoned the D&H precedent when it adopted rules determining 
that ``a switching arrangement shall be established'' under the statute 
only if the agency determined that the establishment of such a 
switching arrangement ``(A) is necessary to remedy or prevent an act 
that is contrary to the competition policies of 49 U.S.C. 10101a or is 
otherwise anticompetitive, and (B) otherwise satisfies the criteria of 
49 U.S.C. . . . 11103. . . .'' Ex Parte No. 445 (Sub-No.1), Intramodal 
Rail Competition, 1 I.C.C.2d 822, 840-41 (1985).
---------------------------------------------------------------------------
    \1\ Id. at 729 [emphasis added].
    \2\ Id. at 723.
---------------------------------------------------------------------------
    The very first case adjudicated under the new rules was Midtec 
Paper Corp. v. Chicago and North Western Transp. Co. (Use of Terminal 
Facilities and Reciprocal Switching Agreement), 3 I.C.C.2d 171 (1986) 
[``Midtec''], which held that whether reciprocal switching was 
``necessary to remedy or prevent an act that is contrary to the 
competition policies of 49 U.S.C. 10101a or is otherwise 
anticompetitive,'' required the agency to find ``classical categories 
of competitive abuse: foreclosure, refusal to deal; price squeeze'' or 
``other forms of monopolization or predation''; or ``inadequate service 
or excessive prices.'' \3\ Whether or not ``abuse'' had occurred would 
involve an antitrust-type inquiry.\4\ In defending its decision in 
court, the agency argued, and the court held, that the ICC's new 
competitive access rules substantially narrowed the agency's discretion 
under the statute to grant competitiveremedies.\5\ A series of four 
subsequent decisions denying requests for competitive access under this 
heightened bar has resulted in no shipper even attempting to request 
competitive access for more than 25 years due to perceived futility.
---------------------------------------------------------------------------
    \3\ Id. at 173-74.
    \4\ Id.
    \5\ Midtec Paper Corp. v. United States, 857 F.2d 1487, 1500 (D.C. 
Cir. 1988) [``Midtec Court Review'']
---------------------------------------------------------------------------
Bottleneck Rates
    The second major policy decision was the agency's determination not 
to require railroads to quote bottleneck rates in Central P. & L. Co. 
v. Southern Pac. Transp. Co., 1 S.T.B. 1059 (1996), clarified at 2 
S.T.B. 235 (1997), aff'd sub nom. MidAmerican Energy Co. v. STB, 169 
F.3d 1099 (8th Cir. 1999). Many shippers who are physically captive to 
a railroad at the origin or destination may have access to a 
competitive railroad over most of a route. Therefore, they only need a 
regulated rate for the bottleneck segment. But the STB has held that 
the bottleneck carrier is not required to quote a bottleneck segment 
rate if it has the ability to transport the shipment over a greater 
distance. This effectively precludes the captive shipper from taking 
advantage of competition to the extent it exists and relying upon 
regulation only for the captive segment.
    The impact of this STB decision has been exacerbated by end-to-end 
rail mergers. Such mergers over time have created longer and longer 
bottleneck segments, thereby increasing the distance that a shipper is 
captive at the origin or destination. The STB has refused to recognize 
this merger effect as anti-competitive by claiming that the bottleneck 
railroad will capture all of the monopoly rents regardless of the 
length of its bottleneck, and thus a merger that creates longer 
bottleneck segments does not have anti-competitive effects.

    Question 2. The STB has started several proceedings, but it doesn't 
appear that they have completed many. What actions are most important 
for the Board to complete?
    Answer. Ex Parte No. 722 (Sub-No. 2), Railroad Revenue Adequacy. 
The STB recently began this proceeding to evaluate how it measures 
revenue adequacy and to determine the significance of revenue adequacy 
upon rail rate regulation. As more rail carriers have become achieved 
and maintained revenue adequacy in recent years, this provides the STB 
with an opportunity to adopt an alternative regulatory rate constraint 
to Stand-Alone Cost (``SAC''), which is far too complex, lengthy, and 
costly for most rail shippers to invoke efficiently. When the ICC 
adopted SAC, it also declared that a rail carrier should not be 
permitted to charge captive shippers higher rates than competitive 
shippers than are necessary to achieve revenue adequacy. The STB needs 
to complete this proceeding in order to offer an effective regulatory 
remedy to most captive shippers.
    Ex Parte No. 711, Pet. for Rulemaking to Adopt Revised Competitive 
Switching Rules. The National Industrial Transportation League filed 
its petition for rulemaking on July 7, 2011. This proposal would 
reverse the competitive access precedent discussed in response to the 
preceding question by establishing a process for obtaining reciprocal 
switching in order to enhance competition instead of only in response 
to antitrust-type abuses. The STB waited a full year before taking any 
action on July 25, 2012. Although the League had proposed a very 
specific rule, including actual text, the STB did not issue a Notice of 
Proposed Rulemaking or even an Advanced Notice of Proposed Rulemaking. 
Instead, it solicited empirical analyses regarding the potential impact 
that the League's proposal would have on rail industry finances and 
operations. The public comment phase concluded on May 30, 2013 and the 
STB held a public hearing on March 25-26, 2014. There has been no 
further action from the STB in the ensuing seven months. The STB needs 
to complete this proceeding in order to bring head-to-head rail 
competition to a larger portion of the captive shipper community.

    Question 3. I continue to have concerns that the Surface 
Transportation Board has not used its full authority to identify and 
address problems. The ongoing service crisis is a prime example of this 
problem, where the STB has held hearings and required reports but has 
not changed underlying regulations to provide meaningful relief. 
Meanwhile, crops are lying on the ground, coal shipments aren't being 
made, and businesses are suffering. A lack of responsiveness by the STB 
can be disastrous for businesses in our communities that rely on rail 
service. How have inefficiencies and delays at the STB damaged 
businesses in your industries?
    Answer. The greatest logistics problem faced by auto manufacturers 
is the rail carriers' failure to provide a sufficient supply of empty 
railcars to transport finished vehicles. Automakers have also incurred 
significant delays in the movement of railcars loaded with finished 
vehicles. In this regard, it appears that the priority of auto shipping 
has become less than that of other shippers.
    The most recent rail industry service problems have caused an 
unprecedented disruption in the ability of auto manufacturers to 
deliver vehicles to their customers. As a result of the rail service 
disruptions, auto manufacturers are spending tens of millions of 
dollars a month to find other means of moving stranded vehicles or to 
store them until rail service is available. For example, since January 
one automaker has spent an incremental $23 million, or approximately 
$186 per vehicle, on vehicle transportation at one assembly plant alone 
due to the lack of available empty railcars.
    These vehicles should have been transported much sooner via 
contracted rail services to dealerships for sale or delivery to 
consumers. For a significant portion of 2014, vehicle inventory worth 
billions of dollars sat in rented storage yards all around North 
America. In early April--at the height of this crisis--more than 
200,000 vehicles were held in storage yards in and around automotive 
assembly plants. The longer transit times have resulted in higher 
carrying costs and customer/dealer dissatisfaction due to missed ETAs 
(Estimate Time of Arrival). Where possible, automakers have had to look 
to alternate, more expensive means to move vehicles to dealers.

    Question 4. What could the Board have done to address rail service 
issues before the problem became critical?
    Answer. It is not clear that the STB has the statutory authority 
either to prevent or remedy rail service problems of the type and 
magnitude that we currently are experiencing. Furthermore, there are 
serious concerns as to how the STB might use what authority it does 
have.
    The current service problems appear to be attributable in large 
part to a lack of railroad personnel and infrastructure to handle 
changes in traffic volumes and patterns. Those systemic problems, in 
turn, have been exacerbated by harsh winter conditions. Although the 
traffic changes were predictable, and in fact were forecast by some 
railroads several years in advance, they chose not to make the 
necessary investments to handle this traffic until after the volumes 
actually materialized. The STB is not in a position to know these 
facts, nor does it have the authority to determine which investments 
railroads make and when. Better reporting of operating metrics to the 
STB could help the agency to monitor and observe problems before they 
become intractable, but it is not clear what the agency could do to 
prevent problems from becoming worse.
    Once the current service problems occurred, there was little the 
STB could do to fix them. The railroads already are implementing 
measures on their own, albeit belatedly, and it will take time to 
complete those measures and to feel the impacts. Although the STB 
theoretically could order railroads to provide service to specific 
customers or industries, it could do so only by favoring some shippers 
over others. In a shortage situation, the best thing for the STB to do 
is to ensure that the railroads themselves do not favor certain 
shippers or industries over others. The STB should exercise its 
authority to direct railroad service to specific customers only in true 
emergencies that have broad societal effects. It is expected, however, 
that a railroad would take such steps on its own initiative prior to an 
STB order.
    There is one regulatory change that the STB could implement, 
consistent with responses to the preceding questions, to ensure the 
most efficient distribution of limited rail capacity. Enhanced 
competition at origins and destinations through reciprocal switching 
would allow shippers to choose the carrier with the most efficient 
route and capacity in order to bypass service bottlenecks. In other 
words, more efficient use of existing infrastructure may reduce the 
need to build more.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                          Edward R. Hamberger
    Question 1. Coal Delivery--Last year every utility in my state saw 
its stockpiles of coal precipitously drop to crisis levels. Inventories 
struggled to rebound in late spring, but deliveries have fallen off 
again over the summer when stockpiles should be higher. Utility 
companies are implementing operating curtailments--shuttering coal 
plants that will raise electric prices in the short term--in the hope 
that it can preserve coal supplies for the critical winter months and 
head off potentially serious electricity supply shortages.
    Mr. Hamberger, how can we avoid simply jumping from crisis to 
crisis leaving utilities and their customers with little, if any, 
certainty over their energy supply in the coming months?
    Follow-up question: I understand record harvests and cold weather 
may have contributed to last year's poor service but why are we still 
seeing significant delays?
    Answer. Reliable, cost-effective freight trail transportation 
service is critical to our Nation's economy. The vast majority of rail 
customers typically receive this high level of service. Unfortunately, 
there are customers that recently have not received the quality of 
service they have come to expect. Railroads are working diligently to 
improve this service. It is important to view these service challenges 
in the wider context of the overall rail network: U.S. railroads today 
are moving much higher quantities of freight than they had been: in the 
first nine months of 2014, U.S. railroads moved approximately 900,000 
more carloads, containers, and trailers than in the first nine months 
of 2013. That equates to thousands of additional trains. Despite their 
best efforts, railroads and their customers did not fully anticipate 
the rapid increase in demand for service, which has been driven by 
commodity markets, expanding economic activity, new domestic energy 
production and increased domestic manufacturing output. Additionally, 
much of this new traffic is different both in terms of its commodity 
mix and origins.
    Last winter, this demand increase was accompanied by unusually 
severe weather, followed by numerous spring flooding events. Railroads 
are networks--disruptions in one segment of the system can quickly 
spread. Unlike other networks like airlines, railroads operate 24 hours 
a day, 7 days a week, so incident recovery must be accomplished during 
ongoing operations. As a result, in cases of extreme disruptions--like 
this past winter--recovery can take months.
    In order to remedy these specific service challenges, railroads are 
spending record amounts to expand capacity, hire and train new 
employees, and improve fluidity through effective network management. 
These actions will result in a stronger, more resilient rail network in 
the future. The best way to ensure that the rail network is able to 
provide effective and efficient service to customers today and in the 
future is to maintain a balanced economic regulatory framework that 
allows railroads to earn enough revenue to invest in and expand their 
systems in order to meet our Nation's growing freight transportation 
needs.

    Question 2. Data and Reporting--Crude-by-rail shipments, logistics 
and supply data are commonly treated as confidential business 
information. Some shippers have indicated that making this data 
publically available would improve some of the railroad delay issues.
    Mr. Hamberger, is there a way to release information about 
commodity movement in a way that provides transparent information to 
the public but also considers the industry's concerns about 
confidentiality?
    Answer. Railroads recognize that communication among members of the 
transportation and logistics chain is important. They are committed to 
providing information on commodity movements to their customers and 
public emergency response organizations. For example, railroads for 
years have provided information about hazardous materials shipments to 
bona fide state and local emergency response organizations. Today this 
information includes crude-by-rail movements. This helps those 
organizations plan response strategies for potential accidents. 
Additionally, in October the AAR began the initial rollout of a new 
mobile device application called AskRail that will allow first 
responders to input the placard number on the side of any railcar and 
instantly receive information on the commodity it contains. As the 
technology continues to develop, in 2015 AskRail will be able to 
provide a train's entire manifest by inputting the placard number from 
a single car. It is unclear how publicly reporting commodity movement 
information would benefit rail shippers, since railroads already 
maintain regular communication with their customers regarding the 
movement of their shipments. Furthermore, railroads are justifiably 
concerned that the public release of this information could have 
potential unintended, negative consequences in terms of the security of 
the rail system and business privacy among competing firms.
Status Report on Taconite Shipments
    Thank you for bringing to my attention your constituents' concerns 
regarding the taconite industry in Minnesota. Last year's harsh winter 
adversely affected the state's taconite market. Lake vessels had to 
wait longer than usual for ice to break up in locks, resulting in 
service disruptions and the need for vessel convoys to be escorted by 
ice breakers until May.
    The situation appears to have improved. Currently, vessels 
transporting taconite are shipping at maximum tonnage capacity. Rail 
service constraints, which contributed to stockpile depletion at 
receiving steel mills, are being addressed through increased investment 
in local assets, and by committing additional resources at specific 
facilities throughout the state. Additionally, we expect newly built 
and leased rail cars to continue to be added to the fleet serving the 
local taconite market over the coming weeks to support the efforts of 
our member railroads operating in the region.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                              Arthur Neal
    Question 1. The impacts of rail shortages have been felt by 
farmers, grain elevator operators, and many others. Can you further 
describe some of the economic impacts of these shortages within the 
agricultural sector and in the larger U.S. economy?
    Answer. Since October 2013, the Agricultural Marketing Service 
(AMS) has reported that railroad service to U.S. grain shippers has 
been inadequate, characterized by long delays, missed shipments, 
burgeoning backlogs, and higher costs. The impacts have been felt 
primarily in the States of Minnesota, Montana, North Dakota, and South 
Dakota.
    At the request of Senators Thune and Klobuchar, USDA is currently 
in the process of conducting an economic analysis of the impacts to 
these areas due to rail service problems. However, we are aware that at 
the request of Senator Heidi Heitkamp, a researcher at North Dakota 
State University provided preliminary analysis indicating North Dakota 
grain producers lost an estimated $66 million due to agricultural 
shipment delays from January through April 2014. The preliminary 
analysis suggested these farmers could lose another $95 million if the 
delays continued. Senator Heitkamp has stated this study is in the 
process of being updated and that she believes the losses to producers 
are likely to exceed $100 million, even greater than the previous 
finding of $66 million. Similarly, a study by the University of 
Minnesota estimated farmer losses in Minnesota from March through May 
totaled $109 million. These studies were based upon changes in grain 
basis caused by increased costs of obtaining rail service.
    With grain rail service in high demand and short supply over the 
past year, some agricultural shippers have paid additional premiums in 
the secondary railcar market to secure available space, guaranteeing 
service for grain shipments. While that practice is common in any given 
year, especially following a large harvest, this year's rail service 
disruptions have extended and intensified that practice. Instead of 
being the exception, it has become the norm. In typical years with 
above-normal demand for rail service, agricultural shippers only needed 
to pay additional premiums through the secondary railcar market for 
about 20 weeks until supply and demand are rebalanced. However, 
shippers have paid record high premiums, 28 to 150 percent above 
previous levels on average, for almost 60 consecutive weeks. That has 
had the effect of inflating the cost of shipping grain by rail 24 
percent, on average, above what shippers would have otherwise paid for 
rail service over the past year if rail service had been adequate to 
meet agricultural shipper demand.

    Question 2. In addition, please provide an analysis of the 
potential impacts of rail shortages on the U.S. export of agricultural 
products when it comes to the 2014 crop year.
    Answer. Currently, there is no indication of railcar delays 
negatively affecting overall grain exports in 2014 because grain car 
unloadings in the Pacific Northwest--as well as at the other major port 
regions--have been above the 3-year average and above last year's 
levels.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                          Edward R. Hamberger
    Question 1. With the recent rise in crude oil shipments by rail, 
can you explain what impact this has had on the rail network as a 
whole, and the movement of other commodities and shipments?
    Answer. Transportation of crude oil by rail in the U.S. has risen 
sharply in recent years. Just six years ago in 2008, U.S. Class I 
railroads originated only 9,500 carloads of crude oil. Last year, that 
number was 407,761 carloads. Although this represents a tremendous 
increase in traffic for this particular commodity, one must consider 
this change in the context of the larger railroad network. In the first 
half of 2014, crude oil accounted for 229,798 carloads, just 1.6 
percent of total Class I originations and 24,058 more crude oil 
carloads than in the first half of 2013. Put another way, the 24,058 
new crude oil carloads in the first half of 2014 accounted for an 
average of around 1.5 new train starts per day. According to Surface 
Transportation Board data, there are approximately 5,000 train starts 
per day. Thus, recent new crude oil train starts are a small fraction 
of total train starts nationwide. Moreover, in the first half of 2014 
compared to the first half of 2013, railroads originated 118,500 more 
carloads of grain and 84,118 more carloads of coal, much greater 
increases than seen for crude oil.
    From January 2012 through February 2014, monthly year-over-year 
growth in U.S. rail carload traffic averaged -1.7 percent. However, 
from March 2014 through August 2014, year-over-year monthly rail 
carload growth averaged a much more robust 4.8 percent, thanks to a 
variety of factors such as the record grain crop last year, recovery in 
demand for coal to generate electricity and better general economic 
conditions.
    So while the movement of crude oil by rail has increased rapidly in 
recent years, even greater increases in rail transportation of other 
commodities have had a more significant impact on the rail network as a 
whole. These increases, combined with an unusually harsh 2013-2014 
winter followed in many places by spring flooding, are the primary 
causes of increased network congestion and reduced velocity in the 
first half of 2014.
    Nevertheless, the rail industry is committed to providing the high 
level of service its customers deserve and have come to expect. 
Railroading is a very capital intensive industry, with the industry 
spending approximately five times more on capital expenditures as a 
percentage of revenue than the average for manufacturing firms. This 
year railroads will likely invest more than $26 billion to improve and 
upgrade their systems in an effort to improve their service and prepare 
for additional future demands.

    Question 2. Looking forward, can you please also provide comments 
on the potential system-wide efficiency impacts of the proposed crude 
by rail rule issued by the Department of Transportation earlier this 
summer?
    Answer. The Department of Transportation's Pipeline and Hazardous 
Materials Safety Administration (PHMSA) Notice of Proposed Rulemaking 
on enhanced tank car standards and operational controls for high-hazard 
flammable trains contemplates a variety of potential operational 
restrictions for trains moving large quantities of flammable liquids, 
including crude oil and ethanol. The AAR has provided detailed comments 
on this proposal (attached). Unfortunately, several options 
contemplated by PHMSA could substantially impair railroad service 
without providing substantial safety benefits.
    For instance, the NPRM contemplates a 40 mph speed restriction. A 
fluid rail network is in the public interest from a safety, security, 
economic and environmental perspective. The primary cost of a speed 
restriction is a decrease in network fluidity and capacity. An 
unnecessarily onerous speed limit for trains carrying flammable liquids 
has the potential to affect significantly the fluidity of the railroad 
network, to the detriment of freight railroads' customers, as well as 
the many passenger railroads that operate over freight tracks. 
Decreased network fluidity results in increased operating costs for all 
trains that must travel more slowly because of the slower network. That 
leads to increased capital and other costs, as railroads are forced to 
expand corridors where capacity is constrained because of speed 
restrictions. Furthermore, decreasing the capacity and efficiency of 
the railroad network could mean that significant volumes of railroad 
traffic will be diverted to the highways. The result would be more 
traffic, more pollution, and an overall decrease in transportation 
safety. Additionally, operating restrictions that could adversely 
affect the railroads' ability to transport goods should be considered 
in the context of other regulations that affect the fluidity of the 
railroad network. For example, the PTC regulatory scheme also requires 
reduced train speeds when problems occur with the PTC system.
                                 ______
                                 
      Response to Written Question Submitted by Hon. Dan Coats to 
                          Edward R. Hamberger
    Question. In Indiana we rely heavily on railroads to efficiently 
transport the coal we produce and use. In 2011 coal accounted for the 
largest commodity picked up and dropped off by freight rail in Indiana. 
Looking over your testimony you talk about how natural gas prices 
spiked last winter, and thus the volume of cheaper coal on rails rose 
to fill consumers' needs to power and heat their homes. Despite coal's 
proven utility, the administration has continued to pursue policies to 
decrease and eliminate the coal industry.
    Since the railroad industry is heavily reliant on demand and market 
projections to maintain adequate service, have you taken into account 
the effects on freight rail service and profitability should the demand 
for coal be significantly decreased by the Obama Administration's 
rules?
    Will you continue to consider the effects of these onerous rules in 
the future as you plan to maintain adequate service capacity?
    Answer. Railroads carry more coal than any other single commodity. 
Historically, coal has generated much more electricity than any other 
fuel source, and most coal is delivered to power plants by rail. Recent 
increases in natural gas prices have resulted in electric utilities 
using more coal this year. According to the U.S. Energy Information 
Administration, in the first six months of 2013, coal accounted for 764 
million megawatt hours of U.S. electricity generation, equal to 39 
percent of the total. In the first six months of 2014, coal accounted 
for 806 million megawatt hours, or 40 percent of U.S. electricity 
generation. In the first half of 2014, railroads originated 3,002,392 
carloads of coal, 2.9 percent, or 84,118 carloads, more than in the 
first half of 2013.
    Regulations that would reduce the use of coal as an energy source 
will directly impact the quantity of coal transported by rail. Freight 
railroads must raise their own capital and invest in their networks in 
the most effective way possible in order to provide safe, efficient 
service for their customers today and in the future. Any regulatory 
changes that would impact rail customers' usage of coal will be 
considered as railroads utilize sophisticated techniques to predict and 
model future customer demand in order to develop their capital 
investment plans.

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