Railroad Competition

What's New

On January 26, 2007, following a hearing in May of 2006 and a notice of proposed rulemaking in August of 2006, the Surface Transportation Board (STB) issued a decision regarding railroad fuel surcharge practices. The STB declared it an unreasonable practice for railroads to compute fuel surcharges in a manner that does not correlate with actual fuel costs for specific rail shipments. Specifically, the Board prohibited two practices: 1) the assessment of fuel surcharges based on a percentage calculation of the base rate charged to freight railroad customers, and 2) "double-dipping," or the application of a fuel surcharge and rate increase based on a cost index which includes a fuel component. STB Chairman Charles Nottingham stated that he hopes the decision will bring “common sense and fairness to the railroads' implementation of fuel surcharges.”

NPRA applauds the STB’s decision, which provides railroad consumers with some relief from onerous fuel-surcharges, but also acknowledges that railroad consumers still suffer from unreasonable business practices. Increased competition and transparency in the freight railroad industry could serve to ease the burden on domestic manufacturers that rely on railroads for the transportation of goods. The petrochemical sector, especially those shippers in a captive rail market, could benefit from the increased scrutiny of railroad pricing practices.

Click here to view the January 2007 STB decision.
Click here to view the January 2007 STB press release.

Legislation to remedy the current lack of access to competitive railroad operations and rates facing “captive shippers” -- including many petrochemical manufacturers -- has been offered in the 109th Congress. S. 919, The Railroad Competition Act of 2005, is co-sponsored by a bi-partisan group of Senators including Conrad Burns (R-MT), John D. Rockefeller IV (D-WV), Max Baucus (D-MT), Byron Dorgan (D-ND), Tim Johnson (D-SD), Mark Dayton (D-MN), Larry Craig (R-ID), John Thune (R-SD) and David Vitter (R-LA). S. 919 proposes to "clarify" national rail policy under the Interstate Commerce Commission (ICC) Termination Act and requires the Surface Transportation Board to "ensure effective competition" among railroads at origins and destinations; enforce reasonable rail rates "in the absence of effective competition," and maintain consistent and efficient rail service for shippers, including timely distribution of rail cars.

The legislation also would require the STB to provide "final offer" arbitration of certain rail-rate cases; remove paper barriers in future line sales or leases to regionals and short lines; eliminate an "anti-competitive conduct" test instituted in the mid-1980s for terminal area and switching agreements; place a cap on filing fees in rate cases involving "coal rate guidelines" to federal district court levels; mandate that railroads quote rates to customers between any two points where freight moves originate, terminate or transfer, when requested by a shipper; and declare that all or part of a state is an inadequate area of rail competition if petitioned by a state.

Contrary to railroad industry claims, S. 919 does not attempt to re-regulate the railroad industry. A companion bill, H.R. 2047 was introduced in the House by Rep. Richard Baker (R-LA) and Rep. James Oberstar(D-MN).

NPRA Position

NPRA supports a competitive, market-driven, and consumer-oriented North American rail transportation system. The Association favors providing the necessary federal resources to improve rail competition as well as rail infrastructure. Actions must be taken to hold railroads accountable in maintaining or improving service and making operations more efficient. As captive shippers, NPRA members should be protected from lack of competitive rail alternatives and rates. Severe service problems, such as those that resulted from past railroad mergers, must be prevented and/or mitigated though effective remedies. These remedies should include provisions such as performance guarantees, reasonable compensation for unacceptable performance, and guaranteed access to gateways and other railroads.

Issue Brief

NPRA's petrochemical and refining members depend heavily on an economically viable and reliable rail transportation system. They rely on that system to safely and efficiently transport raw materials to petrochemical manufacturing facilities and to deliver a wide variety of finished products to destinations throughout the country. More than 35 million tons of petroleum refining products are shipped by rail each year, contributing to more that $678 million annually to the railroads' gross revenues. Petrochemical companies ship approximately 98 million tons of commodity petrochemicals each year for a gross value to the railroads of nearly $2 billion.

When Congress deregulated the railroads in 1980, protection of captive shippers, i.e. those not having ready access to alternative rail lines, was mandated. Unfortunately, many facilities continue to be serviced by single-rail carriers who refuse to allow access to viable competition while charging exorbitant rail rates. Despite congressional intent, no effective remedies exist for captive rail customers at the STB.

Click here to see how captive rail rates compare to competitive rail rates

NPRA members believe that maintaining competition among railroads should be the centerpiece of rail transportation policy. The need for competition results from an era of consolidation in the rail industry through mergers, abandonment, and closures of gateways. This trend has resulted in declining service performance. Current regulatory policies do not adequately promote and preserve competition among major railroads.