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Rail Service Failures Spur Reform Legislation

Volume 2, Issue 17
September 15, 2014
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Rail-Service-Failures-Spur-Reform-Legislation-e1411558312284Persistent and widespread service failures by the nation’s railroads have created economic havoc on industries ranging from agriculture, chemicals and auto manufacturing, and degraded intermodal shipping timetables, spurring the President to evidence concern and some in Congress to act.

Last week Agriculture Secretary Tom Vilsack met with and briefed President Obama about the threat that inadequate rail service poses to the fall harvest.

“There are a lot of things that need to be done,” Vilsack said. “We’re going to keep an eye on this and we’re going to keep the pressure on the railroads to make sure that they are ready, willing and able to handle what is likely to be a very, very good crop.” But he offered no concrete actions.

In August, Surface Transportation Board Chairman Daniel Elliott, asked top executives of U.S. and Canadian Class 1 railroads as well as some short-line companies to submit plans about how they will deal with rail congestion issues this fall (AA, 8-30-14, P. 3). So far these have not been made public.

Senate Commerce Committee Chairman Jay Rockefeller (D-WV) and Ranking Minority Member John Thune (R-SD) announced they are sponsoring legislation to give the STB greater power to investigate and resolve shipper complaints about rail service, including competitive switching.

Rockefeller said, “It is far past time that America had a competitive and efficient rail transportation network. Industries, businesses, consumers, and rail passengers around the country rely on our freight rail system, and when the system or its economic regulatory framework breaks down, so does our economy.”

Other Senators from major agricultural states along with the representatives of major industries echoed the chairman’s view during a Commerce Committee hearing held Sept. 10.

Sens. John Hoeven (R-ND) and Heidi Heitcamp (D-ND) noted that with protected storage space not available, wheat and other grain crops have ended up in mountainous piles outside of elevators while railcar availability shrank and rail rates skyrocketed.

In one case, Heitcamp said a corn farmer told her that one quarter of his total cost per bushel is now eaten up by rail transportation – when he can get it.

“I think it’s a matter of whether the railroads believe this is temporary or permanent,” she said, pointing out all indications are that economic growth will only increase the pressure on the rails.

“Rail service issues threaten the economic recovery,” declared Shane Karr, Vice President of Federal Government Affairs for the Alliance of Automobile Manufacturers He said his industry experienced a shortage of 182,000 railcars during the first six months of this year.

Having to use trucks as an alternative has raised the average cost of a vehicle by $182, he said. But, Karr warned, “The problem is that there is not enough long haul trucking capacity to meet the need.”

He and other witnesses observed that the new hours-of-service regulations have had a real negative impact on productivity in trucking, which also is attempting to cope with rising demands from other industries as well.

According to American Chemistry Council President Cal Dooley, reminded the committee that Congress created the STB to promote effective competition and fair, reasonable, accessible and efficient service. “Unfortunately, the board has been unable to meet its mission,” he said.

Ed Hamberger, President of the Association of American Railroads, said the railroads are investing heavily in infrastructure and service improvements, and argued that since the recession rail rates, have only climbed back up to what they were in 1988, after adjusting for inflation.

The rail industry also was surprised by the gradually improving economy following the rough winter earlier this year. “We did not foresee the surge in traffic,” Hamburger explained. Average weekly rail volume was higher in August than any month since October 2007, and grain shipments were up 16% over the previous year, he said.

Thune said new legislation is needed because “while the STB has made good faith efforts to address concerns of freight shippers and railroads, the current inefficiencies in the STB’s operations are symptomatic of the need for common-sense reform.”

Few details were available about the legislation because it had not yet been introduced when this was written, but its sponsors say it will increase the STB’s investigative authority by allowing it to launch investigations on its own instead of waiting for a shipper complaint to be filed.

Other sections aim to improve rate review timelines, making it easier for STB members to communicate, and also would improve alternative dispute resolution practices. However, Rockefeller mentioned during the hearing that the arbitration provision would be strictly voluntary.

The bill also is intended to speed up important STB proceedings, including determinations of rail revenue adequacy, the petition requesting mandatory competitive switching, and determining whether contract bundling has had an adverse impact on the ability of shippers to bring rate cases.

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