A new report by staff of the Senate Commerce, Science and Transportation Committee says major railroads are financially strong and enjoying "robust" pricing power, but are telling regulators they need more income for their capital investments.
"As the rail industry continues to operate profitably and to aggressively exercise its pricing power, these claims need to be more carefully scrutinized," said the report.
It cites strong rail profits and the dramatic purchase of BSNF Railway by Warren Buffett's Berkshire Hathaway as evidence of the industry's strength, and notes that railroads recently also received "hundreds of millions of dollars" from states and the federal government to help pay for rail network upgrades.
The committee issued this study shortly before convening a Sept. 15 hearing on "the federal role in national rail policy," and after 20 months of trying to craft a new shipper-friendly rail regulatory bill to put before the full Senate.
The report takes aim at the views of railroad officials that their companies need to remain under the pricing structures allowed by a 1980 deregulation law, and that they still lack enough income to cover their long-term capital expansion needs. The Association of American Railroads said the report, “makes profits and corporate efficiency sound like dirty words.”
It cites rail earnings reports, conference calls with Wall Street analysts, testimony by top rail CEOs at federal hearings and other sources to describe an industry that is strong enough to invest record levels in infrastructure programs while doubling dividend payments to shareholders and spending billions to buy back company stock.
The staff study says deregulation's goal of restoring railroads' financial health "has been achieved." Railroads not only are able to charge high rates to shippers that are captive to a single rail line, but since 2004 have regained their ability to hike rates on non-captive customers by an average of 5 percent above inflation rates. Its cites an analyst's comment that this amounts to a "pricing renaissance" for major railroads
The report comes as railroads continue to resist the rail competition bill that Commerce approved last December, as rail executives say its "reregulation" features would threaten their future earnings and ability to invest in rail infrastructure. Meanwhile, the Obama administration has featured passenger and freight rail prominently in its plans to alter federal transportation spending patterns that now focus mainly on road building.
-- Contact John D. Boyd at email@example.com.
Follow up stories:
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Rails Challenge Senate Study, Attack on Railroad Profits
STB's Elliott Plans Three-Pronged Rail Reform Strategy
Rockefeller Vows Rail Reform through Law or Regulation
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