Shippers challenging Norfolk Southern Railway and Union Pacific Railroad rates could see their chances improve after the Surface Transportation Board this week said the two railroads were ‘revenue adequate’ in 2011.
The carriers gained a “rate of return on net investment equal to at least the current cost of capital for the railroad industry,” last year, according to the railroad regulation agency. The benchmark is one of the factors used by the STB to determine pricing challenges.
Activist shippers and their supporters in Congress, including Sen. Jay Rockefeller, D-W.Va., have long decried the rate, saying it underestimates the strength of rail finances in the market. It is rare that railroads are found to be ‘revenue adequate’ despite that they are profitable this year, STB Vice Chairman Francis Mulvey wrote in statement.
“While this is commonly viewed as an inconsistency, it is important to understand that the Board’s revenue adequacy metric takes into account not only the income sufficient to attract capital, but also the revenue necessary over the long term to maintain and improve the large and costly infrastructure over which railroads operate – the interstate rail network – as well as the costs of locomotives and rolling stock,” he wrote.
The 2011 rates for the railroads are the following: BNSF Railway Company, 9.86 percent; CSX Transportation, 11.54 percent Grand Truck Corp. (includes U.S. affiliates of Canadian National Railway), 8.74 percent Kansas City Southern Railway, 10.76 percent; NS Combined Railroad Subsidiaries, 12.87 percent; Soo Line Corporation (including U.S. affiliates of Canadian Pacific Railway, 7.13 percent; UP Co., 13.11 percent.