WASHINGTON — A new study suggesting U.S. freight railcar premiums have soared in recent years, implying a lack of competition, comes as Class I railroads and some shippers prepare to square off against the railroads at a major federal hearing later this month.
The study — commissioned by the American Chemistry Council, a shipper group seeking more rail competition — found that the total rate premiums jumped 90 percent between 2005 and 2011, even though volume fell 1.1 percent in the same period. Premiums are the difference between the cost of providing rail service and the amount charged to shippers. Escalation Consultants found that 57 percent of rates in 2011 had a revenue-to-variable cost ratio of more than 180 percent, the jurisdictional threshold set by the U.S. Surface Transportation Board.
The study found that as result, shippers paid a more than $16 billion in premiums for rail service in 2011. The Gaithersburg, Md.-based firm analyzed data from 2005 to 2011 that was submitted to STB, the nation’s rail regulatory agency. Coal shippers in 2011 paid the largest premiums of $5.2 billion, followed by chemical producers with $4.5 billion and transportation equipment manufacturers with $1.2 billion.
“It didn’t matter what was shipped, where it was shipped or even how much was shipped. The research found that few American manufacturers are spared from soaring freight rail rates,” said Jay Roman, Escalation Consultants’ president, in a written statement. “Given that rate increases are clearly not driven by increased demand, this type of pricing behavior is not indicative of a competitive marketplace for freight rail service.”
The Association of American Railroads, the major railroads’ lobbying arm, dismissed the study, saying the research hides sponsors’ goal of gaining below-market rates through regulation. AAR said in a statement that the sponsors of the study “apparently believe that railroads should price their services based on an arbitrary percentage of input costs, rather than letting the market set the price.”
The research will likely provide a few talking points for shippers arguing before the STB on March 25-26 that railroads should have to give shippers with access to only one line access to another railroad’s line if it’s within 30 miles of the customer’s present or future loading spot. The National Industrial Transportation League, the nation’s largest shipper association, said the proposal will increase rail competition and save shippers with access to only one line, which refer to themselves as “captive shippers,” about $900 million annually.
Forcing reciprocal or competitive switching will reduce how much railroads can invest in their network and reduce the quality of service, AAR counters. The group said the rule change would benefit a small group of shippers and hurt the larger customer base.