Mark Szakonyi, Associate Editor | Sep 14, 2012 12:12PM EDT
Shippers dependent on a single major railroad will likely have a harder time contesting rates after the Surface Transportation Board raised the rail industry’s after-tax cost of capital for 2011.
The average rate of return needed to attract investors rose to 11.57 from 11.03 percent in 2010 and 10.43 percent the year before, the STB, the industry’s regulatory body, said Thursday. The invested capital base is used to determine how much railroads can charge their customers for hauling non-contract cargoes under public tariffs.
The cost of BNSF Railway's capital is the lynchpin to shippers’ petition with the STB over the $8.1 billion premium Berkshire Hathaway paid to acquire the railroad will translate to higher rates. The Western Coal Traffic League argued in late March that the premium would boost rates 2 to 3 percent for roughly 2 percent of the carrier’s customers, but there would be no resulting improvements in service.
BNSF said the premium would not result in higher rates, and the railroad bases prices on the market. The STB has not made a decision regarding the WCTL petition.
Contact Mark Szakonyi at mszakonyi@joc.com. Follow him on Twitter @Szakonyi_JOC
