Private Cars Not ''Free Riders''

Private Cars Not ''Free Riders''

Copyright 2002, Traffic World Magazine

I am responding to John Gallagher''s article, "Tanking Out" (May 13) dealing with recent, new railroad storage charges on empty private cars awaiting loading. After presenting both railroad and private-car operator positions, the article ends by quoting Jim Valentine, a rail analyst with Morgan Stanley Dean Witter, as saying: "Name any other industry where you can clog up their network because you have excess capacity and they''re not going to have you pay for it."

It is not surprising that Mr. Valentine applauds railroad measures designed to improve railroad earnings. However, the suggestion that private cars are "free riders" is wrong.

Private-car operators do not object to paying for the infrastructure occupied by private cars, but they do object to paying twice. Ever since private cars came into use, railroad freight rates have been set to cover the cost of holding empty private cars on railroad tracks prior to loading, and private cars have been "paying their way" under those rates. The rates have not been reduced to reflect the new storage charges (in many instances, the rates have increased). The railroads retain compensation while now giving shippers the Hobson''s Choice of paying additional storage charges, leasing railroad-owned holding tracks or constructing and maintaining new storage tracks on shippers'' land. This is plain, old-fashioned double-dipping by the railroads.

Mr. Valentine also may not be aware that shippers purchased or entered into long-term leases for private cars in reliance on their ability to use the cars. The railroads not only allowed but in most cases induced growth of the private-car fleet (which now accounts for approximately 54 percent of all freight cars) without imposing any requirement that shippers provide, or pay railroads to provide, holding tracks for empty private cars prior to loading. Only after the private cars were acquired did some railroads impose storage charges. I believe we''re all aware of what such tactics are called in the "other industries" to which Mr. Valentine refers.

When railroad-owned cars circulate throughout the interchange system, the users of those cars pay the owners a rental, known as per diem. About 10 years ago, the railroad industry decided that per diem based on a cost-of-car-ownership formula was inconsistent with deregulation. Recognizing, however, that an abrupt switch from prescribed car hire to marketplace compensation could well injure those carriers that had acquired cars in expectation that the system of prescribed car hire would continue, the railroads agreed to a 10-year phase-in of the transition to market rates for railroad-marked cars. That transition is scheduled to be completed in January 2003. But the railroads will not offer their customers a similar phase-in of private-car storage charges. The decision to charge separately and additionally for private-car storage was implemented on less than six months'' notice.

Similarly, the railroads have refused to work with their customers to arrive at a mutually agreeable standard for determining when normal holding track use becomes storage or "excess capacity." Instead, by unilaterally imposed systemwide tariff rule, some railroads have declared that any empty private tank car not accepted for loading within as little as one day of arrival at the loading point represents "extra capacity." If railroads could be relied upon consistently to place and pick up cars and routinely to meet their own operating schedules with no more than a similar 24-hour window of variability, fewer private cars would be necessary and it is highly doubtful that shippers and railroads would be having this dispute.

Andrew P. Goldstein


North America Freight

Car Association

Washington, D.C.