Shippers: Rails Cost Jobs

Shippers: Rails Cost Jobs

Copyright 2004, Traffic World, Inc.

Shippers levied a politically charged complaint against railroads last week, claiming that a lack of rail competition is costing them business and contributing to the outsourcing of U.S. jobs overseas.

"For the first time (in 2002 and 2003), the United States spent more money importing chemicals than what they earned by exporting them," said Charles E. Platz, president of Basell North America, a plastics manufacturer located in Elkton, Md. "Soon, we will be exporting U.S. jobs as well."

The railroads denied that jobs entered into the debate. "We feel the effects when chemical plants move overseas as much as anybody," said Association of American Railroads president Edward Hamberger. "(Our members) don''t have rail lines in Malaysia or Singapore, so when these plants move, we lose jobs too. What''s causing manufacturing to leave the U.S. is largely due to the high cost of energy. Rail transportation costs are far down the list" as factors driving job losses in U.S. manufacturing, he said.

Both officials testified at hearings held by the rail subcommittee of House Transportation & Infrastructure Committee. The railroads defended their use of differential pricing to set rates, while shippers said limited competition and a lack of regulatory oversight continues to keep the balance of power on the side of the carriers.

The new rallying cry for shippers - the loss of jobs overseas - was sounded by Platz who presented testimony on behalf of Consumers United for Rail Equity and the American Chemistry Council. He said companies captive to a single railroad are being forced to evaluate whether they can remain viable as global competition intensifies.

"Once a company is forced to consider a move, a number of other factors will come into play, causing the company to ask the question: ''where should I invest,''" Platz said. "Given today''s climate, it is virtually certain that they will decide not to invest at a site that lacks rail competition and instead invest in a new site overseas."

Also called into question were railroad claims that legislating rail-to-rail competition would drive rates down so low that the railroads eventually would go bankrupt. "How can the railroads claim they are ''revenue inadequate'' year after year when they continue to pay out dividends?''" asked ranking minority member Rep. James Oberstar, D-Minn.

"What that shows is just how much capital is needed for the industry," Hamberger said, adding that the industry must be able to show it can pay dividends to raise money in debt and equity markets.

However, National Industrial Transportation League president John Ficker noted that Canada allows a limited amount of regulated competition within specific terminal areas for captive shippers, with apparently no harmful effects to either Class 1 railroads operating there. "When you compare the Canadian National Railway''s operating efficiency, the economic fallout that railroads talk about just does not translate in reality," he said.

The shippers'' claims were further bolstered by University of Maryland professor Curtis M. Grimm. "The railroad industry will not lose its ability to invest in infrastructure" through shipper-friendly legislation, he said. Removing contractual barriers between large and small railroads, requiring railroads to quote rates to points of competition, and mandatory interswitching within terminal areas would "only provide partial competition to some of the captive shippers," Grimm said, and would not be invasive enough to cause the railroads harm.

In fact, "like every other industry when faced with competition, railroads will cut costs, increase productivity and improve service quality," he said. Firms and managers who are comfortable with a competitive environment and able to compete effectively will emerge with a more prominent role in the industry."

Surface Transportation Board Chairman Roger Nober defended the board''s stance that streamlining and improving the rate-dispute processes already in place - not substantive changes to the statutory scheme - is the best way to address the concerns raised by captive shippers.

North Dakota grain shippers were hesitant, however, to put faith in the STB''s dedication to their cause. "We were told (by the STB) in December that we would be provided an ombudsman to work out our problems" with Burlington Northern Santa Fe Railway," said Steve Strege, executive vice president of the North Dakota Grain Dealers Association. "But we have none yet."