Waiting on Rail Regulators

Waiting on Rail Regulators

There have been plenty of words, warnings and venting as freight shippers and railroads vie to win over rail regulators who could overhaul decades of federal policies.

Now, the parties wait to see how tough the Surface Transportation Board will be and whether it will make substantive changes.

With rules long favoring railroad profits over customer complaints, minor tinkering won’t please shippers. They want regulatory action to rein in carriers.

To railroads, any step to curb their profit-making power, to change the competition rules in place since deregulation in 1980, could be a threat to the industry. They want the STB to back off.

After months of studying a series of issues, the two Democrats and one new Republican member making up the STB could take many months more before they start making any big changes.

But just the fact that they will consider changing long-established policy is stirring plenty of heat.

In the run-up to the STB’s biggest show of the year, a June 22-23 hearing “on the current state of competition in the railroad industry,” both sides marshaled heavyweight supporters and filed volumes of arguments.

If regulators decide there is insufficient competition, they can order remedies such as freight handoffs between railroads and new terminal-access rules that carriers say will quickly eat into their revenue. Doing so would mean the STB would impose industrywide terms shippers and carriers failed to negotiate in recent years, and that Congress failed to put into legislation last year after prolonged and bitter opposition by major railroads.

The arguments are so familiar that one analyst, after reviewing the filings, said, “There’s really nothing new there.”

Demand for speaking time was so great the STB had to extend the hearing to two days from the single-day event initially scheduled. The speakers’ lineup included three chairmen from the top five U.S. railroads, executives of activist shipper groups and companies that depend heavily on rail transportation, plus rail union officials, Wall Street analysts and industry consultants.

The online comments docket was stuffed as well, as some heavyweight shippers detailed specific complaints. But dozens of small shippers or supporters filed identical letters, urging the STB “to make a finding that there is a profound lack of rail-to-rail competition in the national rail system” and to change regulatory policies to spur more competition for customers.

The railroads also had plenty of supporters to file, including members of Congress from both parties.

Among them were the bipartisan leaders of the House Transportation and Infrastructure Committee and its railroad panel. They bluntly warned regulators in this proceeding and an earlier one that “any policy change made by the STB which restricts the railroads’ ability to invest, grow their networks and meet the nation’s freight transportation needs will be opposed by this committee.”

Although STB Chairman Daniel R. Elliott last year picked up the regulatory-review mantle after it was clear the Senate Commerce, Science and Transportation Committee couldn’t get a floor vote on its shipper-friendly rail policy bill, the board members received cautionary notes from several senators.

GOP Sens. Johnny Isakson and Saxby Chambliss of Georgia said Class I operators Norfolk Southern Railway and CSX Transportation serve 2,000 customers in that state and generate a $480 million annual payroll. From South Carolina, where those carriers also operate, Republicans Lindsey Graham and Jim DeMint said they would oppose regulatory changes that hurt railroads’ spending on the rail system, and invoked President Obama’s order to make sure regulations promote economic growth. Democrat Mark Warner of Virginia, another big state for NS and CSX operations, chimed in with rail statistics, and said, “It is imperative that continued (rail) reinvestment be encouraged.”

Despite all the heat and smoke, it’s not clear when the STB will shed light on its intentions for competition reforms. Given the time required to research and hash out ideas among board members and agency staff, it could be well into 2012 before the board proposes any modifications to its stance on this central policy, and then months longer at least before changes take effect.

Meanwhile, the STB has a long list of other issues to consider. It already has proposed cutting fees it charges for shippers to file complaint cases against railroads, has an important case pending on whether to stop BNSF Railway from building into its rate valuation base the premium Berkshire Hathaway paid to acquire it, and the board is still weighing next steps after a spring hearing on whether to start regulating some cargo categories it has exempted for decades.

The wait is on.

-- Contact John D. Boyd at jboyd@joc.com. Follow him on Twitter @jboydjoc.