Ever since a draft of the STB reathorization legislation made it into the public domain a week ago, I've been waiting for someone to blog on this subject. As no one has, I guess I'll have to start thediscussion.
The thing is called STB Reauthorization, but the changes in railroad regulation are the real reason this could be an important measure. The draft repeals the bottleneck doctrine that says a railroad cannot be forced to file a tariff for a portion of a move that it is able to handle on a single-line basis. It also provides a mechanism for mandating terminal area reciprocal switching, and for banning so-called paper barriers barring short lines from interlining traffic with any road other than the original owner. These provisions will be quantified and railroads will fight for or against them on the basis of how much they cost in lost revenue. What may be more insidious, though, is language that instructs STB to take a pro-shipper posture, a radical change from the existing mandate to focus on railroad revenue needs. The so-called antitrust provisions have not yet been released, but they may be worst of all from a railroad point of view, particularly of they are anything like the provisions approved last spring by the Senate Judiciary Committee. Anyone out there want to open railroads to challenges in state and federal courts alleging violations of antitrust law? Care to put your fate in the hands of 12 citizens chosen at random and judges who don't begin to understand the nature of network businesses, which is why Congress originally assigned administration and enforcement of most antitrust laws to the Interstate Commerce Commission and later its successor, the STB?
This is a blog site for people interested in railroads and railroading. I hope the lack of comment before this is just a sign that everyone is busy with holiday preparations. I'm sure the hypocrtical shipper advocates hope those who value railroads are otherwise occupied.
You and I have had face to face discussions regarding several of these topics, so I would hope that you would be kind enough to not include me in your hypocritical shipper category. I will "out" myself here so you know who is writing this; I'm Curt Warfel aka shipperguy55.
I may be a shipper but I have gone on the record as being opposed to the removal of short line paper barriers and removal of the limited anti-trust immunity enjoyed by the railroads. Where our opinions diverge however, is on repeal of the bottleneck decision. I have been supportive of that since the Midtec case many moons ago.
Larry, my employer has two production sites located in Canada, both of which, through Canadian style interswitching, have enjoyed access to both major Canadian Class 1's at one location and both Class 1's and two regional railroads at the other. My experience has been that the carriers make intelligent decisions regarding their price and service offerings even with the competition created through Canadian style interswitching. In fact, if you review the financial performance of the CN and CP since the late 1980's when the NTA first mandated interswitching, both have thrived financially and been favorites on Wall Street because of their stellar performance. In short, having to quote a rate over a bottleneck need not be the end of railroading as we know. Smart railroaders making good business decisions should continue to be successful, even if required to quote bottleneck rates.
Insofar as the STB being instructed to assume a pro-shipper posture, I will not debate that. My preference would be to have a regulatory agency that makes intelligent decisions based on the facts presented and which needn't feel obligated to favor either side (or keep a score card if you will).
Larry, in short, please do not lump all rail customers into your "booger man" category. The majority of us are fair minded, consider the railroads to be valuable business partners and want to see both parties be successful.
Fair enough, Curt. Sorry that you felt it necessary to "out" yourself. You've always been one of the good guys, so I owe you an apology. As for reference to hypocritical shippers, you and I both know that many are, particularly in the utility industry and in the industry in which you work. As we've discussed over the years, I remember when the group I call "sophisticated shippers," those who are more service than price sensitive was supportive of what became the Staggers Act. They understood the benefit that would accrue from improved rail service and they were prepared to pay for it. That group has been silent in the current regulatory debate, allowing the price sensitive shippers to posture as though they represent all shippers.
As for bottleneck rates, you and I both know that the concern is that if not crafted carefully and properly, that would result in railroads being forced to open their systems to use by other carriers at rates that do not cover fully allocated costs, much less an allowance for the opportunity cost of their investments. As I recently wrote in another publication, make the recovery rate high enough and shippers will gain no benefit, but make it low enough and railroads will not invest. Despite the "cone of silence" imposed on the negotiations for this legislation, Sen. Rockefeller has commented on the railroads' willingness to compromise and suggested it was CURE - the stand-in for shippers - that has proved difficult to reason with. Some of us have known that for the 30 years or so that CURE has been trying to rewrite the Staggers Act.
I would love to weigh in on the details, but no where have I seen a summary of what is really in the bill. For one thing it seems that the details are still being hammered out. One railroader had very negative feelings about how the industry is getting treated lately, with the unfunded mandate for PTC that is going to cost the industry plenty, proposed increases in truck weight limits, and now re-regulation of the industry including far greater rail on rail competition.
It seems in many ways we are trying to turn the rail industry into the airline industry. And all I hear from passengers on flying are negative comments. I asked the gentleman if there was anything good in the industry. He told me that in the deepest recession since the great depression, no railroad filed for receivership. While most of us in the industry think that is a huge victory for the industry, it also kind of sums up perhaps what is wrong in the public perception.
Another commentator thought that perhaps this would quickly bring on the merger into two transcontinental systems which might be a natural offset to ruinous competition. Proponents of reregulation say the bill is loosely structured on the Canadian situation and those railroads are doing fine. But there are also only two of them so there is maybe a competitive balance. There is nothing more dangerous to a business as a competitor that is backed into a corner and fighting for survival. So with only two players there is a perhaps a competive balance. But would another round of mergers be allowed. I suspect to get there, one would have to use an argument such as was used in the UP/SP merger. Which is that the SP was so weakened it could not survive without a merger and UP was the logical candidate to take them over. Let's hope the situation does not get that dire.
Aw, come on, weigh in, Jason. You're as qualified as anyone. The bill's details are quite well known. I had a copy of the December 9 draft and then a copy of the December 15 revised draft. I had a commentary on what the committee did in mark-up in another publication that appears weekly. So did The Journal of Commere in its daily news digest (unfortunately for it, it went to press with its Dec. 21 edition the day before the mark-up.
Some of the issues you cite are not in the bill at all and cannot be because of the vagaries of committee jurisdiction in Congress. I can assure you there is no truck size and weight provision, although other committees are considering legislation that would increase it - and without commensurate user fees to pay for it. Nor is the unfunded mandate for PTC of any concern to the Senate Commerce Committee, at least not in the STB Reauthorization Act of 2009, which really confines itself to economic regulation of railroads. In fact, Rockefeller did not accept an antitrust provision from Herb Kohl's Judiciary Committee, also on jurisdictional grounds.
That said, all of these things are the subjects of other bills with varying chances of ever becoming law.
The airline analogy doesn't work, I don't think, for a couple of fairly simple reasons. The airline business model is broken and the people who run airlines haven't the foggiest notion how to fix it, if they even know it's broken. The freight railroads, on the other hand, are financially quite healthy. Their fight on the STB bill is to remain healthy, not to get healthy. Part of the airline problem is reminiscent of the railroads back in the 70s. Airlines that should be in bankruptcy - and perhaps liquidation - can continue almost indefinitely by simply not paying their bills. They can charge less than carriers that are not in extremis, which may fill their flights but hurts the entire industry, as the others still must compete with them. And as we have seen with many truckers during the recession, creditors display forbearance and allow them to continue in business because forcing them into liquidation only saddles banks with trucks and trailers for which there is no demand or real value. By the way, no Class 1 railroad has entered bankruptcy since the Milwaukee Road in 1977 - a third of a century, and probably the longest period of financial stability in the history of railroads.
Count me among those who doesn't spend much time worrying about a next and final round of rail mergers. For one thing, healthy companies don't need mergers. For another, the current bunch of Class 1 CEOs are relatively young, like being railroad CEOs and can be counted on to want to remain independent. Perhaps most important, there are no significant synergies in a pair of transcontinental mergers, although I'm sure there would be some cost takeouts once they got through the inevitable horror of implementing a merge of that magnitude.
About the only thing in the STB bill that suggests a Canadian example is the competitive access provision, and that's more or less acceptable to the railroads as of today. The Canadians call it interswitching and it covers both mandatory terminal switching and bottlenecks as we call it. It pretty much works for CN and CP, so it's not the end of the world. As you and I have discussed in the past, the UP/SP failing company approach worked. SP had to compete with the much larger UP and BNSF and didn't have the base load traffic that both of the others had. We wuz doomed.
Curt Warfel: I've stewed over your comments of the other day, and wanted to certain that I was fair to you. I think I have been. You specifically ask that you not be included among hypocritical shippers and that not all shippers be lumped together. That's a reasonable request because not all shippers are hypocritical. Soe are, however, as I think you'll agree. I'm intrigued that the railroads, if not embracing it, seem to be prepared to accept a dose of additional competitive access, specifically, a change to the bottleneck doctrine. The issue now seems to be how the charging mechanism works. Set the access fee too high and shippers will not get any benefit, but set it too low, and railroads will not invest. When it comes to terminal area access, I would agree with those who say a shipper should not be denied access to a second carrier by accident of history. Paper barriers that exist are contractual agreements and I believe, as I wrote in another publication, that if Congress tries to go back and change existing contracts the Supreme Court will end up deciding the legality of that. One defense of paper barriers, though, should be recognized. They don't change existing shipper/carrier relationships. As a branch line of a Class 1, all traffic on the line moves over the Class 1. As an independent short line with a paper barrier, the same traffic interlines to the original Class 1 owner. Breaking or rejecting a paper barrier may provide a lower rate to a shipper, but it certainly rewards a second Class 1 that has done nothing whatsoever to earn the traffic. Personally, I am pleased that the railroads have taken a reasonably calm stance on the access issues. There are a number of studies in the act that will take years to complete, so the effects of Congress' actions may not be fully known for a number of years.
As for hypocrisy, I can think of no better term for the action of NITL in inviting carriers to become members (for their due contribution) and then endorsing the antitrust provisions supported by a couple of members of Congress who can't even spell the word "railroad." I consider utilities that price differentially but object to railroads doing the same to be hypocrticial. I suspect you would too. There, now I feel better, and I hope you do too.