Rockefeller Report Critical of Rail Industry

Sen. Jay Rockefeller (D-W.Va.), chairman of the Senate Commerce, Science and Transportation Committee, has released a committee staff report which, according to a statement, indicates that "the largest American freight railroad companies have been earning record profit margins at the expense of their shipper customers."

Sen. Jay Rockefeller (D-W.Va.), chairman of the Senate Commerce, Science and Transportation Committee, has released a committee staff report which, according to a statement, indicates that "the largest American freight railroad companies have been earning record profit margins at the expense of their shipper customers." 

The findings of the report, Rockefeller said, "suggest that the Staggers Rail Act of 1980, a 30-year-old law giving railroads the authority to charge many U.S. businesses extraordinarily high shipping rates, needs to be reformed." 

"If you listen to what the railroads tell their regulators in Washington, they are barely keeping the lights on," Rockefeller said. "But the reality is that Class I railroads have become some of the most profitable companies in the United States. They enjoy substantial market power yet the current railroad regulatory system regards them as incapable of both making needed capital investments and remaining healthy. 

"It's past time to update our rail policies to change a system that allows railroads to grossly overcharge captive shippers and to better meet our nation's future transportation needs," he said. 

Rockefeller said the report prepared by his committee shows that freight railroads are earning 12 percent to 13 percent profit margins and are raising shipping prices by an average of 5 percent annually. 

The committee staff prepared the report by using the companies' Securities and Exchange Commission filings, quarterly investment calls, industry analyst reports, and other sources. The report concludes that the freight rail industry has more than achieved the Staggers Rail Act's policy goal of restoring the financial stability of the U.S. rail system. Rockefeller noted that among other things, the report finds that: 

In the same year (2008) that the rail industry told the Surface Transportation Board (STB) that its profitability was lagging behind other sectors of the economy, Fortune magazine rated railroads as one of the top five most profitable industries in the U.S. economy. 

While the railroads tell their regulators they are not making high enough profits to cover all of their long-term capital investment needs, the Class I railroads are using billions of dollars of their profits to buy back stocks and boost the short-term values of their stocks for their shareholders. 

Although the railroad industry claims that it still has difficulty attracting sufficient amounts of investment dollars, Warren Buffett and other investors have been pouring billions of investment dollars into the companies." 

Rockefeller has introduced legislation (S 2889) which would update federal rail policy to reflect changes in the industry since the Staggers Rail Act of 1980, which deregulated much of the industry. The provision is part of the overall purpose of the bill, which is to reauthorize the STB. 

To help facilitate mergers and allow freight railroads to become competitive, The Staggers Act exempted freight rail from most antitrust laws, substituting special rate and competition regulations overseen by STB, which adjudicates complaints from shippers about price gouging. 

The bill would allow STB to investigate rail practices on its own initiative, a reversal from current practices, which allow investigations only after a formal complaint that can be costly to file. It would also allow certain rate and practice disputes to be resolved by an arbitrator, and it would expand access to expedited review for complaints over rates charged by large railroad companies. 

Railroad companies have opposed the bill, arguing it will hurt the industry and the country's economy. But Rockefeller said, "These companies tout their high profit margins and their power to dictate prices to their customers," he said. "And at the same time they're telling Congress that they don't have enough money to invest in needed capital projects." 

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