Senator finds “extraordinarily high” rates; AAR: “There’s nothing wrong with success”

Timed to coincide with the opening of a hearing Wednesday afternoon on federal railroad policy, Sen. Jay Rockefeller (D-W. Va., top), chairman of the Senate Committee on Commerce, Science, and Transportation, released a committee staff report charging that the 30-year-old Staggers Rail Act “gives railroads the authority to charge many U.S. businesses extraordinarily high shipping rates [and] needs to be reformed.”

The report—Current Financial State of the Class I Freight Rail Industry—found that the “largest American freight railroadcompanies have been earning record profit margins at the expense of their shipper customers.”

“If you listen to what the railroads tell their regulators in Washington, they are barely keeping the lights on,” said Rockefeller (pictured at left). “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 that “using the companies’ Securities and Exchange Commission (SEC) filings, quarterly investment calls, industry analyst reports, and other sources, the committee staff 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.

The report found that:

“In the same year (2008) that the rail industry told the Surface Transportation Board 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.”

The Association of American Railroads issued a strongly worded statement from President and CEO Ed Hamberger (bottom) in response to Rockefeller’s attack:

“We vehemently disagree that there is a need to roll back the successes achieved since the 1980 Staggers Act.  The vision held by Congressional Democrats and President Carter 30 years ago—allowing railroads to succeed or fail in the marketplace—has resulted in railroads becoming a true American success story. Imposing new Washington regulations will undermine railroads’ ability to sustain the private investments in the nation’s rail network that provides hundreds of thousands of American jobs, and the foundation for both freight and passenger rail.

“The report makes profits and corporate efficiency sound like dirty words. The reality is the railroad industry’s return to financial health has resulted in private capital—not taxpayer dollars—getting turned back into building and maintaining the nation’s rail network. Even during the worst recession in 80 years, America’s freight railroads have kept investing, spending $21.8 billion of their own private capital in 2008 and $20.2 billion in 2009 to build, maintain and modernize the nation’s 140,000-mile rail network that serves both passengers and freight.

“This report is aimed not at leveling the playing field, but at justifying attempts to regulate lower rates for some large shippers, like chemical companies, agribusiness, and electric utilities.  And as the Surface Transportation Board’s own report found, lowering rates for some shippers through re-regulation would result in increased rates for other shippers, or decreased investments in the rail network.

“There’s nothing wrong with success. We’ve run smart, successful businesses, improving efficiency and service for our customers, while keeping prices below what they were 30 years ago. Now is not the time to inject greater regulatory involvement from Washington, but instead to keep letting the current balanced system work.”