“A story with no end in sight”

Senior Consulting Editor Luther Miller aptly describes a sometimes-adversarial relationship that is at least partially fueled by the success of our freight railroads, which are without a doubt the best in the world. The testy relationship involves the railroads and a small but vocal group of customers that seek to re-regulate them.

“The swing of the political pendulum last fall was a severe reverse for the forces of railroad re-regulation, but it fell short of a knockout blow, in the view of strategists on both sides,” Miller writes (p. 35). “New battle lines are likely to be drawn when the STB opens a long-awaited hearing June 23, ‘Competition in the Railroad Industry.’ Contentious shipper demands will be dragged out of storage and re-argued—for example, bottleneck rates and reciprocal switching, which some powerful railroad customers view as shortcuts to lower rates. Attention will be directed to the question of how the railroads could be ‘revenue inadequate’ while posting strong earnings, maintaining positions on the Stock Exchange at or near record levels, and pulling together enough cash and credit for a record investment of $12 billion in capital improvements this year. Return on investment will also come under scrutiny.”

Miller notes that the railroad industry “won some breathing space when last year’s GOP juggernaut flattened a strong initiative in Congress to limit railroad pricing freedom through antitrust action. But railroaders like Norfolk Southern CEO Wick Moorman are not letting their guard down. As he accepted Railway Age’s 2011 Railroader of the Year Award in March, Moorman warned: ‘Washington, with the threat of adverse legislative or regulatory action, is fully capable of knocking this industry back into the shape it was in 30 years ago—a weak, ineffective, unsafe rail network.’”

Suppliers take heed, Miller warns: “Union Pacific is also closely monitoring the situation and says that any loss of regulatory freedom could force it to reconsider the industry’s biggest single capital improvement program, pegged this year at more than $3 billion. The 1980 Staggers Rail Act, which is now under attack, has come close to achieving its core goal. That goal was not, for the record, ensuring competitive choices for the railroads’ customers, but ensuring that there would continue to be private railroads with sufficient earning power to renew and improve their properties and provide not just desirable but essential transportation.

“A side effect of the ‘railroad renaissance’ was to make a number of shippers—of coal, wheat, and other commodities that that are not easily moved by truck—captive to a single carrier. One seasoned transportation lobbyist told Railway Age, ‘I have always believed that the captive shippers are funding their legislative effort less to gain the legislation and more to keep pressure on railroads for lower rates. I think both sides have legitimate arguments, but the fact is that most of the captive shipper problems involve coal and electric utility shippers who have sufficient market power to negotiate in the marketplace. The only winners over the past 30 years have been the lawyers and lobbyists.’

“If true,” Miller concludes, “this could be a story with no end in sight.”

For additional insight, see Contributing Editor Larry Kaufman’s Perspective piece on p. 48. He writes: “Competition is stimulated when investors put their capital at risk to engage in a business. Competition is the best regulator of market behavior. The rail regulation issue truly is a situation of ‘Don’t fix what isn’t broken.’”

“Buy America” broken? Well, broken may be too strong a term, but the Railway Supply Institute is recommending three sweeping changes to current U.S. Buy America provisions and funding for transit, high speed rail, and intercity passenger rail that will ensure increased domestic content for American Recovery and Reinvestment Act (ARRA) funded projects.

A new RSI position paper, “Rail Supply Innovation and Buy America Requirements,” urges the following changes: “Long-term dedicated sources of funding for high speed and intercity passenger rail through a menu of options; clarification of Buy America standards by streamlining the particular differences among provisions specific to Buy America, FTA, FRA, and ARRA funds; and a USDOT National Rail Plan that supports the U.S. passenger rail equipment manufacturing industry through a vision for sustained equipment purchases and equipment life-cycle policies that avoid ‘boom or bust’ procurement cycles.”

You asked, they delivered: For years, the railroads have been saying that their people are spread too thin to be able to attend all the traditionally separate supplier trade association shows. They’ve been asking the associations to consolidate things into a single event, and that’s exactly what’s happening with Railway Interchange 2011 this September.

RSI, RSSI, REMSA, and AREMA have done their part. Now, railroads, it’s up to you to follow through and participate to the fullest extent you can. What the associations don’t want, as one supplier told me, is “a bunch of exhibitors standing around talking to each other.”