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Ag groups urge end to railroad antitrust exemptions

For much of 2008, corn, soybean and wheat farmers were on the receiving end of a continuous barrage of bad publicity from a campaign that appeared to be mounted by the Grocery Manufacturers Association.

Somehow, food processors and manufacturers and the oil companies seemed to escape the criticism although grocery prices have remained high long after grain and oil prices fell to levels half what they were last spring.

Another group that seems to have escaped consumer anger — the nation’s railroads — is now bearing the brunt of a campaign aimed at ending its antitrust exemptions. The campaign is being mounted by such members of Congress as the chairman of the House Judiciary Committee and farm and agricultural supply organizations.

The House Judiciary chairman, Rep. John Conyers, D-Mich., and Judiciary Committee member Rep. Tammy Baldwin, D-Wis., called on Congress to include rail reform language in any economic stimulus package that is considered by Congress.

“As our nation’s economy falters and American households try desperately to make ends meet, four railroad companies announced record profits even as the railroads reported they are moving less freight than a year ago,” Conyers and Baldwin wrote in a letter to House Speaker Nancy Pelosi. “We think the time is right to ensure antitrust compliance by these railroads.”

The two are calling for a change in law they say will protect consumers, farmers and rural communities from high freight rail prices. They said new legislation is needed as part of a stimulus package because the lack of competition in the railroad industry is adversely affecting American consumers as well as the nation’s agricultural and manufacturing sectors.

Their letter recommended including the Railroad Antitrust Enforcement Act, H.R.1650, in any economic stimulus package. The legislation, which would represent a first step in protecting consumers and businesses from steep rail freight increases, has been adopted unanimously by both the House and Senate judiciary committees and reported to the floors of both chambers.

Conyers and Baldwin’s efforts have come as a section of the American Bar Association endorsed ending the special antitrust exemptions enjoyed by the nation’s major freight railroads.

The ABA’s Section on Antitrust Law has also asked the leadership of the House and Senate to pass the Railroad Antitrust Enforcement Act, which would force the railroads to comply with the same laws as all other U.S. businesses.

“The current exemption allows railroads to avoid competition and keep their shipping rates artificially and unfairly high, creating higher prices for U.S. consumers on a vast array of goods and services,” says Bob Szabo, executive director of Consumers United for Rail Equity.

Leaders of the National Grain and Feed Association also have been working to persuade other members of Congress to support the legislation, which the NGFA says is needed to help reduce transportation inequities for farmers.

The NGFA and several other organizations have criticized a new study that purported to assess the state of competition within the rail industry. The study was submitted to the federal Surface Transportation Board in late December.

The NGFA said its analysis found several instances in which the study, conducted for the Surface Transportation Board by Christensen Associates of Madison, Wis., used “weak economic reasoning” in trying to explain the rationale for increased freight rates and other charges imposed by rail carriers on shippers.

The study was commissioned by the Surface Transportation Board at the urging of the U.S. Government Accountability Office — the investigatory arm of Congress — which in a 2006 report raised questions about the “possible abuse of market power” by railroads. The GAO urged the Surface Transportation Board to conduct a “rigorous analysis of the state of U.S. railroad competition.”

But the NGFA said its analysis found that the Christensen study “failed to provide adequate follow-up analysis” of increasing rail rates on grain, as well as other GAO charges that were “clearly intended by the Surface Transportation Board” to be examined when it commissioned the study.

Among other things, the NGFA and the other national agricultural groups cited the study’s contention that rail carriers were increasing rates primarily to compensate for cost increases and declining productivity.

To the contrary, the groups said, one of the major cost increases incurred by rail carriers earlier in 2007-08 — fuel — was more than offset through fuel surcharges that were passed on to shippers, in some cases at levels that far exceeded the actual cost hikes for fuel.

Further, the groups said, the Christensen study’s assertion that rate increases were caused in part by declines in productivity was contradicted by the same study’s finding that railroads had increased the velocity of train speeds and provided better and more reliable service to shippers. They contended that railroad productivity — in terms of more efficient utilization of railcars, locomotives and crews, as well as fuel efficiency — has continued to improve, at least for agricultural movements.

Instead, the NGFA and other agricultural groups said, rail pricing behavior is being driven more by the increasing market power of rail carriers in a market characterized by constrained transportation capacity and declining competition, in which shippers have fewer competitive truck and rail alternatives.

“It is obvious that … railroads are simply pricing at what the market will bear,” the organizations said. “With fewer railroads, less truck competition and a gradually tightening capacity, the marketplace provides more than ample evidence of the exercise of market power by railroads.”

In some cases, the NGFA and the other agricultural groups noted, rail carriers are using their pricing power to “de-market” rail services by raising rates to levels that stop traffic altogether.

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TAGS: Legislative
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