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GAO Calls for Balance in Rail

by Washington Wheat Commission
Wheat Life, December 2006

The General Accounting Office (GAO) recently concluded that rail rates for grain have increased, but declined for most other industries. The GAO also reported that railroad health has increased substantially, but that large areas of the country have only single line rail service. There has also been a sharp increase in freight tonnage moving at rail rates over 300 percent of the railroads revenue to variable costs. The alarm bell for the GAO and shippers is that 180 percent of revenue to variable cost has been determined by the Surface Transportation Board (STB) to be the threshold above which is considered an unreasonably high rate. The GAO also concluded that STB efforts have led to very little effective relief for small shippers who have complaints against the railroads.

Noting that the STB has not taken advantage of current mechanisms, the GAO called for the STB to conduct an investigation of competition and captivity and bring more balance to railroad-grain shipper relationships, particularly since grain shippers have seen dramatic increases in rail rates. The STB responded with a preference to focus on rate remedies rather than competitive remedies. Still, the GAO in calling for more balance, suggests that more work ought to be done to prevent complaints and proceedings before the STB regarding excessive rates and market power abuse, rather than so much time being spent on spe- cific rate remedies after the fact.

Grain shippers represented at STB

Large and small grain interests were given an opportunity to discuss rail-shipping concerns with the Surface Transportation Board on November 2. It was highlighted that the GAO report failed to account for the high rates that railroads quote as a means for discouraging traffic on certain lanes. Comments offered by Whiteside & Associates on behalf of grain grower groups around the country highlighted grower frustration with the Board's lack of focus on providing solutions and relief to their vulnerability to exploitation. It was noted that growers recognize the need of railroads to make adequate return, but the STB has not focused on the price being paid by the grain producers and has not seen fit to provide reasonable remedies to guard against market abuse.

Farm to rail costs are continuing to increase with the burden of transportation being shifted to the farm and public sector. Terry Whiteside reminded the STB commissioners that, stated within the U.S. Rail Transportation Policy in Title 49, in regulating the railroad industry it is the policy of the United States government to prohibit predatory pricing and practices, to avoid undue concentrations of market power, and to prohibit unlawful discrimination.

ARC identifies STB inaction

In its comments at the recent STB grain hearing, the Alliance for Rail Competition (ARC) focused on ineffective rate and service regulation coupled with no practical recourse for shippers. Under STB rulings, railroads are being allowed to ration service unilaterally, through a combination of high rates and charges coupled with STB inaction. Michael Snovitch, executive director of ARC, illustrated how specific STB rulings have effectively precluded grain shippers from rate remedies, service remedies and competitive remedies, resulting in grain shippers paying high rates for poor service as they see their competitive options shrink. He concluded that the STB, or the railroads, should not be surprised that grain shippers, along with other shippers in other industries are backing legislative change.

Washington Wheat Commission
GAO Calls for Balance in Rail
Wheat Life, December 2006

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