STB to hold hearings on grain shipments

[bobwilcox]

The 180% R/VC standard is based on marginal cost theory, not incremental costs which, judging by your use of it, you mean to include fixed costs.

We and our customers used marginal and incremental as synoyms.  It was not a theory but generating paid freight bills for my employer.  The Staggers negotiators were the Class I CEOs and a dozen or traffic managers from firms like DuPont, ADM and US Steel.  I don't think they made the distinction either.

[MichaelSol]

As I stated on the other economic thread, I have read the GAO report and found it educational yet a bit frustrating.  There really doesnt seem to be a clearcut method of addressing the overcharge issue at this time.

The R/VC is flawed, as pointed out by the report.  Any productivity gains are to be split with the shipper.  It appears that the new threshold is the 300% R/VC figure, based on their language.  That seems to be the figure they find most threatening. 

Personally, I think that at some point in time any Federal funding for railroad capacity will be tied to captive shippers and passenger trains.  It will make an interesting decision making process in the board rooms, won't it?

The more I think about it, the R/VC 180% had to have been set up as it was intentionally.  The process discourages rate review.  The Staggers Act gain the rails a pass to get their acts together. Interestingly the rates overall have reduced over time. 

Interesting topic

ed

The r/c 180 threshold was set by negotiations between the NIT League and the AAR when Staggers was passed in 1980.  That was over a quarter of a century ago and the railroads had lots of unsued capacity so costing based on incremental costs was useful.  Today many lanes are at capacity.  If you are a shipper wanting to put a new batch of 25 cars a week over a sold out line you do not want to pay the incermental cost to take your shipments. Paying for single track to double track for 25 cars per week gets very expensive.

 

The 180% R/VC standard is based on marginal cost theory, not incremental costs which, judging by your use of it, you mean to include fixed costs.

[bobwilcox]

As I stated on the other economic thread, I have read the GAO report and found it educational yet a bit frustrating.  There really doesnt seem to be a clearcut method of addressing the overcharge issue at this time.

The R/VC is flawed, as pointed out by the report.  Any productivity gains are to be split with the shipper.  It appears that the new threshold is the 300% R/VC figure, based on their language.  That seems to be the figure they find most threatening. 

Personally, I think that at some point in time any Federal funding for railroad capacity will be tied to captive shippers and passenger trains.  It will make an interesting decision making process in the board rooms, won't it?

The more I think about it, the R/VC 180% had to have been set up as it was intentionally.  The process discourages rate review.  The Staggers Act gain the rails a pass to get their acts together. Interestingly the rates overall have reduced over time. 

Interesting topic

ed

The r/c 180 threshold was set by negotiations between the NIT League and the AAR when Staggers was passed in 1980.  That was over a quarter of a century ago and the railroads had lots of unsued capacity so costing based on incremental costs was useful.  Today many lanes are at capacity.  If you are a shipper wanting to put a new batch of 25 cars a week over a sold out line you do not want to pay the incermental cost to take your shipments. Paying for single track to double track for 25 cars per week gets very expensive.

 

[bobwilcox]

Ladies and Gentlemen...The GAO report:

http://www.gao.gov/new.items/d06898t.pdf#search=%22%20%22GAO-06-898T%20%22%22

Please note that the writer for the Great Falls Tribune has taken it upon himself to redefine a "captive Shipper" to include any lumber yard served by the Wisconsin & Southern.  Why do journalists do this?  Why can't they write the story straight?

In the GAO report you'll find the definition to be an entity that lacks a "reasonable" transportation alternative.  The alternative certainly doesn't have to be a railroad, trucks move freight just fine.  In fact, they move a lot more of it than the railroads do.

This is a good place to start a discussion on what reforms are needed, if any, to the STB process for rate reasonableness.  I notice in the report the GAO is wisely carful not to define a capitve shipper to closely. They use "proxies" with BEA's served by one railroad or r/c ratios over 180.  If this logic was taken to a point the GAO does not intend a bookstore in Albuqureqe would be captive because the were only served by the BNSF even though all of their shipments came in by truck.  As another example, their are many chemical shipments moving from the Houston Ship Channel at r/c ratios > 180 even though the shipper is served by two railroads.  Many of these same shipments would move by truck or barge or barge/truck or swapped out if the rail rate gets too high. 

The STB is still going to need to look at each situation to decide if their is a reasonable amount of competition from other railroads, modes, markets or products.  As an example WV coal must compete with other coal sources from all over the world.  When the NS or CSXT set rates to tidewater the cost of coal from Austrailia, S. Africa, etc. into Shanghi is a very important issue.

 

 

[MP173]

As I stated on the other economic thread, I have read the GAO report and found it educational yet a bit frustrating.  There really doesnt seem to be a clearcut method of addressing the overcharge issue at this time.

The R/VC is flawed, as pointed out by the report.  Any productivity gains are to be split with the shipper.  It appears that the new threshold is the 300% R/VC figure, based on their language.  That seems to be the figure they find most threatening. 

Personally, I think that at some point in time any Federal funding for railroad capacity will be tied to captive shippers and passenger trains.  It will make an interesting decision making process in the board rooms, won't it?

The more I think about it, the R/VC 180% had to have been set up as it was intentionally.  The process discourages rate review.  The Staggers Act gain the rails a pass to get their acts together. Interestingly the rates overall have reduced over time. 

Interesting topic

ed

[MichaelSol]

Ladies and Gentlemen...The GAO report:

http://www.gao.gov/new.items/d06898t.pdf#search=%22%20%22GAO-06-898T%20%22%22

Please note that the writer for the Great Falls Tribune has taken it upon himself to redefine a "captive Shipper" to include any lumber yard served by the Wisconsin & Southern.  Why do journalists do this?  Why can't they write the story straight?

Peter Johnson says nothing about Wisconsin. He does refer exclusively to railroad competition and in most other contexts, he would be incorrect. In the context of a Montana story in a Montana paper about Montana wheat shippers, he happens to be exactly correct because, as the GAO report confirms, Montana wheat shippers are captive by any definition a reasonable person would care to use, and by the standards used by the ICC, STB, and every federal court that has looked at it.

In that regard, he is no more inaccurate, and indeed, far more accurate in the context than you were when you claimed that the federal courts struck down the ICC finding that Montana shippers were specifically captive, a claim you made that was, in fact, false. Why do you always do this? Why can't you get the story straight?

I was either the News Editor or Managing Editor when Pete had his first reporting job. I don't recall now which, but I recall him as a diligent and honest reporter, and he did a good job when he moved into an editing position as well. We were putting the paper to bed late one night when the AP machine "went off," signifying an important story was coming over the wire. Pete was standing next to me when we learned that Saigon had fallen to the North Vietnamese Army. I authorized print shop crew overtime -- talk to me sometime about management and unions -- and we rewrote our front page.

Pete Johnson has been practicing his trade in Journalism far, far longer than you ever had anything to do with railroading. He's the better professional at what he [still] does.

 

[greyhounds]

Ladies and Gentlemen...The GAO report:

http://www.gao.gov/new.items/d06898t.pdf#search=%22%20%22GAO-06-898T%20%22%22

Please note that the writer for the Great Falls Tribune has taken it upon himself to redefine a "captive Shipper" to include any lumber yard served by the Wisconsin & Southern.  Why do journalists do this?  Why can't they write the story straight?

In the GAO report you'll find the definition to be an entity that lacks a "reasonable" transportation alternative.  The alternative certainly doesn't have to be a railroad, trucks move freight just fine.  In fact, they move a lot more of it than the railroads do.

[Limitedclear]

STB agrees to review charges to captive markets

(The following article by Peter Johnson was posted on the Great Falls Tribune website on October 12.)

GREAT FALLS, Mont. -- The federal Surface Transportation Board will conduct a hearing on Nov. 2 in Washington, D.C., to discuss concerns involving shipping of grain by rail.

One of those topics figures to be whether railroads charge unfair rates to shippers in so-called captive markets like Montana. A captive market is where shippers are served by just one railroad.

Board chairman Chip Nottingham announced the hearing Wednesday at a meeting in Great Falls after spending several hours Tuesday meeting with Montana agricultural leaders.

The hearing will be at 10 a.m. in Room 760, the STB hearing room, at its headquarters in the Mercury Building, 1925 K St. N.W., Washington, D.C.

Nottingham also said the regulatory agency will study possible overcharging and alternative methods of helping captive shippers that were suggested by a new Governmental Accountability Office report.

U.S. Sen. Conrad Burns, R-Mont., who invited Nottingham to Great Falls and called for the GAO study along with seven other senators, welcomed the STB chairman's pledge to look into the issue of railroads overcharging captive shippers.

Burns said he was pleased that progress seems to be occurring on a crucial issue to Montana farmers and other shippers.

"In agriculture, especially in states like Montana without competitive shipping, we sell wholesale, buy retail and pay the freight both ways," Burns said.

He said he does not want to go back to the days when railroads were more regulated, but said the STB has not done a good job in its role of setting fair and reasonable rates in areas that lack rail competition.

"The board also has a habit of holding hearings rather than taking action," Burns said, saying it is typical of Washington agencies that suffer from "paralysis by analysis" — collecting data for studies that sit with inches of dust on top of them.

Burns' Democratic opponent, state Sen. Jon Tester of Big Sandy, issued a release Wednesday saying: "High rail-freight rates stop economic development and hurt Montana agriculture.

"I want to reduce freight rates so farmers' money stays here if they ship out of state," said Tester, an organic grain farmer.

He added that Burns "has long paid lip-service to Montanans on the captive shipper issue, without delivering results."

The GAO report urged the STB to make its rate appeals process cheaper and quicker. Nottingham acknowledged that it can cost $3 million in legal fees to appeal a major rate case, which can take five to seven years to resolve.

The GAO report also suggested that the STB study alternative ways to make rates and service more fair for shippers in markets that lack competition. Nottingham said he's willing to take on such a major study, but will need more congressional financing.

The GAO did praise the 1976 and 1980 deregulation measures for reviving a railroad industry that had been in financial crisis and for lowering shipping rates in much of the country.

Nottingham said he's "been given the impression that our courthouse door is not fully open" to hear complaints quickly and affordably.

He promised to go forward with the study GOA suggested, though he added, "these are not quick fixes."

He also said the regulatory agency will announce its own proposals in the next few months to:

-- Expedite decisions on major rate challenges
-- Ensure that railroads aren't overcharging when they adjust rates based on higher fuel costs
-- Make it easier for small shippers to file rate complaints.

Burns said that the threshold under which grain growers and other small shippers can file complaints under STB's proposed new regulations still are too low. He said he will urge the board to raise the threshold to allow more grain shippers to have access to the expedited process.

Nottingham said the agency's proposed change would limit claims to $200,000 in expedited cases filed by small shippers. Since rail costs can amount to as much as one-third of the revenue farmers earn, that might not be a high enough threshold for larger Montana growers, he conceded.

Burns said he will pursue his separate amendment to the 2007 Transportation Department spending bill that would require the STB to issue new regulations, making it easier for small shippers to appeal rates that railroads charge.

The Burns amendment, which awaits full Senate action in November, also would require the STB to reconsider its so-called "bottleneck" decision. That 10-year-old decision allows railroads to refuse to provide service to midway points where shippers could then transfer their commodities to a competing railroad.

State Rep. John Witt, R-Carter, told Nottingham and Burns that he supports efforts to investigate overcharging by railroads. Witt suggested they broaden their effort to encourage railroads to maintain and use north-south rail routes and spurs in Montana.

Retaining spurs would help smaller farm communities keep jobs and remain vital, he said. Additionally, repairing and using major routes, like BNSF's from Great Falls to Helena, could be a matter of homeland security.

If a major railroad trestle on BNSF's busy east-west route was destroyed, it would be a disaster to area producers who could not transfer their grains for several months, he added.

Jon Stoner, president of the Montana Grain Growers Association and a Havre farmer, said his group is "very energized at the new STB chairman's refreshing attitude of taking on these issues.

"The GAO report more clearly defines the board's power to determine fair and reasonable transportation rates and to rectify problems that it sees," he added.