Rockefeller releases report on the rail industry

In anticipation of a hearing on federal rail policy, Senator John D. (Jay) Rockefeller IV (D-W.Va.), Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, released a Committee staff report, The Current Financial State of the Class 1 Freight Rail Industry, showing that the largest American freight railroad companies have been earning record profit margins at the expense of their shipper customers. The findings of the report suggest that the Staggers Rail Act of 1980, a 30-year-old law giving railroads the authority to charge many U.S. businesses extraordinarily high shipping rates, needs to be reformed.

"If you listen to what the
railroads tell their regulators in Washington, they are barely keeping the
lights on," Chairman Rockefeller said. "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."

Thirty years ago, Congress
passed the Staggers Rail Act to restore the financial stability of the U.S.
rail network. To help the railroads boost their revenues, the Staggers Rail Act
gave Class I railroads the authority to charge extraordinarily high rates to
shippers with access to only one rail line ("captive shippers") and no other
transportation alternatives. The Commerce Committee staff report released today
documents how, unlike thirty years ago, the four largest Class I railroads are
achieving record profit margins and aggressively increasing prices for their
customers.

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. Among other things, the report finds 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 the following statement from President and CEO Edward R.
Hamberger in response to the Senate Commerce Committee staff report on the
current financial state of the railroad industry:

"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."