Friday, September 17, 2010

US Rail Freight In Fight To Protect Profits

Senate Committee May Seek a Change in the Law Over Pricing
Shipping News Feature

US – Across the world supporters of its undoubted advantages view rail freight as a magic bullet which will take huge swathes of trucks from their nation’s roads and reduce energy consumption and pollution simultaneously. Whilst reality may never reach the giddy heights of expectation, certainly in smaller countries like the UK, sending bulk cargo by rail is preferable, and more practical for the greater part of larger journeys.

In India and Eastern Europe for example the development of rail infrastructure makes sound financial and ecological sense, and a favourable commercial environment may be sensible route to future success. But what of those countries which have been shipping long haul cargo for decades? There appears to be a growing lobby in the US to take a hard look at this method of shipping goods, primarily because of pricing policy.

When Warren Buffett’s Berkshire Hathaway group swept in for Burlington Northern Santa Fe (BNSF) railroad last November it came as a surprise to many. Mr Buffet however would not go ‘all in’ on a deal for the country’s second largest rail freight company unless he saw a future profit, and uppermost in his mind may well have been the way the freight rail tariffs are arrived at.

We have seen the anti trust authorities sweeping through other parts of the shipping world relentlessly of late, funded principally by the fines they extract from the guilty parties but two sectors have remained above it all, container shipping through permissible ‘stabilisation agreements’ and rail freight.

Much of the health of cargo carrying railways is due to Harley O Staggers senior who saw his bill to deregulate the rail carriers pass into law just three months before he left office in 1981. The Staggers Act opened up what had been an ailing system by allowing the free negotiation of freight tariffs without state interference or approval as long as a monopoly did not exist.

Now it seems that a hearing on federal rail policy before the Senate Committee on Commerce, Science and Transportation is about to reconsider the Act. Chair of the committee which convened on Wednesday, John D Rockefeller, has already commented on a report named “The Current Financial State of the Class I Freight Rail Industry,” and his views are transparent.

Senator Rockefeller states that whilst the rail operators plead poverty, they are in fact statistically one of the richest industries in the country. Operators still seek large sums from the federal authorities to fund infrastructure improvements, usually with favourable results. Expect sparks to fly as the truck lobby faces up to the rail contingent yet, as anyone who understands the complexities of freight understands, these two need each other in what will become an increasingly intermodal world.

The rail freight report prompted a stern response from the Association of American Railroads but there is of course no right and wrong in this situation in that the rail groups need money for considerable maintenance and improvement costs but opponents argue that these are very long term investments and the rates currently charged to customers are way above the level needed to produce a reasonable return. It is unlikely messrs Buffet and Rockefeller will be dining together for a while.