Senators call for action on freight rail rates and monopolies

By Bill Holloway
Early this month, a bipartisan group of senators, led by Al Franken (D-MN), called on the chairman of the Surface Transportation Board to assure that Berkshire Hathaway’s 2010 purchase of BNSF doesn’t result in unfair rate hikes for farms and businesses in Minnesota and nationally. Berkshire Hathaway recently revealed that it owned other railroads when it acquired BNSF—which should have triggered a review by the federal Surface Transportation Board—but it failed to disclose those holdings at the time and avoided STB’s review.
In March 2012, Sen. Franken pressed the STB to ensure that an $8 billion acquisition premium paid by Berkshire Hathaway on its purchase of BNSF was not passed on to rail consumers. However, BNSF maintained that the additional acquisition premium would have an insignificant impact on shipping rates.
Senator Franken also recently called on President Obama to address a lack of freight rail competition that he claims is forcing businesses to pay unfair rates to ship their goods. He asked the president to ensure that the U.S. DOT is working to eliminate potential freight rail monopolies, direct the Commerce Department to investigate the impact of freight rail competition on American businesses, push for an updated version of a 2010 report on freight rail competition issues affecting farms and rural businesses, and appoint a senior official to coordinate efforts to increase freight rail competition and suggest improvements.
Concerns over a lack of competition between freight railroads have increased as major railroads have grown larger and become fewer in number. One key issue currently under consideration by the STB is whether to revise competitive switching rules to prevent shippers from being captive to a single railroad and paying uncompetitive transportation rates. The American Chemistry Council, a trade group for the chemical industry, is a strong advocate of revising existing competitive switching rules and has issued  comments in support of a rule change. The National Rural Electric Cooperative Association also has called for revisions to the STB’s competitive switching rules, as well as other freight railroad reforms to increase competition. These include removing anti-trust law exemptions and eliminating agreements between Class 1 and short line railroads that require all short line traffic to use a single Class 1 railroad even if that short line has access to others. The Association of American Railroads, however, claims that the Chemistry Council’s argument is fundamentally flawed and maintains that, while railroads are required to offer competitive rates to captive shippers, they are allowed to set rates based on what the market will bear where competition between railroads exists, and that railroads need to be able to set these higher rates in order to maintain their assets and continue to serve their customers.
Shippers scored a victory in 2011 when the STB lowered the fee for filing complaints about unreasonable railroad practices from $20,600 to $350. Advocates for shippers had identified the high filing fee as a significant barrier to STB review of potentially monopolistic rates.
Bill Holloway is a Transportation Policy Analyst at SSTI.