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>From the Surface Transportation Board, Washington, D.C.
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An independent team of consultants charged with looking at competitiveness
in the U.S. rail industry has found that railroad rates have been steadily
increasing since 2004, with a particularly steep increase in 2008. But
Christensen Associates, Inc., of Madison, Wis., found that the rate
increases were driven by fluctuating fuel prices and other costs and did
not appear to reflect a greater exercise of railroad market power over
captive shippers.
The updated study, which now includes data from 1987 through
2008, found that a greater share of traffic in 2007 and 2008
moved at rates less than 180 percent of variable costs than
in 2005 and 2006. Variable costs include fuel, labor and
other non-capital costs associated with moving freight.
Christensen also observed that, since late 2008, railroad
traffic has dropped nearly 20 percent from the levels of
2006 and 2007. And Christensen said preliminary data show
that rail transportation rates fell last year.
While it was able to form conclusions about railroad rates,
the Christensen team was unable to evaluate many of the
shippers' service quality concerns beyond anecdotal
evidence. Christensen urged the Board to develop better
empirical data to capture the service performance of rail
carriers.
In 2007, the Board hired Christensen to assess the state of
competition in the rail industry. The consultants engaged in
extensive outreach efforts to shippers, railroads, trade
associations and other stakeholders. Using data from many
sources, including the Board, Christensen released its
initial report in November 2008. However, shippers raised
concerns that the report's study period ended in 2006 and
did not include subsequent years of rapidly escalating
rates. The Board therefore directed Christensen to update
its competition study to include the years 2007 and 2008.
Overall, the updated study painted a portrait of a healthy
rail industry that, since 2006, has remained largely revenue
sufficient, meaning railroads are able to cover their
operating costs and earn a rate of return that enables them
to attract investment capital to pay for more locomotives,
railcars and make other improvements. The study also found
that the large productivity gains in the 1980s and
1990s—when the railroads shed excess rail lines, reduced
crew sizes, and streamlined operations—are no longer strong
enough to offset rising operating cost. Since 2002,
"increases in the rate of input price growth combined with
slower productivity growth have resulted in unit cost
increases." "Economies of density," the study also reports,
"appear to have been exhausted in recent years."
The Christensen report issued today also restated the policy
recommendations contained in its original report. "Because
the railroad [industry] has remained approximately revenue
sufficient in recent years, we re-emphasize one of our
original conclusions: Providing significant rate relief to
some shippers will likely result in rate increases for other
shippers or threaten railroad financial viability."
The report, "An Update to the Study of Competition in the
U.S. Freight Railroad Industry," and the earlier full report
can be found on the Board's Web site, www.stb.dot.gov under
"E-Library" and then "Studies."
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