Railroad concerns prompt competition study
Nov 13, 2008 3:34 PM
Railroad industry stakeholders continue to be concerned over competition, captivity, rates, service performance, and financial viability, according to a recent study commissioned by the Surface Transportation Board (STB).
The Government Accounting Office recommended the STB undertake the study to analyze the railroad state of competition nationwide and, where appropriate, consider the range of actions available to address problems associated with the potential abuse of market power.
While several factors are included in the study's evaluation, it determined that providing significant rate relief to certain groups of shippers is likely to increase rates for other shippers or threaten railroad financial viability. As a result, some shippers would not benefit from efforts to enhance railroad competition, a situation that implies the necessity of continued regulatory oversight.
The study indicated, among a variety of determinations, that for most years in the 1987 to 2006 period of the study, the Class I railroad industry did not appear to be earning above-normal profit. "The increase in railroad rates experienced in recent years is the result of declining productivity growth and increased costs rather than the increased exercise of market power," according to the study's executive summary.
At the same time, different commodity groups face different markups of railroad rates over marginal costs. Within commodity groups, shippers with no or very limited transportation options tend to pay higher rates than shippers with the same shipment characteristics who enjoy more or better transportation alternatives.
The study noted that capacity tightness is primarily due to congestion at terminals or other specific network locations. Terminal congestion in the 2003-2005 period was linked to service performance declines during that time period.
The STB has posted the study on its Web site at stb.dot.gov.. The board is seeking public comment by December 21, 2008. The publication, A Study of Competition in the US Freight Railroad Industry and Analysis of Proposals that Might Enhance Competition, was conducted by Christensen Associates Inc.
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