However, while natural gas has provided a tailwind for our industry and the U.S. economy, the cost of shipping chemicals by rail has become a stiff headwind. Shippers have experienced dramatically higher freight rail rates, driven by the lack of competition in rail service and outdated federal policies. The increasing cost to ship by rail is a drain on the U.S. economy and is a significant impediment to manufacturing investment and job growth.
Since the Staggers Rail Act passed more than three decades ago, investment in rail infrastructure has increased and the economic strength of the rail industry has greatly improved. At the same time, the rail industry has also consolidated, reducing the number of major railroads from 40 to four railroads, which now dominate the market.
This problem is compounded by government policies that further restrict rail competition. For example, even when facilities are located a short distance from stations serving multiple railroads, Surface Transportation Board (STB) policies and railroad practices prevent shippers from accessing competitive service. In addition, railroads enjoy unique exemptions from antitrust laws that prevent anti-competitive behavior in other industries.
Railroads have used their unique status to increase rates and levy additional fees, including fuel surcharges. According to an analysis of government data, Escalation Consultants found that railroads charged chemical shippers a $3.9 billion premium on their shipments in 2010. Furthermore, it’s clear the problem is only continuing to grow as this premium on chemical shipments shows a 75 percent increase between 2005 and 2010.
And ever increasing rate premiums are not the only problem. In fact, a recent American Chemistry Council (ACC) member survey shows that shippers are also confronted with fuel surcharges and substantial increases in other additional fees that further increase the cost to transport their goods.
Unfortunately, the problem of fuel surcharges is not new. According to a study ACC conducted six years ago, the nation’s largest freight railroads systematically overcharged their customers by more than $6.4 billion over four years through aggressive fuel surcharges. That issue is currently being litigated (a Federal Appeals Court will hear arguments on a related element of that case this week). It should be clear that rail fuel surcharges are an issue of broad commercial and national interest that deserves a decision on the merits.
Soaring rail freight rates and additional costs remain persistent and show no sign of abating. American commerce has always thrived under two basic principles – free-market competition and a level playing field. There is every reason to believe that railroads can compete with one another and still continue to thrive.
For American manufacturing to regain its competitive edge in a global economy, it’s time for rail policies to get back to the basics. We look forward to working with both Congress and the Surface Transportation Board to eliminate regulatory barriers and foster greater competition in the rail industry.
Dooley is president & CEO of the American Chemistry Council in Washington, D.C.