Railroads, shippers prepare for Hill battle

Railroads and shippers are to hold dueling “fly-in” days this week in a fight over the costs to move freight in remote areas.

Today, scores of railroad executives will be in town to lobby against what they see as a return to the bad days of government regulation. About 350 representatives of railroad companies plan to visit 200 Hill offices, according to the Association of American Railroads (AAR), which is sponsoring the fly-in with the American Short Line and Regional Railroad Association.

Thursday it’s the shippers’ turn to plead their case and drum up support for S. 919 and H.R. 2047, bills that seek to reduce freight rates in rural areas often served by just one line.

There are expected to be several hundred representatives from chemical, farm and electric-utility groups. In their hands will be point papers that claim: “Captive rail customers are subject to unrestrained railroad monopoly power.”

Pro-shipper bills have been introduced for several years, but so far the coalition aligned in support has been the little engine that couldn’t in this lobbying effort.

“I feel like the Cubs,” said Michael Grisso, the executive director of the Alliance for Rail Competition, referring to the Chicago-based baseball team famous for losing.

The Alliance is one of two coalitions lobbying for S. 919 and H.R. 2047. The other is Consumers United for Rail Equity. Thursday’s fly-in is just the second time shippers will come to Washington en masse.

Grisso acknowledged that some of his group’s supporters have had other priorities, but concern over the relatively high costs to ship from remote areas is growing, he says, giving his side new momentum, even though it has delivered few co-sponsors of the legislation. 

“We feel the system is broken. It has driven more and more shippers to the conclusion there has to be legislative action,” Grisso said.

S. 919 has gathered 10 co-sponsors, in addition to the chief author, Sen. Conrad Burns (R-Mont.). H.R. 2047 has 24 co-sponsors in addition to author Rep. Richard Baker (R-La.)

Matt Mackowiak, a spokesman for Burns, said his side has had difficulty overcoming a strong railroad lobby.

“The railroads have a very powerful position in Washington and they are difficult to get to come to the table,” he said. 

But Peggy Wilhide, a spokeswoman for the AAR, said that blaming the bills’ lack of progress on the rail industry’s lobbying power is “silly.”

“We have the arguments on our side,” she said.

The industry’s chief argument is that a financially healthy rail industry is necessary to ensure there is enough rail capacity to meet growing demand for freight.

“They can’t have it both ways. Every shipper says capacity is an issue. In order to invest in capacity, you have to make money,” Wilhide said.

After a strong 2005, in which each of the four major freight lines saw stock prices jump on strong profit growth, the industry will set a record on infrastructure investment. Wilhide said it plans to spend $8 billion in 2006, versus $6.6 billion last year, according to the AAR.

To help make their case, the rail lobbyists are handing out copies of a Congressional Budget Office report on the challenges the industry faces in meeting demand. The report states: “As demand increases, the railroads’ ability to generate profits from which to finance new investments will be critical.”

Railroads have used an effective argument against their opponents: government regulation didn’t work well.

Before Congress passed the Staggers Act in 1980, the rail industry was on its back. The AAR has noted that a fifth of all freight lines was operated by bankrupt companies before the passage of the Staggers Act and that average rates of return on investment were just 2 percent.

The Staggers Act didn’t completely deregulate the industry. It left the Surface Transportation Board the power to regulate prices if one railroad was dominating a market and was charging a price in excess of 180 percent of variable costs, a calculation of the costs to operate a particular freight line.

Grisso said the industry has used its monopoly to charge rates as high as 400 percent higher than variable costs.

Mackowiak said it is more expensive to ship something from Billings, Mont., to Portland, Ore., than it is to reach the same destination from St. Louis, Mo.

The National Rural Electric Cooperative Association has grown increasingly concerned about the captive rates its members pay, said the group’s spokesman, Patrick Lavigne.

Infrastructure improvements and stock dividends are “being paid on the backs of captive rail shippers” that have little choice but to pay the price the rail companies charge, Lavigne said.

But Wilhide of the AAR said overall freight rates, adjusted for inflation, have declined by more than 60 percent since Staggers was adopted.

Captive shippers claim appeals to the federal regulator have proved fruitless, and costly. A case, which often requires the construction of an exact replica of the freight line in dispute, can cost several million dollars to make, Grisso said.

But the point papers that captive shippers will carry take pains to note that neither the Burns nor the Baker bill amounts to re-regulation of the industry.

About 20 percent of the freight lines serve captive shippers.

A few months ago, shippers met in a closed-door “listening session” with Senate Commerce Committee staff to explain their concerns.

Mackowiak said Sen. Trent Lott (R-Miss.) has indicated he would give the bill a hearing before the Surface Transportation Commerce Subcommittee that he chairs.

But it could die there; Lott is seen as an opponent to the measure.