Captive shippers need help By Sen. Amy Klobuchar and Sen. Byron Dorgan, Published Sunday, April 15, 2007 Farmers, energy producers and manufacturers in the Upper Midwest who depend on freight rail service find themselves trapped today in a "back to the future" world, struggling with a problem that has resurfaced from a century ago.
Back then, America was confronted by a few giant railroad companies abusing their monopoly power to exploit producers and consumers alike with inflated prices. The federal government took action to stop those abuses, led by Republican President Theodore Roosevelt.
Today, America again confronts the challenge of reining in overcharging by some giant unregulated railroads that can set their prices and make them stick.
Just a few giant companies again control this essential form of transportation. Three decades ago, there were 63 Class I (large) railroads operating in the United States. Today only seven remain, with four of them controlling over 90 percent of all rail freight.
As rail competition has all but disappeared, producers and consumers are paying the price, especially in rural areas. Captive shippers, with access to only one rail line, suffer the most.
The current system is broken in two major ways.
First, rail customers are being charged unfairly high prices to ship their goods to market.
For example, paper company UPM (Blandin Paper Company) has a plant in Grand Rapids, Minn., and another in Finland. Even though there is a 4,000-mile difference in distance, it costs about the same to ship paper from the Finland plant to a customer in central Indiana as it does from Minnesota to that same customer along a captive rail line.
Another example is cited in a study last year by the Government Accountability Office. It compared two grain shipping routes from Minot, N.D., and Sioux Falls, S.D., to Portland, Ore. The rail routes carry comparable volumes, but the price from Minot is double that from Sioux Falls.
What's the difference? The Minot route is served by just one Class I railroad, while Sioux Falls has two.
According to the study, shippers on the Minot route are charged rates way above the STB's own standards, even as the traffic on this route has increased dramatically during the past two decades.
Railroads are taking advantage of the lack of rail competition to price-gouge captive shippers, thanks to the lack of meaningful federal oversight.
The second problem is that rail customers have been denied a fair and efficient process for challenging rail rates and railroad practices.
Shippers must pay steep filing fees of over $100,000 just to get their complaint heard. Then they must pay millions of dollars to litigate their case, which is sure to drag on for years.
After all that, the STB's decisions almost invariably tilt toward the railroads.
The bottom line is that shippers lose, the big railroads win and the system does not work.
To address the first problem, our legislation promotes lower rates for shippers by ending anti-competitive agreements between Class I railroads and short-line rail companies; requiring large railroads to quote rates to any destination along their rail line; and setting a better standard for determining the reasonableness of rates imposed by monopoly railroads.
Our legislation addresses the second problem by creating a fair, workable process for challenging excessive rates in front of the STB. It removes the large filing fees, adjusts the burden of proof and empowers the agency to take proactive steps to foster competitive pricing.
Our legislation avoids imposing a heavy government hand on private enterprise. Instead, it seeks to restore healthy competition and a system of reasonable rates. Congressman Jim Oberstar, chairman of the House Transportation Committee, is taking the lead on similar legislation in the House of Representatives.
Theodore Roosevelt was known as the Rough Rider, but he knew how to stop the railroad monopolies from giving a rough ride to American producers and consumers. One hundred years later, they are getting a rough ride yet again and it is time to put the brakes on the rail industry's anticompetitive pricing practices.
Klobuchar, D-Minn., and Dorgan, D-N.D., are members of the Senate Committee on Commerce, Science & Transportation.