Opinion

Big Change May Be Coming to American Railroads

A safe, reliable and efficient freight rail system is vital to our industries and the nation’s economy. Approximately 3.7 million carloads of our members’ feedstocks and products — crude oil, natural gas liquids, refined products, plastics and synthetic resins — were delivered by rail in the United States in 2018. 

The fuel and petrochemical industries have long relied on the pioneering U.S. railroad system, which in many respects is emblematic of the American spirit of enterprise and vision. Rail transportation is equally crucial to manufacturers and customers downstream who depend on our products.

From 1978 to 2000, mergers coming on the heels of Congress’ passing of the Staggers Rail Act dropped the number of major rail carriers from 41 to seven. Now, only four carriers control 90 percent of all freight traffic. This is not your grandfather’s, or even your father’s, rail industry.

This massive consolidation of rail carriers has created challenges for rail shippers, including persistent rate increases, reduced flexibility in shipping options, degraded service and non-competitive pricing. Manufacturers counting on reliable and efficient freight rail to move refining and petrochemical products have faced a 30 percent uptick in rates since 2000, resulting in runaway transportation costs borne by a sector fueling America’s economy.

Unfortunately, there have been few attempts to challenge rail rates due to an extraordinarily expensive and time-consuming rate dispute process. Rate challenges can take more than five years to complete and cost each shipper millions of dollars. 

The Surface Transportation Board has only about 50 rate cases since 1996. This lack of rate cases is a sign of a process in need of reform, and not a healthy rail system.

Thankfully, the STB has begun to take action. Two years ago, it established its Rate Reform Task Force, which recently issued a report with recommendations for streamlining the process to bring a case before the STB and outlining a faster path for obtaining relief. 

Additionally, in the last few months, the STB announced a series of proposals to restore a balance to rate fairness in the rail carrier/shipper system. It will also hold a hearing this month considering substantive changes to the existing rate review process, with a focus on leveraging data that offers better insights into the realities of today’s rail system and making rail rate dispute resolution more efficient, reasonable and attainable.

The STB has also engaged in rulemaking and hearings focusing on the rail carriers’ demurrage practices — reviewing the fees charged by rail carriers when cars are detained by shippers beyond a reasonable timeframe. While this fee was initially designed to incentivize and improve the rail network’s overall fluidity, many now see it as a basic revenue generator for carriers. 

Rail shippers, who now own most of the rail cars in the United States, have seen demurrage policies changed with little or no notice. Further, despite decreased rail traffic and degraded service, demurrage fees have skyrocketed since 2000, with no real recourse or way to challenge such fees. In fact, in 2018, the seven major rail carriers collected almost $1 billion in demurrage fees, up from $300 million in 2000.

These initial steps taken by the STB to critically review the existing system are encouraging, and AFPM will remain active in upcoming months to ensure that these actions are carried forward.

To be clear, these proposals provide an opportunity to create a more healthy and efficient freight rail system without causing undue hardship to rail carriers, which remain an essential and valued part of today’s energy infrastructure. Rather, if implemented properly, these reforms represent a win for rail carriers, shippers of goods of all kinds — including our industries — and ultimately, consumers.

 

Rob Benedict is the senior director for petrochemicals, transportation, and infrastructure at the American Fuel and Petrochemical Manufacturers.

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