By JACK KASKEY and THOMAS BLACK
After CSX Corp. raised rates for shipping specialty gas by
41% over three years, Diversified CPC International had to
shutter a production line near Chicago.
The buyer of a custom-ordered Diversified gas didnt
want the expense from those freight bills, so it decided to
bring the manufacturing in-house.
We kept cautioning the railroad and cautioning the
railroad, but they didnt listen, said Sandra J.
Dearden, president of Highroad Consulting, which represents
Diversified. They priced everybody out of the
Following a decade of increases that sent rail profits and
stocks to records, shippers such as Diversified and Dow
Chemical are asking the US government to help them fight
back. They want to be able to compel railroads to hand off
cargo to a rival in mid-journey and make it easier to
challenge higher rates with the US Surface Transportation
Those demands are setting up a showdown in Washington, where
railroad lobbyists say that easing the 1980 law that ended
price controls would threaten the industrys
Rates may keep rising. Rail carloads climbed 7% last quarter,
the fastest clip since the end of 2010, buoyed by surging
crude-by-rail cargoes and a bumper North American grain
harvest. Truckers are boosting fees, too, with long-haul
rates estimated to rise 5.1% in the second half, according to
data from transportation consultant FTR Associates.
With truckers running trailers at almost 100% capacity
in an improving demand environment
, it makes sense that
pricing should go higher, said Justin Long, a Stephens
analyst in Little Rock, Arkansas.
Since 2001, the average shipping cost per rail carload has
climbed 93%, said Scott Jensen, a spokesman for the
Washington-based American Chemistry Council (ACC) trade
That is what has our members and other shippers so
concerned, Jensen said last month.
While a Standard & Poors index of 16 chemical
companies almost tripled in the past 10 years, the S&P
500 Railroads Index has surged more than sixfold. The rail
gauge rose 17% this year through yesterday, outpacing
advances of 10% for chemicals and 7.5% for the S&P 500.
Carriers say shippers are paying less for better service
since the 1980 Staggers Act deregulated the industry. Since
then, the inflation-adjusted cost for each ton hauled a mile
has fallen 42%, said Ed Hamberger, chief executive officer of
the Association of American Railroads in Washington.
Shippers want to restore regulated prices and return the
industry to a cash-starved era with tracks so shabby that
even immobile rail cars would tip over and trains forced to
run at 10 miles (16 kilometers) per hour or less on a quarter
of US tracks, Hamberger said.
was the buzzword of
the day, which meant you didnt put money back into the
infrastructure, he said. Healthy profit margins have
allowed railroads to invest about $150 billion in the
nations rail network during the last six years,
Since deregulation, US officials have upheld the
railroads ability to charge more and maintain their
rail lines, according to Long, the Stephens analyst.
That will always be an ongoing debate between the
shippers and the rails, Long said.
Manufacturers efforts to rein in rates are unfolding on
two fronts. One involves the process for challenging railroad
rate increases at the Surface Transportation Board.
That effort now requires a multimillion-dollar
investment in lawyer and consultant fees and can take
several years to reach a decision, according to a letter sent
to Senate leaders and signed by 24 trade groups representing
the chemical, steel, cement, plastics, paper and fertilizer
Shippers also say they want more rail choices after mergers
cut the number of large carriers operating in the US to seven
from 26. The big four -- Union Pacific, BNSF Railway, CSX and
Norfolk Southern -- handle 90% of US freight.
Customers are seeking the right to transfer cargoes between
railroads if a cheaper rate is available within 30 miles from
where the shipment originated. The Surface Transportation
Board held two days of hearings in March on the
shippers proposal, called competitive switching.
The issue is pending before the board, and there is no
deadline for a decision, Dennis Watson, a spokesman, said by
e-mail this week.
Competitive switching would clog yards, drive up costs by
requiring more trains and crews, and slow the entire network,
CSX chief financial officer Fredrik Eliasson said.
Very few shippers would benefit, Eliasson said.
It would be to the detriment of everybody else.
Diversified, based in Channahon, Illinois, sees competitive
switching as a matter of survival. The factory there
continues to operate after the buyer irked by rising rates
forced the company about three years ago to idle
a $500,000 investment in a custom gas used to make packaging,
said Dearden, the consultant. A plant in Petal, Mississippi,
may not be as lucky.
The chemical company cant make its preferred rail
connections to serve customers in the southeast US from
Mississippi, Dearden said. That means sending costlier,
longer shipments from Illinois, Dearden said.
Melanie Cost, a spokeswoman for CSX, declined to comment on
individual customers rates. The Jacksonville,
Florida-based railroad sets prices based on the market value
of rail transportation, she said.
At Midland, Michigan-based Dow, which operates a fleet of
more than 200,000 rail cars, about 80% of US shipments are
captive to one railroad, executive vice president David
Kepler told the STB in March. Competitive switching, he said,
would make the supply chain more efficient, shaving 1 million
miles per year from the distance traveled by cargo from the
biggest US chemical maker.