The U.S. Railroad Regulation Experience and Future Changes July 2015 APAS. Whiteside & Associates Billings, Montana

Transcription

1 The U.S. Railroad Regulation Experience and Future Changes July 2015 APAS Whiteside & Associates Billings, Montana

2 First Let s Cover Some Background So we are all on the same page Whiteside & Associates Billings, Montana twhitesd@wtp.net

3 How Many RR s (the Big Ones) Are There in the United States? 2, 4, 7, 10, 20, 40? How many RR s (Big Ones) did we have in the U.S. in 1980 when the Federal Government partially deregulated the nation s railroads? 1, 2, 3, 5, 10, 20, 40, 60? Whiteside & Associates Billings, Montana twhitesd@wtp.net

4 The Canada and U.S. Rail Sytems and Regulatory Scheme is Both Similar and Different Similar Industrial Alignment both countries have today, duopolies to deal with two railroad systems with many rail shippers captive to a single railroad Dissimilar in how they have utilized regulation to control/regulate the rail systems Whiteside & Associates Billings, Montana twhitesd@wtp.net

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6 Did HASBRO, in 1935, Get It Right About Railroads? They said, if you own all four of the railroads.you are allowed to charge 8 times the rates that you can charge if you only own one railroad!

7 Agriculture Is Unique in the Transportation Environment Question: Who bears the freight costs associated with the transportation of grain?

8 Agriculture Is Unique in the Transportation Environment Question: Who pays the freight costs associated with the transportation of grain?

9 Agriculture Is Unique in the Transportation Environment Answer: The farm producer bears the freight, but the grain elevator or merchandiser pays the freight! AND unlike every other industry, the farm producer cannot pass the freight charges on to anyone else!

10 What Drives The Northern Plains Economy? 1895? Lumber, Mining and Agriculture 1950 Lumber, Mining and Agriculture 2012 Lumber, Mining, Agriculture, Energy and Tourism 2025 Lumber, Mining, Agriculture, Energy and Tourism Note: In order for base industries to grow - Lumber, Mining, Agriculture and Energy industries to create value to Northern Plains in U.S. they must be transported out of state and in some cases out of the country Whiteside & Associates Billings, Montana twhitesd@wtp.net

11 B N S F The Big Four Control Over 95% of all Ton-Miles Hauled N S U P C S X

12 UPSP

13 Burlington Northern/Santa Fe

14 CSX/Conrail

15 Norfolk Southern/Conrail

16 A Macro Look At The Rail Problem from a Shipper Perspective

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22 Rapid Consolidation of the Railroad Industry Resulted in: A decrease in: Unrestricted interchange of traffic Routing choices Level of competition among railroads Improved financial health of the rail industry, which also benefited agricultural shippers by preserving rail service USDA

23 Future in Rail/Shipper Regulatory Environment in U.S. S808 STB Reauthorization Act of 215 STB Activities Looking at Ag Regulatory Procedures, Arbitration, Revenue Adequacy, Uniform Rail Costing Procedures and other issues on regulatory review Transportation Research Board Report Suggesting many STB procedures (regulatory) are flawed Likes Economic modeling over URCS, arbitration like Canadian Final Offer Arbitration, Suggests Congressional Action for a more pro-active STB Whiteside & Associates Billings, Montana twhitesd@wtp.net

24 Surface Transportation Bill Senate Version S808 Senator Thune s (SD) is Chairman of the Senate Commerce Committee and in April passed unanimously S808 out of Committee This bill has cleared the Senate (unanimously) the last week of June and Senate/House have suggested a path which will set up a Conference with the House Transportation and Infrastructure Committee Whiteside & Associates Billings, Montana twhitesd@wtp.net

25 S808 - An Important Step Forward Not Perfect But Overall A Good Starting Point The Surface Transportation Board Reauthorization Act of 2015 would 1. Reauthorize and make substantial changes to the STB, the only government entity responsible for handling commercial freight rail issues, and 2. Would modernize the Board for the first time since its creation and move the STB from the DOT to an independent agency. 3. Would move from current 3 members to 5 members to allow for nonquorum discussions among Members of the Board 4. Require STB to set up simple voluntary arbitration process to allow shippers and rail carriers to find commercial solutions to their disputes and differences 5. In addition to streamlining how the STB operates, the legislation would help improve how the Board handles rate and service issues 1. Legislation calls for simplified and less expensive adjudicatory process for rate and service complaints 6. Allow the STB, on its own, to open and pursue investigations even without complaints Whiteside & Associates Billings, Montana twhitesd@wtp.net

26 Rail Freight Rates Rates are the highest they have ever been RR s are the 5 th most profitable industry in the U.S. according to Fortune magazine RR s continue to make fuel surcharges an individual profit center (Note that may be changing) and these latest fuel increases will be reflected in higher freight rates into the future Whiteside & Associates Billings, Montana twhitesd@wtp.net

27 Why is the Rail Representation Work So Important?

28 U.S. Agriculture Depends on Rail Transportation USDA

29 Reasonable Rail Rates are Important to Farmers Agricultural producers are price takers rather than price makers Increases in transportation costs result in decreased producer profit Lower prices and incomes hinder farmers from borrowing funds to purchase fertilizer, seed, and machinery, reducing economic prosperity in rural areas Higher transportation costs also affect the competitive position of U.S. agricultural products in highly competitive export markets lost markets put downward pressure on farm prices USDA

30 Less Rail-to-Rail Competition Since Staggers Extent of end-to-end mergers not foreseen by many with enactment of Staggers 63 Class I railroads in 1976 Only 7 in 1999 to present Duopoly in major portions of the West and the East Line abandonment was predictable because of excess rail capacity Railroads used side-by-side mergers to eliminate duplicative facilities The mergers increased railroad market power and profitability USDA

31 Shipper Concerns Switching Limitations & Charges Restricted Interchange Paper Barriers Inconsistent Service High Rates (in some areas) Excessive Fuel Surcharges Bottleneck Rates Effectiveness of the Rate Challenge Process Better, more effective arbitration process USDA

32 The Changing Role for Ports, Railroads and Shippers Landlord Role versus Hybrid Model in Ports/Terminals Deeper Collaboration is Necessary Jointly address concerns relative to congestion & supply chain issues Work with supply chain stakeholders to enhance operational efficiencies & terminal velocity Develop performance metrics that are embraced by our supply chain stakeholders Jointly market the gateway and advocate for favorable funding, legislation Continue joint efforts on environmental and safety initiatives Broader Dialogue with Supply Chain Stakeholders Supply Chain Optimization Forums need to be established Committees and areas of focus are now being established New Levels of Engagement Inland and ExportTerminals and/or Ports need to restore customer confidence; proactively market to the liner alliances; and help carriers, 3 PLs and secondary conveyance providers achieve efficiency gains Whiteside & Associates Billings, Montana twhitesd@wtp.net

33 Future Congressional legislative for changes at the STB and its regulatory overview STB changes towards regulatory reviews and oversight are underway Railroads are under increasing financial pressure due to EPA new regulations to limit or shutdown U.S. coal fired power plants Up to $1-2 Billion loss of revenue in foreseeable future This downward economic pressure may result in possible future RR Mergers Whiteside & Associates Billings, Montana