Congress to examine ripple effect of railroad industry profits and price hikes on customers

Congress to examine trickle down of rail rates

NEW YORK — Congress is taking a closer look at the growing profits of the nation’s railroads and the price hikes for their customers that may trickle down to consumers.

In a report released Wednesday, the Senate Commerce Committee says higher rates for rail transportation are putting undue pressure on customers who don’t have an alternative way to ship their goods. Those customers, called captive shippers, are mostly electric utilities, chemical and agricultural companies. Higher transportation rates for them can mean higher energy and grocery bills for consumers.

The report was released ahead of a hearing on federal rail policy Wednesday afternoon. The committee, led by Sen. John D. Rockefeller (D-W.Va.), said in a statement that the report’s findings suggest that the Staggers Rail Act of 1980, which gives allows railroads to charge some U.S. businesses higher shipping rates, needs to be reformed.

The act, originally intended to inject profits into a struggling railroad industry, has allowed rails to charge higher rates to captive shippers. The committee argues that because railroads are now financially stable, they shouldn’t charge certain customers more than others.

The industry’s main trade association argues that the financial stability of railroads today is proof that the Staggers Act works.

“It’s success — and we’re not walking away from success. There’s nothing wrong with the fact that we’re finally a healthy industry,” Association of American Railroads CEO Ed Hamberger said in an interview with the Associated Press.

Railroads argue that preventing them from charging higher rates would stifle their ability to reinvest in infrastructure and make other capital investments to improve their businesses. Union Pacific Corp., the nation’s largest railroad, says it replaces an average of one mile of track each day. Each mile of track costs about $2 million to replace.

“If you listen to what the railroads tell their regulators in Washington, they are barely keeping the lights on,” Rockefeller said. “But the reality is that Class I railroads have become some of the most profitable companies in the United States.”

There are five Class I railroads operating in the U.S. They include Union Pacific and Burlington Northern Santa Fe in the West; Norfolk Southern and CSX in the East; Kansas City Southern in the Midwest and the South.

Burlington Northern was taken private earlier this year in a $26.2 billion acquisition by Warren Buffet’s Berkshire Hathaway earlier this year. Union Pacific posted 2009 revenue of $3.75 billion. In July the railroad said its second-quarter net income increased 53 percent from a year earlier. Other railroads posted similar jumps in profit from a year earlier on higher prices and more shipments.