Railroad shipping: Fate of STB Reauthorization bill remains far from a done deal

Differing opinions appear to be the norm when it comes to debating how legislation focused on re-reregulating the freight railroad industry will shake out.

The legislation, entitled S. 2889, The Surface Transportation Board Reauthorization Act of 2009, was introduced last December as a draft. The bill, spearheaded by Senator Jay Rockefeller (D-WV) focuses on addressing the concerns of rail shippers, regarding rates and service, as well as making the railroad industry more competitive.

As LM has previously reported, S. 2889 includes a wide-ranging array of action items that could significantly alter processes commonly viewed as “business as usual” in the railroad industry, including:
-raising the number of STB board members from three to five;
-establishing the STB as an independent agency and giving the STB investigative authority;
-creating a strong rail customer service advocate to help resolve shippers’ concerns;
-protecting rail shippers and maintaining reasonable rates in non-competitive situations;
-preventing two or more rail carriers from collaborating on interline rates;
-requiring major railroads to quote “bottleneck rates”; and
-improving access to shipper relief.

“It is critically important that we have a competitive, efficient, and balanced transportation network to ensure the success of our economy and rural communities,” Rockefeller said in May. “The effects of deregulation and recent rate hikes again emphasize the need to fix the current rail oversight structure to support more competition and fairness for captive rail shippers.

Missing from the current version of this bill is language regarding antitrust exemptions for the railroad industry. Antitrust legislation was passed by both House and Senate committees in 2009. And Senator Herb Kohl is committed to getting it signed into law as part of Rockefeller’s bill.

Given the myriad issues impacting the Congressional landscape these days, it is somewhat difficult to surmise if and when the STB bill will be signed into law before the end of this year.

This much was evident based on reports from Wall Street analysts that recently attended the North American Rail Shippers conference.

Stifel Nicolaus analyst John Larkin wrote that this bill is not there yet.

“It is our belief that the railroads will sufficiently stall the process so as to force the issue into the next Congressional docket,” Larkin noted. “If the next Congress has a more pro-business, anti-regulation, conservative bent-then the odds would suggest that the re-regulatory elements of the [bill] may be simply shelved.”

And Morgan Stanley analyst Bill Greene stated in a research note that lobbyist and shipper commentary at the NARS conference suggested a bill will pass in 2010 if “the onerous (towards rails) changes to the regulatory landscape offered in the bill are likely to be substantially toned down or even removed.”

Not surprisingly this bill has not been well-received by Class I railroad executives, whom maintain this bill is decidedly pro-shipper, coupled with the potential for railroads to lose a significant amount of pricing power.

At Norfolk Southern’s Annual Meeting of Shareholders earlier this year CEO Wick Moorman said re-regulatory efforts “are attempting to alter the economic regulatory regime which governs us so as to lower their rates, and at the same time seriously damage our ability to earn adequate returns…and invest in the future.” Moorman also said that at the end of the day a bill that is bad for the industry cannot be passed.

From the perspective of rail shippers, many feel this bill is long overdue. Reasons for this range from the multiple barriers to competitive access for captive shippers to improving the rate challenge process at the STB, and get relief from what view as monopoly pricing power held by the railroads.

While the bill’s fate is far from a done deal, LM learned a meeting in Washington taking place today comprised of bipartisan Senate Commerce Committee members, rail executives, and shippers is discussing the contents of S. 2889 and whether or not to add antitrust language to the bill.

“The fact that this meeting is happening means the Committee is getting close to pushing out a final product and filing it in the Senate to begin a push to get it signed into law,” a freight railroad expert told LM.