One can hardly turn on a financial news program lately without hearing an analyst speak bullishly about America’s railroads. But, lost in this clatter is the fact that the railroads’ big profits are owed largely to the unrestrained monopoly pricing power they exert over many of their customers.
If Congress really wants to do something to help our economy, they need to support a competitive marketplace for railroads and their shippers. Companies like mine are counting on it.
The East Texas Asphalt Company is a family-owned company with four facilities around east Texas. Since our founding more than fifty years ago, we have endured recessions, construction bubbles and even hurricanes. What we may not survive, however, is our treatment at the hands of freight railroads.
Like many companies, we depend on the railroads for raw materials. In the first four decades of our company’s existence, this was not a problem. That began to change gradually over the past fifteen years, however, as America’s freight railroad companies were slowly consolidated into four major railroads that today control over 90 percent of our nation’s rail traffic. Since then, our partnership with the railroads has deteriorated, and our company has endured confusing and exorbitant rate changes that are hurting our business and our workers.
Facing similar difficulties, many companies would simply take their business elsewhere. Yet, that is not an option for us. All of our facilities and roughly 90 percent of our suppliers have access to a single railroad, which in the railroad business makes us known as a “captive” shipper. As captive shippers, we have nowhere to turn when we suspect we are getting a bad deal from the railroad. And we are not alone. Thirty-four percent of rail traffic in this country, by weight, is held captive by a single railroad.
Not surprisingly, shippers with access to competing railroads tend to fare better on pricing than those who do not. Outside of Houston, a competitor of our company is favorably located near a stretch of track that is serviced by two railroads. Our local facility has access to just one. As a result, we pay rates that are nearly 2.5 times higher than our competitor, even though we are making equivalent shipments that cover nearly the same distance.
In addition to high rates, our company must also contend with inconsistent service. Ten years ago, we partnered with a railroad in the construction of a rail yard to service a new plant. The location was chosen carefully, as it allowed for direct routes of shipments from quarries located to the south. But soon after its construction, the railroad changed its mind. They switched the direction of trains on that stretch of track, meaning our shipments had to take a more circuitous route to our facility. This exposed our shipments to more miles and higher rates, and costs at that facility have risen 166 percent since the switch.
The excessive rates and unreliable service of the big railroads impose additional costs on businesses like mine that easily add up to millions of dollars per year. This impacts our customers and our workers. When customers buy our products, 59 cents out of every dollar is owed to rail costs. And while we have not laid-off employees, we have had to cut back drastically on their hours at a time when few can afford the lost income.
American consumers ultimately pay the price for the unchecked power of the railroads. Last year, the Consumer Federation of America found that excessive freight-rail pricing is costing consumers roughly $3 billion per year in higher prices on everything from their utility bill to their grocery bill.
Under existing law, there is little that can be done about the railroads’ pricing schemes and spotty service. Unlike other major industries, the freight railroads are exempt from antitrust laws. Captive shippers can file claims with the Surface Transportation Board, but it is a long and expensive process that is tilted heavily in favor of large corporations like the railroads.
Last December, the Senate Commerce Committee unanimously approved legislation that would strengthen the Surface Transportation Board, restore fairness to railroad pricing and provide relief to shippers and consumers getting bullied by the big railroads. Along with removing the railroads’ monopoly protections, this would be a huge first step in building a fair and competitive marketplace for shippers and the railroads.
Unfortunately, the clock keeps ticking on this Congress as their priority list keeps growing longer. But if Members of Congress want to help American businesses and families, then this rail relief legislation needs to keep moving down the tracks toward enactment this year.
Gene Carrier is vice president of the East Texas Asphalt Company, LTD based in Lufkin, Texas.