Railing at the railroads by scrapyard
managers is fairly common, dependent as they are on those
carriers for shipments to steel mills and ports.
How to secure better service and lower rates
isn't always self-evident, as the Institute of Scrap Recycling
Industries (ISRI) has discovered. When ISRI last wrestled with
the matter, putting out a policy statement at a 2007 board
meeting, it endorsed certain approaches but refrained from
backing specific bills in Congress.
"We know what the problems are. We don't
necessarily know what the magic bullet is," William Johnson,
ISRI's director of political affairs, said recently. "The worst
thing to do is to cause the railroads more problems trying to
ISRI's wish list More rail cars, getting them
scheduled and routed more efficiently, increased infrastructure
spending and "removing the anti-competitive protections
afforded to the railroads."
A significant piece of the picture is that
intermodal containers have become the focus of the rail
industry. That means less attention is paid to gondola cars
used to move steel scrap, and such shippers can't threaten to
go elsewhere with their business.
As the North American Alliance of Automobile
Manufacturers put it "Intermodal has the most competitive
alternatives for transportation services, which creates a
healthy commercial pricing environment for global shippers."
But for customers needing specialized rail cars, the automakers
said, "commercial rates may be leveraged due to the captivity
of those customers, to subsidize the capital investment in more
competitive 'franchises' on the railroad."
The railroads therefore must be prodded to
resist "putting undue economic pressure on those commodity
shippers (that are) captive to the railroad through geography,
specialized equipment needs or scope of volume," the auto
The type of rail car used for steel scrap has
become an increasing headache. "Much of the current fleet of
gondola cars is old and slated for retirement in the next
several years, with little or no replacement by the railroads,"
ISRI told the Surface Transportation Board (STB) last year.
"The current shortage of railroad-owned gondola cars is likely
So should the government play a role to
influence the pace and direction of railroads' capital
Some shipper coalitions have called for a
special investment tax credit for rail carriers.
Regional initiatives of this sort do exist.
Serious proposals in Texas and Illinois would include public
funding to improve rail freight capacity. A public-private road
and rail plan in Texas calls for a corridor from Mexico to the
Oklahoma border. A plan for the Chicago area would upgrade four
rail transportation corridors for freight movement, with a
fifth earmarked for passenger traffic, including the
elimination of highway-level grade crossings.
ISRI isn't seeking government dollars for
rail investment. The group's October 2007 policy statement
instead asked Congress to create incentives for railroads to
speed improvements in track and infrastructure. ISRI also
called for the removal of "anti-competitive protections
afforded to the railroads." How that might play out is
"The captive shipper problem raises an
important policy question for Congress," said John Frittelli of
the Congressional Research Service. "Could more rail-to-rail
competition lead to a more robust and efficient railroad system
or could it undermine it by discouraging investment in rail
Example If a carrier has 300 miles of track
going in a shipper's intended direction but the shipper wants
it handed off after 50 miles to a competing railroad with a
cheaper rate or better service, should the shipper have the
right to insist on the alternate pathway?
Johnson said the lack of route choice
sometimes means a scrap shipment is unnecessarily stuck in a
switching yard for a day or two until the controlling carrier
has a train available heading to the right destination. "When
it sits there doing nothing, it costs as much as if it were
moving," he said.
The current system also cramps what
short-line railroads can do. Typically, they are committed by
contract to accept the routing and rates of the adjacent major
carrier. The larger railroad might still own the short line's
leased track, but even if that's not the case the sale terms
that established the short line might have restricted its
autonomy. "Paper barrier" is the regulatory jargon for this
sort of issue.
How much of an impact would result from
letting shippers play railroads off against one another is
difficult to guess. The eastern states are dominated by two
carriers, CSX Corp. and Norfolk Southern Corp., while the
western states are served by another pair, Burlington Northern
Santa Fe Railway Co. and Union Pacific Railroad Co. Even if the
rulebook were rewritten to foster competition, the vigor of the
contest might be in doubt.
A former STB chairwoman, Linda J. Morgan,
once warned that a highly competitive pricing structure would
favor those customers that could be served most cheaply while
providing the highest volumes. She probably had in mind
intermodal, coal and grain. A likely outcome would be "a
smaller rail system that would serve fewer and a different mix
of customers than are served today," she wrote. Her thrust was
that non-core customers are likely to be worse off if they try
to reshape the system.
That opinion might cut both ways, since she
was the first STB chair from 1996 to 2002. Some shipper
lobbyists say the STB has dealt more gently with railroads than
Morgan, a 15-year congressional staffer
before her STB stint, later joined the board of directors of
Canadian Pacific Railway Ltd. She is a partner and the lead
transportation attorney at Covington & Burling LLP in
Washington, and shows up in a current STB docket as Union