A showdown between the steel and railroad
industries is under way.
It begins with a House Transportation and
Infrastructure Committee hearing. The central question is
whether the railroad industry, which was deregulated 27 years
ago during a period of financial crisis, has grown too
consolidated and too powerful. As a result of deregulation, the
number of Class I railroad companies serving North America has
dwindled from 40 in 1980 to just seven today.
Steel producers forced to rely solely on
Class I railroads have been particularly impacted by
deregulation, according to the Steel Manufacturers Association
(SMA). Those "captive shippers," in industry jargon, have long
complained about the lack of competition, deteriorating service
and rising prices. On average, rail rates are up 5 to 8 percent
from a year ago, the SMA said, and the increases are even more
dramatic for captive shippers, with some citing increases as
high as 50 percent.
"These rising transportation costs are a real
concern for steelmakers," said Adam Parr, manager of public
policy for the SMA, which is leading the charge to break what
it says is a monopoly on rail service by Class I railroads.
The complaints of shippers have mostly fallen
on deaf ears in the past, but steel manufacturers have reason
to believe that things could be different this time around.
Democrats, who are typically more sympathetic to shippers'
viewpoint, now control Congress, and Rep. James Oberstar (D.,
Minn.), a member of the House Steel Caucus, is chairman of the
Transportation and Infrastructure Committee. The Sept. 20
committee hearing marks the beginning of Oberstar's push to get
his railroad competition bill, H.R.2125, through the committee
and perhaps to the House floor.
Oberstar, a congressional veteran who
actually voted in favor of the Staggers Rail Act that
deregulated the industry 27 years ago, said that legislation
has been successful in helping railroads recover from their
previous crisis. Industry rates of return that hovered in the
1- to 2-percent range in the 1970s were between 6 and 9 percent
in the 1990s. Today, U.S. railroads account for 42 percent of
intercity freight ton-miles, more than any other mode of
The unprecedented consolidation of the
railroad industry following deregulation has resulted in entire
states and industries becoming dependent on a single Class I
railroad. "These captive shippers are charged rates so much
above competitive rates that they cannot compete in world
markets," Oberstar said in a recent speech.
Oberstar said that if it wasn't for the
roughly 300 new lower-cost, short-line railroads that have been
created in the past two decades, which account for about
one-third of the nation's freight rail network, "thousands of
our nation's farmers and small businessmen would have no access
The railroad industry claims that Oberstar is
trying to re-regulate the industry, and that doing so would
hinder railroad infrastructure investment, resulting in more
traffic congestion on already crowded highways. The railroads
also claim that average rail rates have declined by more than
half on an inflation-adjusted basis since deregulation.
"The rail industry is strong, competitive and
thriving because Congress wisely chose to get out of the
railroad business in 1980 by allowing railroads to operate like
market-focused businesses," said Edward R. Hamberger, president
and chief executive officer of the Association of American
Oberstar insists that his bill will not
re-regulate the industry, but reduce impediments to competition
that adversely affect rail customers. He accused the Class I
railroads of launching a campaign to scare the short-line
railroads into opposing the bill. "One provision in my bill
will specifically help short-line railroads and shippers by
eliminating artificially created paper barriers, which require
a short-line railroad to deliver all or most of its traffic to
the Class I railroad that originally owned the short line," he
said. "Those paper barriers are an impediment to competition.
There is a persuasive case that they actually prevent
short-line railroads from earning more revenue."
Meanwhile, steel producers say they
understand that they risk retribution by coming out too sternly
against railroads. But given the failure of the Surface
Transportation Board to act on their behalf, the SMA says
shippers have no other option but to push for legislative
"The SMA has no interest in bashing the
railroads unnecessarily or in having an adversarial
relationship," Parr said. "Steelmakers are dependent upon
efficient and reliable rail service, and we are pleased to see
the renewed health and vitality of the major North American
railroads. We are, however, concerned with the lack of
competition that exists in the current system, and the
deteriorating service, coupled with increasing rates, that has