the strength of holiday sales to clear shelves of old inventory.
With a weaker economy cutting their profits, shippers are pushing back at railroad pricing.
“I haven’t spoken with any rail shipper who expects their rates to go down in 2007,” said Curt Warfel, logistics manager at Eka Chemicals and current chairman of the National Industrial Transportation League, a leading shippers lobby. “A general softening in the economy, accompanied by a much more competitive truckload market, should begin to put the brakes on the double-digit increases many of the railroads have been asking for over the past two to three years.”
Shippers have also asked the federal Surface Transportation Board to look at how carriers set their fuel surcharges, as rate-stressed customers argue fuel fees should be linked to actual fuel use rather than used as another profit center.
But the tension over rates is showing up in other areas as well, recently triggering a battle of public statements between AAR and two of its biggest shipper groups, the NITL and the National Grain and Feed Association.
AAR issued a statement sharply criticizing shipper organizations over an STB proceeding to simplify standards for rail rate cases, also callled small rate cases,. “The shippers are long on criticism and short on constructive suggestions,” said AAR President and CEO Ed Hamberger.
NITL and NGFA sent the STB a letter saying the rail group was trying to “ pressure the board outside the board’s legally constituted proceeding” instead of making its case to the agency directly.
The rail-shipper tension over cases at the STB comes amid ongoing concerns that may reach a boiling point in 2007.
Separately, AAR and chemical shippers are wrestling with how to update the tanker fleet that carries hazardous materials.
The safety-focused Federal Railroad Administration is reviewing potential changes in tankcar design that could lessen the risk of catastrophic hazmat releases. But rail union officials at a recent public
hearing said the more urgent goal is to alter railroad management practices to lessen crew fatigue that can lead to accidents, or require low-tech equipment to be installed in “dark territory” that does not have computer-controlled track signaling.
Tension is also simmering over plans by the Dakota, Minnesota and Eastern to expand into the Powder River Basin to become a third major PRB line. Its plan passed an STB environmental impact review in 2006, but its request for a $2.3 billion federal loan to fund the project from the FRA has drawn opposition. BNSF told the board such a DME line “could cause substantial additional delays to time-sensitive BNSF trains at Savanna, Ill.”
Meantime, STB’s new chairman, Charles Nottingham, says the board will review its current method of determining railroads’ “cost of capital” —– a calculation the agency uses to assess the need for rate changes for shippers who qualify for price regulation.
And railroad officials say they are always wary there could be a drive to reregulate the industry, which escaped most of its federal rate controls in the 1980 Staggers Act.
Railroads do want some measure of government intervention, but they want to see it on the tax side in the form of an investment tax credit as an investment to invest more in the infrastructure shippers say they need. In the meantime, however, railroads are increasing their capital investments in track, equipment and facilities.
Norfolk Southern will boost capital spending about 12 percent in 2007, to $1.34 billion “to meet the continuing strong demand we anticipate in 2007 and beyond,” said CEO Wick Moorman. “We will continue to invest in the infrastructure, equipment and technology necessary to provide the best possible service to our customers.”
Canadian National, with Canada’s largest east-west railroad and a major north-south U.S. line along the Mississippi River, is raising capital spending 4 percent to about $1.4 billion, slower than the gain in 2006 when it had a major siding expansion project and was
● The Surface Transportation Board has three chairmen in a year, with Roger Nober leaving in January, W. Douglas Buttrey replacing him and Charles “Chip” Nottingham taking the helm in August.
● The Dakota, Minnesota and Eastern Railroad wins STB approvals for its plan to build a new line into the coal-rich Powder River Basin and compete with Union Pacific and Burlington Northern Santa Fe. DME’s request for a $2.4 billion federal loan is pending.
● Fuel costs and freight rates stiffen in the first half and some shippers warn of rail service problems, but a slowing economy and an autumn drop in fuel prices help remove congestion and ease surcharges.
● Rate-stressed shippers turn to the STB, which holds a May hearing on rail fuel surcharges and proposes new rules, revises its process for large rail freight rate cases and plans to simplify small rate cases.
● September brings the three highest rail intermodal weeks on record, before falling domestic trailer loads slow the overall trend. International shipments are strong.
● DOT and DHS propose new rules to improve rail safety in hazardous materials routing and lessen the risk that terrorists could tamper with idled hazmat railcars.
aggressively boosting its grain car fleet.
Spokesman Mark Hallman said CN will continue building business with its scheduled departure service, plus development in the Western Canada oil sands area and a third-quarter opening of a big Prince Rupert port intermodal terminal.
Smaller rival Canadian Pacific reduced its 2006 capital budget after a big 2005 outlay, but said it will increase spending nearly 6 percent or up to $773 million in 2007.
Whether the railroads keep to all these plans may depend on the economy. And how well the railroads perform if the economy weakens substantially will depend on whether the really have gone through a renaissance since Staggers.
“I think we will see a tough transportation market in the first half of the year,” said Hatch. The issue then might not be so much how the railroads are doing in total traffic volumes but whether they are taking share away from other modes.
“It’s key to me,” Hatch said, “to see how the railroads perform on a relative basis.”
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