Freight railroad customers complain about prices, service

In the late 1800s, railroad robber barons enjoyed monopolies in many rural markets before regulation and the trucking industry tempered high freight prices.

Now, businesses contend the nation's major railroads are trying to resurrect that Gilded Age.

Many customers say the nation's big freight railroads are socking them with unreasonable rate increases and providing poor service in areas where they face no rail competitor, hurting the economy and the nation's ability to compete globally. The cost increases typically are passed to consumers, says Curt Grimm, a business professor at the University of Maryland.

The practices especially hurt industries — such as utilities and chemical and grain producers — that depend heavily on rail transport because they ship in huge quantities and own plants or farms in rural areas. Railroads transport about 40% of the nation's cargo.

Chemical giant DuPont dd says raw-material shipments to its Richmond, Va., Spruance plant that makes Kevlar — a fiber for body armor used by U.S. troops in Iraq — have arrived more than five days late several times the past 15 months.

Noting the plant is served by one railroad, CSX csx, DuPont Vice President Gary Spitzer told the House Transportation Committee Tuesday that CSX also raised its rates recently by up to 102%. That will cost DuPont an extra $2 million a year.

CSX's Bob Sullivan says 97% of its deliveries to the Spruance plant are on time. He says rate increases partly reflect costs to transport toxic chemicals.

Congress getting involved

Now, Congress is wading into the debate. The Senate Judiciary Committee last week passed a bill that would apply competition laws to railroads, which are largely exempt from antitrust scrutiny. A measure in the House would make it easier for shippers to challenge high rates.

Railroads "have monopoly power … and they charge rates that have nothing to do with costs," says Bob Szabo, head of Consumers United for Rail Equity. Its members include trade groups for the utility, chemical and paper industries.

The railroad industry cites Government Accountability Office figures that show average rates have held steady since 1985, without figuring in inflation. Ed Hamberger, head of the American Association of Railroads, says the industry faces competition from trucks and gas pipelines, as well as among railroads. Recent price increases, he says, make up for 20 years in which rates for many customers fell.

In the 1970s, railroads were losing money and going bankrupt under stifling government regulation. Deregulation in 1980 let carriers set rates and ditch or spin off unprofitable routes. Consolidation shrank the number of major railroads from about 40 to seven. Today, the industry enjoys record profits, with the seven big carriers earning $7.6 billion last year, up from $3.7 billion in 1996.

But customers say the mergers and track abandonments increased the number of towns served by one railroad. Since 2004, when a robust economy boosted freight demand, rates for cargo sent to or from such "captive" shippers have surged. Those prices averaged $34.05 a ton in the second quarter, more than double the rates in competitive markets, says Escalation Consultants, a consultant for shippers.

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