Opinion: In the Interest of Competition

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Ed Hamberger, president of the Association of American Railroads, recently warned the trucking industry against getting involved in attempts to impose new competitive access rules on the railroads (2-8, p. 1).

That he would issue such a warning is an indication of the increasingly embattled position in which the railroads find themselves. That the position is a result of the rail industry’s own ill-considered actions and appetites is scant consolation.

Although intermodal is the fastest-growing segment of rail service, bulk shipments, especially coal and grain, still represent the most important traffic the railroads have, by any measure — carloads, ton-miles or revenues.

Shippers of bulk, by and large, are rail-dependent. The only competition for their business is among railroads. Because it was always a rare thing for two railroads to operate lines serving the same shipper, the competition was usually of the “product or geographic” variety. Now, in the wake of mega-mergers, even those kinds of competition must seem much more questionable.

The shippers call themselves “captives,” and it is pretty hard to make a strong case that they are anything else. And many of them are not happy with the situation.

First, the shippers say they have been forced to suffer shoddy service while rail companies digest their competitors through mergers — and that’s not over yet. At the same time, they continue to pay rates designed to cover — with a substantial profit — all of the railroad’s fully allocated (fixed and variable) costs. The final insult is to know that the security afforded by a solid base of captive shippers is what enables the railroads to set rates at levels that will attract intermodal traffic — more intermodal traffic, in fact, than rail carriers seem able to handle.

For the full story, see the Feb. 22 print edition of Transport Topics. Subscribe today.