Staggers Act – 30 Years Later

The Shippers’ Perspective

Ike Roberts

Freight Resources Network, LLC

From the shippers’ perspective has Staggers been a success?

From 1980 to 2004

From 2004 to today

Absolutely

No longer

What’s Changed?

The entire landscape of the railroad industry

• Makeup

• Ratemaking

• Attitudes

Industry Makeup

Year # of Class I’s Employees Miles of Track

1980 39 458,000 270,000

2010 7 152,000 158,000

Regionals & Shortlines

(estimate) 759 20,000 68,000

A Fundamental Change Has Occurred

0.02

0.025

0.03

0.035

0.04

0.045

0.05

0.055

0.06

0.065

0.07

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Re

al

Re

v p

er

To

n-M

ile

($

)

All Conmmodities

Food and Kindred

Lumber and Wood Products

Pulp, Paper and Allied

Chemical

Real Revenue Per Ton-Mile (1985-2007)

For 20+ years rail rates failed to keep up with inflation

Post Staggers Tactics(1980 to 2004 – Buyer’s Market)

Price competition

Contract rates, refunds, surcharges

Volume Commitments

One-on-one negotiations

Branch line disposal

Mergers/acquisitions

Post-Post-Staggers Pricing(2004 and beyond – seller’s market)

Less contracting

More tariffs, more Rule 11

“Closed” routes

Less one-on-one negotiations

More independent carrier rate control

Goal – Increase Operating Margins (always the primary focus)

Looking to the future: irreversible change

Rates increasing in real dollar terms

Carriers taking back control of rates: - tariffs: in more than just commodity markets - proportional rates (Rule 11) - major RRs will control own destiny

Less head-to-head price competition

RATEMAKING

Justification for our beliefs:

1. Higher Fuel costs 1a. Rail 4x more fuel efficient than truck

2. Declining rail productivity gains

3. Volume growth, taxing capacity

4. Fewer major RRs 4a. Fewer routing options

Attitude

* Wall Street RR’s are 5th most profitable industry in U.S.

* STB Adopted a laissez faire approach since 1995

46 rate cases filed: 40 decided - 6 TBD avg 3/yr

Only 4 Small Rate Cases filed

On June 22 holding hearing on competition. Wall St’s take:

Lot’s of noise – little to no change. No threat to railroads‘ raising prices

* Shippers Take it or leave it

Ratemaking is handled at higher levels

Shipper contact by Marketing is avoided

What has Staggers Produced for Shippers?

2 healthy duopolies – one east, one west – who act like it

A rail market that has evolved into 70%+ single–line moves

A regulatory agency that is seen as offering little help

Escalating rates, mixed fuel surcharges, same service

Redefinition of Terms

• Negotiation:

Old Definition: discuss with the RR in hopes of reaching a bilateral agreement New Definition: provide insights in hope of influencing RR to take favorable rate action

• Deal:

Old Definition: a bilateral business transaction

New Definition: unilateral RR rate action in response to outside influence