Staggers Act – 30 Years Later
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Transcript of Staggers Act – 30 Years Later
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