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In recent years, railroads have been combining with each other,
mergingintosuper systems, causing heightened concerns about monopoly. As
recently as 1995, the top four railroads accounted for under 70 percent of the
total ton-miles moved by rails. Next year, after a series of mergers is
completed, just four railroads will control well over 90 percent of all the
freight moved by major rail carriers.
Supporters of the new super systems argue that these mergers will allow for
substantial
cost reductions and better coordinated service. Any threat of monopoly,
they argue, is removed by fierce competition from trucks. But many shippers
complain that for heavy bulk commodities traveling long distances, such as coal,
chemicals, and grain, trucking is too costly and the railroads therefore have
them by the throat.
The vast consolidation within the rail industry means that most shippers
are served by only one rail company. Railroads typically charge such "captive"
shippers 20 to 30 percent more than they do when another railroad is competing
for the business. Shippers who feel they are being overcharged have the right to
appeal to the federal government's Surface Transportation Board for rate relief,
but the process is expensive, time consuming, and will work only in truly
extreme cases.
Railroads justify rate discrimination against captive shippers on the
grounds that in the long run it reduces everyone's cost. If railroads charged
all customers the same average rate, they argue, shippers who have the option of
switching to trucks or other forms of transportation would do so, leaving
remaining customers to shoulder the cost of keeping up the line. It's theory to
which many economists subscribe, but in practice it often leaves railroads in
the position of determining which companies will flourish and which will fail.
"Do we really want railroads to be the arbiters of who wins and who loses in the
marketplace?" asks Martin Bercovici, a Washington lawyer who frequently
represents shipper.
Many captive shippers also worry they will soon be his with a round of huge
rate increases. The railroad industry as a whole, despite its brightening
fortuning fortunes, still does not earn enough to cover the cost of the capital
it must invest to keep up with its surging traffic. Yet railroads continue to
borrow billions to acquire one another, with Wall Street cheering them on.
Consider the 2 billion bid by Norfolk Southern and CSX to acquire Conrail this
year. Conrail's net railway operating income in 1996 was just million, less than
half of the carrying costs of the transaction. Who's going to pay for the rest
of the bill? Many captive shippers fear that they will, as Norfolk Southern and
CSX increase their grip on the market. |
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