More Costs Shift to Customers

Shipping rates in the freight rail industry continue to increase, with 2005 rates marking the largest annual increase since 1985, according to an August 2007 Government Accountability Office (GAO) report.

In 2005, freight rail rates jumped by 7 percent, while railroads also shifted other costs to shippers that had been included in the overall rate. In addition, rail customers increasingly are required to own and maintain freight rail cars and other railroad equipment, greatly increasing the costs of doing business with railroads. GAO reported that the 7 percent increase is an aggregated number -- which means that the increase to captive shippers, who have no transportation alternatives, is significantly higher.

Meanwhile, the Surface Transportation Board (STB), the federal regulatory body charged with overseeing the rail industry, is unable to adequately determine or regulate potential monopolistic practices.

The new report, "Freight Railroads: Updated Information on Rates and Other Industry Trends" provides an update to the October 2006 GAO report that analyzed the state of the freight rail industry and the efficacy of federal oversight of the industry. The report looked at 2005 data that was not previously available and reinforces the GAO's earlier finding that there is little competition available to rail customers.

"Railroads continue to enjoy unrestrained ability to increase prices at a whim and transfer almost every imaginable cost to the rail customers," said Glenn English, Chairman of Consumers United for Rail Equity (CURE), a coalition of rail customers seeking changes in federal rail policies. English is the CEO of the National Rural Electric Cooperative Association and is a former ten-term member of Congress. "Meanwhile, unreliable and shoddy service has become standard operating procedure for most railroad companies. Yet, the industry continues to be protected by an STB that is either unable or unwilling to provide adequate oversight."

The report also found that the amount of industry revenue reported as "miscellaneous" tripled between 2004 and 2005, increasing from about $633 million to over $1.7 billion. Included in this miscellaneous category were fuel surcharges, which the STB recently banned the railroads from collecting because they found them to be improperly calculated. To date, the STB has refused to order the railroads to return any of the illegitimate fuel surcharges. Consumers across the country ultimately pick up the tab.