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State’s rail service said to be off track

“A problem ignored will only get bigger.”

Those words were uttered by Wisconsin Department of Agriculture, Trade and
Consumer Protection Secretary Rod Nilsestuen in regard to the current state
of rail shipping costs and services in the state.

Nilsestuen and Public Service Commission of Wisconsin Chairman Dan Ebert co-hosted
a public hearing on rail shipping issues and their impact on the economy Tuesday
at the Milwaukee Public Library.

Since Congress passed the deregulating Staggers Rail Act of 1980, mergers and
consolidations have decreased the number of Class 1 railroads from more than
40 to seven, with four of the seven controlling more than 90 percent of the
nation’s track.

This has resulted in a bevy of “captive shippers,” businesses that
can only economically ship their products via one railroad. Captive shippers
feel they are paying unreasonably high rates and receiving poor service from
railroads because they have no affordable alternative.

On Tuesday, speakers from the agriculture, energy utility and paper mill industries
all testified before the hearing chairmen on what they perceived as inadequate
railroad service or prices.

Peter Friedmann, executive director of the Agriculture Transportation Coalition,
said farmers were hurt by the shortage of rail service to outlying areas, but
railroads were reluctant to provide more service because of the difficulties
in transporting grain and livestock compared to cell phones or clothing.

“Elected representatives have to understand what’s at stake,”
said Friedmann. “Are agriculture jobs worth keeping, and do we care if
Wisconsin agricultural competes internationally and nationally?
“If yes, then (politicians) need the will to intervene.”

He also believed that additional rail service would reduce the glut of truck
traffic by 20 percent, killing two birds with one stone.

Pocketbook issues

Barry McNulty, media relations manager for We Energies, said that the Union
Pacific railroad’s failure to reliably deliver coal from the Powder River
Basin in Wyoming and Montana forced the utility to use alternative and more
expensive means of transportation in 2005, which resulted in a $35 million to
$45 million increase in energy costs.

Bruce Ridley, manager of a corrugated packaging manufacturer in Tomahawk, testified
that the owner of his company’s only available railroad, Canadian National,
has failed to provide the quality of service it promised to maintain to gain
approval from the U.S. Surface Transportation Board, an oversight agency, to
buy the railroad in 2001.

But complaints to the STB have proven expensive, time-consuming and unsuccessful,
according to Ridley, who advocated for national legislation that would simplify
the complaint process and offer federal tax credits for railroad investments.

Kevin Soucie, a representative for Canadian National, expressed dismay that
CN and the other railroads were not invited to speak at the fact-finding hearing.

Soucie said railroad profits since the Staggers Rail Act have been exaggerated
and that even though rail earnings have increased about 5 percent since 2004,
they still trail those of all industries.

“Prior to 1980, railroads were abandoning lines like crazy in Wisconsin
and other places and went into bankruptcy,” Soucie said. “Soon after
it was passed, productivity took off, volume took off, revenue remained flat
and rates fell, so the biggest beneficiaries of railroad deregulation were the

“Conversely, the biggest losers of any effort to re-regulate the railroads
will be the customers.”

No competition

Soucie also noted that railroads reinvest 18 percent of their revenue in capital
improvements, far more than the utility, paper, coal or food industries.

“They are asking for more rail investment but then asking to suppress
the revenue to invest in better service,” he said.

Soucie argued that railroads’ primary competition is trucking, which does
not have to maintain roads as the railroads do rails.

“Railroads in the U.S. carry about 40 percent of the inner-city ton miles
of freight in this country, and they do so getting less than 10 percent of the
revenue,” he said. “That means all the other modes of transportation
are walking off with more than 90 percent of the transportation revenue. That’s
hardly a display of market power by the railroads.”

Of course, the trucking industry is not exempt from antitrust laws as are the
railroads, which had several of the speakers hinting that monopolies were in

“The implication is that Wisconsin communities could be served by more
than one railroad when in fact, most communities barely have enough business
to support one railroad,” countered Soucie. “(More railroads) would
divide up revenue, discourage investment and have the opposite effect of what
was intended. It would result in a loss of rail service.”

Soucie said the only solution to the problems was railroads and shippers working
it out among themselves to satisfy both parties.

“If we don’t work with our customers to keep them competitive in
their markets, those destinations can get that product from other parts of the
country or world,” he said. “So we have tremendous incentive to work
with our customers, because if they lose the business, we lose the business.”

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