Re-Regulation Not A Risk For Rails

Reporting on the remarks of Charles Nottingham, chairman of the Surface Transportation Board (STB), equity analyst John Larkin noted the industry appears to be safe from re-regulation through the course of Nottingham’s term, which extends through 2010. The STB Chairman appears to be a “free market advocate,” said Larkin, indicating a number of times during his presentation that it was his preference for railroad/shipper disputes to be resolved privately. This despite the fact the STB recently streamlined and simplified its process for dispute resolution in large rate cases. A similar, though controversial effort is underway for small rate cases.

Domestic freight volumes are expected to double in 20 years, and railroad volumes could grow by 50% to 60% in that period. A challenge for the STB is determining a policy that would enable the rail system to accommodate that level of volume growth. What this appears to mean for shippers is, “it is likely that railroads will be allowed to charge enough to justify investment in incremental capacity, at least while Chairman Nottingham is leading the STB,” observed Larkin.

A new fuel surcharge rule was due out of the STB before the end of the year, one which Larkin suggested would relate the fuel surcharge for a particular rail move to the incremental fuel cost actually incurred by the railroad in handing a particular load. Shippers have complained that rail fuel surcharges were rate-based, not mileage based and, therefore, did not reflect true costs.

Also on the STB’s agenda for 2007 could be the formula used to determine revenue adequacy.