WASHINGTON, D.C.—In anticipation of this afternoon’s hearing on federal rail policy, Senator John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, today released a Committee staff report, The Current Financial State of the Class I Freight Rail Industry, showing that the largest American freight railroad companies have been earning record profit margins at the expense of their shipper customers. The findings of the report suggest that the Staggers Rail Act of 1980, a thirty year-old law giving railroads the authority to charge many U.S. businesses extraordinarily high shipping rates, needs to be reformed.
“If you listen to what the railroads tell their regulators in Washington, they are barely keeping the lights on,” Chairman Rockefeller said. “But the reality is that Class I railroads have become some of the most profitable companies in the United States. They enjoy substantial market power yet the current railroad regulatory system regards them as incapable of both making needed capital investments and remaining healthy. It’s past time to update our rail policies to change a system that allows railroads to grossly overcharge captive shippers and to better meet our nation’s future transportation needs.”
Background on the Report
Thirty years ago, Congress passed the Staggers Rail Act to restore the financial stability of the U.S. rail network. To help the railroads boost their revenues, the Staggers Rail Act gave Class I railroads the authority to charge extraordinarily high rates to shippers with access to only one rail line (“captive shippers”) and no other transportation alternatives. The Commerce Committee staff report released today documents how, unlike thirty years ago, the four largest Class I railroads are achieving record profit margins and aggressively increasing prices for their customers.
Using the companies’ Securities and Exchange Commission (SEC) filings, quarterly investment calls, industry analyst reports, and other sources, the Committee staff report concludes that the freight rail industry has more than achieved the Staggers Rail Act’s policy goal of restoring the financial stability of the U.S. rail system. Among other things, the report finds that:
- In the same year (2008) that the rail industry told the Surface Transportation Board that its profitability was lagging behind other sectors of the economy, Fortune magazine rated railroads as one of the top five most profitable industries in the U.S. economy.
- While the railroads tell their regulators they are not making high enough profits to cover all of their long-term capital investment needs, the Class I railroads are using billions of dollars of their profits to buy back stocks and boost the short-term values of their stocks for their shareholders.
- Although the railroad industry claims that it still has difficulty attracting sufficient amounts of investment dollars, Warren Buffett and other investors have been pouring billions of investment dollars into the companies.