Survey: High Rail Costs Force Some Shippers to Switch to Other Modes

Chemical Week
By Esther D'Amico
March 16, 2009

Railroads lost business last year from chemical shippers and others due to large rail cost increases, according to a new survey of 170 shippers by energy and rail shipper advisory firm Escalation Consultants (Gaithersburg, MD). “The economy is not the only reason for the large drop in rail traffic,” says Escalation Consultants. “Companies overwhelmingly believe that railroads abuse their market power.” Shipper groups from several industries, including chemicals, sponsored the survey.

Only 6% of survey respondents believe that railroads do not abuse their “monopoly power” over customers, the survey says. Some 49% of companies surveyed lost business due in part to high rail freight costs, and 16% attributed workforce reductions in part to a big increase in these costs, it says.

Last year “was a record-breaking year for railroads, which had over-reaching fuel costs through their fuel surcharge programs,” Jay Roman, president of Escalation Consultants, tells CW. “With the slowdown in the economy, the barge guys have really been impacted and so have the truckers, which are coming in with big reductions. But the railroads are the odd man out; they are not coming out with reductions in their rates even though their volumes are dropping substantially.” Roman cites rail fuel surcharges that have not fallen “as quickly as the cost of fuel has come down.”

High rail costs have led shippers to use other, less fuel-efficient modes of transport to handle freight that would otherwise have gone by rail, Roman says. The situation has made off-shore production, which avoids rail, less costly than domestic production for many producers, and it has caused some rail customers to be priced out of export markets, he says. These costs also allow imported goods “to take business away from many domestic producers that utilize rail, and cause changes in how many companies purchase and produce their products so as to avoid rail,” he adds.