**Testimony of**

**Terry C. Whiteside**

## On Behalf of

**Montana Wheat & Barley Committee**

**Wheat and Barley Commissions in Colorado, Idaho, South Dakota and
Washington**

**Oregon Wheat Growers League**

**The Alliance for Rail Competition**

**Before the**

**U.S. Senate Commerce, Science and Transportation Committee**

**Subcommittee on Surface Transportation and Merchant Marine**

October 23, 2003

Madam Chairwoman and members of the subcommittee, thank you for the
opportunity to testify before you today. My name is Terry Whiteside,
Principal in Whiteside & Associates, Billings, Montana and I represent
many farm producer groups, including the Montana Wheat and Barley
Committee, the Wheat and Barley Commissions in Colorado, Idaho, South
Dakota and Washington as well as the Oregon Wheat Growers League. The
Montana Wheat and Barley Committee is a wheat and barley producer
check-off organization representing all Montana farm producers. The
Idaho Wheat Commission and Idaho Barley Commission represent all of the
Idaho wheat and barley producers, respectively. The Colorado Wheat
Administrative Committee represents wheat producers in Colorado. The
Oregon Wheat Growers League represents the wheat producers in Oregon.
The Washington Wheat Commission and the Washington Barley Commissions
represent the wheat and barley producers in Washington.

The Alliance for Rail Competition (ARC) is a diverse coalition of
shippers that was formed five years ago for the sole purpose of
developing and promoting a consensus-based plan for achieving
rail-to-rail competition. I serve as Chairman of that organization.
Concerns about railroad market power span all rail dependent shippers
and industries. ARC's growing membership reflects the diversity of those
interests: agriculture, coal, chemicals, consumer products, glass
producers, industrial products, minerals and petrochemicals, and some of
the trade associations that represent many of these groups, as well as
port and industrial development authorities. ARC has teamed up with 12
other national organizations to combine our work efforts to bring rail
competition back to this industry. These other organizations have
pledged to work together in their support for S. 919: Agriculture Ocean
Transportation Coalition, American Chemistry Council, American Public
Power Association, Consumer United for Rail Equity, Edison Electric
Institute, National Association of Wheat Growers, National Barley
Growers Association, National Petroleum Refiners Association, National
Rural Electric Cooperative Association, Paper and Forest Industry
Transportation Committee, The Fertilizer Institute, and The National
Industrial Transportation League.

### The Heart of the Issue Is Choice

The heart of this issue is the lack of choice for vast numbers of rail
customers. The issue is not about excessive rates, poor or erratic
service or monopoly practices. They are the symptoms of the problem. The
issue continues to be lack of choice for rail customers in the
marketplace.

S. 919 is not a re-regulation bill. It does not re-regulate any part of
this industry.

S. 919 Does NOT cap rates

S. 919 Does NOT mandate open trackage rights.

S. 919 Does four major things:

1.  S. 919 reestablishes that the National Rail Policy is
    pro-competition to ensure and nurture competition in this vitally
    important industry.

2.  S. 919 [restores several provisions that Congress established in
    1980 in the Staggers Rail Act to their original intent and
    purpose]{.underline} taking out the intervening agency
    interpretations that have altered original Congressional language
    and intent (Railroad must quotes rates between any two points on
    their system and removal of the anti-trust provision in terminal
    area and switching).

3.  S. 919 establishes a final offer arbitration concept being utilized
    successfully in Canada to bring opportunities for resolutions of
    disputes on rates or service to rail customers.

4.  S. 919 recognizes that with concentration in the rail industry,
    Congress needs to establish a concept called Areas of Inadequate
    Rail Competition with advocacy and oversight to focus remedial
    attention to bring about more competitive balance in market place.

In short, S. 919 restores Congressional language and intent that The
Staggers Rail Act sought in 1980. It incorporates an arbitration process
that is being successfully utilized in Canada for resolution of
carrier/customer issues. It reestablishes for the STB that a competitive
rail industry is preferable to a non-competitive rail industry.

Congress has taken a look at many other industries that have been
characterized by a monopoly or oligopoly market structure and has seen
it necessary and appropriate to introduce competitive balances for the
sake of national policy.

Yet, we have seen no real action to address similar issues in the
railroad industry. In this national railroad industry in 2001, four mega
carriers generate 95% of the gross ton-miles and 94% of the revenue. Two
western carriers generate 92% of the gross ton-miles and 90% of the
revenues in the west. Four of these carriers handle over 90% of the U.S.
coal movements. Three of these carriers control over 70% of the grain
movement.

In other industries of national importance, Congress has moved to
introduce competition as the best means for ensuring consumer and
customer protections. Those industries include the natural gas pipeline
industry, which like the rail industry, is characterized by high fixed
costs. The shipping community---of which as many as 1/3 or more of our
shipments are captive --- is here today to ask you to bring competition
to the rail industry as the best means of protecting our collective
economic competitiveness.

### The 1980 Staggers Rail Act Was A Rail Competition Bill

When the Staggers Rail Act was passed in 1980, shippers understood that
regulation of railroads was to be curtailed, and instead, "to the
maximum extent possible," competition was to ensure that rail rates were
and remained reasonable. Congress passed a very good piece of
legislation in the Staggers Rail Act but it effects have been thwarted
by both regulatory interpretation and a massive concentration in the
rail industry. The Staggers Rail Act passed by this Committee was
intended to foster a competitive railroad system in this country. S. 919
attempts to restore those provisions.

Today, **whole states, whole regions and whole industries** are now
captive to a single railroad. Such concentration comes at a time when
the regulatory body which approved all of these mergers and allowed this
massive concentration of economic power has seemingly chosen to ignore
the effects of this concentration on the ever-increasing captive rail
customers, even though Congress charged this agency to "maintain
reasonable rates where there is an absence of effective competition."
Congress in 1980 never envisioned that 40 Class I's would be allowed to
merge into the a system where four major railroads control the industry
and there would be no effective backstop for the captive rail customers
to shield them from the effects of monopoly pricing. Congress clearly
wanted a healthy rail system full of innovation that was driven by
rail-to-rail competition. The ICC and now the STB has continued to alter
and undermine the spirit of the law by regulatory interpretation.

In 1980, there were over 40 Class I railroads operating in the U.S.
Further the 1980 Staggers Rail Act specified that the regulatory agency,
the Interstate Commerce Commission was to "maintain reasonable rates
where there is an absence of effective competition." In other words, if
a rail customer found that rail-to-rail competition became 'absent' it
was Congressional intent that they would have protection from predatory
pricing and service abuse. The ICC, now the STB was also charged by
Congress to work to see that the financial health of the national
railroad system improved and of course, the Congress did not want to see
any more railroad bankruptcies.

### Montana Agricultural Producers Need Bulk Transportation To Transport Grain To Market And Are Completely Captive To A Single Railroad 

The Montana Wheat & Barley Committee (MWBC) represents the wheat and
barley producers of the state of Montana. Montana is a natural resources
state with the main economies built upon products of the mine, lumber
and agriculture as well as tourism. In order for our bulk products of
the mine, lumber and agriculture to have value to Montana citizens, they
require bulk transportation (rail) to points outside Montana and, in
many cases, outside the U.S.

Therefore, the State\'s economic survival depends on having access to
good, affordable, and adequate rail transportation and attendant
facilities so that its shippers can deliver a competitively priced
product outside the state boundaries.

*Montana wheat and barley producers do not have economic alternatives to
rail transportation*. They are captive and tied to rail with no viable
alternatives to movement by rail. *The Montana wheat and barley
producers are unique because [they are the bearers of the
freight]{.underline} and cannot pass on increased transportation costs,
but must absorb them*. Virtually any other industry has some capability
of passing on some or all of its increased costs to their consumers or
customers. The farm producer is unique because they operate in an
environment where they do not have any control over the price they
receive for their crop and they must bear every increase, in all costs,
including transportation costs, without any possibility to pass those
higher costs on to anyone else. When farm producers sell their grain to
a grain elevator or merchandiser the price of rail transportation is
deducted from the price the farm producer receives. Thus the farm
producer 'bears' the rail transportation cost. The grain producer pays
the transportation charges they collect from the farm producers to the
railroads. The farm producers are very sophisticated marketers and
producers. U.S. farmers are the most efficient and productive
agricultural producers in the world. But they must compete in a world
market most of which do not have a monopoly rail transportation system
between the producer and the ultimate market that can dictate price and
profit levels to the producer. One of the challenges for Montana grain
producers comes from international competition as well as domestic
competition. Most industries that utilize rail face both domestic and
international competition. Montana grain producers understand that a
lack of choice of rail carriers creates a burden on their ability to
competitively market their products in the world.

### Montana's Primary Transportation Is A Single Railroad

Montana is a base industry state. In the 1800\'s, its chief industries
were mining, lumber and agriculture; today and in the future, Montana\'s
chief industries will be the same three industries: mining, lumber and
agriculture with the addition of tourism. Today, we, in Montana, have
one major railroad, operating as a monopoly in the transportation of
bulk commodities from the farm to market.

[Outline of Industry in Montana]{.underline}

-   The wheat industry in Montana is characterized by an export-dominant
    rail movement.

-   The barley industry in Montana is characterized by both an export
    and domestic market dominated by rail.

-   The lumber industry in Montana is characterized by both an export
    and domestic market dominated by rail.

-   The coal industry in Montana is characterized by domestic rail
    movement.

Montana is nationally ranked in agricultural production. Montana ranks
4^th^ in all wheat production, 9^th^ in winter wheat production, 2^nd^
in spring wheat production, 3^rd^ in barley production, and 4^th^ in
durum wheat production in the U.S. (Source: Montana Agricultural
Statistics Service, May, 1997 Census of Agriculture). Montana is 2^nd^
in Land in Farms and Ranches with about 60,000,000 acres.

For the Montana farm producer, the cost of transporting grain can today
represent as much as one third (1/3) the overall price received for the
grain up from only 15% 25 years ago when Montana had rail competition.

### MONTANA RAIL TRANSPORTATION IS PREDOMINATED BY ONE CARRIER

Montana\'s rail infrastructure is controlled by a single rail carrier
controlling over 96% of all rail miles, over 95% of all grain elevator
and terminal sites and move 98%+ of all wheat movements from the state.
The rail carrier controls and dictates the rail rates in all movements
from Montana eastbound or westbound***.*** Annually, the Montana
producers in normal rainfall years move about 150 million+ bushel
production that is handled by rail from Montana and bear about \$200+
million in freight transportation charges per year.

![](media/image1.wmf){width="6.245138888888889in"
height="4.247222222222222in"}Montana grain producers are being required
to pay more for their rail service than their counterparts in the grain
producing industry where effective rail-to-rail competition exists. That
payment has come in the form of increased transit times, upward
adjustments in rail rates and tight car supplies.

From Plentywood, Montana to Portland, Oregon, it is 1,207 miles on the
BNSF. From Nebraska origins, e. g. Sidney, Nebraska to Portland, it is
1,566 miles on the BNSF. To ship a 52 car shipment of wheat from
Plentywood to Portland, is \$67/car (\$3,484) more than to ship a 52 car
shipment of wheat from Alliance, *NE even though Alliance is 359 miles
further from Portland than is Plentywood*, and even though the trains
from Alliance pass right through Montana on there way to Portland. Why?
In Central Nebraska, e. g. the Sidney area of Nebraska, the BNSF has
rail competition from the UP for its wheat traffic going to the same
destination - Portland, but in Montana, the BNSF has no competition.

![](media/image2.wmf){width="6.247916666666667in"
height="4.284722222222222in"} This is modern rate discrimination that
has gone on for many decades. The graph below show the revenue to
variable cost that emanate from the rate differential between Nebraska
origins (where BNSF and UP compete) and Montana, Idaho, South Dakota and
North Dakota origins (where there is also no rail-to-rail competition).

The wheat rates, from Western Nebraska are not river compelled rates,
but rather are compelled by competition between two railroads on
movements to the Pacific Northwest (PNW).

Rate spreads between Montana origins and Nebraska origins to Portland
have increased since the passage of the Staggers Rail Act of 1980. The
result is that Montana, Colorado, Idaho, South Dakota, North Dakota and
Washington farm producers are worse off today against their traditional
competitors due to their increased captive shipper status which results
from the lack of choice of carriers.

### ![](media/image3.wmf){width="5.992361111111111in" height="4.436111111111111in"}

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### The captive rail customers in the grain country are paying rail rates which range from 200 to 400+% of revenue to variable costs well above the 180% threshold of unreasonableness established by Congress in the Staggers Rail Act.

### ![](media/image4.wmf){width="5.497222222222222in" height="3.770138888888889in"}

### 

### Captive Rail Traffic in the U.S. Now Comprises 1/3 of All Shipments

The result of a June 1998 study conducted by L.E. Peabody & Associates,
Inc. reflects quantitatively the amount of rail captivity. Fully 1/3 of
all U. S. rail movements are captive and it is spread over virtually all
major shipping commodity groups.

Peabody found that for movements included in the 1996 Costed Carload
Waybill Sample:

-   Over 31% of the revenue was generated by \"captive rail traffic;\"

-   Captive rail traffic on average has a revenue/variable cost ratio of
    2.44; and,

-   Movements of captive rail traffic were comprised of 129 different
    industry groups including coal, agriculture, chemicals, fertilizers
    and many manufactured goods.

### Whole States, Whole Regions and Whole Industries Are Now Captive

Today, whole states, whole regions and whole industries are now captive
to single railroad practices. Such concentration comes at a time when
the regulatory body which approved all of these mergers and allowed this
massive concentration of economic power has seemingly chosen to ignore
the effects of this concentration on the ever-increasing captive rail
customers, even though Congress charged this agency to "maintain
reasonable rates where there is an absence of effective competition."
Congress in 1980 never envisioned that 40 Class I's would be allowed to
merge into the a system where four major railroads control the industry
and there would be no effective backstop for the captive rail customers
to shield them the effects of monopoly pricing and service abuses.
Congress clearly wanted a healthy rail system full of innovation that
was driven by rail-to-rail competition. The ICC and now the STB has
continued to alter and undermine the spirit of the law by regulatory
interpretation.

Upon its inception in January 1996, the new Surface Transportation Board
was faced with the products of the ICC's regulatory policies: a
drastically consolidated rail market place and grave concerns from the
shipping community about the growing level of monopoly rate abuse and
deteriorating service levels. But the new STB also had a choice. At that
time, the STB could have chosen to protect the shipping community from
growing rail market dominance and begin to balance the scales between
shippers and the railroads by promoting a competitive rail
market---either by modifying existing regulatory rulemakings or
requesting changes to its statutory authority---or it could continue the
record of its predecessor, approving virtually any proposed merger and
defining the success of its decisions based upon the success of its
lawyers in the appeals court.

Based on its record, it is clear what choice the STB made. Not only did
the STB in 1997, approve the largest parallel merger of two railroads in
history in the name of "efficiency" --a merger that produced service
deterioration unprecedented in the annals of railroad history -- but it
also handed down the now-legendary "bottleneck" decision and continues
to wonder why shippers are reluctant to bring "competitive access" cases
despite significant law and precedent that was promulgated under the
ICC.

### The Issue Is Not About Railroad Rates, Service or Thwarting Economic Development -- The Issue is that Federal law Does Not Protect the U.S. Public from Monopoly Practices

The issue here is not about rates, or service or thwarting economic
development by market dominant railroads. The examples of monopoly
pricing and control are legion whether it is jeopardizing the economic
development plans of a truck assembly plant in Texas, or a chemical
plant in Louisiana, a fructose sugar plant in North Dakota and Minnesota
that wasn't allowed by the railroads to be built, plant closings in
Idaho due to rail transportation costs or rate and service issues all
across the grain states. The railroads are not the villain here. They
are doing exactly what the law, as interpreted by the regulatory body,
allows. The concentration by merger in the railroad industry has changed
the balance. The issue here is competition. The issues are of fairness
that comes from competition. The issue is that the federal law that is
designed to protect the U.S. public from monopoly market abuse does not
work. The law needs fixing to restore balance.

The agricultural producers have supported the Alliance for Rail
Competition since its inception. They have worked hard to bring together
a multitude of shipper organizations whose common bond is the belief
that increasing competition in the railroad industry is the right thing
to do. They believe that a continuation of the status quo is
unacceptable, and that changes to existing regulatory policies must be
legislated to ensure that the STB will begin to promote competition as
originally directed and intended by the 1980 Staggers Act. Therefore,
ARC and the Montana Wheat & Barley Committee and the agricultural rail
customers urge this committee to pass S. 919 which will restore major
portions of the Staggers Rail Act to their original state and further
serve to promote the reemergence of competitive forces within the rail
industry.

As I've noted before, the members of the Alliance for Rail Competition
believe that the only real long-term solution to their concerns about
rates and service quality is increasing competitive choice in the market
place.

But how do you achieve free market competition in an industry that has
only four major U.S. Class I railroads---two of which are in the West,
and two in the East? ARC believes that S. 919 will initiate the
necessary reforms to bring competitive forces and establish the goals
that the captive rail customer community wants:

-   **A SAFE, GROWING AND FINANCIALLY STRONG RAIL INDUSTRY**

-   ***ELIMINATION OF MONOPOLISTIC PRACTICES BY FURTHERING THE DIRECTION
    DEVELOPED IN THE STAGGERS RAIL ACT***

-   **COOPERATIVE INNOVATION AND CREATIVITY DRIVEN BY RAIL-TO-RAIL
    COMPETITION**

Today, railroad customers do not have the right to any of these
things---and in fact, based on the way existing regulations have been
interpreted, they barely have the [right]{.underline} to anything at
all.

S. 919 Issues:

**[Competitive Reciprocal Switching and Terminal Trackage
Rights]{.underline}** -- The Congress should provide increased rights to
competition through reciprocal switching and terminal trackage rights,
affirmatively requiring the grant of these rights within an established
distance of existing interchanges in order to promote rail-to-rail
competition.

Under the current statute, the STB is empowered to grant trackage rights
and reciprocal switching in a terminal or for a "reasonable distance"
outside of a terminal, when it finds such remedies to be "practicable"
and "in the public interest," or where reciprocal switching is necessary
to provide "competitive rail service." These rights, which are set forth
at 49 U.S.C. 11102, have been in the statute for a number of years and
were broadened in the Staggers Rail Act.

Despite these broad and seemingly pro-competitive provisions, the
agency, by rule and policy, has drastically restricted the application
of these rights. The agency's rules, promulgated in 1984, have been
interpreted in the *Midtec* decision (1984) and later cases to require
the shipper to prove competitive "abuse" in order to qualify for
competitive relief, and raise numerous other barriers. In fact, a
shipper has never won a case brought under the current rules, and the
precedent set by the half-dozen or so cases decided to date establish
tests that no shipper could possibly meet.

We recommend that legislation reversing the agency's approach should be
adopted. This will reestablish what Congress intended in the Staggers
Rail Act. The agency should have an affirmative obligation to establish
competition via reciprocal switching and trackage rights at or within a
reasonable distance of an existing interchange between rail carriers,
and the "abuse" test established by the agency should be specifically
abolished.

A substantially broadened right to competition via reciprocal switching
or trackage rights would provide the benefits of competition to a number
of shippers, where such shippers are at or within a reasonable distance
of another carrier. Because such trackage rights would be limited to
rail service at or within a reasonable distance of where two carriers
already interchange cars and locomotives, such competitive rail service
would be operationally feasible. Trackage rights are frequently used by
carriers: indeed, as part of the UP/SP merger, the UP/SP granted the
BNSF of 4,000 miles of trackage rights over its system. Our
recommendations would require the agency to interpret the statute in a
pro-competitive, rather than a restrictive, manner, where relatively
short-distance trackage rights or switching can provide competitive
opportunities

**[Shipper's Right to Competitive Routings and Reasonable Rates Over
Bottlenecks]{.underline}** -- The Congress should restore to shippers
the right to competitive rail routing through existing interchanges to
encourage rates produced by the competitive market, and should require
the provision of reasonable rates in a timely manner over rail
bottlenecks.

In the agency's 1996 "bottleneck" decision, the STB ruled that, in most
situations, a rail carrier with a "bottleneck" monopoly can lawfully
foreclose alternate and competitive rail routings by another carrier,
where the "bottleneck" carrier can provide origin to destination
service. This interpretation altered what Congress had intended in the
Staggers Rail Act in 1980.

The STB's bottleneck decision should be reversed legislatively, to
restore to shippers the right to route over competitive routings at
rates produced by the competitive market thorough existing interchanges,
and to clarify that the STB can establish a maximum reasonable rate over
a bottleneck segment. These changes would ensure that the monopoly
bottleneck carrier couldn't take advantage of its pricing power to
foreclose competition over the competitive portion of the route. They
would permit competition to flourish where it can. These changes would
not bring a return to the old "open routing" system, whereby carriers
were required to keep even inefficient interchanges open and were
required to charge the same rate over all possible routes. Rather, only
interchanges already utilized by the carriers would qualify, and rates
over various routes would vary as costs and competition demand. Where a
carrier controls a bottleneck, its pricing initiative would only be
subject to current statutory restrictions against charging unreasonably
high rates where there is no effective competition.

Finally, the Congress should also reverse the bottleneck decision to
clarify that the STB can prospectively prescribe a maximum reasonable
rate so that the rate is available to a shipper immediately upon
expiration of the shipper's contract.

**[Competition and Reasonable Rates]{.underline}** -- The Congress
should require that significant weight be given to the level of rates
produced in the presence of rail-to-rail competition for shipments of
the same or similar commodities when reasonable rates are prescribed
where effective competition does not exist. Congress should also adopt
objective, easy to apply rate standards for agricultural shippers, and
direct the STB to consider similar standards be considered for other
non-coal shippers.

Under the STB's current so-called "Constrained Market Pricing"
standards, the STB requires shippers to hypothesize the rates that would
be produced if a new railroad were built from the ground up to serve the
complaining shipper in competition with the existing carrier. This
exercise in "imagining" a new railroad -- the calculation of so-called
"Stand Alone Cost" -- requires massive amounts of evidence as to such
things as the cost of land acquisition for this new "stand alone"
carrier, the cost of track, locomotives, operating costs, etc. Hundreds
of thousands of dollars can be spent in legal and consultant fees on
this exercise in competitive hypothesis. In the McCarty Farms case filed
by Montana producers, the ICC/STB took 19 years and cost the producers
over \$3.2 million (without lawyer fees). The result even though the
railroad was judged market dominant and its rates judged excessive, the
ICC changed the judgment standard three times to ensure the complainants
never succeeded even though the rates were 200-300+% of variable --
again well in excess of the 180% standard for unreasonableness. This was
not the ICC/STB's finest hour but it is illustrative of the pervasive of
the problems faced by captive rail customers.

Yet, throughout the process of determining what a maximum rate should be
to a captive shipper, the STB never considers what that same carrier is
already charging shippers for movements of the same commodity where
rail-to-rail competition actually exists.

This "never-never land" of regulation should be injected with a dose of
reality.

Congress should require the STB, in determining what rate should be
charged where there is an absence of competition, to consider like rates
that are actually charged where there is the presence of competition.
The STB should give significant weight to this evidence, though other
types of evidence, such as evidence on stand alone cost current utilized
by the Board, could be considered as well.

Finally, ARC recognizes that agricultural shippers, and especially the
smaller agricultural shippers, have particular difficulties in bringing
maximum reasonable rate complaints, given their size and the
circumstances of their transportation. The Congress should establish and
mandate the STB develop such standards, particularly for small
agricultural shippers, and should direct the STB to consider similar
standards for other non-coal shippers.

**[Increasing Rail-to-Rail Competition from Short Line
Carriers]{.underline}** -- The Congress should make unlawful any
restrictions by Class I carriers on short line carriers from
interchanging with other carriers.

The railroads will state that they have, by spinning off branchlines
into shortline carriers, created a more balanced and competitive system.
This just is not true.

Since the passage of the Staggers Act, short line carriers have become
an important part of the nation's rail transportation system. ARC
believes that Congress should make statutory changes that would enable
short line carriers to facilitate increased competition in the rail
industry.

Short line carriers are often "captive" to a particular Class I carrier.
Frequently, however, this captivity is not due to the fact that a
particular short line connects solely to one Class I carrier, but rather
is the result of restrictions placed upon the short line at the time
that the newly-established Class III is "spun off" by the Class I
parent. Specifically, when a planned short line can interchange with a
carrier besides the Class I parent, restrictions are placed on the short
line at the time of its spin-off that prevent the short line from
interchanging with any carrier other than the Class I parent. Shippers
served by the short line, then, are held captive. The Class I parent
obtains the benefits of the short line spin-off, including lower labor
costs, without jeopardizing its hold on its captive shippers.

This is poor public policy. ARC and the agricultural rail customers
believe that Congress should make unlawful any restrictions by Class I
carriers that prevent short line carriers from interchanging with other
carriers. A legislative prohibition on such restrictions would free both
shippers and short lines from the control of a particular Class I
carrier, bringing the potential for increased traffic to the short line,
and the potential for increased competition to the shipper.

### Summary:

We believe that the freight rail marketplace does not behave like a
marketplace at all. There are federal protections for railroads that do
not exist for any other industry, such as anti-trust exemptions. We have
shown in this testimony that the regulatory mechanism has skewed the
Congressional intent that Congress relied upon when it passed the
Staggers Rail Act in 1980.

We, as rail customers, are captive to the railroads and we also
dependent upon the railroads. Captive rail customers are the last ones
that would ever want to see harm come to availability of rail service or
further contraction in the rail industry. We simply do not believe that
this mighty and historic industry cannot function in a competitive
American marketplace, as do all other businesses in the country.

We believe that competitive conditions will produce greater volumes of
traffic and market share for the railroads. Our studies confirm this
belief. We believe that it is unhealthy to have railroads operate in the
current federally sheltered environment. This artificial habitat is
unhealthy for rail customers ... and unhealthy for railroads too.

Railroads may say here today that they cannot survive in an S. 919
world. In other words, a world in which competition drives prices and
innovation, not captivity. If that is true...if it is true that an
American industry cannot survive without these kinds of unfair and
non-competitive market practices, then the whole issue bears even closer
examination.

Congress has taken a look at many other industries that have been
characterized by a monopoly or oligopoly market structure and has seen
it necessary and appropriate to introduce competitive balances for the
sake of national policy. The consuming public ultimately pays for all of
this.

Yet, we have seen no real action to address similar issues in the
railroad industry. In this national railroad industry, four mega
carriers generate 95% of the gross ton-miles and 94% of the revenue. Two
western carriers generate 92% of the gross ton-miles and 90% of the
revenues in the west. Four of these carriers handle over 90% of the U.S.
coal movements. Three of these carriers control over 70% of the grain
movement.

In other industries of national importance, Congress has moved to
introduce competition as the best means for ensuring consumer and
customer protections. The shipping community---of which as many as 1/3
or more of us are captive to only one railroad---is here today to ask
you to bring competition to the rail industry as the best means of
protecting our collective economic competitiveness.

For the record, characterizing such changes as "reregulatory," as the
railroads have done, would require that no regulatory system exist at
all. That clearly is not the case as in July, 2003, two months ago, this
Subcommittee took up the issue of reauthorization of the regulatory body
empowered to oversee the railroad industry. ARC and the agricultural
rail customers are interested in promoting market-based competition as a
long-term replacement for regulation, and in order to achieve that end,
existing regulations must be reformed to encourage the gradual
re-emergence of competition.

Clearly, there are areas where the STB itself can make immediate
improvements within the parameters of authority already granted by
existing statutes. To date, however, STB decisions have demonstrated
either an unwillingness or inability of this body to include the
legitimate measurement of competition in its deliberations. It is for
this reason that the Alliance for Rail Competition and the agricultural
rail customers believe that these issues must be addressed
legislatively. Captive rail customers will continue to advocate the
passage of legislation that will encourage competition in the rail
market place in both the short and long-term.

While the wheat and barley groups, along with ARC and the coalition of
rail customer groups support S. 919, we know that there may be better
ideas out there. In an ideal world we would like to join an effort to
find solutions, which includes all parties, certainly including the
railroads. But we do believe that something substantive must be done.
The day has long since passed when anyone can credibly say that there is
no problem, or that things are just great as they are. For those of you
who make policy, to avoid acting will sure produce problems that will be
larger, more complex and more expensive to fix. The time to begin
solving this is right now.

Madam Chairwoman, I'd like to thank you once again for the opportunity
to testify before you today about these important issues. I'd also like
to request that both my written and oral statements today be made a part
of this hearing record

Thanks for your consideration, and I'd be happy to answer any questions
that you may have.

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