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93–974 PDF 2015

S. HRG. 113–616 

FREIGHT RAIL SERVICE: IMPROVING THE 

PERFORMANCE OF AMERICA’S RAIL SYSTEM 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 10, 2014 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

MARK BEGICH, Alaska 

RICHARD BLUMENTHAL, Connecticut 

BRIAN SCHATZ, Hawaii 

EDWARD MARKEY, Massachusetts 

CORY BOOKER, New Jersey 

JOHN E. WALSH, Montana 

JOHN THUNE, South Dakota, Ranking 

ROGER F. WICKER, Mississippi 

ROY BLUNT, Missouri 

MARCO RUBIO, Florida 

KELLY AYOTTE, New Hampshire 

DEAN HELLER, Nevada 

DAN COATS, Indiana 

TIM SCOTT, South Carolina 

TED CRUZ, Texas 

DEB FISCHER, Nebraska 

RON JOHNSON, Wisconsin 

ELLEN L. DONESKI, Staff Director 

JOHN WILLIAMS, General Counsel 

DAVID SCHWIETERT, Republican Staff Director 

NICK ROSSI, Republican Deputy Staff Director 

REBECCA SEIDEL, Republican General Counsel and Chief Investigator 

(III) 

C O N T E N T S 

Page 

Hearing held on September 10, 2014 ..................................................................... 1 

Statement of Senator Rockefeller ........................................................................... 1 

Statement of Senator Thune ................................................................................... 7 

Statement of Senator Cantwell .............................................................................. 53 

Statement of Senator Booker .................................................................................. 54 

Statement of Senator Johnson ................................................................................ 56 

Statement of Senator Klobuchar ............................................................................ 58 

Statement of Senator Blumenthal .......................................................................... 60 

Statement of Senator Nelson .................................................................................. 61 

Statement of Senator Wicker .................................................................................. 62 

Letter dated August 22, 2014 to Hon. Roger F. Wicker from Joe McHugh, 

Vice President, Government Affairs and Corporate Communications, 

National Railroad Passenger Corporation .................................................. 63 

WITNESSES

Hon. John Hoeven, U.S. Senator from North Dakota .......................................... 1 

Hon. Heidi Heitkamp, U.S. Senator from North Dakota ..................................... 3 

Arthur Neal, Deputy Administrator, Transportation and Marketing Program, 

Agricultural Marketing Service, U.S. Department of Agriculture ................... 10 

Prepared statement .......................................................................................... 11 

Jerry D. Cope, President, South Dakota Grain and Feed Association and 

Marketing Manager, Dakota Mill & Grain ........................................................ 13 

Prepared statement .......................................................................................... 15 

Calvin (Cal) Dooley, President and Chief Executive Officer, American Chemistry Council ......................................................................................................... 24 

Prepared statement .......................................................................................... 25 

Shane Karr, Vice President, Federal Government Affairs, The Alliance of 

Automobile Manufacturers .................................................................................. 31 

Prepared statement .......................................................................................... 32 

Letter dated July 8, 2014 to Hon. Daniel R. Elliott III, Chairman, Surface 

Transportation Board from Rob Portman, Co-Chair, Senate Auto Caucus and Carl Levin, Co-Chair, Senate Auto Caucus .................................. 34 

Edward R. Hamberger, President and Chief Executive Officer, Association 

of American Railroads ......................................................................................... 35 

Prepared statement .......................................................................................... 37 

APPENDIX

Written Testimony on behalf of the National Rural Electric Cooperative Association .................................................................................................................... 73 

Letter dated September 10, 2014 to Hon. John D. Rockefeller IV, Hon. John 

Thune, Hon. Richard Blumenthal and Hon. Roy Blunt from Cary Cohrs, 

Chairman of the Board, Portland Cement Association, and President, American Cement Company, LLC ............................................................................... 76 

Letter dated September 24, 2014 to Hon. John Rockefeller and Hon. John 

Thune from Cory Martin, Director, Government Relations, American 

Bakers Association ............................................................................................... 77 

Letter to Hon. John D. Rockefeller IV and Hon. John Thune from Fred 

Fournier, Executive Director, M&G Polymers USA, LLC ................................ 79 

Response to written question submitted by Hon. Amy Klobuchar to Arthur 

Neal ....................................................................................................................... 80 

Response to written questions submitted by Hon. John D. Rockefeller IV to: 

Jerry D. Cope .................................................................................................... 80 

Calvin (Cal) Dooley ........................................................................................... 81 

Shane Karr ........................................................................................................ 83 

Page

IV 

Response to written questions submitted by Hon. Amy Klobuchar to Edward 

R. Hamberger ....................................................................................................... 86 

Response to written questions submitted by Hon. John Thune to: 

Arthur Neal ....................................................................................................... 87 

Edward R. Hamberger ..................................................................................... 88 

Response to written question submitted by Hon. Dan Coats to Edward R. 

Hamberger ............................................................................................................ 89 

(1) 

FREIGHT RAIL SERVICE: IMPROVING THE 

PERFORMANCE OF AMERICA’S RAIL SYSTEM 

WEDNESDAY, SEPTEMBER 10, 2014 

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Committee met, pursuant to notice, at 2:32 p.m. in room 

SR–253, Russell Senate Office Building, Hon. John D. Rockefeller 

IV, Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. Good afternoon, everyone. We’re having a hearing, which is going to be led off by two bright lights from Hollywood, and they’re both from North Dakota and they both have very 

strong feelings. I know one of them particularly well because she’s 

right next to me in my office, and I’ve never seen her without 

strong feelings. And John Hoeven, I know you do, too. 

So in order for you to speak, you’ve got to try and hold it to 3 

minutes, which for Senator Heitkamp is going to be really tough. 

But we’re going to start with you, Senator. 

Senator HOEVEN. Are you starting with me? 

Senator HEITKAMP. Which one? 

The CHAIRMAN. I don’t care. 

STATEMENT OF HON. JOHN HOEVEN, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator HOEVEN. Thank you, Mr. Chairman. I appreciate being 

here with my colleague Senator Heitkamp, and also to Ranking 

Member Thune from our sister state of South Dakota. Great to be 

here with you. Thanks to both of you for holding this hearing. I 

think it’s very, very important. 

We just had the Surface Transportation Board, Chairman Dan 

Elliott and the commissioners, out in Fargo, North Dakota, on this 

very same subject. So STB is working on the issue now, as they 

should be. We appreciate the Commerce Committee of the Senate 

doing the same. So again our thanks. 

I’ll try to stay within the three minutes you specified, except the 

timekeeper has given me five. So already I’m a little confused as 

to whether I get three or five. 

The CHAIRMAN. That person is going to be looking for a job. 

[Laughter.] 

Senator HOEVEN. Understood. 

It’s amazing how my clock suddenly went to three. 

2 

[Laughter.] 

Senator HOEVEN. I can make my point in three minutes. The 

point I want to make is this: The railroads need to bring more resources to meet the needs in North Dakota. We have a growing 

state and we’re moving not only ag products right now—we’ve got 

the harvest that’s under way, so we’ve got more coming—but with 

energy and with growth in other areas, manufacturing and so forth 

in our State, we need more capacity on the part of the railroads. 

This is the point that I’ve made to them directly. This is the 

point I made to the STB. This is the point I want to make to you 

here today. They need to bring more cars, more locomotives, more 

people. And they need to build more track. 

We’re the fastest growing state in the country and the railroads 

need to bring the resources, which not only serves our shippers, but 

ultimately the railroads. They’re going to have more business, so 

they’ll benefit as well. 

But right now the need is particularly critical for our ag shippers, both because of the current backlog and because we’ve got 

harvest under way. So we need it for coal and for oil and gas and 

for other commodities as well, but it is a very acute problem right 

now for our farmers. 

Now, BNSF has put forward a very substantial resource plan to address the need. That includes $5 billion of investment this year 

all in for the whole system. It means about 500 locomotives, 5,000 

new railcars, 125 people at least in North Dakota—excuse me, 250 

more workers in North Dakota, about $400 million in additional 

track in North Dakota. So it is a substantial commitment. So we 

need to monitor that and make sure that that happens and that 

that investment does meet the need. They cover about, I would say, 

75 percent of the volume in our state. 

CP needs to make that same commitment. I’ve had the CEO of 

CP in Minot, North Dakota. We had a meeting. They talked about 

investing $150 million over the next year. But they have not provided us with a specific resource plan. Also, they’re working on 

changing their ordering system for shippers ordering cars. That 

may work, but it’s got to be fair. They can’t cancel orders on shippers, and it needs to be a transparent process so that we understand how it works and so that we have accurate reporting. 

So that still needs more work. That’s got to happen. Time is a 

critical factor because, as I say, we are in harvest right now. So it 

is my request that the Commerce Committee here of the U.S. Senate work with the STB and with us and others, our shippers, to 

make sure that the railroads follow through with these resource 

plans, that BNSF continues literally on the track that they’re headed down, which means a bigger railroad in our State. And we need 

to see that same kind of commitment from CP with substantially 

more detail and better reporting and a better ordering system, particularly for our ag shippers. 

Again, I want to thank you, Mr. Chairman, and also the Ranking 

Member and the members of this committee, for working on this 

very important issue at this time. We look forward to continuing 

to work with you. 

The CHAIRMAN. Excellent, excellent. And you came within the 

seven minutes precisely. 

3 

Senator Heitkamp. 

STATEMENT OF HON. HEIDI HEITKAMP, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator HEITKAMP. Mr. Chairman and Ranking Member 

Thune—— 

The CHAIRMAN. Say that again. 

Senator HEITKAMP.—thank you so much—— 

The CHAIRMAN. You called me ‘‘Mr. Chairman.’’ What you usually call me is not repeatable. 

[Laughter.] 

Senator HEITKAMP. Are you going to take that off my three minutes? 

The first thing I want to say is thank you. Our producers in 

North Dakota and I know South Dakota, because we hear from 

those folks just over the border and we know that this continues 

to be a problem in Montana as well, Minnesota as well, our producers are in dire straits. I talked to a Minnesota farmer yesterday 

who told me that his basis adjustment on his corn brings him down 

to $2.25 a bushel. His cost of production is four dollars. And half 

of that or at least a dollar-plus of that is because of transportation. 

So we have a very real impact in North Dakota. I was with six 

shippers just standing around talking and those six agricultural 

entrepreneurs, those farmers, I will tell you told me that collectively they have suffered a half a million dollar loss to their bottom 

line because they haven’t been able to move crops timely. 

So this isn’t just about who gets preference and having your feelings hurt. This is about the very real economic consequences of 

what’s happening in farm country in our state and across the 

Northern Tier across the board. So we need to somehow achieve 

some kind of balance. 

I will tell you I think our producers have been tremendously patient about what they’re willing to kind of understand, given the 

tremendous infrastructure demands in North Dakota. But that patience is wearing thin. 

So one of the problems that we’ve had is getting accurate information on exactly where we are in terms of the 2013 crop, what’s 

going to happen with 2014, and how much it will cost our producers. But beyond that, the one thing that I will tell you I am 

most concerned about is that we will be back here in another year 

having the exact same discussion, only we’ll have 3 years of crop 

that will be either on the ground or in bins in my state, with producers struggling to try and figure out how they’re going to get the 

money to put in next year’s crop. This isn’t make-believe. This is 

real, and it’s a very real problem. 

So I want to applaud you for the work that you are doing here. 

But one thing that I do want to say is that from this process, engaging the STB as we have, I think we’ve come to learn that the 

STB does not have very many tools at its disposal for addressing 

shipping delays. And I’m glad that your reauthorization bill allows 

for STB to initially instigate an investigation without a complaint 

or without a lot of Senators saying we need attention to this problem. But I believe the STB could use more authority and use more 

4 

power to resolve the issues beyond demanding reports and more 

data. 

Obviously, we want to know exactly where we’re at, and we’re 

very appreciative, especially for the resources Burlington Northern 

has brought to this crisis and this problem. Burlington Northern I 

think in many ways gets it, that this is a permanent problem, 

we’re going to continue to ship crude by rail, we’re going to continue to see bumper crops and increased yields in our state, which 

is going to put more stress on track time. 

I believe that we need to have the same kind of reaction and the 

same kind of response in terms of dollars, as Senator Hoeven has 

said, and where those dollars are going to be deployed from CP if 

we’re truly going to resolve this for all of the ag producers in my 

state. 

So I want to thank you again for your attention to this issue. It’s 

critical. It is very timely as we entering the 2014 harvest. I’d be 

glad to answer any questions about what we have seen in North 

Dakota. 

The CHAIRMAN. With your permission, this [indicating] is a John 

Thune masterpiece and it shows—[indicating] this was the pile of 

wheat and this is now. But I had one of John’s staff people draw 

in where it probably is now. In other words, it’s here, but actually 

it’s up to here, and it was probably higher before that. And you 

can’t see the building where it’s meant to be stored or anything. It’s 

just symbolic of the kinds of things that happen in a smaller state 

when you depend on certain things and then the STB isn’t there 

for you. 

Senator HEITKAMP. Mr. Chairman, if I could add to that, we’re 

looking at wheat there, but soybeans denigrate very quickly, and 

we’ve got to get them to market. So as dire as that is, as that pile 

of wheat is, if those were soybeans basically what you’ve done is 

you’ve condemned that crop. So, understanding that we go into 

freeze with that pile, that has huge economic consequences to those 

producers. 

The CHAIRMAN. You’ve both been excellent and I totally—— 

Senator THUNE. Could I, while we still have them here, just 

quickly direct a question to them? 

The CHAIRMAN. Of course. 

Senator THUNE. Generally, I know you both had an STB hearing, 

as you mentioned, last week in North Dakota. You’ve been tracking 

this issue very carefully for a long time. The question really has 

to do with whether you believe action would have been taken as 

quickly this year by the railroads to address this crisis had it not 

been for Members of Congress and the STB working to help address and deal with those service challenges? 

I ask that question because one of the things that we hear is that 

the industry is making investment, which they are, but I find it 

hard to believe that we would have seen the kind of action that we 

needed to see taken had it not been for the agency and for the attention, obviously, the Congress has paid to this issue. 

Senator HOEVEN. We’ve been pretty aggressive on this issue, and 

BNSF has responded and they have given us a very detailed plan. 

Their CEO, Matt Rose, has been up to our state on multiple occasions and has been—even back in February when we were working 

5 

on catching up on moving fertilizer, they changed their hauling system. They assigned unit trains to move fertilizer and so forth. They 

came forward with a detailed resource plan. They started reporting 

their delinquencies on the website. They’ve reduced their delinquencies to about 1,000 cars right now about 10 days past due. 

So they have responded. They have been proactive. That’s the 

concern—and of course they need to continue to do more, so we’re 

continuing to work with them. 

But on the CP side we’re not seeing that. Their reporting up 

until recently is not transparent. We can’t tell what their delinquencies are. Now they’re reporting about a 7,500-car delinquency, 

but an average of 13 weeks. So we still can’t decipher exactly what 

that means. They’re changing their ordering system. Some of our 

shippers are worried that they’re getting orders canceled. They’ve 

talked about a $150 million resource plan this year to catch up, but 

we don’t have the details or the time lines on that. 

So what we’re saying is we need—not only do we need to continue to be proactive until we get that, but so does the STB. That’s 

why what you’re doing here is on the mark, is to make sure that 

we’re able to take, all of us, including STB, a proactive stance if 

somebody is not responding proactively to solve what has been a 

problem, an ongoing problem for a period of time. 

We get that if the problem just happened somebody has to react. 

This has been going on long enough now that that reaction should 

be in place already. 

Senator HEITKAMP. If I can just add a couple comments to that, 

I think it’s a matter of whether the STB believes this is permanent, 

whether this is a one-time glitch in the system or whether we’re 

going to have a need for a permanent increased buildout. I happen 

to believe we need a permanent increased buildout. 

Given the history of siting pipelines in this country, we’re going 

to continue to move oil on the rails. Your committees have already 

discussed the safety issues. But we’re at 1.1 million barrels a day 

pretty much in North Dakota. We think that’s going to grow another 20, 30 percent. Where is that oil going to move? It’s going to 

move on the tracks. It’s going to move in pipelines, but it’s also still 

going to move on the tracks. 

So we need to accommodate all the captive shippers. I believe 

that without the attention of the Congressional delegations in the 

Northern Tier, without the focus of the STB at least as it relates 

to one railroad, we would not be as far as where we are. But I will 

tell you that the big concern that I have is that still what we’re 

hearing is they don’t get that this is a permanent problem and 

needs huge amounts of capital infusion in order to solve it. 

The CHAIRMAN. I thank you. They will claim that they don’t have 

the money and John Thune and I will jump up and down vigorously and protest that they do. 

Thank you both for coming. 

Senator HEITKAMP. Thank you, Mr. Chairman. 

The CHAIRMAN. You made excellent presentations. 

Senator HOEVEN. Thanks to the Committee. 

The CHAIRMAN. As we all knew you would. 

In the regular order now. Before I begin, I want to heartily and 

vigorously commend Senator Thune for his leadership on rail servVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\93974.TXT JACKIE
6 

ice issues. It’s one of those instances where we each come from two 

small states and we have not that great a variety of major products, and in each case we’re watching our products get clobbered 

by a system which nobody chooses to either initiate improvements 

or to regulate improvements. 

I know these past several months have been really hard on your 

constituents, Senator Thune. I look forward to continuing to work 

easily and well with you, as we have in the past. 

I initially took an interest in rail policy after hearing from West 

Virginia shippers who expressed frustration with high rates and 

poor service. That began 30 years ago and my progress has been 

measured in quarter-inch segments. That’s how much progress 

we’ve made on this. They have been highly frustrated about high 

rates and poor service. What you probably don’t know, however, is 

that these complaints were in place 30 years ago, as they are 

today. And yet here we are today trying to confront the same issues 

that have plagued shippers for several decades. 

The rail industry looks far different than it did 30 years ago. 

Competition in the industry has decreased. Before enactment of the 

Staggers Act in 1980, there were approximately 40 large railroad 

companies. Today that figure would be closer to seven, so competition is down, and profits are up. 

In passing the Staggers Act, Congress recognized the need for a 

robust freight rail system. The Staggers Act was a big favor in 

many respects to the industry because it recognized that they had 

to spend capital in order to be able to do the system properly. Well, 

they got the capital, but they haven’t necessarily used it properly. 

That law made sweeping regulatory changes which gave the railroad industry an opportunity to improve its finances and the ability 

to compete against other transportation modes. So that part they 

like a lot. The Staggers Act also sought to provide, and I quote, 

‘‘the opportunity for railroads to obtain adequate earnings to restore, maintain, and improve their physical facilities while achieving the financial stability of the national rail system.’’ Well, make 

no mistake; in that regard, the Staggers Act has worked. 

In 2010, I released a Commerce Committee majority staff report 

which found four Class I railroads that dominate the railroad rail 

shipping market and that they are achieving returns on revenue 

and recognizing operating ratios that rank them among the most 

profitable businesses in the entire United States economy. 

I released a follow-up majority staff report last November which 

corroborated the 2010 findings: that freight railroads continue to 

set new financial records on a quarterly basis, and these companies 

continue to raise their dividends and buy back record amounts of 

stock. So cash is not the problem. 

But not everybody is as well as they are. In this world we’re 

meant to have sort of a balance, those who transport, those who 

are shipping. There has to be some kind of balance. The STB hasn’t 

found a way to do it. We can’t get anything to do it to pass. But 

again, not everybody is doing so well. Many of the witnesses here 

today have struggled to remain competitive as rail service declines 

and rates increase, and the situation continues to get worse. 

For several months now, the agricultural, coal, chemical, and 

automotive industries, among others, have been experiencing seriVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\93974.TXT JACKIE
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ous service delays on rail, sometimes on the order of months. You 

can’t blame everything on the winter. You just can’t do that, sorry. 

It’s not just industry. Passengers are also feeling the effects. Amtrak’s long distance trains around the country are being severely 

delayed. 

Whether it has been extreme winter weather, a surge in Bakken 

crude oil production, a recovering economy, or a combination of factors, we must do more to move our grain to market, coal to power 

plants, automobiles to consumers, and passengers to their destinations than we currently are. For many shippers this is their livelihood and it’s too important to not do anything. Therefore I look forward to hearing from the railroads on what is being done to alleviate these freight logjams as soon as possible, and I hope I don’t 

hear the phrase ‘‘We need more money in order to build better infrastructure for the future,’’ because I already have that, buddy. 

Don’t get me wrong. That’s incredibly important for our Nation’s 

long-term economic prosperity. But we need all hands on deck to 

address this problem now. 

The Surface Transportation Board has taken some steps to address these issues, especially the service hardships faced by many 

shippers in the last year. Having talked to constituents in my home 

state and Ranking Member Thune, I know it has been truly appreciated. However, these efforts—I believe STB needs to change its 

fundamental perspective. We know that the railroads are financially strong. It’s time for the STB to refocus its mission on providing regulatory balance to support the businesses and the people 

who use the rail network. 

That is why earlier this week I introduced, along with my good 

friend and distinguished Ranking Member John Thune, a bill 

aimed at increasing the efficiency and effectiveness of the board. 

It’s a good bill. That means it probably won’t pass. I say that with 

practiced cynicism. But it’s still a good bill and it will pass. I look 

forward to working with interested stakeholders as we move forward this legislation. 

This is a huge, huge topic for me. It’s sort of a matter of integrity 

of our states, Ranking Member Thune, and the floor is yours. 

STATEMENT OF HON. JOHN THUNE, 

U.S. SENATOR FROM SOUTH DAKOTA 

Senator THUNE. Thank you, Mr. Chairman. Thanks for holding 

the hearing and I appreciate hearing from our colleagues in North 

Dakota. I only wish we could figure out a way to directionally drill 

up into the oil in North Dakota to bring it down into South Dakota. 

But I have often said that North Dakota has oil, Wyoming has coal, 

Montana has some of both, and in South Dakota we have pheasants. But we also raise a lot of agricultural commodities. We raise 

corn, wheat, and soybeans, and we have to have a way to get that 

to the marketplace, and that requires railroads. It’s the most efficient way to move freight like agricultural commodities. 

Our state has been so interested over the years in this subject 

that back in the late 1970s when the railroads were abandoning 

South Dakota, the Milwaukee Road and the Chicago and North 

Western Railroad, our state had to take some pretty drastic action. 

They imposed a temporary sales tax and actually acquired the railVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\93974.TXT JACKIE
8 

road, not the power and the rolling stock, but the track, the rails, 

the ties, the right of way, and all that, and then contracted for operations with the Burlington Northern, at that time Burlington 

Northern, now BNSF Railroad, to operate that railroad. 

So it has been since then privatized to the Burlington Northern. 

But it’s an example, I think, of what states like ours have to do 

to maintain viable railroad and freight transportation. As I will 

mention, I did serve as State Rail Director back in the 1990s and 

have an interest in railroading that goes back a lot farther than 

that. My grandfather on my dad’s side came here from Norway 

back in 1906 and worked on building the railroads as they were 

moving across South Dakota, and my grandfather on my mom’s 

side actually was killed in a railroading accident. He was a railroader as well. 

So it’s very important to the history of our state. It’s very important to the present of our state and it’s going to be very important 

to the future of our state, because our number one industry is agriculture. 

So I appreciate you holding this hearing. I want to thank all the 

witnesses for being here and willing to testify today. I especially 

want to thank Jerry Cope from Dakota Mill and Grain in Rapid 

City, South Dakota, who will be testifying on behalf of the National 

and South Dakota Feed Associations. 

Since the beginning of this year, South Dakota and many other 

states have been particularly challenged by rail service delays, network congestion, and locomotive and railcar shortages which have 

affected a wide range of shippers, including the agricultural community. From farmers and grain elevators to auto manufacturers, 

energy providers, retailers of all kinds, rail transportation challenges have affected the economy nationwide. Higher transportation costs can also increase the cost of products to market and 

at the point of export, decreasing our global competitiveness. 

As a former South Dakota rail director under the late Governor 

George S. Mickelson in the early 1990s, I know firsthand the importance of effective rail access for not only agricultural producers, 

but other shippers. In all my years of working on rail matters, I’ve 

never seen producers more concerned than they are now regarding 

the restricted capability to move grain to the marketplace. It’s my 

hope that this hearing will continue to bring attention to the rail 

service backlog that South Dakota shippers and shippers nationwide are currently facing and encourage continued discussion about 

both short-term and long-term solutions to address these issues. 

I also want to know that not all of the blame should be placed 

on the rail carriers, because some events have been outside of their 

control. That being said, these issues did not arise overnight and 

some railroads have been better than others at addressing the challenge head-on. 

In South Dakota alone, this year’s harvest and what remains of 

last year’s is expected to exceed the statewide grain storage capacity by as much as 18 percent. Grain has already been stored on the 

ground, as you noted from this particular picture right here. That 

was the wheat harvest that occurred earlier this year. What’s so 

alarming about that photo is that it happened early in the crop 

9 

year and we’ve got much larger corn and soybean harvests coming 

on this fall. 

Projections from the U.S. Department of Agriculture estimate 

that South Dakota’s 2014 wheat harvest is going to be at 108 million bushels, a 14 percent increase over the three-year average, and 

soybean and corn crops are also expected to be unusually large, potentially record-setting. Even with these high yields the increased 

negative basis due to inadequate transportation and the inability 

to timely move these crops from grain-handlers could result in 

more than $300 million in lost value to South Dakota corn, wheat, 

and soybean producers. 

As winter approaches, ethanol plants will also become vulnerable 

to rail delays. Because of the nature of ethanol production, plants 

cannot simply be shut down during winter months. South Dakota 

ethanol producers, like Glacial Lakes and Redfield, rely on adequate services to prevent pipes from freezing and major structural 

damage to their operations. 

In addition, South Dakota’s Big Stone Power plant has indicated 

that they’re running below capacity because they simply can’t get 

enough coal to fuel the most efficient operation. Coal stockpiles are 

alarmingly low and rail service simply hasn’t provided adequate 

coal supplies. 

The Surface Transportation Board has taken several steps to address these rail service challenges, including issuing a number of 

orders designed to increase transparency. On June 20, the Board 

issued a grain order to provide additional transparency and ensure 

both Canadian Pacific and Burlington Northern Santa Fe Railroads 

had plans for reducing their grain car backlogs. 

While the STB has been working hard to address the current rail 

service issues facing South Dakota and other states in the Northern Tier of the United States, this crisis has highlighted some of 

the inefficiencies that currently exist at the STB. On Monday, 

Chairman Rockefeller and I introduced Senate Bill 2777, the Surface Transportation Board Reauthorization Act, which is a first 

step in addressing these inefficiencies so that the STB can better 

assist shippers and railroads when problems arise. 

This hearing marks a continuation of my ongoing efforts to work 

not only with the STB, but with the railroads and the shippers directly, to address the challenges that agricultural producers and 

other businesses have experienced beginning last winter when the 

harsh cold snarled the movement of trains and caused the significant delays that shippers and railroads are still working to remedy. 

Mr. Chairman, thank you, and thanks to our witnesses for being 

here today and testifying and having what I think is a very important hearing, particularly in light of the economic impacts and consequences that will occur if we aren’t able to effectively and in a 

timely way move the harvest that’s coming this fall. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Let’s go to our panel: Mr. Arthur Neal—are we all in place here 

and I can just go right down the list—is the Deputy Administrator 

of Transportation and Marketing Programs at the Agricultural 

Marketing Service, U.S. Department of Agriculture. Mr. Jerry 

Cope, who I think is not a 100 percent happy person on this parVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\93974.TXT JACKIE
10 

ticular subject, is the Vice President of Marketing at the Dakota 

Mill and Grain, Inc. You indicated that’s a South Dakota company. 

Mr. Calvin Dooley is President and Chief Executive Officer of the 

American Chemistry Council. Mr. Shane Karr; Mr. Karr is the 

President of Federal Government Affairs of The Alliance of Automobile Manufacturers; and Mr. Ed Hamberger is President and 

Chief Executive Officer of the Association of American Railroads. 

So let’s start, Mr. Neal, with you. 

STATEMENT OF ARTHUR NEAL, DEPUTY ADMINISTRATOR, 

TRANSPORTATION AND MARKETING PROGRAM, 

AGRICULTURAL MARKETING SERVICE, 

U.S. DEPARTMENT OF AGRICULTURE 

Mr. NEAL. Chairman Rockefeller, Ranking Member Thune, and 

members of the Committee: thank you for the opportunity to submit this statement on behalf of the U.S. Department of Agriculture 

for today’s hearing on ‘‘Freight Rail Service: Improving the Performance of America’s Rail System.’’ It is our hope that the information we provide will prove helpful as you examine the current 

state of U.S. freight rail service. 

I serve as the Deputy Administrator of the Transportation and 

Marketing Program for USDA’s Agricultural Marketing Service, 

whose mission is to facilitate the efficient, fair marketing of U.S. 

agricultural products, including food, fiber, and specialty crops. 

Within AMS, the Transportation Services Division serves as the expert source for economic analysis on agricultural transportation 

from farm to markets. As a part of USDA, we inform, represent, 

and assist agricultural shippers and government policymakers 

through market reports, regulatory representation, economic analysis, transportation disruption reports, technical assistance, outreach to stakeholders, and responding to inquiries. 

AMS does not have regulatory authority over transportation 

issues. However, the Secretary of Agriculture is charged with the 

responsibility under the Agricultural Adjustment Act of 1938 and 

the Agricultural Marketing Act of 1946 to represent the interests 

of agricultural producers and shippers in improving the transportation services and facilities, among other things by initiating and 

participating in Surface Transportation Board proceedings involving rates, charges, tariffs, practices, and services. 

Since October 2013, AMS has reported that railroad service to 

railroad grain shippers has been inadequate, characterized by long 

delays, missed shipments, burgeoning backlogs, and higher costs. 

The problems have centered on Canadian Pacific Railway Company 

and BNSF Railway Company. Service problems have been widespread in Minnesota, Montana, North Dakota, and South Dakota. 

As a result, STB held a public hearing on April 10, 2014, to hear 

how shippers have been impacted and how BNSF and CP railroad 

executives will address the problems. 

USDA submitted comments about adverse impacts on grain shippers, including grain piling up on the ground outside elevators 

awaiting rail transportation and some grain shippers either paying 

ocean vessel demurrage charges or missing vessels that departed 

before the delayed grain shipments could be loaded. 

11 

On June 20, 2014, based on concerns about the slow pace of 

progress, STB directed CP and BNSF to publicly file plans to resolve their backlogs of grain car orders, as well as provide weekly 

status reports until the backlogs were eliminated. 

Last week, STB held a field hearing in Fargo, North Dakota, to 

further review the current state of the issue. Based on the testimony provided by nine panels and the questions and answers between STB and panelists, issues still remain with railcar shortages 

and service delays. 

USDA’s current analysis indicates grain production and grain 

stocks this harvest season are expected to exceed permanent grain 

storage capacity by an estimated 694 million bushels in seven 

States, which include South Dakota, Indiana, Missouri, Illinois, 

Ohio, Michigan, and Kentucky. This level of storage capacity shortage is higher than any year since 2010, which had an 805 million 

bushel shortfall in permanent storage capacity distributed throughout the top 14 grain-producing states. Because 2013 grain is reportedly still in storage and waiting to be moved before the 2014 harvest, it is critical to move as much of the 2013 grain crop as quickly 

and efficiently as possible. 

USDA is concerned that railroad service to grain shippers may 

not recover in time for the 2014 harvest. Should this happen, grain 

elevators could run out of storage capacity, grain could be stored 

on the ground and run the risk of spoiling, and the costs of inadequate rail service would continue to accrue. 

In conclusion, U.S. agricultural producers rely on a transportation network that is reliable, efficient, and safe. USDA will continue to monitor and report on the rail challenges faced by U.S. agricultural producers and shippers, and I would be happy to answer 

any questions on the record that you may have. 

Thank you. 

[The prepared statement of Mr. Neal follows:] 

PREPARED STATEMENT OF ARTHUR NEAL, DEPUTY ADMINISTRATOR, 

TRANSPORTATION AND MARKETING PROGRAM, AGRICULTURAL MARKETING SERVICE, 

U.S. DEPARTMENT OF AGRICULTURE

Chairman Rockefeller, Ranking Member Thune, and members of the Committee, 

thank you for the opportunity to submit this statement on behalf of the U.S. Department of Agriculture (USDA) for today’s hearing on ‘‘Freight Rail Service: Improving 

the Performance of America’s Rail System.’’ It is our hope that the information we 

provide will prove helpful as you examine the current state of U.S. freight rail service. 

I serve as the Deputy Administrator, Transportation and Marketing Program, for 

USDA’s Agricultural Marketing Service (AMS) whose mission is to facilitate the efficient, fair marketing of U.S. agricultural products, including food, fiber, and specialty crops. Within AMS, the Transportation Services Division serves as the expert 

source for economic analysis on agricultural transportation from farm to markets. 

As part of USDA, we inform, represent, and assist agricultural shippers and government policymakers through: market reports, regulatory representation, economic 

analysis, transportation disruption reports, technical assistance, outreach to stakeholders, and responding to inquiries. 

AMS does not have regulatory authority over transportation issues. However, the 

Secretary of Agriculture is charged with the responsibility under the Agricultural 

Adjustment Act of 1938 and the Agricultural Marketing Act of 1946 to represent the 

interests of agricultural producers and shippers in improving transportation services 

and facilities by, among other things, initiating and participating in U.S. Surface 

Transportation Board (STB) proceedings involving rates, charges, tariffs, practices, 

and services. 

12 

STB is the agency that Congress charged with resolving railroad rate and service 

disputes and reviewing proposed railroad mergers. STB is an independent regulatory adjudicatory agency, although it is administratively affiliated with the Department of Transportation. 

A Building Problem 

Since October 2013, AMS has reported that railroad service to U.S. grain shippers 

has been inadequate, characterized by long delays, missed shipments, burgeoning 

backlogs, and higher costs. The problems have centered on Canadian Pacific Railway Company (CP) and BNSF Railway Company (BNSF). Service problems have 

been widespread in Minnesota, Montana, North Dakota, and South Dakota. 

As a result, STB held a public hearing on April 10, 2014, to hear how shippers 

have been impacted and how BNSF and CP railroad executives will address the 

problems. USDA submitted comments about adverse impacts on grain shippers, including grain piling up on the ground outside elevators awaiting rail transportation, 

and some grain shippers either paying ocean vessel demurrage charges or missing 

vessels that departed before the delayed grain shipments could be loaded. Later in 

April, STB issued an order to the rail companies to reduce the backlog of fertilizer 

deliveries in order to meet spring planting timeframes. 

On June 20, 2014, based on concerns about the slow pace of progress, STB directed CP and BNSF to publicly file plans to resolve their backlogs of grain car orders, as well as provide weekly status reports until the backlogs are eliminated. 

Last week, STB held a field hearing in Fargo, North Dakota, to further review 

the current state of the issue. Based on the testimony provided by nine panels and 

the questions and answers between STB and panelists, issues remain with railcar 

shortages and service delays. As stated previously, STB is the only regulatory body 

with the authority to act on freight rail economic issues. During the field hearing, 

several participants requested that the STB issue a service order. Under the Interstate Commerce Commission Termination Act (ICCTA), the Board has the authority 

to take temporary action to restore rail service, including direct service orders on 

the movement of traffic, requiring joint or common use of railroad facilities, or prescribing temporary routes establishing priority preference. 

Current Situation 

USDA’s current analysis indicates grain production and grain stocks this harvest 

season are expected to exceed permanent grain storage capacity by an estimated 694 

million bushels (about 3.5 percent of the expected U.S. record harvest) in seven 

states, which include—in decreasing order of storage capacity shortage—South Dakota, Indiana, Missouri, Illinois, Ohio, Michigan, and Kentucky. This quantity is the 

equivalent of 173,500 jumbo covered-hopper rail cars, 13,219 barges, 881 15-barge 

tows, or 762,600 truckloads. Some of the impact could be mitigated by temporary 

storage; under special circumstances with unusually large crops, USDA sometimes 

allows emergency and temporary storage of grain, with the storing entity continuing 

to be financially responsible for the quantity and quality of the grain. 

South Dakota could be short of grain storage capacity by 197 million bushels (20 

percent of storage capacity); it is estimated to have the greatest grain storage shortage in addition to continued rail service delays due to competition for rail capacity. 

Indiana is estimated to be short by 196 million bushels (15 percent), Missouri by 

109 million bushels (15 percent), Illinois by 83 million bushels (3 percent), Ohio by 

55 million bushels (6 percent), Michigan by 33 million bushels (7 percent), and Kentucky by 20 million bushels (7 percent). 

These levels of storage capacity shortage are higher than any year since 2010, 

which had an 805 million bushel shortfall in permanent storage capacity distributed 

throughout the top 14 grain-producing states. Because 2013 grain is reportedly still 

in storage and waiting to be moved before the 2014 harvest, it is critical to move 

as much of the 2013 grain crop as quickly and efficiently as possible. 

Of particular concern is the area served by the former Dakota, Minnesota, and 

Eastern Railroad (DM&E) that traverses South Dakota between Tracy, MN, and 

Rapid City, SD, and provides the main rail service to the state. This section of track 

was purchased by CP in 2007 and sold on May 31, 2014, to Genessee & Wyoming 

Inc. (G&W). G&W created a new short line railroad, the Rapid City, Pierre, and 

Eastern Railroad (RCP&E), to serve this section of track, which includes many grain 

shippers. AMS does not have access to the terms of the sale but understands that 

CP agreed to provide a certain number of grain cars and locomotives to RCP&E during a transitional period after the sale. 

USDA is concerned that railroad service to grain shippers may not recover in time 

for harvest of the 2014 crops. Should this happen, grain elevators could run out of 

13 

storage capacity, grain stored on the ground would run the risk of spoiling, and the 

costs of inadequate rail service would continue to accrue. 

According to its September 5 report to STB, BNSF had 2,231 grain cars past due 

an average of 8.9 days, up 10 percent from the 2,029 it reported the prior week. 

Forty-two percent of the past due grain cars are located in North Dakota and are 

8 days late. BNSF also reported 599 past due grain cars in Montana and 268 in 

South Dakota. Canadian Pacific (CP) reports that customers have removed 23,968 

open requests for grain cars from its system, leaving open requests of 6,762 as of 

September 5. Grain car requests in North Dakota were reported to be 12.54 weeks 

late, while those in Minnesota were 18.76 weeks late. CP fulfilled 2,331 grain car 

orders during the week and reported that new requests for grain cars totaled 2,010. 

Of the fulfilled orders, only 384 grain car orders were moved on the Rapid City, 

Pierre & Eastern Railroad (RCP&E) line in South Dakota. 

This lack of rail capacity is having effects on other U.S. transportation modes. For 

example, barge operators expect strong demand for their services during this year’s 

harvest, especially in October, when there is widespread harvesting of the corn and 

soybean crops. As of September 2, the average barge rate from the Illinois River to 

the Mississippi River Gulf for October delivery was 773 percent of tariff ($35.84 per 

ton), 43 percent higher than the 5-year average. The October St. Louis barge rate 

was 763 percent of tariff ($30.42 per ton), 56 percent higher than the 5-year average. Grain shippers may decide to buy barge freight for October now, or wait until 

then and buy at the weekly rate, which could be higher or lower than the October 

rate being quoted now. The last time rates exceeded these levels was in 2008, when 

flooding interfered with barge logistics on the Upper Mississippi and Illinois Rivers. 

On a positive note, on August 27, 2014, the Port of Vancouver and the North Dakota Department of Agriculture signed a memorandum of understanding (MOU) to 

ship products such as lumber, paper, cement, and fertilizer east to North Dakota 

and return them to the Port filled with North Dakota products such as wheat, corn, 

soybeans, peas, flax, and other specialty crops. This MOU addresses railcars that 

are often returned to the Port empty and helps alleviate the railcar shortage in 

North Dakota. The Port has indicated it plans to purchase 180 railcars and ship two 

shuttle trains per month, with the first full railcars returning to the Port from 

North Dakota as early as mid-September. The Port is working with BNSF Railway 

on the project and may expand service under the MOU if demand grows. 

Conclusion 

U.S. agricultural producers rely on a transportation network that is reliable, efficient, and safe. USDA will continue to monitor and report on the rail challenges 

faced by U.S. agricultural producers and shippers. I would be happy to answer any 

questions for the record you may have. Thank you. 

The CHAIRMAN. Thank you, Mr. Neal. 

Mr. Jerry Cope, as I indicated, Vice President of Marketing, Dakota Mill and Grain, South Dakota. 

STATEMENT OF JERRY D. COPE, PRESIDENT, SOUTH DAKOTA 

GRAIN AND FEED ASSOCIATION AND MARKETING MANAGER, 

DAKOTA MILL & GRAIN 

Mr. COPE. Thank you, Chairman Rockefeller, Ranking Member 

Thune, members of the Committee. I’m honored to be here on behalf of South Dakota Grain and Feed Association, the company I 

work for, and the National Grain and Feed Association. 

South Dakota and ag are very closely linked. It’s our number one 

industry. We rank in the top ten of the major crops produced in 

the United States. However, our state is landlocked. The railroads 

are our lifeline, our link to the economy. Right now we’re served 

by two railroads, the Burlington Northern Santa Fe and the Rapid 

City, Pierre, and Eastern. Without them, our farmers don’t have an 

economy, don’t have a life. 

In my submitted testimony I talked about where we were, where 

we are today, and where we want to go, where we think we need 

to be. But we recognize as an organization that if we’re going to 

14 

offer ideas for the future we have a responsibility to also offer ideas 

on how to get there. 

Last winter railroad service was decreasing over time and by 

spring we were faced with an inventory of twice the normal both 

on and off farm as we faced a record harvest, which we’re experiencing in South Dakota right now. What this meant to farmers is 

cash-flow. We had calls from banks asking when the railroad was 

coming because they had farmers with notes due. 

In addition to that, as that went on the railroads were actually 

paid for poor performance. How that happened was there’s a secondary market in the Burlington Northern and it ended up equaling the cost of freight to get from South Dakota to the Pacific 

Northwest. It ended up, once you added the car costs along with 

the tariff rate the cost from South Dakota to the Pacific Northwest 

was twice what that same bushel of grain would cost to get from 

the Pacific Northwest to Korea. 

In the case of the Canadian Pacific, they did sell the line to 

Rapid City, Pierre, and Eastern that was created in May, and that 

was actually a bit of good news for us. The Rapid City, Pierre, and 

Eastern has been very forthcoming and is putting forth a lot of effort to clean out our backlog. But they still have to hand off to the 

Canadian Pacific, which is still in a state of disarray. 

Today we’re still faced with that backlog, both in the elevator 

and in farmers at home. I was talking to one of my fellow elevators 

on the way out. He told me, he said: You know, if all I get is the 

same amount of cars I’ve gotten every week through next May, I 

don’t have to buy another bushel of grain; all I’ll do is empty out 

my elevator, with one more penny of business for my customers or 

for myself. So the cash-flow still continues. 

When it comes to things like quality, we’re having some problems 

with South Dakota wheat, but if elevators are full we don’t have 

any room to blend or clean that grain, so that grain faces a risk 

of not even being marketable. 

We could invest in storage, but the problem we run into with 

that is investments of millions of dollars are made based on railroad predictability. If we have to weigh the costs versus the risk 

and we can’t rely on the railroad, then do we actually invest the 

dollars? 

The reality today is that BN is doing better. They’re not where 

we think we need them to be and we think we can solve that with 

some reporting metrics. The CP, unfortunately, committed to providing power and cars to the RCP&E, but elected not to do it until 

the spotlight was shown on them by the STB. 

For the future, what we think we need is transparency. We don’t 

want to know the BN’s day to day business or the CP’s, but we 

need some pertinent facts and reporting. One thing that the BN 

has done, it has started to report turn times. What that means is 

when cars go from origin to destination and back. Now, they’re reporting good turn times, except we’ve asked them to dig a little 

deeper and report turn times out of South Dakota and North Dakota to PNW and back, because their turn times that they’re reporting are actually a little bit better than we’re experiencing because they’re lumping in stuff in Washington and western Montana 

that’s closer. So that number is not quite true. 

15 

One thing that’s happened is freight is a management tool for 

the elevators, but now it’s become a hard limit on the amount of 

business we can actually do. So the effects are twofold, to the farmers and to the elevator. 

We have a saying in our company: The problem with communication is the illusion that it actually happens. That sounds tongue in 

cheek, but it’s really not, because without that clear communication 

and honest and factual and real-time communication we don’t 

know what the other side is doing, which leads to a lot of uncertainty. We need the railroads at the table and we need them to 

have skin in the game. What I mean by that is if we get charged 

for not loading cars is it reasonable that they should suffer no consequences for failing to deliver? 

The Surface Transportation Board reauthorization is a good 

thing. The board’s ability to communicate to one another and having a broader base aboard is common sense in today’s day and age, 

and to be able to investigate issues without a formal complaint will 

help the shippers. 

In conclusion, I want to assure you we are not asking for government regulation, we’re not asking for preferential treatment for 

grain. We want to make sure that we’re not marginalized, but we 

need all the stakeholders—the commercials, the railroads, the government, the farmers—to stand at the crossroads, identify an action plan, decide how they’re going to measure that plan, assess the 

measurements, and then move forward from there. 

Chairman, I thank you for this opportunity today and I’d be glad 

to answer any questions. 

[The prepared statement of Mr. Cope follows:] 

PREPARED STATEMENT OF JERRY D. COPE, PRESIDENT, SOUTH DAKOTA GRAIN AND

FEED ASSOCIATION AND MARKETING MANAGER, DAKOTA MILL & GRAIN

Introduction 

Thank you Chairman Rockefeller, Ranking Member Senator Thune and members 

of the Committee for the opportunity to testify today. My name is Jerry Cope, and 

I am the President of the South Dakota Grain and Feed Association and am also 

the Marketing Manager for Dakota Mill & Grain. The South Dakota Grain and Feed 

Association (SDGFA) is a voluntary membership trade association that represents 

the grain dealers and feed manufacturers in South Dakota. SDGFA has over 300 

members consisting of grain elevators; feed and feed ingredient manufacturers; 

biofuels companies; grain and oilseed processors and millers; exporters; livestock 

and poultry integrators; and associated firms that provide goods and services to the 

Nation’s grain, feed and processing industry. SDGFA is also one of 26 state and regional affiliates of the National Grain and Feed Association (NGFA). Dakota Mill 

& Grain is a private grain and agronomy company headquartered in Rapid City, 

South Dakota with 9 locations and over 500 customers in western and central South 

Dakota who primarily farm, ranch, feed livestock. I am testifying today on behalf 

of South Dakota Grain and Feed Association but also serve on the NGFA’s Board 

of Directors and its Rail Shipper/Receiver Committee. 

Agriculture is South Dakota’s number one industry and we rank in the top ten 

in the Nation in nearly all crops. We are a landlocked state with only 2 rail carriers 

to access both domestic and foreign markets for the many agricultural products our 

farm customers produce. The Burlington Northern Santa Fe (BNSF) runs east to 

west across the top of South Dakota and north to south from Aberdeen in the northeast to Sioux City, IA. The newly formed Rapid City, Pierre & Eastern (RCP&E), 

a short line subsidiary of the Genesee and Wyoming (G&W), runs east to west 

through the center of South Dakota from Brookings to Rapid City. The RCP&E terminates in Tracy, MN, just east of the South Dakota and Minnesota border where 

it interchanges with the Canadian Pacific (CP). The RCP&E was formed by the sale 

of the old Dakota Minnesota & Eastern line from the Canadian Pacific (CP) to G&W 

16 

in May of 2014. Destination markets are often beyond the practical reach of trucks 

making rail service a critical lifeline for the livelihood and economic well-being of 

our state. South Dakota exports the majority of the crop production by rail to terminals in the Pacific Northwest, the Gulf of Mexico, livestock feeders in the Southwest 

and flour mills in the eastern half of the United States. Approximately 45 percent 

of the corn grown in SD is processed in state. The refined ethanol and corn by-products are exported by rail to population centers in the west and east and the by-products to feed markets across the country. Over 75 percent of the wheat, soybeans, 

sorghum, sunflowers and birdseed grains are exported by rail either to domestic 

markets or for export. 

Rail service disruptions, delays and bottlenecks began last fall and worsened over 

the winter. These service disruptions over the past 12 months have impacted our 

state greatly, and made it necessary to identify and address problems in our rail 

service. Actions by the Surface Transportation Board (STB), Senator Thune, our affiliated state and national organizations have served to bring this issue to the forefront and to hold railroads accountable for restoring service to acceptable levels. 

Our industry group believes that if we are going to voice concerns then we also 

have a responsibility to cite relevant facts on where we were before the service meltdown began last fall, where we are today, and offer a roadmap of what is wanted, 

expected and needed, as well as provide suggestions on how to improve rail service. 

Where we were 

To begin, I would like to review where we were before we began to experience 

serious rail service disruptions last fall—well before the harsh winter weather—and 

before the Surface Transportation Board (STB) initiated its rail service proceeding 

(EP 724) in April to look into the matter. I believe my company was typical of others 

in the state. We were behind by over one thousand cars, leaving farmers and elevators backlogged with over twice the normal grain inventory as we approached 

spring planting. South Dakota typically carries over about 20 percent of the wheat 

produced in a given year; 5 percent of the corn and 5 percent of the soybeans. Going 

into the spring the inventories both on and off farm were 25 percent or more of 

wheat and 20 percent of the corn. We had almost no regular communication with 

the railroads and if there was a plan to solve the backlog, it was not one that we 

could identify. The major carrier in the state, BNSF sells freight commitments in 

a primary market auction and shippers needing the freight buy it to procure a 

‘‘deck’’ of freight. They often then trade the freight in a secondary market to manage 

storage space at elevators; timing of harvest; farmer selling and sales logistics. All 

types and sizes of grain rail shipments are sold in the primary freight auctions. 

Most common is shuttle or 110-car commitments, but larger elevators also utilize 

trains called Domestic Efficiency Trains (DET) which are 110 car units of usually 

wheat that are be loaded at one origin then split into multiple, smaller units at a 

central point for distribution to specific flour mills. Smaller elevators can also participate by utilizing 24-car units and single cars. Historically, the secondary market 

for this freight trades in a range of 15 cents a bushel below tariff to 50 cents per 

bushel above. However, last spring and into the summer, Secondary Freight car 

costs were roughly equal to the freight rate. $5,000 per car or a $1.25 per bushel 

was paid for cars—doubling the freight rate for corn shipped to the Pacific Northwest. These costs had escalated over time and elevators absorbed some of the cost 

along the way but eventually the secondary freight market costs were reflected in 

a lower basis and cash price paid farmers in South Dakota and the upper Midwest 

of 50-cents per bushel or more. Wheat costs were 75-cents to a $1.50 per bushel in 

lost opportunity to sell for immediate flour mill demand which required availability 

of railroad cars versus selling for delivery two months or more down the road. Additional risk was that exporters, processors and flour mills were depending on timely 

delivery of product. Sellers risked the cost of buying in obligations and end users 

risked running out of product. Ironically, the secondary freight car market rewarded 

carriers for poor performance—the bigger the delay, the larger premium was for 

freight. Railroads will argue that day-to-day secondary freight market premiums do 

not go to them but to the owner of the freight and they are right. However, the urgency to secure adequate freight for this fall’s harvest resulted in some BNSF shuttles selling for up to a $2.5 million to $3 million dollar premium in the shuttle auctions. To date, total premiums paid to BNSF in auctions for their freight beginning 

this fall is over $160 million (table 1)—all money that DID go the railroad. Through 

this crisis, there was little or no communication from the railroads. Simply put, we 

were without a voice. 

17 

Table 1 


910COPE100.eps
18 

Table 1—Continued 

Table 1—Results of BNSF auctions since January of 2014. Taken from the BNSF website September, 2014 


910COPE101.eps
19 

Table 2 

Table 3 


910COPE3.eps 910COPE4.eps
20 

Table 4 

Table 2–3–4 

From NGFA Testimony at STB Public Hearing on Rail Service Issues, STB Docket No. EP– 

724. 4/10/14 

Where we are 

Now, in the aftermath of the STB’s involvement and advocacy, as well as the combined efforts of Senator John Thune, South Dakota Grain and Feed Association, 

NGFA and the state affiliated grain organizations in Montana, North Dakota and 

Minnesota, we are being heard when it comes to addressing what is a logistics and 

operations issue for all the railroads involved, especially the Class I’s. As a result 

of this increased communication, additional reporting of service metrics required by 

the Board, active monitoring by the Board and actions by some of the major carriers 

in this region, there is some easing of fears as we are able to see the railroads plans 

for the long term and modifications regarding their day to day operations. It may 

not always be what we want to hear, but it is a first step. With the required reporting to the STB from the BNSF and Canadian Pacific, there is now more transparency to see what the carriers are doing and what they plan to do. There has also 

been improved communication between these two Western carriers and us, their 

customers. The CP’s specific reporting on their performance providing power and 

cars to the RCPE has provided a benchmark for a weekly gauge to measure their 

progress doing what they committed to do when they sold the western end of the 

DM&E line. 

Today, progress has been made towards cutting the backlog of car orders our region. While this is great news, it is still a very serious situation. Needing a train 

every five days in order to clean out the backlog and get ready for fall harvest but 

getting one every ten prohibits accomplishing either of those objectives. 

In regard to the CP’s performance reports, until recently, it had not provided the 

locomotives it had committed to under the terms of the sale of the DME line to 

RCP&E. (The CP had committed to providing an agreed amount of cars on weekly 

basis in addition to locomotive power so that the RCP&E could effectively service 

their new line in South Dakota.) By not fulfilling this commitment, it left the 

RCP&E unable to clear their rail lines of loaded cars. This resulted in loaded cars 

sitting at RCP&E elevators for a week or longer, causing buyers to shy away from 

buying more RCP&E origin cars until they see that the ones they have already 

bought are moving. This situation is made worse at the interchange at Tracy, MN 

when the CP either hasn’t shown up as scheduled or didn’t come with as many locomotives as it previously committed; in which case the RCP&E really had no choice 

but to use their locomotives to help move the loads beyond Tracy –if they were 

available at all. This throws the RCP&E out of balance. The RCP&E then has crews 

that were scheduled for RCP&E local work out moving loads on the CP. It requires 

more locomotive horsepower to move loads than empties which again changes the 


910COPE5.eps
21 

RCP&E balance of power, crews and cars on its line. While the CP has provided 

a share of the cars that RCP&E has ordered, they have not until very recently provided the power promised. Although the CP has begun to fulfill its commitments 

and extra trains have even been added to help clear the backlog on the RCP&E, 

the full effect is yet to be seen in terms of cars on track to load. Unfortunately, the 

CP did not respond until required to do so by the STB. Until the CP honors all of 

its commitments on an on-going basis the problems will only get worse in South Dakota. 

On top of that, crop yields are expected to be at record highs this year. This year’s 

wheat yield in South Dakota is running approximately double of normal. Even 

though our state’s total wheat acres are down from the five-year average and the 

final yield is yet to be determined, total production will, at worst, be slightly above 

the five-year average but more likely 10 to 20 percent above. The USDA forecast 

for South Dakota corn production is the same as 2013; however, another well respected private firm forecasts corn to be a record at 10 percent above last year’s production. Production of other crops such as soybeans, sorghum, sunflowers, oats and 

millet look just as promising. Given these projections, and at the BNSF’s and CP’s 

current pace of service recovery, the backlog will continue and possibly even increase through next summer. There is no room for even a minor hiccup in rail service this fall and winter—including weather, competing demand or anything else. 

Table 5 

Table 5—From USDA 6/30/14 June Acreage and Stocks Report 

If there is no change in the pace of rail service, the storage of this abundant crop 

will create challenges. In my travels through western South Dakota, there are farmer piles of wheat ranging from 20,000 bushels to over 200,000 bushels. Elevators 

have open ground piles of grain waiting to be shipped. Unfortunately, the same 

weather that has led to doubled yields has also caused disease issues in some of 

the wheat. In certain instances, quality issues will require blending and cleaning 

of diseased wheat to make it marketable. With elevator storage capacity full and 

waiting for cars, space to segregate and blend does not exist, leaving open the risk 

that less than ideal quality wheat may not be marketable—which negatively impacts local producers who have taken the risk of planting those very crops. While 

secondary freight costs have relaxed from their peak levels, the bids elevators are 

offering consistently reflect allowances for crop-quality risks and the freight costs 

they are incurring. Basis cost for the risk of quality, contractual obligations and 

freight is a lesson learned from the experiences of the past 12 months. The risk factor is reflected in bases bids of approximately 30 to 50-cents for harvest delivery. 

The CP railroad, RCP&E and the processing industry do actively auction their 

freight but they, we shippers, buyers and the producers are all affected by the secondary market. Secondary market costs are an indicator of market pricing and risk 

because high freight costs are inversely proportional to freight availability—the 

higher the extra cost of rail freight, the less freight there is to go around which in 

turn impacts the elevator industry’s ability to handle grain. 


910COPE6.eps
22 

Table 6 

Table 6—Representative central SD Cash bids for new crop 2014 corn posted on publicly available company websites 

Table 7 

Table 7—Secondary BNSF freight bids and offers from public TradeWest Brokerage wire 9/5/14 

Is it an option for companies to expand storage? Over the past 15 years hundreds 

of millions of dollars have been invested in South Dakota grain and fertilizer facilities based on expectations of reasonable and predictable rail service. Investments 

in rail facilities at grain elevators can easily run from over $3 million dollars for 

a minimal amount of bins and a 25 car track upgrade to over $30 million for a state 

of the art shuttle shipper and fertilizer receiver. As an industry we have to ask ourselves when does the risk outweigh the reward given the unpredictability of transportation services. 

Where we need to be 

Moving forward, it is hoped that the stringent oversight of the agricultural rail 

service crisis will continue as the recovery in service hopefully continues and ultimately returns to more normal levels. In the long term, continued vigilance and the 

spotlight on this crucial issue will facilitate needed communication between the railroads and the state, where one did not exist before. Hopefully, this same communication can come into play when railroads are making investment decisions to increase capacity. The BNSF has responded to the heightened awareness with anVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\93974.TXT JACKIE

910COPE7.eps 910COPE8.eps
23 

nouncements to add locomotives and double track around North Dakota’s oil fields. 

We hope that the CP will follow through with their commitments also. 

While oversight from the STB, efforts by agricultural producer and shipper organization, and the leadership efforts of Senator John Thune, the ranking member of 

the Senate Committee on Commerce, Science and Transportation, has helped and 

will be needed moving forward, ease of doing business and safeguards against overregulation also are important. Certainly, the rail business environment can be improved by implementing reasonable processes and rules to make it easier to bring 

justifiable grievances regarding rail service, as well as rates and charges to a timely 

conclusion. Direct government intervention in railroad operations is not our goal. 

But this can be accomplished while still not encumbering railroads with regulatory 

constraints that make it uneconomic for them to invest in their systems to more efficiently handle grain and to enable our industry to continue to serve our farmer customers as their link to domestic and foreign markets. 

How do we get there? 

In addition to oversight, continued reporting of service metrics are important and 

necessary. We have a saying in our company that the problem with communication 

is the illusion that it actually took place. While seemingly tongue in cheek, it speaks 

to a real problem. Communication has to be open, honest and real. Action plans, 

progress reports and relevant scorecards from railroads on a real time basis are 

needed. Real time is defined as weekly or at least bi-weekly. Scorecards that outline 

targets and then follow up with a transparent analysis and frank summary of the 

results will not only help identify areas of improvement for the railroads but provide 

the affected grain industry planning tools of predicting future performance based on 

past results. In this region we would like to see the BNSF continue publicizing its 

plans and following up with the STB, affected states and customers. The CP needs 

to continue its reporting especially regarding the RCP&E commitments so that all 

stakeholders are aware and the RCP&E can make real progress addressing the 

backlog on their line. The recent addition for BNSF and CP to report shuttles by 

region (specifically the three states of ND, MN and SD) is a helpful metric and we’re 

pleased that you followed through with the request made by Senator Thune in July, 

which mirrors a recommendation from NGFA. Further, NGFA is in ongoing discussion with rail carriers on how to determine additional service metrics to show that 

agricultural shipments are not being disadvantaged at the expense of other, highervalue products hauled by rail. 

In addition to reporting, there needs to be one-on-one discussions between railroads and their customers to comprehensively outline what is needed and expected. 

Customers have the responsibility to honor commitments but the end goal is a team 

effort. We also believe additional manpower is needed to operate along the rail. Rail 

workers hours of service regulations are more stringent than those of trucks. Could 

hours of service regulations be relaxed during this period of service recovery so that 

while still operating in a safe and responsible manner, additional hours would help 

improve car movement? 

Proposed changes in the Surface Transportation Board Reauthorization Act of 

2014 are important to help the STB keep up with changes in the transportation network we are experiencing and see going forward. The highlights of the bill include 

increasing STB’s investigative authority so it can launch its own investigations before a complaint is filed; making it easier for Board members to communicate; and 

improved alternative dispute resolution practices; all of which are all positive steps. 

Conclusion 

Again, let me stress, we are not asking for direct government intervention and 

we are not asking for preferential treatment for grain. We just want to ensure that 

we are not disadvantaged or that grain is marginalized in the rail freight picture. 

Challenges faces the rail freight framework have reached the point where it is not 

productive to place blame, condemn or debate who was right and who was wrong. 

We stand at a crossroads where we need to determine a course of action that works 

for the benefit of all stakeholders. Thank you for your time today entertaining input 

from us. The members of the SD Grain & Feed Association appreciate your 

proactive stance and efforts to improve the dire situation of rail freight service for 

grain in SD. 

The CHAIRMAN. Thank you, sir, very much. 

Mr. Calvin Dooley is the President and Chief Executive Officer 

of the American Chemistry Council. Welcome. 

24 

STATEMENT OF CALVIN (CAL) DOOLEY, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, AMERICAN CHEMISTRY COUNCIL 

Mr. DOOLEY. Thank you, Mr. Chairman, Ranking Member 

Thune, members of the Committee, for allowing me to testify today. 

ACC and our member companies would particularly like to thank 

you, Mr. Rockefeller and Mr. Thune, for your introduction of the 

Surface Transportation Board Reauthorization Act of 2014. We 

would agree in your assessment that it is a very good bill because 

it does address numerous longstanding issues with the STB and 

will help make freight rail service more competitive and more reliable. 

The American business of chemistry is the second largest customer of the U.S. rail freight system. Thanks to the shale gas revolution here in the United States, we’re going to see the most dramatic increase in our production in history, and we’re going to be 

even more reliant on freight rail transportation. 

To succeed, we need efficient rail service, we need competitive 

shipping rates, and we need, importantly, a timely, effective, and 

an equitable way to resolve disputes between freight rail shippers, 

companies and shippers. We would acknowledge that the Staggers 

Act of 1980 has been successful in many ways and ACC and our 

member companies have no interest in re-regulating the rail industry. But it is time to acknowledge that the freight rail service landscape has changed dramatically in the 34 years since the adoption 

of the Staggers Act. 

For example, the consolidation among Class I railroads has left 

only seven in operation today, with four rail companies controlling 

almost 90 percent of all shipments. Today, more than three-quarters of U.S. rail stations are served by only one rail company. And 

unlike the 1980s when many railroads were grappling with bankruptcy, today’s railroads are in a strong financial position. 

The consolidations are correlated to significant increases in rail 

rates. Rates increased more than 93 percent between 2002 and 

2012, three times the rate of inflation. A recent study that we conducted found that in 2011, 57 percent of all rates exceeded the 180 

percent recoverable variable cost, which is an important number 

because that is the number STB uses to determine whether or not 

there’s legitimate cause to consider these rates as excessive. 

Even more importantly is that what we also found in 2011 is 37 

percent of all chemical shipments were 300 percent of the RVC. 

What is also more troubling to us is the trend, because in the most 

recent 5-year period we saw almost a 50 percent increase in our 

chemical shipments that were over that 300 percent of the RVC. 

ACC recently joined with 23 other manufacturing, agriculture, 

and energy groups to outline a series of STB reforms that would 

ensure access to competitive rates, and many of those reforms that 

we suggested are dealt with in the legislation that you and Senator 

Thune introduced. 

Just to highlight a few of those that we think are most important: 

The bill will make important organizational changes to streamline processes and facilitate more timely decisions by the STB. The 

board itself estimates that a standalone cost challenge today takes 

25 

three and a half years to complete and can cost over $5 million. 

That’s a financial barrier to resolution. 

The legislation requires a review of rate bundling practices. Why 

this is important is because railroads often group tariff rates with 

lower tariff rates in a single contract. Because nontariff rates cannot be challenged, shippers are faced with a Catch 22, as they must 

accept higher tariff rates on all the contract routes in order to challenge the rates on those routes that they find excessive. 

The legislation would provide STB with guidance that current 

revenue adequacy and standalone cost rules need review and possible revision. Both rules are based on the outdated notion that rail 

carriers are financially strapped. Yet by nearly all economic measures today’s rail carriers are financially stable. Warren Buffett does 

not invest $44 billion in a company that is not revenue adequate. 

Yet current STB policies stack the deck against shippers’ ability to 

successfully challenge rates, even when they have exceeded 900 

percent of the RVC. Even the economist who developed the economic basis for the standalone cost rule has recently stated it has 

no economic viability today. 

The legislation calls on STB to proceed with a competitive 

switching rulemaking. Shippers would then have access to competing quotes and service from other railroads which are a short 

distance from the point of shipment. 

The bill requires that STB develop a new arbitration program 

and raise the caps on damages, and we are confident that an effective arbitration alternative will drive carriers and shippers to equitably resolve rate disputes. 

These reforms will foster a healthy, efficient, and affordable 

freight rail system, which is in the interest of both rail companies 

and shippers. We thank you for your leadership and look forward 

to working with you and our transportation partners to advance 

the STB Reauthorization Act of 2014. 

[The prepared statement of Mr. Dooley follows:] 

PREPARED STATEMENT OF CALVIN (CAL) DOOLEY, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, AMERICAN CHEMISTRY COUNCIL

My name is Cal Dooley. I am the President and CEO of the American Chemistry 

Council (ACC), the national trade association representing chemical manufacturers 

in the United States. I am testifying today on behalf of our member companies and 

the nearly 800,000 men and women who make up America’s business of chemistry. 

I am very pleased to be here to discuss steps needed to promote and improve the 

performance of America’s freight rail system. 

First, I would like to thank Chairman Rockefeller and Ranking Member Thune 

for their leadership on this very important issue and for introducing the ‘‘Surface 

Transportation Board Reauthorization Act of 2014.’’ The legislation addresses numerous long-standing issues that have prevented the Surface Transportation Board 

(STB) from serving as an effective venue to resolve disputes between rail service 

providers and shippers. 

To be clear, this legislation does not seek to reregulate America’s freight rail system. In fact, it would make freight rail service more competitive, which is in the 

interest of large shippers, such as the chemical industry, and our economy as a 

whole. 

The chemical industry is the second largest customer of the U.S. freight rail system. Thanks to the shale gas revolution our industry is projected to grow significantly in the coming years, with $125 billion in new factories, expansions, and restarts already announced, meaning that our reliance on the rail system will only 

increase in the future. 

26 

Chemistry creates the building blocks for countless consumer goods, industrial 

processes and specialty materials that must be transported across the country and 

ultimately around the world. Efficient rail service; rational shipping rates; and 

when necessary, a timely, effective, and equitable way to resolve disputes between 

freight rail companies and shippers are critical to our success. However, a review 

of the facts suggests that many shippers currently are not benefitting from any of 

the three. 

A recent survey of ACC members found that rail issues factor heavily into domestic investment decisions. In fact, more than a quarter of ACC members report that 

rail transportation issues have hindered domestic investments. 

Publicly available data from the railroad industry shows that rail rates have increased more than 93 percent between 2002 and 2012, about three times the rate 

of inflation. ACC recently commissioned a study (summary attached) to explore the 

full economic impact of these increases. The study found that in 2011, 57 percent 

of all rail rates exceeded 180 percent of the revenue-to-variable cost ratio (RVC)— 

an important measure because any rate greater than 180 percent RVC could be subject to STB review for potentially being unreasonably high. In fact, a quarter of rail 

rates exceeded 300 percent RVC. 

This means that many commodity shippers pay a very high premium to transport their products—premiums that totaled over $16 billion in 2011. For perspective, a 

quick Google search will inform you that $16 billion can pay House and Senate salaries for 172 years or cover almost 100 percent of NASA’s annual budget. In more 

relevant terms, ACC’s economists project that a $16 billion chemical industry investment could support 54,000 direct and indirect jobs. 

This issue deserves Congressional attention. Significant resources are being diverted from research and development, operations, investment, expansion, and hiring to pay extremely high rail shipping rates. Congress created the STB to help ensure that railroad companies reap adequate returns but also to promote effective 

competition in the form of fair and reasonable and accessible and efficient service. 

Unfortunately, the Board has been unable to meet its mission. The bill introduced 

by Senators Rockefeller and Thune will help change that. 

The Staggers Rail Act of 1980, which deregulated the freight rail industry, has 

been successful in many ways, but the freight rail service landscape has changed 

dramatically since its passage. Consolidation has reduced the number of Class I, 

railroads from 26 in 1980 to only seven today, with four essentially operating like 

regional duopolies that control 90 percent of the market. Today, more than threequarters of U.S. rail stations are served by only one rail company, leaving customers 

captive to a single freight rail provider with no alternative if service or rates are 

unsatisfactory. 

ACC recently joined with 23 other groups representing a wide range of U.S. manufacturing, agricultural, and energy interests to express to the Committee our concern that the railroad industry is not providing the level of service we need at competitive rates. We outlined a series of reforms that will increase access to competitive freight rail service and modernize the STB to make it a more effective agency. 

The ‘‘Surface Transportation Board Reform Act of 2014’’ takes significant steps to 

address many of the issues that have plagued the freight rail system, including the 

following: 

• The STB’s rate review standards are complex, overly-burdensome, and prohibitively expensive for many shippers. The barriers for bringing a case before the 

STB are so high that very few of our member companies can justify the time 

and expense. The Board estimates that a stand-alone cost challenge takes more 

than three and a half years and $5 million to complete. ACC members have experienced cases that take even longer and cost much more to challenge. These 

costs and delays are simply prohibitive for many manufacturers, particularly 

small companies. 

This legislation would make important changes to the organization that will facilitate communication between commissioners and more timely action. 

• Rate bundling by railroads is a deterrent to seeking relief from the STB. Many 

times, railroads ‘‘bundle’’ a mix of rates into a single all-or-nothing contract proposal. Contract rates are typically lower than standard tariff rates, just like the 

actual price of a car is typically less than the sticker price. But only tariff rates 

can be challenged at the STB. 

In order to challenge an unreasonable rate on one or more specific routes, a 

shipper has to accept much higher tariff rates on all routes covered by the contract. The premium for these tariff rates may exceed the amount the shipper 

would hope to recover if it wins the rate case. This bundling effectively deprives 

a shipper of its only recourse against unreasonable rates, and we believe it 

27 

should be corrected by the STB, as it would be a violation of antitrust laws in 

other industries. This legislation calls for a review of the impact of rate bundling practices. 

• The STB’s stand-alone cost and revenue adequacy rules are outdated, impractical, and serve as obstacles to rational rate relief. The Staggers Rail Act imposed two rules that today require review and possible revision. First, the Act 

sought to ensure that railroads were revenue adequate, meaning that returns 

on investment were high enough to ensure the railroads remained solvent and 

profitable. Unlike the circumstances in 1980, the rail industry today is more 

than financially sound. The industry is setting records for operating ratios, operating income, and earnings per share. Railroad stocks have outpaced the 

broader market for years. 

Despite their economic performance, two recent attempts by ACC members to 

challenge rates of the rail industry’s longest-tenured revenue-adequate carrier 

were unsuccessful, even when rates exceeded 900 percent of the railroad’s variable cost. This legislation provides guidance to the Board that progress is needed on revenue adequacy rule-makings. 

Second, current STB rules require that in order to win a rate challenge, a shipper must prove that it could build and operate its own railroad from scratch 

for less than the railroad is charging. Not only is this rule irrational, it is extremely burdensome. To prove such a thing, a shipper must engage a virtual 

army of lawyers, economists, and consultants to create an entire railroad on 

paper. 

This requirement has even been criticized by Professor Gerald Faulhaber, who 

originally defined the economic basis for stand-alone cost saying, ‘‘the economic 

models upon which the stand-alone cost test were developed bear no relation 

to the current freight industry,’’ and the STB’s use of stand-alone cost ‘‘has no 

economic validity.’’ Even the current Chairman of the STB acknowledged in a 

recent decision that ‘‘we should never be satisfied with a process that is so expensive and time consuming for all parties.’’ 

This legislation will streamline rate case procedures and requires a report on 

rate methodology. Hopefully these steps will result in a more rational approach 

to justifying a rate case. 

• Competitive Switching is non-existent as an option for shippers. Competitive 

Switching would allow rail shippers to gain access to another Class I railroad 

within a short distance of their facility if they are unsatisfied with their current 

carrier. It would also allow shippers to obtain competing quotes from carriers, 

rather than forcing them to use one railroad. The Staggers Rail Act envisioned 

competitive switching, but it has never been allowed at the STB because of a 

decision in the mid-1980s that effectively precludes its use by shippers. There 

is currently a case pending on this issue at the STB, but it has languished for 

more than four years. 

We have long advocated for the STB to proceed with a rule-making to make 

competitive switching a more accessible solution for shippers. The legislation 

provides guidance to the STB from Congress that the Board should move forward with such a rule-making, 

• Current STB rules make arbitration an ineffective means to resolve disputes. The 

STB’s current cumbersome process does not create an incentive for parties to 

come to consensus and find solutions. To be more effective, the Board should 

move to a binding final-offer arbitration system. Similar approaches are utilized 

by the Canadian rail system to resolve rate disputes, as well as by professional 

baseball to resolve salary issues. 

Under a binding final-offer approach, the shipper and the railroad each present 

a final proposal for the rate in dispute. At the end of the process, the arbitrator 

must choose one of these proposals, giving each side the incentive to converge 

towards a fair and practical solution. This straightforward reform would help 

level the playing field, swiftly and fairly resolve rate disputes, and lower administrative costs for shippers and railroads. 

The legislation acknowledges the problems with the current arbitration program, requires the STB to develop new arbitration procedures, and raises the 

cap on damages to a more reasonable level. 

A healthy, efficient, and affordable freight rail system is essential to the success 

of the chemical industry, many other manufacturers, and the U.S. economy overall. 

We firmly believe that greater competition and a more equitable approach to resolving rates are not mutually exclusive with a thriving, profitable freight rail system. 

28 

It is true that there are other modes of transport, but that does not preclude the 

freight rail system from operating in a competitive and efficient manner. 

Every policy reform we support is consistent with the policy goals set forth by the 

Staggers Rail Act. Unfortunately, the freight rail industry routinely opposes any reforms that would allow for more competition between railroads, including any operational changes that would give customers increased access. They have even opposed rules that would make the trucking industry more competitive. 

We greatly appreciate the leadership this committee has shown on this important 

issue. We look forward to working with you to advance the ‘‘Surface Transportation 

Board Reform Act of 2014,’’ and we remain committed to cooperating with the Committee and our transportation partners to foster a strong freight rail system that 

serves both railroads and shippers well. 

SUMMARY OF FREIGHT RAIL STUDY

ANALYSIS OF THE PREMIUM RAILROADS CHARGE SHIPPERS—March 2014 

Introduction 

U.S. producers depend on rail service to ship their products to their customers. 

Over the past decade, railroads consolidated and government rules protected railroads from competition, causing freight rail rates to skyrocket more than 76 percent—nearly three times the rate of inflation and three times as much as truck 

rates have increased. While a strong rail industry is vital to the U.S. economy, excessive rates can be a burden on U.S. manufacturing and provide a competitive advantage to foreign producers. To better understand these impacts, Escalation Consultants quantified the premiums railroads charge U.S. manufacturers in a report 

entitled, Analysis of Freight Rail Rates for U.S. Shippers. 

Methodology 

For this study, Escalation Consultants examined Class I railroad rate data from 

the Surface Transportation Board’s (STB) Public Use Waybill sample for all major 

commodity groups shipped by rail. Data was analyzed for 2011, the most recent year 

available from STB, and for 2005. Escalation Consultants calculated the railroad’s 

revenue-to-variable-cost ratio (RVC) for each shipment that originated or terminated 

in the U.S. RVC is an important indicator for freight rail rates because a rate greater than 180 percent RVC is subject to potential STB review for being unreasonably 

high. 

For each group of related commodities, Escalation Consultants calculated the average rate for shipments below 180 percent RVC (those assumed to be competitive) 

and the average rate for shipments above 180 percent RVC (those potentially noncompetitive and subject to STB jurisdiction). The difference between these average 

rates is presented as the shipper’s rate ‘‘premium.’’ Escalation Consultants further 

broke down the potentially non-competitive rates by RVC ranges (180–240 percent, 

240–300 percent, and above 300 percent) to show the impact of the highest rates 

on the total premium. Data are reported for all commodities combined, as well as 

for major commodity groups and individual products within each group. 

Summary of Findings 

These key findings are based on the Public Use Waybill sample provided by the 

railroads to the STB: 

• In 2011, more than half (57 percent) of all rail rates exceeded the 180 percent 

RVC. 

• The average rate for carloads above 180 percent RVC was $1,335 higher than 

the average rate for carloads below 180 percent RVC, meaning that shippers 

paid a 53 percent premium for these shipments. 

• As a result, the total premium paid by commodity shippers in 2011 exceeded 

$16 billion. 

• The commodity groups with the largest total rate premiums were coal ($5.2 billion), chemicals and plastics ($4.5 billion), and transportation equipment ($1.2 

billion). 

• Many rates were far above the STB’s jurisdictional threshold of 180 percent 

RVC; for example, nearly one quarter (23 percent) of rates exceeded 300 percent 

RVC, or three times the railroad’s variable cost. 

• From 2005 to 2011, the total premium paid by commodity shippers increased 

90 percent while the carload volume declined by 1.1 percent. 

29 

RAIL CUSTOMER LETTER TO CONGRESS

July 10, 2014 

Hon. HARRY REID, 

Majority Leader, 

United States Senate, 

Washington, DC. 

Hon. MITCH MCCONNELL, 

Minority Leader, 

United States Senate, 

Washington, DC. 

Dear Majority Leader Reid and Minority Leader McConnell: 

In April, a broad coalition of railroad customers representing a range of U.S. manufacturing, agricultural, and energy industries wrote to your office to highlight the 

need for rail policy modernization. Today, we write to you in support of the attached 

specific reforms that would increase competition among railroad companies and 

make the Surface Transportation Board (STB) a more effective and efficient regulatory body. 

The lack of competition for rail services has become a critical problem for American industry, as more than three-quarters of U.S. rail stations are now served by 

just one major rail company. This consolidation has given the remaining railroads 

unprecedented market power, and has denied many rail-dependent companies the 

benefits of cost-effective and reliable rail transportation service. Unreasonable rate 

increases, service breakdowns, and diminishing competition, all act as headwinds on 

the many industries that require rail to do business in the United States. 

In the past, the rail industry has inaccurately portrayed efforts to reform rail policy as ‘‘reregulation.’’ This coalition does not support a return to the 1970s when 

all freight rates were automatically subject to strict government scrutiny. Because 

the Nation’s freight rail network is vital to the strength of the economy, this coalition supports policies to create a more competitive and market-based system, while 

ensuring the STB has procedures to settle disputes efficiently. 

There is no question that the United States needs a strong rail network to compete globally. Railroads are a remarkably efficient means for transporting bulk commodities over long distances. According to the Association of American Railroads 

(AAR), rail companies can now move one ton of freight 476 miles on one gallon of 

diesel fuel. Surprisingly, these increases in productivity have coincided with sharp 

increases in rail rates and declining service performance. 

Several factors have contributed to the increasing imbalance in railroad market 

power, most importantly the dramatic consolidation of the Nation’s freight rail network since Congress passed the Staggers Rail Act of 1980. There were 26 Class I 

rail companies in 1980; now, four corporations control more than 90 percent of the 

market. Staggers helped the industry regain profitability, but unchecked consolidation has led to dramatic increases in rates. In fact, according to AAR data, rates 

spiked 94.8 percent from 2002 to 2012, which outpaces increases in inflation and 

truck rates by about a factor of three. Furthermore, the STB held an emergency 

hearing and intervention this spring to address systemic rail service problems, while 

rates increases continue. 

The STB process for rate cases can and should be improved by Congress. Although railroad rates may be challenged for being ‘‘unreasonably high’’, shippers 

large and small who desire to bring a rate case face tremendous economic barriers. 

A major case at the STB is extremely complex, involves a multimillion dollar investment in lawyers and consultants, and takes several years to obtain a decision. During the rate case, shippers are forced to pay extremely high tariff rates in the hopes 

of recouping those costs at the end of the case if they are successful. Many shippers 

cannot afford to challenge a rate at the STB under current procedures, and for those 

that can afford it, the economics of filing a complaint are dubious. 

Simply put, the current policies do not achieve the goals that Congress established in 1980, including promoting effective competition between rail companies, 

maintaining reasonable rates where there is an absence of effective competition, and 

providing expeditious resolution of all proceedings. In our view, it is the responsibility of Congress to ensure that the STB is perceived as an effective and viable 

intermediary between railroads and their customers who currently have no truly 

competitive option to ship. 

We hope you will take a look at the attached document where we have outlined 

specific policy proposals that would help to modernize the U.S. rail policy framework. We look forward to working with Congress and the rail industry to ensure 

30 

the Nation’s freight rail works—both for rail companies and the large and small 

American businesses that rely on them. 

Sincerely, 

Agricultural Retailers Association 

Alliance for Rail Competition 

American Architectural Manufacturers 

Association 

American Chemistry Council 

American Forest & Paper Association 

American Public Power Association 

Chlorine Institute 

Consumers United for Rail Equity 

(CURE) 

Rdison Electric Institute 

The Fertilizer Institute 

Growth Energy 

Institute of Scrap Recycling Industries, 

Inc. 

Louisiana Chemical Association 

Manufacture Alabama 

National Association of Chemical 

Distributors 

National Rural Electric Cooperative 

Association 

Plastic Pipe and Fittings Association 

Portland Cement Association 

PVC Pipe Association 

Resilient Floor Covering Institute 

SPI: The Plastics Industry Trade 

Association 

Steel Manufacturers Association 

The National Industrial Transportation 

League 

The Vinyl Institute 

Enclosure 

cc: 

The Honorable John Boehner 

The Honorable Nancy Pelosi 

The Honorable John Rockefeller IV 

The Honorable John Thune 

The Honorable Richard Blumenthal 

The Honorable Roy Blunt 

The Honorable William Shuster 

The Honorable Nick Rahall II 

The Honorable Jeff Denham 

The Honorable Corrine Brown 

RAIL POLICY PROPOSALS

Enhance Efficiency of STB Operations 

• Allow direct communication between STB Commissioners: Government ‘‘sunshine laws’’ prohibit a quorum of the STB (currently, any two members) from 

discussing pending matters with each other, forcing members to work via staffs. 

Congress should address this problem by expanding the STB to five Commissioners or by providing a limited exception that allows appropriate discussions 

of pending issues by STB members. 

• Study STB staffing and resource requirements: Congress should initiate a study 

to determine whether the STB has adequate resources to fulfill its statutory 

mission. 

• Eliminate railroad revenue adequacy determinations: As demonstrated by the 

industry’s high levels of capital investment and shareholder returns, the STB’s 

annual ‘‘revenue adequacy’’ calculations for Class I carriers are no longer necessary and may inappropriately shield railroads’ pricing power from STB scrutiny. Congress should eliminate this outdated requirement. 

• Publicly report the status of STB proceedings: Rail stakeholders would benefit 

from regular reports from the STB detailing the status of pending rate cases, 

rulemakings, and complaints. Reports should include key STB actions and expected timelines for final resolution. 

Reform STB Rate Challenge Procedures 

• Review the STB’s rate-reasonableness standards: Congress should direct the 

STB to review its three types of rate-reasonableness reviews. Significant concerns involve not only the cost and length of STB reviews, but also the fundamental principles on which each standard is based. Reformed standards should 

recognize that the Staggers Rail Act’s goal of restoring financial stability to the 

U.S. rail system has been achieved. 

31 

• Provide arbitration as an alternative means to resolve rail rate challenges: The 

STB’s rate review procedures are costly for railroads and shippers and, therefore, are rarely used. Binding arbitration, which has been used successfully 

under Canadian law, could provide a quicker and less expensive approach to resolve rail rate disputes. 

• Prohibit ‘‘bundling’’ of contract rates that can prevent rate challenges: In some 

instances, a railroad will ‘‘bundle’’ rates in a single contract proposal for a group 

of origin-destination pairs and refuse to quote tariff rates for individual movements. This all-or-nothing approach effectively forces a shipper to agree to the 

complete package of contract rates and deprives them of the ability to challenge 

specific rates that it believes are unreasonable. The STB must be empowered 

to address this problem and fulfill its mandate to resolve rate disputes. 

• Review STB commodity exemptions: Since passage of the Staggers Rail Act, numerous categories of rail traffic have been exempted from STB oversight. The 

rail industry and the state of rail competition have changed significantly since 

many of these exemptions were granted. Congress should direct the STB to conduct a comprehensive review of existing commodity exemptions and remove any 

exemptions that are no longer appropriate. 

Remove Barriers to Freight Rail Competition 

• Provide competitive switching to shippers: Competitive switching agreements 

facilitate the efficient movement of traffic between carriers and are critical to 

a competitive rail system. Consistent with existing authority under the Staggers 

Rail Act, the STB should be directed to provide competitive switching service 

to shippers, without requiring evidence of anti-competitive conduct by a rail carrier from which access is sought. The availability of switching should not preempt STB authority to review rates. 

• Allow shippers to obtain service between interchange points on a rail carrier’s 

system: Current STB policies and precedents effectively block many shippers 

served by a single Class I railroad from obtaining competitive service. In order 

to provide effective competition among rail carriers, a Class I rail carrier should 

be required to quote a rate and provide service between points on that carrier’s 

system where traffic originates, terminates, or may be reasonably interchanged. 

The CHAIRMAN. Thank you, sir. 

Mr. Shane Karr, Vice President, Federal Government Affairs of 

The Alliance of Automobile Manufacturers. 

STATEMENT OF SHANE KARR, VICE PRESIDENT, FEDERAL 

GOVERNMENT AFFAIRS, THE ALLIANCE OF AUTOMOBILE 

MANUFACTURERS 

Mr. KARR. Thank you, Mr. Chairman, Ranking Member Thune, 

members of the Committee. I appreciate the invitation today to testify on behalf of the Alliance and our 12 member companies who 

collectively produce three out of every four new vehicles sold in the 

U.S. each year. 

I think you invited me here because rail is an essential component of my industry’s national supply chain. Seventy percent of 

new vehicles move by rail each year and that’s roughly $5 billion 

a year in freight charges. Unfortunately, auto manufacturers are 

increasingly encountering the same persistent rail service issues 

that you’ve been hearing about. They threaten not only my sector 

and the 8 million jobs that auto manufacturing supports, but I 

would argue that they threaten the broader economic recovery as 

well. 

Of course, there is a lot of focus on this winter, but the fact is 

my members have been seeing systemic problems that have been 

progressively worsening over the past few years. They would tell 

you that this winter merely exacerbated underlying service probVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00035 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\93974.TXT JACKIE
32 

lems, and I think the evidence is the continuation of those problems well into the summer months of this year. 

Let me talk about the two most common problems we’re seeing: 

lack of available railcars to transport vehicles and then when we 

do have railcars, continuing significant delays in actual movement. 

Let me dimensionalize those two things for you for my sector. 

Last year, there were over 83,000 railcar shortages over the 

course of the entire year in 2013. I think we would all agree that 

sounds like a pretty big number. But in the first 6 months of this 

year alone, January through June, we experienced almost 182,000 

railcar shortages. What that has meant for us is that we have seen 

stranded basically between 140,000 and 200,000 new vehicles on an 

ongoing basis for roughly four and a half months, starting in March 

through June, so well past the winter months. For comparison, we 

never hit the 140,000 mark in all of 2013. 

Even when we have had cars available to move, we’re still seeing 

significant delays. Again, kind of controlling for the winter, if you 

just look at the summer months, June, July, and August, we have 

seen on an ongoing daily basis, roughly 2,100 railcars per day that 

are delayed 48 hours or more. 

As a result of these persistent disruptions, my companies are 

spending tens of millions of dollars either to store new vehicles 

until they can move by rail or find alternative modes of transportation, which generally means trucking. For example, in my written statement I cite one of my companies at one of their facilities 

who has spent 13 million incremental dollars, which equates to 

about $184 per vehicle coming out of that facility, in order to store 

vehicles or move them by truck. 

Unfortunately, many of my companies are sort of looking at this 

world and not seeing service improvements in the near future, and 

thus are moving to lock in alternative modes of transportation or 

additional storage. This is a suboptimal solution, and maybe that’s 

a euphemism, for a number of reasons, I think, from your perspective. Number one, frankly, there just isn’t sufficient long haul 

trucking available in the U.S. even if we wanted to make that shift 

en masse to handle that quantity of goods over those distances. 

Number two, the increased cost of that shipping ultimately ends 

up being passed down to consumers. 

Number three, I think the overall shipping community very 

clearly in that world becomes much more vulnerable to fuel price 

spikes and supply vulnerabilities. 

In closing, I did want to mention the efforts of Senator Portman 

and Senator Levin, who are co-chairs of the Auto Caucus, to raise 

this issue and our sector’s concerns in front of the STB. We attached a letter that they sent earlier this year to my written statement. I also want to reiterate again that we really appreciate being 

invited to this hearing and we look forward to working with you 

as you decide how to address this issue. 

[The prepared statement of Mr. Karr follows:] 

PREPARED STATEMENT OF SHANE KARR, VICE PRESIDENT, FEDERAL GOVERNMENT

AFFAIRS, THE ALLIANCE OF AUTOMOBILE MANUFACTURERS

Thank you, Chairman Rockefeller, Ranking Member Thune and members of the 

Committee. The Alliance of Automobile Manufacturers (Alliance) is a trade associaVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\93974.TXT JACKIE
33 

tion of twelve car and light truck manufacturers comprised of BMW Group, Chrysler 

Group LLC, Ford Motor Company, General Motors Company, Jaguar Land Rover, 

Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche Cars, Toyota, Volkswagen 

Group and Volvo Cars. Together, Alliance members account for roughly three out 

of every four new vehicles sold in the U.S. each year. Auto manufacturing is a cornerstone of the U.S. economy, supporting eight million private-sector jobs, $500 billion in annual compensation, and $70 billion in personal income-tax revenues. On 

behalf of the Alliance, I appreciate the opportunity to comment on the significant 

freight delays that have been negatively impacting the auto industry. 

Rail is an essential component of the automotive industry’s national supply chain. 

Auto manufacturers ship tens of thousands of vehicles daily in North America, primarily on U.S. railroads. According to the Association of American Railroads, railroads transport about 70 percent of finished motor vehicles, and automotive traffic 

represents nearly $5 billion in annual railroad freight charges. 

Automakers utilize a combination of rail and trucking to transport finished vehicles from assembly plants to dealer lots and ports. Generally, shipping vehicles by 

rail is the more economical means of transporting vehicles over long distances, and 

in some instances, rail is the only feasible option to haul significant volumes of vehicles over long distances. 

Over the past several years, as the auto industry has rebounded from the economic downturn, auto manufacturers unfortunately have encountered persistent rail 

service issues. By far, the greatest logistics problem faced by auto manufacturers 

is the carriers’ failure to provide a sufficient supply of empty railcars to transport 

finished vehicles. Automakers have also incurred significant delays in the movement 

of railcars loaded with finished vehicles. In this regard, it appears that the priority 

of auto shipping has become less than that of other shippers. 

The most recent rail industry service problems have caused an unprecedented disruption in the ability of auto manufacturers to deliver vehicles to their customers. 

As a result of the rail service disruptions, auto manufacturers are spending tens of 

millions of dollars a month to find other means of moving stranded vehicles or to 

store them until rail service is available. For example, since January one automaker 

has spent an incremental $13 million, or approximately $184 per vehicle, on vehicle 

transportation for one assembly plant alone due to the lack of available empty railcars. These vehicles should have been transported much sooner via contracted rail services to dealerships for sale or delivery to consumers. For a significant portion of 

2014, vehicle inventory worth billions of dollars sat in rented storage yards all 

around North America. In early April—at the height of this crisis—more than 

200,000 vehicles were held in storage yards in and around automotive assembly 

plants. Where possible, automakers have had to look to alternate, more expensive 

means to move vehicles to dealers. Automakers had been optimistic that the excess 

vehicle backlog would be eliminated during the summer months when many assembly plants halt production for model changeover, giving the rail companies the opportunity to ‘‘play catch up.’’ And while the backlog has been reduced, automakers 

continue to suffer regular railcar shortages and remain concerned that we are entering the fall and winter seasons still in a deficit position. 

All automakers, regardless of which carrier they use to ship vehicles, have been 

adversely impacted by rail service disruptions. Additionally, this problem is not limited to the upper Midwest; rather, it is systemic throughout the country. While 

many auto manufacturing assembly plants are located in regions that experienced 

an especially severe winter (e.g., Illinois, Indiana, Michigan and Ohio), auto manufacturers with assembly plants in other parts of the country, particularly in the 

South and Southeast, also experienced shipping delays and vehicle storage problems. 

While this winter may have been more disruptive than in prior years, service 

problems did not start with the winter of 2014. Auto manufacturers annually encounter service delays during the winter months, and we understand that the rail 

network is highly connected such that severe weather in Chicago can have ripple 

effects throughout North America. But, in this case, extreme weather merely exacerbated underlying problems stemming from a lack of capacity—in cars, as well as 

crews and locomotive power. Extreme weather was not the reason that thousands 

of multilevel railcars that were needed for loading at automotive assembly plants 

throughout North America were in storage in early February. 

Some maintain that the fundamental problem is the structure of the rail industry 

and corresponding lack of competition among the Class I railroads. There is no question that freight volume is booming. As the Committee well knows, rail shipments 

of crude oil have grown exponentially in the last several years and are forecasted 

to continue to increase. The agriculture harvest last year was particularly good, addVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\93974.TXT JACKIE
34 

1Levin, Carl and Portman, Rob. Letter to the Honorable Daniel R. Elliott, III, Chairman, Surface Transportation Board. July 8, 2014. 

ing to the demand. And, happily, the auto sector is booming again as well. Last 

month’s seasonally adjusted sales were the highest we have seen since 2006, and 

many automakers are taking steps to up their North American production capacity. 

These are all extremely positive indicators for a recovering economy, but their potential benefit is in significant danger of being blunted by the shipping delays and 

high costs of storing product, or relying on alternative, more expensive forms of 

transportation. 

In a competitive market, an influx of demand would be met by an influx of increased supply (in this case new capacity), but as previously indicated, to many in 

the shipper community, it seems as though supply is very slow in coming in the rail 

sector. The Class I railroads tout large investments in capacity, but for many in the 

shipper community, it is difficult to sort out what is actually new capacity for existing shippers (such as automotive) versus maintenance of existing service or service 

for new shippers. 

Many shippers, including many Alliance members, are becoming increasingly concerned that these service problems are not going away anytime soon, and they are 

adjusting their logistics planning accordingly. One large Alliance member notes that 

in response to delays this year, it had to rebalance shipping from one of its large 

plants from 85 percent rail–15 percent truck to 60 percent rail–40 percent truck. 

In light of what that company is seeing in the rail sector, it is taking steps to lock 

in truck contracts, expecting a similar ratio going forward several years. 

While diverting vehicles from rail to truck may provide some logistical relief, this 

approach has its inherent limitations; in certain situations it is simply not feasible 

to haul significant volumes of vehicles for very long distances via truck. Shifting 

goods from rail to truck is also less efficient and more costly. The increased costs 

of ‘‘forcing’’ automakers to shift goods from rail to truck will eventually be passed 

down to consumers. It also makes the overall shipping community more vulnerable 

to fuel price spikes and supply vulnerabilities. To the extent that that rail service 

becomes less and less reliable, these concerns will be magnified and pressure for 

Congress or the STB to intervene will become more acute. 

Automakers are encouraged by the attention this Committee as well as the STB 

is giving this critical issue. Additionally, we also appreciate the efforts of Senators 

Levin and Portman, Co-Chairs of the Senate Auto Caucus, to draw attention to this 

important issue. In a July 8, 2014, letter to the STB (attached), the Senators highlighted the impact freight rail delays are having on the auto industry and urged the 

STB ‘‘to closely monitor this situation and work with the railroads to find a timely 

solution.’’ 1

While auto manufacturers and rail carriers communicate on a regular basis to discuss rail service issues, many of our members are growing increasingly dissatisfied 

with the responses (or lack thereof) that we are getting to our concerns. As Congress 

considers what, if any, steps it can or should take to address the concerns of other 

industries affected by recent rail service disruptions, automakers want to make sure 

our concerns are recognized and included in those considerations. We look forward 

to working with you on these issues. 

ATTACHMENT

UNITED STATES SENATE

Washington. DC, July 8, 2014 

Hon. DANIEL R. ELLIOTT III, 

Chairman, 

Surface Transportation Board, 

Washington, DC. 

Dear Chairman Elliott: 

As Co-Chairs of the Senate Auto Caucus we are writing to bring to the Surface 

Transportation Board’s attention serious freight rail delays negatively impacting the 

auto industry. These concerns were brought to the Surface Transportation Board’s 

attention in a letter from the Auto Alliance dated April 17, 2014. We wish to reiterate the issues raised in the Auto Alliance letter and urge the SIB to closely monitor this situation and work with the railroads to resolve the delays. 

We understand that winter weather often results in seasonal rail service delays 

and that this winter was particularly severe. However, additional factors have exacerbated rail service disruptions nationwide. These include a shortage of railcars and 

35 

an inadequate response to ameliorate this shortage, the annual month-aver-month 

growth in auto production and auto exports as the industry rebounds from recession, and the boom in crude oil shipped by rail that is absorbing significant rail capacity. 

While rail service delays are being felt across industry sectors and across the 

country and need to be addressed, it is a particularly urgent matter for the automotive industry. According to an April 23 Wall Street Journal article, the industry 

faces a backlog of nearly 160,000 finished automobiles on the ground awaiting rail 

transport. This backlog costs automakers tens of millions of dollars in storage fees 

and alternative means of transporting vehicles and has resulted in vehicle shortages 

at some dealerships across the country. This situation has significantly impacted the 

ability of automakers to deliver products to consumers. 

We should be doing everything we can to support the resurgence of American 

manufacturing which is fed in large part by the comeback of the U.S. auto industry. 

This includes making sure the rail infrastructure on which America’s manufacturers 

rely is operating efficiently and effectively. We urge the Surface Transportation 

Board to closely monitor this situation and work with the railroads to find a timely 

solution to the rail service deficiencies currently plaguing the U.S. transportation 

system. 

Thank you for your consideration. 

Sincerely. 

Rob Portman 

Co-Chair. Senate Auto Caucus 

Carl Levin 

Co-Chair. Senate Auto Caucus 

The CHAIRMAN. Thank you, sir. 

Finally, Mr. Ed Hamberger, who’s the President and Chief Executive Officer of the Association of American Railroads, which I 

often refer to as the most powerful under-the-radar lobbying group 

in Washington, D.C. Welcome. 

STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, ASSOCIATION OF AMERICAN 

RAILROADS 

Mr. HAMBERGER. Mr. Chairman, thank you. Senator Thune, 

Ranking Member Thune, members of the Committee, thank you for 

the opportunity to be here. 

Senator—Mr. Chairman, rather—we were talking at a hearing 

last year where we agreed that we have not always seen eye to eye 

on the issue of economic regulation of the freight rail industry, but 

I observed at that time and would like to reiterate today that I appreciate your leadership in those areas where we have worked together and thank you for your years of public service. So thank 

you. 

I hope that my written statement, and I want to emphasize it in 

my oral statement, conveyed to you the fact that this industry recognizes that our customers are not getting the service to which 

they have become accustomed and which they need to serve their 

customers. It is a responsibility that we undertake to restore that 

service. It has occurred, as Senator Thune mentioned, not just because of rail service issues, but also some issues outside of our control. Nonetheless, it is our responsibility to get back to the level we 

need to get back to. 

I would like to address that issue and, with your permission, Mr. 

Chairman, also address some things not in my written testimony 

that I have heard here today. 

Let me start with capacity and service. On the one hand, this is 

a good news story. In August 2014, just last month, we moved 

more merchandise overall than we have since October 2007, before 

36 

the recession. So the economy is coming back. We hope to move 17 

million new automobiles this year. On the intermodal side, we’re 

going to take 13 million trucks off the road as we grow intermodal 

at 6, 7 percent for the year. 

But we have problems. We did not see the surge in traffic coming. Many of our customers did not, either. In fact, last August 

there were tens of thousands, over 50,000, grain cars in storage. 

And then in the fourth quarter the demand hit. The weather—you 

mentioned it, Mr. Chairman. Yes, it snows every year. But this 

particular year in Chicago was a record cold and record snow. We 

are a network industry. One-third of our traffic originates, terminates, or transits through Chicago. When Chicago has problems, 

the entire network—it ripples through the entire network. 

Another issue that I mentioned is the commodity mix. What does 

that mean? Well, what it means is that for years we’ve been building quadruple tracking into the Powder River Basin around Gillette, Wyoming, so we can move coal. In 2013, we moved 1.4 million 

less carloads of coal than we did in 2008. Now, we can’t just pick 

that track up in Gillette and move it to Minnesota, Missouri, or 

South Dakota, West Virginia. It takes time to go out there and 

build new capacity where the marketplace says we need it. 

That’s exactly what we’re trying to do. We’re spending $26 billion, 40 cents of every revenue dollar. We’ve hired 4,800 new employees, net new employees, in the first 6 months of this year. But 

it takes time for all of that to work its way into the system. 

In Chicago, which I mentioned, we have had a task force looking 

at how to automate all the data that we collect there so that we 

can put in new protocols, move into higher levels of alert more 

quickly than we did last year, hoping that that will help alleviate 

some of the network fluidity issues rippling out from Chicago. 

I mentioned the fact that we’re putting $26 billion, 40 cents of 

every dollar, and that can only happen if we have the ability to invest. It is private sector money. It is not Federal money. I am not 

here asking for more Federal money because we invest our own 

money. We go into the private capital markets and we borrow it 

and we invest that which we earn. 

I do acknowledge that Chairman Rockefeller and Senator Thune 

introduced your bill on Monday. We are still taking a look at it. We 

have several concerns as introduced, but, as we always do, we’d 

like to sit down and see if we can’t reach common ground with you 

as you move to mark up next week. 

I would like to take issue, however, with some of the things my 

good friend Cal Dooley said about how rail rates are hurting his 

members. It is exciting that his members have announced 197 new 

projects of $125 billion in the United States. Many of those plants 

will be served by railroads. Some of those will only be served by 

one railroad. But yet, the investments are going forward. We will 

be an enabler of those investments, not an impediment to them. 

Cal mentioned average rail rates spiking and he’s right. They 

have gone up, according to this chart, over the last several years, 

all the way back to where they were in 1988 in inflation-adjusted 

terms, 17 percent below where they were in 1981. So they’ve spiked 

all the way back to where they were in 1988. 

37 

One of his employees testified on the House side in May that the 

United States is currently the most attractive place in the world 

to invest in chemical manufacturing. All this investment occurring 

at the same time that our rates have gone all the way back to 

where they were in 1988. I would suggest that we’re the most attractive place to invest for chemicals, because of—not in spite of, 

but because of the rail service that we provide and the rates that 

we charge. 

There were two hearings at the STB—let me close quickly, Mr. 

Chairman; I apologize for running over—in March and April. The 

one in March was on the NITL proposal to require mandatory reciprocal switching. There was a disagreement between the railroads and the proponents of that proposal over what the magnitude 

of the impact would be, but both sides agreed that there would be 

an impact in money leaving the rail industry and going to the shipper community, there would be an impact on fluidity, a negative 

impact, because of the increased switching of cars. 

Then a month later there was a hearing on service issues and 

what could be done to improve service. Well, the message coming 

out of that hearing was much different. The message coming out 

of that hearing could frankly be best summed up by the statement 

of Lucas Lentsch, Secretary of Agriculture for South Dakota. He 

said, quote: ‘‘Farmers have spent the capital to increase production. 

Grain companies have spent the capital to handle this new production. And now it is up to the railroads to spend the capital to get 

this production to export.’’ Well said, and our members are doing 

just that, spending their money, $26 billion, to get grain to export, 

chemicals from the plant to the customers, automobiles from the 

manufacturing plant to the showrooms. 

But that can only happen if we can earn the revenue to reinvest. 

I urge you to understand that the balanced regulatory system that 

is there at the STB is the foundation which allows those investments, and if you undermine that foundation you undermine the 

ability to make those investments, and that will have a negative 

impact on capacity and the economy. So I ask you to keep that 

paramount as you take a look at legislation and other issues going 

forward. 

Thank you, Mr. Chairman. I appreciate your leniency on the time 

and look forward to any questions. 

[The prepared statement of Mr. Hamberger follows:] 

PREPARED STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, ASSOCIATION OF AMERICAN RAILROADS

Introduction 

On behalf of the members of the Association of American Railroads (AAR), thank 

you for the opportunity to discuss the performance of America’s freight rail system. 

AAR’s freight railroad members account for the vast majority of freight railroad 

mileage, employees, and traffic in Canada, Mexico, and the United States. AAR’s 

membership also includes Amtrak and commuter passenger railroads. This testimony is on behalf of the AAR’s freight railroad members. 

Comprehensive, reliable, and cost-effective freight rail service is critical to our Nation. Our nation’s freight railroads are proud that that is exactly what they generally provide. Indeed, America’s freight rail system is second to none in the world. 

That said, it is also clear that, for a not insignificant group of rail customers, rail 

service in recent months has not been of the quality they have come to expect, or 

that railroads themselves expect. Rest assured, railroads are working tirelessly to 

38 

1 It’s no different on a highway, where efficiency is maximized when similar vehicles travel 

at similar speeds. 

remedy these challenges. Substantial progress has been made, and while challenges 

remain, railroads are fully committed to maintaining progress toward restoring 

service levels that rail customers deserve. 

And while I do not mean to minimize in any way the very real challenges that 

some rail customers are facing, it is important to note that U.S. railroads today are 

moving a tremendous amount of freight. In fact, average weekly U.S. rail volume, 

defined as carloads plus intermodal containers and trailers, was higher in August 

2014 than in any month since October 2007. The intervening recession reduced 

freight traffic by about 20 percent. However, railroad spending on their networks 

remained comparatively high through these years, and increased over the last few 

years as volumes began to return. 

The actions railroads are taking today will result in our Nation’s rail network 

being stronger and more resilient than ever, providing railroads the opportunity to 

improve their operations and become better able to provide the efficient, reliable, 

and cost-effective freight transportation service that rail customers, and our nation, 

need in order to continue to prosper. 

In the testimony below, I will discuss general issues related to the design and operation of rail networks, and discuss some of the specific factors that have contributed to recent rail service challenges. Foremost among these factors is a significant, 

rapid increase in demand for service—driven by commodity markets, expanding economic activity, and the related expansion of the domestic energy industry—that neither railroads nor their customers fully anticipated and that, in some cases, has 

proven challenging to handle with the resources available. Increasing demand included a different mix of traffic than previously, and some of this new mix has utilized areas of the rail network that had not previously seen such high traffic levels. 

In addition, this demand increase was accompanied by an unusually severe winter 

and subsequent thaw, as well as numerous spring flooding events, which continue 

to negatively impact rail operations in certain locations. 

Network Planning and Management Complexity 

Unlike other network industries that transmit fungible products (e.g., electricity 

is the same, no matter who generates it) or products that can readily be routed to 

particular customers using automated equipment (e.g., electronic signals for telecommunications), railroads must move specific rail cars carrying specific commodities from specific origins to specific locations and must do so outdoors, in all types 

of weather. To accomplish this, railroads devote enormous resources to planning and 

operations. 

Even under the best of circumstances, day-to-day fluctuations have an impact on 

rail operations. Trains can be late or early for many different reasons, such as crew 

availability, customer facility fluidity, bad weather, grade crossing or other accidents, and even the maintenance and construction of rail infrastructure itself. Flexibility is built into plans and operations, but this flexibility is reduced as demand 

on the network increases, and no plan can fully predict or accommodate all 

eventualities for all portions of a rail network. 

As volumes increase, a number of factors make rail networks exceedingly complex 

to plan and manage and are worth noting here: 

• Train types. Trains of a single type can often be operated at similar speeds and 

with relatively uniform spacing between them. This increases the total number 

of trains that can operate over a particular rail corridor. This situation, however, is relatively rare. Far more common is for trains of different types—with 

different lengths, speeds, and braking characteristics—to share a corridor. 

When this happens, greater spacing is required to ensure safe braking distances 

and to accommodate different acceleration rates and speeds. As a result, the average speed drops and the total number of trains that can travel over a rail corridor is reduced.1

• Service requirements. Different train types and customers have different service 

requirements. For example, premium intermodal trains demand timeliness and 

speed; for bulk trains (e.g., coal or grain unit trains), consistency and coordinated pick-up and delivery is the priority; customers who own their own rail 

cars will want railroads to implement strategies which help them minimize 

fleet-related costs, for example by maximizing the number of ‘‘turns’’ (loaded to 

empty to loaded again) the rail cars make; passenger trains require high speed 

and reliability within very specific time windows; and so on. 

39 

• Maintenance. The need for safe operations is ever present, and proper line 

maintenance is essential for safe rail operations. In fact, because of higher rail 

volumes and a trend toward heavier loaded freight cars, the maintenance of the 

rail network has become even more important. Railroads have no desire to return to the days when maintenance ‘‘slow orders’’ (speed restrictions below the 

track’s normal speed limit) were one of the most common causes of delay on the 

rail network. That’s why maintenance is one of the most important parts of any 

railroad operating plan. It necessarily consumes track time that otherwise could 

be used to transport freight. 

• Traffic volumes are not always foreseen. When planning their operations, railroads use past experiences, customer-provided forecasts, economic models, and 

other sources to produce their best estimate of what demand for their services 

will be well into the future. Railroads use those traffic forecasts to gauge how 

much equipment, labor, and other assets they need to have on hand. As with 

any prediction of future events, these traffic forecasts are imprecise predictors 

of markets. After a certain amount of traffic growth beyond what was anticipated, available resources will be fully deployed, and additional assets (some requiring long lead times—see below) will be needed. 

• Traffic mix. The U.S. and global economies are constantly evolving. Firms— 

even entire industries—can and do change rapidly and unexpectedly. The collapse of the construction industry when the housing bubble burst in 2007 and 

the recent rapid growth in ‘‘new energy’’ production are just two examples. 

These broad, often unanticipated economic changes are reflected in changes not 

only in the volumes (see above paragraph) but also in the types and locations 

of the commodities railroads are asked to haul. If the commodities with rail 

traffic declines traveled on the same routes as commodities with traffic increases, the challenges these changes presented to railroads’ operating plans 

have less impact. However, when traffic changes occur in different areas—as is 

usually the case and certainly has been the pattern in recent years—the challenges to railroads’ operating plans are magnified. 

• Resource limitations. Like firms in every industry, railroads have limited resources. Their ability to meet customer requirements is constrained by the extent and location of their infrastructure (both track and terminal facilities) and 

by the availability of appropriate equipment and employees where they are 

needed. 

Terminals—where trains are sorted, built, and broken down, similar in certain 

respects to airline hubs—are a case in point. If a train cannot enter a terminal 

due to congestion or some other reason, then it must remain out on a main line 

or in a siding where it could block or delay other traffic. The ability of a terVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\93974.TXT JACKIE

910HAMB1.eps
40 

2Transportation infrastructure projects across modes are often victims of interminable permitting delays. A project by CSX railroad to expand its Virginia Avenue tunnel just a few blocks 

from here is a case in point. We urge policymakers at all levels to implement permitting reform 

to improve our existing network of railroads, highways, and waterways to enhance our Nation’s 

competitiveness and reduce unnecessary costs and delays. 

minal to hold trains when necessary and to process them quickly is one of the 

key elements in preventing congestion and relieving it when it does occur. Thus, 

one of the most important factors in increasing capacity for the rail network is 

enhancing the fluidity of terminals. Unfortunately, terminals are often one of 

the more difficult areas in which to add capacity, in part because they are frequently in, or near, urban areas. Expansion generally means high land and, potentially, high mitigation costs. Even in less urban areas, a rail terminal is 

rarely considered positive by nearby residents, and its development or expansion to accommodate freight growth is usually the subject of intense debate.2

• Need for long lead times. It’s an unfortunate reality that many of the constraints railroads face—particularly those involving their physical network— 

usually cannot be changed quickly. For example, it can take close to two years 

for locomotives and freight cars to be delivered following their order; six months 

or more to hire, train, and qualify new employees; and several years to plan, 

permit, and build new infrastructure. Rail managers must use their best judgment as to what resources and assets will be needed, and where, well in the 

future. Usually, this process works well, but when those judgments are off, serious problems can ensue. When these judgments must also deal with the uncertainties of rapid and historically unstable market changes, such as the recent 

emergence of energy products moving by rail, the probability of successful forecasting is even further reduced. 

On a related point, firms in every industry walk a fine line when it comes to 

capacity. Generally speaking, if firms take too long to bring back idled capacity 

or to build new capacity, they risk shortages and lost sales. That’s the case in 

terms of some rail operations right now. On the other hand, if firms build capacity on the hope that demand will increase, they risk that the demand will 

not materialize and they will be saddled with added, and wasted, costs. Like 

other firms, railroads must balance these risks, and different railroads may 

come to different decisions as to how much ‘‘surge capacity’’ is needed and 

where to locate such capacity on their networks. Nonetheless, significant investment has and will be made in railroad operating assets. 

• Regulatory Requirements: Throughout all aspects of their operations, investments, and planning, railroads must navigate the ever-growing series of Federal 

regulations which cumulatively can have a dragging impact and constrain railroad capacity. For example, while railroads are fully committed to implementing 

the requirement for positive train control (PTC) on approximately 60,000 miles 

of their networks, implementation of this technology comes with not only a financial, but also an operational cost. As PTC continues to be developed and implemented in the field, significant service disruptions will result, as each segment of track on which PTC will be installed must be taken out of service for 

periods as long as ten hours. Consider the fact that PTC is largely being installed along heavily-used main lines and it’s easy to understand the dramatic 

reduction in capacity that will result. 

Beyond PTC, railroads continue to work through the vast number of new regulations mandated in the Rail Safety Improvement Act of 2008, including those 

related to hours of service and training standards which impact the availability 

of train crews. Further, operational restraints on certain commodities, such as 

speed restrictions on trains carrying crude oil, can have a reverberating effect 

on overall traffic movement. One only need imagine a slow truck on a two-lane 

highway and the traffic backups that can ensue. The fact is that, while most 

of these regulations in and of themselves do have some impact on operations, 

when taken together they can result in a substantial negative impact on capacity. 

• Railroads are networks. Last, but not least, the significance of the network aspects of rail operations cannot be overemphasized. Disruptions in one portion 

of the system can quickly spread to distant points. Railroads are not unique 

among network industries in this regard—weather problems at one airport can 

quickly cause problems at many other airports, for example. But unlike airline 

networks, where the overnight hours can usually be used to recover from the 

previous day’s problems, rail networks operate 24 hours a day, 7 days a week. 

Thus, incident recovery must be accomplished at the same time that current opVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\93974.TXT JACKIE
41 

erations are ongoing and while the other factors mentioned above continue to 

come into play. That’s why, in extreme cases, recovery in rail networks can take 

months. The winter of 2013/2014 is one such extreme case that is discussed further below. 

In light of the factors summarized above and many more, railroads try to design 

effective operating plans that resolve the thousands of competing customer interests 

that make daily use of railroad resources. They also do their best to make incremental changes to operating plans where possible—for example, by changing the 

routing of business through a particular railroad’s network so that more traffic is 

routed to less congested areas. But because of the complexities involved, new operating plans often require components (for example, adding critical new infrastructure) that can take months to implement. And when capacity is constrained, as it 

is in certain geographic areas on the rail network today, disruptive incidents are 

more common and recovery takes longer than when the network is not fully utilized. 

Railroads Are Working on a Variety of Fronts to Increase Capacity and 

Service Reliability 

As noted at the outset, railroads know that, for many of their customers, rail service in recent months has not been at the level they expect. Railroads are working 

tirelessly to address this, including by making robust investments in equipment and 

employees, which are the rail assets that can be most readily adjusted to match capacity. 

Massive Spending on Infrastructure and Equipment 

Of the many different factors that affect how well a rail network functions, the 

basic amount and quality of infrastructure and equipment are among the most important. That’s why freight railroads have been expending, and will continue to expend, enormous resources to improve their asset base. 

Rail spending for these purposes has never been higher than it is right now. After 

spending more than $25 billion in both 2012 and 2013 on capital expenditures and 

maintenance expenses related to their track, signals, bridges, tunnels, terminals, locomotive, freight cars, and other infrastructure and equipment—more than ever before—Class I railroads are projected to spend at least $26 billion for these purposes 

in 2014 (see Chart 1). Despite the ‘‘Great Recession’’ and slow recovery, railroads 

continued to plow record amounts of funds back into their networks. 

In fact, given their intense efforts to address service issues and recent announcements by several railroads that they are increasing the amounts they originally 

planned to spend this year, it would not be surprising if total spending in 2014 exceeded $26 billion. In aggregate, railroads have put hundreds of additional locomotives and thousands of additional freight cars in service in recent months, all 

with an eye toward resolving service issues and meeting customer needs. 


910HAMB2.eps
42 

Hiring New Employees 

In addition to equipment and infrastructure, personnel are a key determinant of 

rail capacity and service, and railroads have been aggressively hiring and training 

new employees. Like every other major U.S. industry, freight railroads saw a reduction in employees during the ‘‘Great Recession,’’ but there has been a significant recovery in rail employment since then, including a sharp surge since the beginning 

of 2014 when existing service problems began in earnest. Class I railroads had 4,852 

more employees in July 2014 than in January 2014, a 3.0 percent increase (see 

Chart 2). 

Rail employment growth is even more impressive in the category most relevant 

to resolving the service issues: the number of ‘‘train and engine’’ employees, which 

consist mainly of engineers and conductors who operate trains, was up 4.1 percent 

(2,738 employees) from January 2014 to July 2014 (see Chart 3). 

To put the rail employment growth in perspective, employment across the U.S. 

economy rose just 1.1 percent from January 2014 to July 2014. To the best of our 


910HAMB3.eps 910HAMB4.eps
43 

knowledge, no major industry has seen higher employment growth since the beginning of this year than the 4.1 percent increase in train and engine employment, and 

only a small handful have seen employment growth greater than the 3.0 percent 

seen by freight railroads overall. As we have seen, even this high level of employment growth has not been sufficient to meet demand in some locations and railroads 

continue to hire and train additional people to ensure that the resources will be 

available in the future to properly meet customer requirements. 

A Surge in Demand for Rail Service 

In recent periods, substantial growth in demand for rail service across industrial 

sectors has been a key factor behind the service issues facing certain segments of 

the rail industry. This growth has not only occurred rapidly, it has been in markets 

and locations that are, in many cases, different from where the rail industry has 

experienced past growth. This market shift phenomenon happens in many industries, but it is particularly difficult for railroads to deal with since railroads cannot 

simply pick up track and move it from one location to another. Railroads must build 

new infrastructure from scratch to deal with these market changes. 

From January 2012 through February 2014, monthly year-over-year growth in 

U.S. rail carload traffic averaged –1.7 percent. However, from March 2014 through 

August 2014, year-over-year monthly rail carload growth averaged a much more robust 4.8 percent, thanks to a variety of factors such as (among other things) the 

record grain crop last year, recovery in demand for coal to generate electricity (discussed further below), and better general economic conditions. 

Likewise, rail intermodal traffic has surged in 2014 as well, with average monthly 

year-over-year growth of 7.3 percent from March 2014 through August 2014, up 

from an average of roughly half that from January 2012 through February 2014. 

Chart 4 shows average weekly U.S. rail carloads plus intermodal units from January 2006 through August 2014. Note the dramatic increase since early 2014. Growth 

has been so strong, in fact, that, as noted earlier, average weekly U.S. rail volume 

(carloads plus intermodal containers and trailers) was higher in August 2014 than 

in any month since October 2007. 

The surge in rail traffic was challenging because it was ubiquitous and largely 

outside the scope of forecasted demand estimates, by railroads and their customers 

alike, and frequently did not occur in traditional markets or geographic areas. As 

discussed above, railroads are like other firms in that they plan to have assets on 

hand sufficient to handle expected business, but in this case customer demand was 

underestimated. Service performance and network velocity are adversely affected 

when a crew base and locomotive supply are planned for lower traffic volumes than 


910HAMB5.eps
44 

actually occur. That’s why railroads have been taking steps such as hiring significant numbers of additional train crews, providing incentives to existing employees 

to delay vacations and retirements, taking locomotives and freight cars out of storage, accelerating repair activity to increase the supply of locomotives and freight 

cars, reallocating capital budgets to support higher locomotive purchases, and much 

more. 

Crude Oil 

There has been a great deal of discussion in recent months about the growth in 

the movement of crude oil by rail, and how rail crude oil shipments are allegedly 

‘‘crowding out’’ grain and other rail commodities. 

As I discussed in detail in testimony to this committee on March 5, 2014, thanks 

to the ‘‘shale boom,’’ U.S. crude oil output has risen sharply in recent years and is 

expected to continue to grow (see Chart 5). Much of the recent increase in crude 

oil production has occurred in North Dakota, where crude oil production rose from 

an average of 81,000 barrels per day in 2003 to close to a million barrels per day 

today. Most of North Dakota’s crude oil output is transported out of the state by 

rail. 

The development of shale oil represents a tremendous opportunity for our Nation 

to move closer to energy independence. The widespread benefits this would entail 

include reduced reliance on oil imports from unstable countries whose interests do 

not necessarily match up well with our own; increased economic development all 

over the country; thousands of new well-paying jobs; tens of billions in savings in 

our Nation’s trade deficit every year; and substantial amounts of new tax revenue 

for governments at all levels. 

Rail has a critical role in delivering these crucial benefits to our country. As recently as 2008, U.S. Class I railroads originated only 9,500 carloads of crude oil. By 

2013, that had grown to 407,761, equal to around 11 percent of U.S. crude oil production. 

That said, one must be careful when looking to ascribe blame to crude oil for the 

service problems railroads are currently facing, which, as discussed below, became 

especially acute during and after this past winter. As Chart 6 shows, Class I railroads originated 229,798 carloads of crude oil in the first half of 2014, up 11.7 percent (24,058 carloads) over the 205,740 carloads originated in the first half of 2013. 

That’s a considerably slower rate of growth compared with 2011 and 2012 trends. 


910HAMB6.eps
45 

3Data in this section come from a different source of rail traffic data than the source used 

to produce Chart 4 above. This alternative data source is not as timely as the source used for 

Chart 4, but it includes much more commodity detail, allowing the break out of crude oil and 

other commodities that is not possible using the other data source. In addition, unlike the first 

data source, the alternative data source used in this section includes the U.S. operations of Canadian railroads, which for grain and crude oil specifically are significant. 4 Units consist of carloads and intermodal containers and trailers, though the exact breakdown 

is not clear. 

Crude oil accounted for just 1.6 percent of total Class I carload originations in the 

first half of 2014.3

Moreover, the 24,058 more originated carloads of crude oil in the first half of 2014 

works out to less than 1.5 new train starts per day, on average. Surface Transportation Board data indicates that there are approximately 5,000 train starts per day. 

Thus, recent new crude oil train starts are a small fraction of total train starts nationwide. 

Crude oil is also a small portion of total recent traffic increases. Class I railroads 

originated a total of 645,704 more units in the first half of 2014 than in the first 

half of 2013.4 The 24,058 additional carloads of crude oil are just 3.7 percent of the 

total net first-half increase. By comparison, as Chart 7 shows, in the first half of 

2014 compared with the first half of 2013, Class I railroads originated 182,425 more 

carloads of ‘‘miscellaneous mixed shipments’’ (most intermodal is in this category), 

118,500 more carloads of grain, 84,118 more carloads of coal, 41,310 carloads of 

crude industrial sand (this includes frac sand), 24,735 carloads of motor vehicles and 

parts, 20,949 more carloads of chemicals, and 18,246 more carloads of dried distillers grain (DDGs, a byproduct of ethanol production used as animal feed). Again, 

crude oil is not a significant source of overall rail traffic growth so far in 2014 over 

2013. 


910HAMB7.eps
46 

This is not to say that crude oil transport is not having an effect on the transport 

of other commodities, especially in certain geographic areas where crude oil volumes 

are much more concentrated than elsewhere. But rather than saying that crude oil 

is crowding out other traffic, it is more accurate to say that, right now, on some 

railroads, on some lines, rail capacity is a scarce resource. Railroads are doing everything they can to increase the supply of this resource. But as noted earlier, infrastructure creation takes time, even for urgent programs. For the time being, on congested rail lines, all commodities railroads are hauling are competing with each 

other for available capacity. Railroads do their best to address the needs and desires 

of all of their customers on an individual basis, but they must keep foremost in 

mind the need to maximize velocity across their networks, as a whole, to the benefit 

of all customers. Conflicting demands for the use of rail capacity are inevitable and 

railroads are doing what they can to minimize them, but when they occur, some rail 

customers are bound to prefer a different outcome. Any time there is a scarce resource and demand exceeds supply, someone is bound to be left unhappy. 

Coal Traffic Has Been Higher Than Anticipated 

In addition to leading to sharply higher crude oil production, the ‘‘shale boom’’ has 

also led to sharply higher natural gas production and, consequently, lower natural 

gas prices from what they once were. That has made electricity generated from natural gas much more competitive vis-a`-vis electricity generated from coal. 

However, as Chart 8 shows, over the past 18 months or so, not only has the coal 

share of U.S. electricity generation stopped falling, it’s actually risen, as utilities 

that had been generating electricity from natural gas switched back to lower-priced 

coal. According to the U.S. Energy Information Administration, in the first half of 

2013, coal accounted for 764 million megawatthours of U.S. electricity generation, 

equal to 39.1 percent of the total. In the first half of 2014, coal accounted for 806 

million megawatthours, or 40.1 percent of U.S. electricity generation. This past winter in particular, the price of natural gas spiked, leading to greater than expected 

demand for coal and the sharply higher rail coal volume shown in Chart 7. 


910HAMB8.eps
47 

Extreme Weather Wreaked Havoc on Railroads, Especially in Chicago 

The railroad ‘‘factory floor’’ is outdoors and nearly 140,000 miles long. As such, 

railroading is arguably more susceptible to weather-related problems than any other 

major industry. Thanks to their experience and the skill and professionalism of their 

employees, railroads are usually adept at handling weather events of all types. That 

said, extreme weather events, particularly sustained extreme weather events, can 

wreak havoc on rail operations. For example, extremely cold weather can force railroads to dramatically shorten the length of their trains, while snow accumulation 

can make it difficult to keep rail yards functioning. In much of North America, this 

past winter was one very long, very severe extreme weather event, with both record 

cold temperatures and record precipitation. 

While this past winter was unusually harsh in much of the country, it was especially so in the Chicago area. Chicago has been a crucial nexus in the North American rail network for over a century. Today, nearly 1,300 trains (500 freight and 760 

passenger) pass through the region each day. In fact, around one-fourth of the Nation’s freight rail traffic passes through or near Chicago. As such, when railroading 

becomes difficult in Chicago, it quickly becomes difficult throughout the rail network. 

According to the National Weather Service, Chicago experienced its coldest fourmonth period on record between December 2013 and March 2014, with an average 

temperature of 22 degrees and a record number of days (26) at zero degrees or 

below. Chicago’s 82 inches of snow this past winter was the third-highest in history 

and well over double the annual average of the previous 20 years. 

Moreover, during ordinary winters, there is usually time between storms to do 

some clean-up. Railroads typically ensure that their winter staffing levels are adequate to deal with these problems. However, that was often not the case this year 

due to short intervals between storms. In Chicago, for example, once the bad weather started, there was never a real opportunity for railroads to get their operations 

back to normal before the next severe cold spell or winter storm hit. The problems 

in Chicago and elsewhere in the Midwest were compounded by the fact that the severe weather occurred unusually far south this year so that the geography needing 

relief was much larger. Usually, the southern regions have served as relief valves 

during northern disruptions, and early last winter diversion of trains into this region was being planned, where possible. However, that outlet was not generally 

available much of the past winter. For example, a series of ice storms in a band 

between Atlanta and Memphis made it unsafe, sometimes impossible, for train 

crews to get to work in this region or for maintenance crews to properly tend to the 


910HAMB9.eps
48 

many day-to-day problems requiring resolution in a properly operating railroad. The 

result was rail congestion in an area which has typically been available to relieve 

problems created by winter weather further north. 

Now, it’s true that, as some rail critics have charged, ‘‘winter comes every year,’’ 

but to claim that this past winter was typical is to be disingenuous. I respectfully 

submit to you that, if we had a ‘‘normal’’ winter this year, the capacity challenges 

we have seen would likely be at a significantly lower level. We should also remember that the challenges which have faced rail operations in many key areas were 

further exacerbated by widespread, regional spring flooding that was largely the result of the severe winter. 

As noted above, when capacity is constrained, disruptive incidents are more common and recovery takes longer than when the network is not fully utilized. In a nutshell, that explains why the events of this past winter continue to affect rail operations today. 

Improving Rail Operations in Chicago 

Rail capacity has long been constrained in Chicago. Indeed, improving capacity 

utilization and the efficiency of rail operations in the Chicago region is the reason 

for the Chicago Region Environmental and Transportation Efficiency Program 

(CREATE), which has been underway for several years. CREATE is a multi-billion 

dollar program of capital improvements aimed at increasing the efficiency of the region’s rail infrastructure. A partnership among various railroads, the City of Chicago, the state of Illinois, and the Federal Government, CREATE includes 70 

projects, including 25 new roadway overpasses or underpasses; six new rail overpasses or underpasses to separate passenger and freight train tracks; 36 freight rail 

projects including extensive upgrades of tracks, switches and signal systems; viaduct 

improvement projects; grade crossing safety enhancements; and the integration of 

information from dispatch systems of all major railroads in the region into a single 

display. To date, 20 projects have been completed, nine are under construction and 

19 are in the design phase. 

Railroads are confident that, as CREATE proceeds, rail operations in Chicago will 

become more fluid and better able to withstand shocks such as those presented by 

extreme weather. Railroads are also taking additional steps outside of the CREATE 

framework to add resiliency and efficiency to Chicago area rail operations. 

For example, right now railroads are investigating processes that will allow them 

to automate and centralize the reporting of various operating metrics regarding the 

status of rail operations in Chicago, such as dwell time, rail car inventory, the number of trains ‘‘holding’’ at a particular location, the number of cars delivered per day, 

the number of cars en route to Chicago, and corridor velocity. The goal is to provide 

railroads with a common understanding of actual problems and, hopefully, provide 

warning of potential problems so that railroads can take steps ahead of time to minimize them. 

Current Service Issues Are Not a Good Reason to Increase Government 

Control of Rail Operations 

It is unfortunate that some groups are seeking to take advantage of the current 

rail service problems to advocate for far-reaching changes to the regulatory regime 

under which railroads operate that would result in a much greater government role 

in freight rail operations. 

That would be a profound mistake. As described above, railroads are already 

working very hard to remedy the service issues they face and are confident they will 

succeed. Looking ahead, railroads know that they will have to continue to expand 

their capacity to meet growing transportation demand. Recent forecasts from the 

Federal Highway Administration found that total U.S. freight shipments will rise 

from an estimated 19.7 billion tons in 2012 to 28.5 billion tons in 2040—a 45 percent increase (see Chart 9). 

49 

Railroads are the best way to meet this demand, and they’re getting ready today 

to meet the challenge. They will continue to reinvest huge amounts back into their 

systems, as long as a return to excessive regulation does not prevent them from 

doing so. 

It is beyond the scope of this testimony to discuss in detail the many ways in 

which railroad reregulation is misguided. In short, it would force railroads—through 

what amounts, in one way or another, to price controls—to lower their rates to favored shippers at the expense of other shippers, rail employees, and the public at 

large. Billions of dollars in rail revenue could be lost each year. Artificially cutting 

rail earnings in this way would severely harm railroads’ ability to reinvest in their 

networks. The industry’s physical plant would deteriorate; essential new capacity 

would not be added; and rail service would become slower, less responsive, and less 

reliable at the very same time that rail customers are demanding more rail capacity 

and more reliable rail service. It makes no sense whatsoever to enact public policies 

that would discourage private investments in rail infrastructure when our Nation 

needs more of it. 

Conclusion 

America today has the best freight rail network in the world. That said, it is clear 

that, for a variety of reasons, rail service to some rail customers is not at the high 

level they expect. Railroads are fully aware of this, and they are taking the necessary steps to meet current capacity demands and invest for future growth. Railroads have no greater goal than to provide safe, efficient, and cost effective service 

to their customers. 

The CHAIRMAN. Thank you very much, Mr. Hamberger. And I 

apologize to my colleagues. I still have to give you that book about 

Stanford, and I’m sorry about USC. We like sports. So does he. 

I want to sort of focus on the Surface Transportation Board in 

my first questioning. For years I’ve been pushing them to be 

proactive and to efficiently address issues raised by shippers and 

to restore—a word that I care about—the balance between railroads and shippers. I think they have clearly leaned toward the 

railroads and I see that, one, as not their right. But when I bring 

things up, I’m mostly met by deaf ears. 


910HAMB10.eps
50 

So I have a couple questions for shippers. How have past decisions at the STB—Mr. Dooley, I might start with you, but anybody. 

How have those decisions limited competition for shippers, number 

one? 

The Board has started a number of what they call proceedings, 

but it doesn’t appear that the Board has completed many of those 

proceedings, which is a technique, a very good bureaucratic technique, to start something, but then not quite finish it. What actions 

are most important in your judgment for the board to complete? 

Anybody. This is to all of you. 

Mr. DOOLEY. Thank you, Mr. Chairman. I first off just want to 

preface my remarks here, is that, to something that Mr. Hamberger said, is that there should be nothing inconsistent with ensuring that the rail industry is financially healthy and making investments in their infrastructure and having an STB that has the 

policies in place that can ensure that we have an effective, timely, 

and equitable way to resolve rate disputes. 

That’s what we’re asking. That’s what we think’s embodied in 

your legislation. And that’s why we think the legislation’s important, because, to your question, STB has not taken action on a 

number of issues or has adopted policies that simply are no longer 

consistent with the landscape we find ourselves in. 

Competitive switching is a good example. They have been dealing 

with competitive switching and investigating that for 3 years, over 

3 years. They have not made one proposal on how they should fix 

it. So they’ve been continuing to gather information. They need to 

be directed or given guidance by Congress to allow for a simple 

thing as competitive switching, which works very effectively in 

Canada. 

We would also say when you look at even the revenue adequacy 

challenges that require somebody that is going to be challenging a 

rate, that they have to do a calculation to what it would cost to 

build an independent rail line that could provide the service at a 

cost that would be different from an incumbent rail line. That is 

almost an impossible task. 

They’ve also adopted policies which put caps on the amount of 

remedies that you can get which are so low in many instances that 

it doesn’t make any sense for anyone to challenge. 

On the case of rate bundling, they haven’t even begun to address 

that, which is kind of like a situation where a company is subject 

to entering into negotiations with the rail companies, the rail companies have the opportunity to unilaterally establish tariff rates for 

the different routes of shipment. The company can say, we’ve 

reached a pretty good agreement on 90 percent of those rail rates, 

but, you know, there are these ten over here that are excessive and 

they’re tariff rates. They are held hostage in advancing a rate challenge unless they agree on those 90 percent of those lines that they 

have reached an accommodation or an agreement with, to sacrifice 

that agreement to pay a higher tariff rate. They’re held hostage in 

terms of the financial impediments to seeking a resolution or a fair 

and equitable resolution of a rate dispute. 

The CHAIRMAN. I thank you for that. It was crisp and strong. 

I’m not going to ask my second question because I’ve overrun my 

time. So I’m going to go to Senator Thune. 

51 

Senator THUNE. Thank you, Mr. Chairman. 

Mr. Cope, can you kind of help us understand why rail is such 

an important part of the system for getting the grain harvest to 

market? What are the costs and benefits relative to other modes of 

transportation? 

Mr. COPE. Yes, Senator. In the case of South Dakota—and I 

know I’m talking all about South Dakota, but I think we’re indicative of the entire Upper Midwest in some respects, the whole 

grain system in the U.S.—the problem, if you can call it that, with 

rail is that it is our central link to many of the exporters. The guys 

in the central U.S. also have the river, the barges that they can 

use. But for us in South Dakota it’s just cost prohibitive to go by 

truck. I know this year truck rates have gone up, trucks are hard 

to find. 

In the case of some birdseed products that we handle, those are 

typically sold FOB, which means we sell it to the buyer, he 

brings—he provides the cars. Well, this year when rail got so 

backed up some of these plants were in danger of running out. And 

this also extended to some corn and ethanol plants. They’re in danger of running out, so they went out and hired trucks. 

We had trucks going as far away as Fort Pierre, South Dakota, 

to Georgia to make deadlines, at the buyer’s expense. Now, it didn’t 

directly come out of our pocket, but his effective rate was two to 

three times what the rail rate was. Now, what do you think happened the next time he came around to bid South Dakota grain? 

It does come back to haunt us. So that’s the problem with the 

trucks. 

Another thing that’s happened with trucks, it extends to things 

like some of the DOT rules and regulations that are out. There’s 

a real shortage of drivers and that’s real, is getting qualified drivers. But when you have a continued system of more and more regulations that make it real onerous to get those drivers, that’s just 

one more thing in the way. 

When it comes to the river system, thanks for passing legislation 

out of the Senate and out of the House to fund some of our locks 

and dams on the rivers, because it’s all an integrated process; 

trucks, rail, and barge. So we need that system as well. 

But in the center part of the United States, like South Dakota, 

rail is the most efficient and it’s really the only way to get to the 

market. So if we don’t have that, we don’t have an economy. 

Senator THUNE. We had a big problem in South Dakota this last 

year during the spring. There was a real concern about getting fertilizer shipments there in time to plant the 2014 crop during that 

short planting window. Now that the focus is on the harvest this 

fall, I’m wondering if there are concerns about receiving your fall 

fertilizer shipments and if you’re working with the railroads to address that? 

Mr. COPE. Well, fortunately the main fertilizer season is in the 

spring time. But it is a concern. If you’re backlogged in one commodity, you’re backlogged on all. So we have been talking to our 

suppliers on how to best get it there in the fall. Right now that’s 

probably the expensive truck option. But it’s just something that 

once that backlog is started we kind of feel like we’re in a 100- 

52 

meter dash here, but we’re starting from the 150-yard line. How do 

we catch up? How do we work through that backlog? 

It’s going to be fertilizer. If we have any hiccups at all through 

the winter, it’s going to be grain, and we’re going to be back to 

ground zero again next spring. 

Senator THUNE. Mr. Hamberger, you talked about Chicago. We 

hear about Chicago all the time. I’m wondering what lessons the 

railroads learned as a result of last winter’s impact on rail service, 

especially through the major hub at Chicago, and if the railroads 

have implemented any best practices or found any opportunities to 

improve efficiency that could improve the situation if we experience 

a similar winter this year or next? What’s being done to address 

this huge choke point we have in Chicago? 

Mr. HAMBERGER. What we’re doing is trying to coordinate in a 

much more automated basis the data that each railroad collects on 

its own. That is to say, how many trains are waiting, how many 

trains are held for crew, how many trains are coming in from Montana, when are they expected in? Those data will then set up 

metrics that will trigger automatic rerouting, automatic special 

handling, if they exceed a certain amount. Right now that is done 

orally and the protocols were not as enforceable as they will be this 

coming year. 

Senator THUNE. Mr. Dooley, you talked about some of the rail inefficiencies in the chemical industry. Can you describe some of the 

financial impacts, what that means to some of the folks who you 

represent? 

Mr. DOOLEY. The study I referenced—and it’s in my written as 

well as my oral testimony—is that when we did an analysis in 

2011, we did a calculation on those shipments that were over 180 

percent of the RVC. That totaled about $4.2 billion in rates, what 

we would refer to as rate premiums in excess of that 180 percent 

of the RVC. 

But what is more troubling to us, as I mentioned, is that it was 

almost $3 billion of that was over 300 percent of the RVC, and that 

trend line that showed almost a 50 percent increase in a 5-year period of shipments over 300 percent of RVC. 

Now, I don’t want to suggest that all those rates are inappropriate and are not justified based on market conditions. But what 

I do suggest is that there has got to be a meaningful recourse for 

shippers to avail themselves to. Right now STB has in place financial impediments to seeking recourse and regulatory impediments 

to seeking recourse. 

A $4 billion annual hit on our industry is not insignificant, and 

that is money that is not going into other investments that show 

a return to our economy. 

Senator THUNE. Thank you. 

Mr. Chairman, my time has expired. We have other members 

who are here and want to ask questions. 

The CHAIRMAN. We do, and Senator Cantwell will be next. 

53 

STATEMENT OF HON. MARIA CANTWELL, 

U.S. SENATOR FROM WASHINGTON 

Senator CANTWELL. Thank you, Mr. Chairman. Thank you to you 

and the Ranking Member for holding this important hearing, because this is to me about our economy overall. 

I want to start with a company in our state which was an agricultural shipper, Cold Train. They’re located in Quincy, Washington, and they announced that they were suspending their service due to poor BNSF rail performance, decreased on-time reliability, reduction in train services, and nearly doubling in transit 

times. So from 2013 to 2014 BNSF’s on-time shipments dropped— 

they went from 90 percent of on-time to less than 5 percent. 

So this is the company. They obviously ship a lot of our apples 

and cherries and potatoes and carrots in refrigerated containers to 

the Chicago market, and they were guaranteed a fast delivery time. 

In fact they had such a successful business that in 2010 they 

shipped about a thousand of those containers. And then they went 

to 2013, to 7,000 containers. So they obviously were expecting to 

do more. 

But with this very poor performance, they basically went out of 

business and announced that they were going to cut off 80 jobs. 

So that’s what’s happening to us in the Northwest. So I’m very 

empathetic to my colleagues from the Dakotas. Clearly this isn’t 

just about a bumper crop. We’ve seen a huge increase in, obviously, 

crude production on these rails as well. 

But you were, Mr. Hamberger, talking about the increase in in- vestment. I think you said something like $26 billion in 2014 and 

$25 billion in the previous years. But yet this is what’s happening. 

We’re losing jobs. So I guess I have a couple of questions for you. 

First, you are not interested in having—I just want to make sure 

I understand where the railroads are coming from. You’re certainly 

not going to make this about price, right? You’re not going to try 

to decrease the volume or pick customers based on price, are you? 

You’re not going to increase the price just to disqualify customers? 

You have volume, you have increased volume. So my question is 

are you going to raise the price to try to sort out that demand? 

Mr. HAMBERGER. Senator, I’m not trying to be nonresponsive, but 

I’m a trade association, and we are covered by the antitrust laws. 

I really cannot speak about what a member’s pricing policies are. 

So I can’t really talk about price. It’s something that we don’t—I 

just can’t talk about. 

The CHAIRMAN. That’s convenient. 

Mr. HAMBERGER. I talk about average prices that we have 

charged looking back. But what a particular railroad is doing in the 

marketplace is not something that I have knowledge of or visibility 

into. 

Senator CANTWELL. Here’s what I’m going to say to that. I don’t 

believe your investment figures are sincere figures when on the one 

hand, according to this committee’s majority staff report that was 

issued last November, Class I railroads reported an approximately 

$68 billion in freight revenues—— 

Mr. HAMBERGER. Yes. 

Senator CANTWELL. So you made a lot of money. And I know Mr. 

Dooley, even though he didn’t mention it, had a report earlier this 

54 

year that showed that the commodity shipper increased their costs 

from 2005 to 2011, an increase of something like 90 percent. So 

you’re sitting here telling me, I just can’t invest fast enough. You’re 

making a ton of money, and what’s happening is people are losing 

their jobs and we can’t get products to the market on time, and he’s 

paying a ton more money. 

Mr. HAMBERGER. In fact, Senator—you may have been out—he 

is not paying a ton more money. He’s paying 1988 rates. That is 

way below what he paid in 1981. Yes, they went up. They also 

went up consistent with the input costs of what it cost us to run 

the railroad. So the increase is very consistent with what the increase in costs for us are. But it’s still only back to 1988 rates. 

We are investing 40 cents of every dollar, including maintenance, 

back into the network. As I also tried to mention, we have some 

stranded investment where we invested, for example, in quadruple 

tracking going into the Powder River Basin. That cannot be picked 

up and moved. So one railroad has announced they’re spending 

$400 million in North Dakota alone. Some of that investment, it 

takes time to put the track in. It takes time to get the employees 

trained. 

Senator CANTWELL. I appreciate your answer, but I see Mr. 

Dooley over there and I want to give him a shot, because I think 

you’re not taking into consideration the rate of inflation in these 

costs. But the bottom line is we’re losing jobs and we’ve got product 

that’s not being delivered in a timely fashion. The question here is 

you’re making a lot of money and we don’t see our businesses being 

protected. 

Mr. Dooley, am I right about that number? 

Mr. DOOLEY. You are. I would just reference, we have no interest 

in going back to the pre-Staggers Act days when government regulation created a lot of inefficiencies and higher rates in the rail industry. We don’t want to see re-regulation. But when you look at 

the numbers, when you see the increased consolidation in the rail 

industry—the last major consolidation was in 2001. After that consolidation, when you have four rail lines that are controlling 90 

percent of the shipments, from 2001 to 2011—and this is very comparable to their own data that AAR puts out—there has been an 

increase in excess of 90 percent, three times the rate of inflation, 

by rail rates for shippers. 

Senator CANTWELL. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Cantwell. 

Senator Booker. 

STATEMENT OF HON. CORY BOOKER, 

U.S. SENATOR FROM NEW JERSEY 

Senator BOOKER. I just want to thank the Chairman and the 

Ranking Member for their leadership on this issue. It’s really an 

issue that doesn’t just affect the West or the Dakotas or West Virginia, but also New Jersey. Our state is very, very freight-dependent and, with one of the third busiest ports—with the third busiest 

port in America, it’s an issue that’s of great concern. 

I’ve introduced a bill focusing on multimodal freight investment, 

to try to relieve some of the congestion, not just—pressure and congestion, not just on rail lines, but also on highways. Having that 

55 

kind of broader strategy, which I know Senator Cantwell and others have been pushing, I think is really critical. 

I have a lot of concerns, but don’t need to repeat some of the 

questions and good points that were made. In the short time that 

I have, I just want to switch to an issue that is very much on the 

minds of New Jersey residents. We’ve seen an incredible increase 

in the movement of Bakken crude by rail, which is impacting communities all across the Nation. I’m really happy for the Department of Transportation for taking steps to address this movement 

of Bakken crude. 

However, I know we can do more to provide first responders with 

all the information they need to respond in terms of the safety in 

the case of potential derailments or spills. In Paulsboro, to be very 

specific, in New Jersey, in 2012 we had a train derailment that released 20,000 gallons, not of the Bakken crude, but of chemicals, 

causing an immediate emergency evacuation all along that area, 

and it affected the long-term health and it has had long-term 

health and environmental impacts. 

What the incident does for me is just underscores the importance 

of addressing the movement of hazardous materials by rail, not just 

the Bakken crude. So, Mr. Hamberger, following the Paulsboro accident the National Transportation Safety Board recommended increased disclosure of toxic substances when they travel through 

communities, residential communities like we see in New Jersey, 

with over 1,000 miles of rail in it, to equip the first responders 

really to respond to this. Having been a mayor and knowing, having a lot of concerns when I was there about how we would actually 

be able to respond adequately, especially if we didn’t know what 

was passing through our communities, so I agree with the assessment of the urgency and have asked the DOT to provide further 

guidance on how to ensure critical information gets in the hands 

of local first responders more quickly and efficiently. 

You’ve noted, Mr. Hamberger, that the rail industry is voluntarily taking steps, which is actually encouraging to me, to increase 

transparency. You’re trying to make—at least you’re stating that 

you’re trying to make information about toxic substances more 

available on line to responders in the event of an accident. So I just 

applaud that a lot. 

But I still have this very big concern that many of our first responders might need to know this information and have access to 

this information prior to an accident, especially because it better 

equips localities to begin to prepare for accidents should they occur 

or, frankly, when they occur. 

So I’m just wondering if this is a change that you could be making, from reactive to giving proactive information? I’m just curious 

what the industry’s view on that is. 

Mr. HAMBERGER. Thank you very much, Senator. Our view is 

that it is AAR policy for our members to make available to every 

emergency responder all hazardous materials that are coming 

through that community, to go over with them what are the emergency response techniques. We trained 20,000 emergency responders last year alone, an additional 2,000 at our Emergency Response 

Training Center, sort of a graduate course for emergency responders, if you will, at our center in Pueblo, Colorado. Each of our memVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00059 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\93974.TXT JACKIE
56 

bers actually has a training train that goes around and stops in different communities and gives a little bit more in-depth training. 

But it is certainly our goal to make sure that every emergency responder knows in advance what is coming through and what the 

appropriate response is, hopefully getting around to giving them 

hands-on training as well. And the online; we’re targeting hopefully 

by the end of this year that that online will be up and running. 

Senator BOOKER. Just last, really quickly, are there investments 

that we’re making to prevent these kind of accidents, which unfortunately we’ve seen from time to time throughout the country? 

Mr. HAMBERGER. Yes, sir, there are. In the area of prevention, 

we are doing increased inspections of rail. We’re putting roadside 

detectors out so that when a train goes by we can actually detect 

acoustically if there is a bearing defect. We also have laser beam 

readers to try to see cracks in the wheel before the wheel splits 

apart. And obviously maintaining the track and maintaining the 

bridges is high on the agenda as well. 

We are, of course, putting in Positive Train Control, which did 

not come into play, I don’t think, in the accident in Paulsboro. 

Then one of the other very important things is making sure our 

employee base is well trained and that they would know what to 

do in the event of an incident as well. 

Senator BOOKER. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Booker. 

Now, Senator Johnson. 

STATEMENT OF HON. RON JOHNSON, 

U.S. SENATOR FROM WISCONSIN 

Senator JOHNSON. Thank you, Mr. Chairman. 

Mr. Hamberger, I would like to just explore and understand the 

capacity crunch a little bit better. We’ve heard a shortage of railcars. We’ve heard delays, that type of thing. In your testimony on 

page 9, you have chart 4. It shows the average weekly U.S. total 

railcar loads. On this chart, it starts in 2006, which was really, it 

looked like, kind of a record year in terms of—at least on this 

chart, it was the highest year. It obviously declined dramatically in 

2009 and has been steadily increasing since that point in time. 

So it doesn’t appear that even in 2014 we’re back to 2006 levels 

just in terms of the rail shipments. 

Mr. HAMBERGER. We are back to October 2007 when you combine 

intermodal and all other carloads. We are about back to where 

2007 was, yes. 

Senator JOHNSON. Again, I realize we’re shipping a whole lot 

more oil by railcar. But those are specific types of cars. You mentioned there were 50,000 grain cars in storage. So where’s the capacity crunch or the car shortage in terms of grain shipment? 

Mr. HAMBERGER. It’s not just cars. It is velocity and, as Mr. Cope 

talked about, how many turns do you get out of a car. The more 

cars out there, it actually tends to slow down the network. So you 

want to have a network that has a higher velocity getting through. 

That requires personnel as well as locomotives. So it’s a combination of all four of those that affect the ability to get the service level 

up. 

57 

Senator JOHNSON. Again going back to 2006, we’ve experienced 

these rail volumes in the past, correct? 

Mr. HAMBERGER. Yes, sir. But there has been—— 

Senator JOHNSON. Did we have the type of disruptions, the types 

of delays, back then? 

Mr. HAMBERGER. We were investing at that time and since that 

time to address that kind of shipment. One of the big increases 

here is intermodal, which is a different pattern of shipment. As I 

mentioned, the railcar—the 1.4 million less coal cars coming out of 

the Powder River Basin. There is an increase in grain. I think 

we’re moving more grain than we ever have. 

Senator JOHNSON. Is that also intermodal, then? Is that one of 

the capacity constraints, is the intermodal transfer terminals? 

Mr. HAMBERGER. Terminals are a big issue, absolutely. Having 

some of the investments that we are trying to make, like one right 

down here on Virginia Avenue—it’s taken CSX 6 years and they 

haven’t quite yet gotten the final environmental impact statement. 

It is their biggest pinch point on their north-south line. It is a onetrack tunnel that cannot accommodate double-stacked intermodal 

trains. There are no Federal dollars going into it. The Federal interest is that for one week during construction they will close a 

ramp onto 295. It has been 6 years to get that. 

Senator JOHNSON. That’s one anecdotal example, but isn’t basically what you’re saying since 2006–2007 there has just been a 

change in the mix? 

Mr. HAMBERGER. Change in the mix has played a role, yes, sir. 

Senator JOHNSON. And it’s a less efficient mix from the standpoint of being able to move cars around? 

Mr. HAMBERGER. It’s a different mix. I don’t know if I’d say less 

efficient. It’s a different mix. Another example might be when the 

ethanol burst onto the scene that was a change in shipping patterns. I’m told that Iowa became a net importer of corn, which 

changed shipping patterns as well. So you just have to address 

your operating plans and address—— 

Senator JOHNSON. Let’s go back to your pricing chart. I’ve seen 

that, from 1988. Explain what happened? Explain that chart? 

Mr. HAMBERGER. Well, the chart indicates that as the industry 

was able to achieve efficiencies once Staggers passed in 1980, that 

we were able to pass along those productivity increases to our customers. Rates went down dramatically. Then as—— 

Senator JOHNSON. How did they go down in relationship to inflation? Did they actually decline? 

Mr. HAMBERGER. This is inflation-adjusted, so—— 

Senator JOHNSON. OK, so you totally adjusted, inflation-adjusted. 

You’ve taken that into consideration. 

Mr. HAMBERGER. Yes, sir. 

Senator JOHNSON. So rates declined by what percentage point before they started to go back up? 

Mr. HAMBERGER. I don’t have it memorized, but it went down at 

one point 50 percent, inflation-adjusted. And it’s still overall in the 

40 percent range. I don’t know what it was for chemicals per se. 

But then the market was able to bear some increase coming back. 

The productivity increases also helped improve service. So that is 

where the market is right now. 

58 

Senator JOHNSON. Mr. Dooley, were rates wildly out of whack in 

the eighties? 

Mr. DOOLEY. Well, what I would say is that you had a railroad 

infrastructure landscape then, because of very heavy-handed government regulatory approach, that we would contend precluded 

some level of productivity and efficiencies, that resulted in rates 

that were higher than they should be. 

We think the Staggers Act has a lot of good aspects to it in terms 

of contributing to a more competitive environment in the rail industry, that has contributed to enhanced productivity. But when 

you get to a point, though, is when you see that increased consolidation that allows for greater market dominance, that we are concerned now that we are seeing some of the impacts of that, which 

is requiring that we revisit the STB and those policies to allow for 

an effective and equitable and timely rate dispute process. 

Senator JOHNSON. Just yes or no: Are you disputing Mr. Hamberger’s characterization of the rates, inflation-adjusted—— 

Mr. DOOLEY. I wouldn’t dispute that, but I would say that you 

can go look at a lot of industries and products that consumers are 

consuming and services they’re consuming and you go back to 1980 

and you do an inflation-adjusted, you would see a chart that 

wouldn’t be that much different in a whole lot of industries. I 

mean, this is not dramatically different. 

Senator JOHNSON. I’m just trying to get the facts, because there 

seems like there was disparity in the information. But you’re 

both—depending on what time period you pick, you’re both correct 

in terms of what the pricing is. 

Mr. DOOLEY. Yes. 

Senator JOHNSON. OK, thank you. 

The CHAIRMAN. That’s it? 

Senator JOHNSON. That’s it. I’m out of time, right? 

The CHAIRMAN. Senator Klobuchar. 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. 

This is an important issue in our state. We’ve been talking a lot 

about the Dakotas, but in fact Minnesota is the fourth largest agriculture exporting state in the country. We have seen all-time 

record highs, $6.8 billion in ag exports over 2012, not to mention 

manufacturing a lot of other goods as well. And this is starting to 

be a real drag on our economy. 

A recent University of Minnesota study found that from March to May 2014 rail delays cost our corn growers $72 million, soybean 

growers $18.8 million, and wheat growers $8.5 million. In total, all 

of this delay, which of course can get passed on to the consumer, 

just for these products, corn, soybean, wheat, was $100 million. 

So this is a real issue for us. I am totally aware of what we’ve 

gotten, the good out of having the more domestic oil, as well as the 

natural gas out of North Dakota. It’s brought our manufacturing 

costs down. But I also think we have to find a way out of this. 

Mr. Cope, I wanted to start with you on the fact that if this continues I’m afraid it’s going to actually impact our export market. 

Do you think it’s possible that the people who are using these 

59 

kinds of grains would turn to other producers, like Brazil and Argentina? 

Mr. COPE. Thank you, Senator. You bring that up and just recently I know U.S. Wheat has expressed some concern. The United 

States has worked very hard over the last how many years to be 

known as a country of—not last resort, that’s the wrong word—a 

country that could be the most dependable, the most dependable 

shipper. Even if other countries could buy their wheat, for instance, 

from other countries cheaper, they always knew that if they had 

to come to the United States they could get it. That’s in real jeopardy right now. We’ve lost some business because of that very 

thing of exporters, either on the Gulf or in the Pacific Northwest, 

not being able to fill commitments. 

It comes all the way back, and the same thing is true in corn and 

beans. We’ve had some exporters that have paid some huge fines 

or contract cancellations by not being able to perform. 

Senator KLOBUCHAR. All right. 

Mr. Hamberger, one of our bigger concerns next to these commodities is propane. You’ve probably heard about this. Not related 

to government, a decision was made by a company to reverse the 

direction of a propane pipeline. We are going to be able to use not 

nearly as much pipeline transport of propane. Then we’re stuck 

with trucking, more trucking. We got the Army Corps, it’s such an 

emergency, to give immediate authority for a transport station in 

Benson, Minnesota. 

But this is a real problem, and I just wondered what the protocol 

is, if your members have a protocol in place to ensure when we’re 

dealing with propane that’s used to heat homes, not to mention dry 

out corn, how we’re going to get it? 

Mr. HAMBERGER. I know that was a major problem last winter 

and our members did work in several states with the Governor’s 

office to try to make sure that capacity was available to bring propane in. We don’t have an AAR protocol per se, but I’d like to get 

back to your office with how my members—I do know they all participated in various efforts through the Governor’s office. 

Senator KLOBUCHAR. I know we are really planning ahead with 

storage, which is good. We’re storing more of it to get it in ahead 

of time, getting bigger storage facilities. And if the winter’s mild, 

maybe we can make it through. But—— 

Mr. HAMBERGER. That’s not a plan. 

Senator KLOBUCHAR.—to make sure you have a plan going forward, when last winter we had a day that was colder than Mars, 

I think that would be helpful. 

Iron Range. This is not probably what you’d think I’d be focusing 

on here because we’ve got a focus on the farm and ag, but we are 

a major producer of taconite. As you can imagine, the Great Lakes 

shipping season is very short because of weather. It’s finite. It’s 

going to close for shipping in just a few months. Yet right now we 

have 250,000 tons of iron ore stockpiled. Another one—that’s just 

from one mining company. Another has 85,000 tons stockpiled as 

a result of rail service disruptions. In total we have 2 million tons 

of iron ore pellets that we want to send out and make money for 

our country and get more jobs, that are just sitting there in a pile. 

60 

I hope that you would be willing to look into this, because we 

have a situation where winter is coming and we have only a finite 

shipping time. 

Mr. HAMBERGER. Of course, Senator. Let me go back and talk to 

my members and give you a report. 

Senator KLOBUCHAR. All right. Thank you very much. 

Mr. HAMBERGER. Thank you. 

The CHAIRMAN. Thank you. 

Senator Blumenthal. 

STATEMENT OF HON. RICHARD BLUMENTHAL, 

U.S. SENATOR FROM CONNECTICUT 

Senator BLUMENTHAL. Thanks, Mr. Chairman, and thank you to 

you and Ranking Member Thune for having this hearing on a profoundly important issue, an issue that is important not only to the 

Western and Midwestern states, but also to the Northeast, because 

it affects not only the movement of freight, but also the movement 

of passengers, who, after all, use the same tracks. 

In fact, in some parts of the country increasingly the burdens of 

freight are delaying the movement of passengers. That is troubling 

most especially for the Northeast, where the movement of passengers, commuters, riders, is an essential feature of moving people 

to work. On-time performance on Amtrak’s long distance routes is 

at 51.4 percent for the current fiscal year to date, which is a decline of over 20 percentage points compared to last year. That 

means people are in effect stuck on tracks waiting for freight trains 

to pass before an Amtrak train can move. And that’s because outside of the Northeast, Amtrak operates most of its service on tracks 

owned by the freight railroads. Even in the Northeast, where they 

may be owned by the non-freight companies, there’s still the danger and reality that the movement of freight may impede the movement of passengers. 

When a freight train railroad network breaks down, it affects not 

only the movement of important goods—and a number of my colleagues have described how important it is—but it keeps real people and their families from getting to where they need to go conveniently and reliably. 

So my question to all of you, but let me begin with Mr. Hamberger, is: What efforts are your members making, Mr. Hamberger, 

to improve the on-time performance of passenger trains operating 

over your track? 

Mr. HAMBERGER. Thank you, Mr. Chairman, for that question. 

Two things that I’m aware of. One, and of course the biggest one, 

is that as our freight customers are impacted, so are our passenger 

customers, as you point out. So the first and most important thing 

is to get the fluidity of the network back to where it needs to be. 

That is, again, making the investments and hiring the personnel 

needed to do so. 

Second, I just want to emphasize that we have a statutory obligation to make sure that Amtrak has priority in dispatch, and I 

know my members are focused on that. I know that Joe Boardman, 

Amtrak President, has been meeting with his colleagues at each of 

the freight railroads talking about what can be done on specific 

routes. So I think there’s a lot of communication going back and 

61 

forth between the freight rail host railroad and the Amtrak leadership. 

Senator BLUMENTHAL. Is there a body or, you put it, a framework 

to assure that that obligation to passengers is fulfilled? In other 

words, you’ve described an informal process of consultation or conversation between Mr. Boardman—— 

Mr. HAMBERGER. I don’t have a direct answer for you on that. I 

just know that that is the marching orders given to the dispatch 

center, because that is the statutory obligation. I know that some 

railroads do have—their morning report is, how are we doing on 

Amtrak on-time performance. And when that morning report, when 

that’s part of your morning report, obviously you’re focused on that. 

Senator BLUMENTHAL. Let me ask you in the time, the short time 

I have remaining, about another issue that’s raised in your testimony, investment in infrastructure. Projected to be $26 billion? 

Mr. HAMBERGER. Including maintenance, yes, sir. 

Senator BLUMENTHAL. $25 billion in each of the—— 

Mr. HAMBERGER. Two previous years, yes, sir. 

Senator BLUMENTHAL. Is that sufficient? And what should we be 

doing to support additional infrastructure, which I consider to be 

the challenge of our time? 

Mr. HAMBERGER. Again, thank you for that. It is dramatically 

higher than all manufacturing. It’s a 17 percent cap—cx rate, compared to about 3.5 percent for all manufacturing. So we are committed to putting money back into the infrastructure. 

At one point, the industry was proposing an investment tax credit for new infrastructure for new capacity. Given the budgetary 

times, that didn’t proceed too far. 

But the third issue and the one that I mentioned to Senator 

Johnson would be how we can make these investments more effective. One of those ways would be to have, as the Congress did for 

surface transportation highways, have regulatory reform and 

streamlining. We’d like to see that for rail projects as well. The 

CSX project I was mentioning is $70 million above what they had 

targeted because of the delays. 

Senator BLUMENTHAL. Thank you very much. I look forward to 

working with all the members of the panel. I think there’s a lot of 

extraordinarily important ground that we’re not going to cover 

today, raised by your testimony, and it has been very thoughtful 

and helpful. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, sir. 

Mr. Nelson, Senator Nelson. 

STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Thank you, Senator. 

Mr. Hamberger, think ahead to 2016, the opening of the expanded Panama Canal, the increased cargo that will go to East 

Coast ports, the lessened cargo that will be shipped by rail from 

the West Coast to the East Coast. How’s that going to either alleviate or create gridlock? 

Mr. HAMBERGER. Senator, you’ve put your finger on an issue that 

Chairman Rockefeller was prescient enough to hold a hearing on 

62 

last year. That is what will that impact be? I will quote the thenDeputy Secretary of Transportation, who said: ‘‘We don’t know who 

the winners and losers are going to be. We’ll find out in 5 years.’’ 

That’s one of the challenges that this industry has: Do we anticipate that there in fact will be, as some project, a 5, 10 percent shift 

from West Coast to the East Coast? Others say that has already 

occurred and that it really depends. Will the canal open on time? 

What will the tolls be? What will the maritime companies’ decisions be on continuing the 360 around the globe? 

So we are making investments. I know that the western railroads are anticipating that there still will be an increase in intermodal. I know the eastern railroads are working with their ports 

to try to determine what ports will have what capacity and will we 

be able to serve them. It is at this point still an unknown as to 

what the exact impact will be, and it will no doubt be what not everybody has thought, which will then create a need for quick investment and ability to adjust to the market as that comes on-line. 

Senator NELSON. Well, how does this affect the gridlock in the 

Midwest that has been the subject of most of this hearing? 

Mr. HAMBERGER. One of the issues that may arise to help would 

be that some of the export of grain and perhaps taconite—I don’t 

know—could go out of the Gulf Coast rather than across the Northern Tier to the Pacific Northwest. I’ve read reports that that is a 

possibility, that then would alleviate some of the congestion going 

to the Pacific Northwest. But again, that is speculation at this 

point. 

Senator NELSON. We’ll talk about this later—— 

Mr. HAMBERGER. Yes, sir. 

Senator NELSON.—because your answer is we don’t know. Well, 

we don’t want to get into the crunch in 2016. 

Mr. HAMBERGER. Agreed. 

Senator NELSON. So to be determined. 

Mr. HAMBERGER. To be determined, yes, sir. 

The CHAIRMAN. Senator Wicker. 

STATEMENT OF HON. ROGER F. WICKER, 

U.S. SENATOR FROM MISSISSIPPI 

Senator WICKER. Thank you, Mr. Chairman. Senator Nelson 

yielded back 2 minutes and we hardly knew what to do with ourselves. 

Mr. Hamberger, let me follow up on Senator Blumenthal’s line 

of questions with regard to Amtrak and the members of your organization. I agree with much of what he said, and I also would point 

out that when members of AAR can work with Amtrak they should 

do so, because we all have to work together. 

Now, I’ve been trying for 20 years to get a flag stop in Marks, 

Mississippi, a small, rural, underserved community in Quitman 

County. We used to have a flag stop some 30 miles to the east in 

Batesville and that line closed. We now need to have it in Marks. 

We have encountered resistance from CN in this regard. 

It would be the only stop between Memphis and Greenwood and 

we need to get it done. It would serve the entire North Delta region. Amtrak is for it. The Mississippi Delta Council is for it. The 

63 

state government is for it. Our entire delegation is for it. Mississippi DOT supports it. 

I’ve met with CN and I’ve also visited with you about it, Mr. 

Hamberger. But let me bring you up to date. We sent a question 

for the record in following the April rail safety hearing, which got 

bounced over to CN. It just seems to me they don’t want to fool 

with us on this relatively minor, 5-minute stop we’d like for Amtrak to make in Marks, Mississippi. 

We got a letter on August 22, 2014, from Amtrak responding to 

some concerns published by CN. CN says the flag stop would impair rail operations, freight rail operations, and also they express 

concerns about on-time performance. 

So we asked Amtrak what they thought about it. Mr. Chair, I’d 

like to have Amtrak’s letter of August 22 placed into the record at 

this point. 

The CHAIRMAN. So ordered. 

[The information referred to follows:] 

NATIONAL RAILROAD PASSENGER CORPORATION

Washington, DC, August 22, 2014 

Hon. ROGER F. WICKER, United States Senate, 

Washington, DC. 

Dear Senator Wicker: 

Thank you for your letter of July 25 regarding your ongoing interest in establishing a stop for the City of New Orleans service at Marks. We are mindful of the 

interest you have shown in this proposal in your 20 years in Congress which, coincidentally, covers nearly the same period since the train was rerouted through Marks 

from the old route through Batesville (September 10, 1995). 

You shared with me a letter you received from Ms. Karen Borlaug Phillips, Vice 

President, Public & Government Affairs, Canadian National Railway (CN), from 

April2, 2014. In her letter, Ms. Phillips raises two general points against the stop 

at Marks. First, CN’s position continues to be that a stop at Marks would ‘‘impair’’ 

their freight operations on that route. Currently, the schedule for the southbound 

train calls for 122 minutes to run 125.2 miles from Memphis to Greenwood (average 

61.6 mph), with 3 minutes extra recovery time into Greenwood. Northbound, the 

schedule calls for 125 minutes to run from Greenwood to Memphis (average 60.1 

mph), with another 28 minutes of recovery time into Memphis. Also, the southbound 

train dwells at Memphis station for 23 minutes and the northbound train for 30 

minutes. Based on the time needed to decelerate, stop, and accelerate at similar stations, we believe the stop at Marks would consume approximately 5 minutes. Because of the recovery and dwell time, and because the passenger speed limit over 

most of the segment (79 mph) is higher than the freight speed limit (60 mph), it 

is difficult to see exactly how a passenger stop that may total 5 minutes will impair 

slower freight trains, even at Marks where there is single track. 

The other general concern raised in the letter had to do with CN’s ability to meet 

the on-time performance requirements of the Passenger Rail Investment and Improvement Act of 2008 (PRIIA). As stated above, because of the existing recovery 

and dwell times and the differential in train speeds, it is difficult to see how the 

added stop would affect CN’s abilities to provide good on-time performance. CN stated that although there is a case related to PRIIA and on-time performance that may 

yet be heard in the Supreme Court, ‘‘Amtrak continues to issue reports each month 

comparing Amtrak performance on CN’s lines to the [PRIIA] on-time performance 

standards and provides this information to the [Federal Railroad Administration] 

and others.’’ It is true that on-time performance statistics are published in a Monthly Performance Report on Amtrak’s website and also shared with the FRA and with 

Congressional authorizers and appropriators. Among the statistics published is minutes of delay per 10,000 train-miles, organized by route and by the several host railroads, including CN. In the interest of meeting Congressional directives and providing information to the public in a transparent manner, Amtrak also published 

delay per train-mile statistics, among host railroads, for several years prior to the 

passage of PRIIA in 2008. The main difference between now and then (pre-PRIIA) 

is that today’s reports have more route-level detail and show how results compare 

64 

to the PRIIA standard of 900 minutes of delay per 10,000 train-miles. Even in the 

absence of that particular standard, however, it would be appropriate for us to continue publishing this information. 

With your letter, you provided a timeline of activities and contacts from 1995 to 

2014 relating to the proposal for the stop at Marks, apparently prepared by 

Quitman County. There appears to be a two-year gap in the record, from July 2012 

to March 2014. It is my understanding that this gap results from a decision by the 

City of Marks, along with its partner, Quitman County, to investigate an alternative 

location proposed by the CN. However, we believe that the City now has resumed 

its earlier position, that it does not want the station to be at any location other than 

the center of Marks, and that the initial capital cost and ongoing maintenance cost 

of a second track, as desired by CN, is too great and is unnecessary. The renewed 

activity is reflected in the timeline you provided, which includes communications between Quitman County and Amtrak through June 11. Amtrak officials also met 

with the Quitman County representative on August 4. 

Amtrak remains very interested in cooperating with the City of Marks and 

Quitman County for a stop at Marks. We would support, as we have done in the 

past, any proposal to bring representatives of the parties concerned together for a 

personal update on each party’s position and to discuss ideas for moving the proposal forward in a way that is not unreasonably burdensome to any party. 

Thank you again for your letter as well as your ongoing support for passenger rail 

service in Mississippi and across the Nation. 

Sincerely, 

JOE MCHUGH, 

Vice President, 

Government Affairs and Corporate Communications, 

National Railroad Passenger Corporation. 

Senator WICKER. Amtrak says there’s validity to these concerns, 

and basically they support this with data. Amtrak explains that 

the current schedule of the route from Memphis to Greenwood, the 

southbound train dwells at the Memphis station for 23 minutes 

and the northbound train for 30 minutes, in addition to 3 minutes 

of recovery time on the southbound route and 28 minutes of recovery time on the northbound route. 

The letter says in paragraph 2: ‘‘It is difficult to see how a passenger stop that may total 5 minutes will impair slower freight 

times, even at Marks, where there’s a single track.’’ 

They go on to say in paragraph 3: ‘‘Because of the existing recovery and dwell times and the differential in train speeds, it is difficult to see how the added stop would affect CN’s abilities to provide good on-time performance.’’ 

I want to continue visiting about this. I’m determined to get it 

done and it seems to me that your member, CN, should be willing 

to work with us on that. So I want to ask you, if you can answer 

it now, fine. But if you need to answer it on the record, that would 

be just fine, too, because I appreciate the way that you work with 

us on this committee. Why can the Marks flag stop not be accommodated, given that it would take just 5 minutes of the ample 

dwell time and ample recovery time on both the south and northbound routes? 

I know you don’t speak for CN, but they’re a member of AAR, 

and, if you would, please respond to the data provided by Amtrak 

so that we can come to some positive resolution of this issue, which 

has been plaguing my state for almost two decades. 

Mr. HAMBERGER. Let me respond partially here today, if I may. 

I did touch base with CN in anticipation of this hearing and they 

of course said they are well aware of your desire to establish this 

and they’re very willing to establish a flag stop at Marks and want 

65 

to work with you and Amtrak to see how that can be done. I don’t 

have the data that you’re requesting. Let me work with CN and respond for the record if I may. 

[The information referred to follows:] 

RESPONSE TO SENATOR WICKER’S QUESTION ON THE PROPOSED AMTRAK FLAG STOP

AT MARKS, MS 

As Senator Wicker notes, AAR is not a party to the discussions that have been 

taking place between CN, Amtrak, and the City of Marks, MS regarding the creation of an Amtrak flag stop in Marks on CN’s single main line track. 

CN does not maintain that the Marks flag stop would definitely impair its operations on this line. Instead, I understand that CN is concerned that sustained impairment of CN’s freight or Amtrak’s passenger operations on this line could occur 

and CN wants to have in place a mechanism for determining if such impairment 

occurs and, if so, a solution for remedying that impairment. 

With respect to freight operations, rail traffic on CN and throughout the entire 

North American rail industry has increased significantly in recent years. The flag 

stop at Marks would be established on CN’s single-track main line—instead of on 

a separate track or siding, as CN normally requires—on CN’s important corridor between Memphis and New Orleans. CN must ensure its continued ability to provide 

timely and efficient freight service to its customers on this line, including its customers in Mississippi. 

Likewise, CN must meet Amtrak’s on-time performance requirements under the 

terms of CN’s operating agreement with Amtrak as well as the joint FRA/Amtrak 

on-time performance metrics issued pursuant to the Passenger Rail Investment and 

Infrastructure Act of 2008 (which are under Supreme Court review). Amtrak continues to assess host carrier performance under these metrics, and CN believes it 

must ensure that any new Amtrak service on its lines—including the Marks flag 

stop—is structured so that CN is able to meet these on-time performance requirements. 

Therefore, given the potentially significant consequences of any impairment of 

CN’s freight or Amtrak’s passenger operations on this line, CN believes it is essential that a mutually agreed upon remedy be in place to address any impairment that 

may occur once the flag stop comes into effect. If no systemic impairment of freight 

or passenger operations occurs, the remedy will not prove necessary. 

I understand that representatives of CN, Amtrak, the City of Marks, and 

Quitman County met on September 15, 2014 with Senator Wicker to discuss how 

to progress this matter. CN informs me that Amtrak provided proposed changes to 

the northbound and southbound schedules for its City of New Orleans service to accommodate this flag stop. CN and Amtrak have agreed upon the new schedules, and 

CN has provided to Amtrak a proposal for metrics to determine any impairment of 

freight or passenger operations that may occur as a result of the Marks flag stop 

and the process for dealing with any such impairment. Amtrak is currently reviewing CN’s proposal. 

Senator WICKER. Well, that’s very welcome news. So I would 

hope that perhaps you and CN and Amtrak could visit with me. 

We’re not real active on the floor these next few days. Perhaps we 

could meet and accommodate their desire to move forward on this 

very needed stop. 

I thank you, Mr. Chairman. 

The CHAIRMAN. No, I thank you. I think that is just a gorgeous 

pursuit, and I’m betting that you’re going to get that. 

Senator WICKER. It’s a very small thing to ask in 20 years, Mr. 

Chairman. 

The CHAIRMAN. Yes. 

Senator WICKER. And I would hope that the Chair and the Ranking Member would come and visit us in the Mississippi Delta and 

see all that we have to offer. We’d take you to the B.B. King Museum. We’d take you to the Shack-Up Inn. We’d fry you some catfish or grill you a steak. 

66 

Senator THUNE. That’s what I’m talking about. 

The CHAIRMAN. I come from a strong Baptist family and this guy 

is Norwegian. 

[Laughter.] 

Senator WICKER. Is this a great country or what? 

The CHAIRMAN. All right. Senator, I really thank you for that because it’s sort of classic—a little ask, a ton of money, no response. 

Mr. Hamberger, last fall my staff prepared a report, as I indicated, on the financial condition of the largest Class I freight rail 

companies. It was based on the public financial information that 

your companies share with your investors. It found that your companies are setting records for earnings and operating ratios almost 

every quarter. It found that your companies are generating record 

higher earnings for your shareholders. It also found that your companies are buying back record amounts of stock shares, which also 

rewards your shareholders. 

You pretty much get what you want and stop what you want 

around here, it has been my experience over 30 years. So the question I’m going to ask you is, you’re doing a great job for your shareholders. What about these folks sitting to your right? Why can’t 

your companies do a better job for their customers? Why are shippers not benefiting from the excellent, extraordinary financial condition of freight railroads? 

Mr. HAMBERGER. Thank you, Mr. Chairman, for allowing me to 

respond to that, because there is a disagreement in some of the 

findings of that study that we have. We believe that the appropriate study, the appropriate metric of profitability, of how well 

you’re doing economically, is the return on invested capital. We are 

an incredibly asset-rich, asset-based industry, $180 billion, and 

that’s just book value, of assets in the ground in the network. So 

we believe that the appropriate metric is a return on invested capital. 

We are at 7.74 percent return on invested capital. The Fortune 

500 is 12.93. So we are not even halfway, a little bit over halfway, 

toward what the Fortune 500 average is of 12.93 percent return on 

invested capital. That’s what we have to go to the capital markets 

to say, give us money to invest and buy more assets, and here’s 

your return, 7.74. We need to be able to improve that return on invested capital. 

With respect to the dividends and share repurchases—and this 

is material that was just filed last Friday over at the STB by Union 

Pacific, so I’m using Union Pacific data—for their free cash-flow, 

63.2 percent of it’s going to capital expenditures, 14.7 percent is 

going to dividends, 22.1 percent to share repurchases. 

For the S&P 500, those numbers are 44.8 percent for capital expenditures, 21.7, fully 50 percent more, for dividends, and share repurchases of 33.6 versus 22, again 50 percent more, and that’s the 

S&P 500. So we think that we are in fact spending 63.2, at least 

for Union Pacific, on investments to serve our customers. 

The CHAIRMAN. I have noticed over the years the techniques that 

you all use to disperse collated Congressional negative reaction, 

which you richly deserve, by techniques that you use. And I’ve told 

you this before, but it hasn’t gotten through very well. I can remember a number of—I’ve been working on this for 30 years and 

67 

you only have 3 more months of me, so you can be happy about 

that—but individual presidents of major railroads who would come 

to me and, because I was really upset, for example—and I’ve used 

this example in this chamber before—of Weirton Steel. They were 

losing a ton of money. They only had one railroad going in. They 

were charging them amazing amounts of money. 

So what the president, who later became Secretary of the Treasury—I think in the last hearing I said I voted for him three times 

just to make sure he was out of CSX—granted my request, solved 

my problem. It’s a very good technique. It’s like if you solve Mr. 

Wicker’s problem, which you could do, then the world is fine. 

The problem, of course, is the world isn’t fine. In a sense, you’re 

buying off individual troublemakers by settling their problems. I 

remember when a whole bunch of coal mines, which is sort of like 

your wheat and soybeans, in central West Virginia closed down because the railroads involved there just declined to participate in 

moving the product because they didn’t feel they could get enough 

money for it. And that put a lot of people out of business. 

So what I want to ask you is that the Surface Transportation 

Board is supposed to assess whether or not you have adequate revenue. We’ve been discussing this for 30 years. Rail companies are 

enjoying record earnings and record margins. Do you believe that 

you have adequate revenue? 

Mr. HAMBERGER. I believe the board determined for 2013 that 

five of the Class I’s had achieved revenue adequacy for 2013. 

The CHAIRMAN. I did not understand the last part. 

Mr. HAMBERGER. That five Class I railroads were deemed revenue adequate for 2013. 

The CHAIRMAN. Were deemed revenue adequate? 

Mr. HAMBERGER. Yes, sir. 

The CHAIRMAN. OK. Could I get a response to that from some of 

the other members, panelists? In a sense, he’s saying the wherewithal is there. 

Mr. DOOLEY. Yes, but I think that’s one of the—and even in the 

legislation that you’ve introduced, it’s really calling on STB to 

evaluate the way that revenue adequacy is utilized in resolving a 

rate dispute. That is a hurdle for a company to challenge a rate or 

to go to STB for rate dispute resolution, because part of the revenue adequacy requires them, again, to do this calculation in terms 

of what would be the cost to construct a whole new rail line, put 

together a rail operation, and can you do that at a cost less than 

an incumbent railroad? 

Well, of course you probably cannot do that. And that almost becomes, again, a regulatory impediment, let alone the cost to construct that study, which becomes a financial impediment, to accessing a rate dispute process that can be concluded in a timely and 

in an equitable manner. 

So the whole issue on revenue adequacy—we think that back in 

1980 when the Staggers Act was implemented, when the rail industry was struggling, revenue adequacy was a good policy probably. 

It was probably something that was pretty thoughtful about the 

Members of Congress to include that in the STB and the Staggers 

Act. It has changed. The rail industry has changed. It is now finanVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00071 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\93974.TXT JACKIE
68 

cially solvent. They’re making a lot of money. And STB needs to 

change their policies. 

Unfortunately, they haven’t been willing to do that independently, and that’s why we think it’s so incumbent and why we so applaud you and Senator Thune for introducing legislation that will 

ensure that Congress is demanding that they make some of these 

modest reforms that can again ensure that shippers have access to 

a timely, effective, and equitable rate resolution process. 

The CHAIRMAN. Mr. Hamberger says he has problems with that 

legislation. 

Mr. HAMBERGER. Yes, sir. Specifically on the arbitration provision, one of the issues there is you’re providing arbitration of service, which means an individual arbitrator will be making decisions 

about service options and service, directing a railroad to do something in the service area without taking a look at the entire network. We don’t think that that is going to lead to increased service 

and increased fluidity, but just the opposite. That would be one of 

the areas. 

But let me also respond, if I might, to what Mr. Dooley has said 

several times. He has mentioned the full standalone cost ratemaking procedure. About half of those that have gone to conclusion 

have been decided for the shipper, about half for the railroads. 

There are two additional ways that a shipper can come and seek 

relief. One is a simplified standalone cost and the other is known 

as the three-benchmark. They are much less expensive to do and 

have much quicker timeframes. 

In addition, the board has voluntary arbitration, which no shipper has taken advantage of, and they also have another arbitration 

process that they’ve adopted recently, where either a shipper or a 

railroad can say: I am making myself available; I am opting in for 

arbitration. One of our railroads has done that and since having 

done that, has not gotten any arbitrations filed against it. 

So there are any number of other options available through the 

Board, including the informal processes that the Board has, to 

allow a shipper to bring a case or to go to the board for relief. 

The CHAIRMAN. You’ve got the money. The world is working exactly as you want it. You’re doing better than you ever have before. 

And jobs are a big problem in America. Efficiency, the Panama 

Canal thing, is actually a big issue. You can’t go to trucks because 

it would destroy the highway system. I know that from coal trucks 

in West Virginia. 

To you, sir: The railroads have you where they want you and 

there’s not much that I’ve been able to do about it. And I regret 

that greatly. I consider it a failure on my part to expose certain 

things and techniques. I can talk about them, but it doesn’t seem 

to make that much difference. And you’ve done very well, Mr. 

Hamberger. 

So what I want to do is to wish myself a very interesting retirement, which I’m going to have. I’ve already worked on that. And 

I think that the world is gradually going to shift against thinking 

like yours, and I think that when that does happen that you will 

be surprised and you will be unready. You’ll have the money to be 

ready, but you won’t have the willingness to do something about 

69 

it. And I think we’ll have a different situation here. So that is my 

hope. 

Senator Thune. 

Senator THUNE. Thank you, Mr. Chairman. 

With respect to the legislation, I think that we had discussed this 

previously, that the arbitration provisions are voluntary, and I 

think that’s been made explicit. So that should alleviate some of 

the concerns that were expressed by Mr. Hamberger about our bill. 

I do think that my observation has been, and as I acted once in 

this arbitration process between serving in the House and serving 

in the Senate, that the standalone cost model is an extremely timeconsuming, expensive, complicated, and difficult process to undertake for a shipper or a shipper group, and particularly small shippers. 

And most shippers, as was pointed out, are served by one railroad. When you have competition, obviously, the rate structure is 

very different. But when you’re served by one railroad, that’s the 

mechanism that was put in place to ensure that STB could be a 

referee, so to speak, and make sure that nobody is gaming the system. 

So I think trying to simplify that, trying to come up with a 

streamlined way in which shippers could gain access to that process and at least have some of these issues addressed, hopefully resolved, is what we’re trying to accomplish with the legislation. And 

I hope in the end we can get some broad, bipartisan support for 

it, because I do think the STB is in need of reform. I think expanding the number of members on the Board, allowing for different 

and better ways in which they can communicate in trying to resolve issues, perhaps anticipate, troubleshoot ahead of time. There 

are some things that we can fix and that I would hope everybody 

could get on board with. 

I just wanted to sort of close this out, for the record to have Mr. 

Cope explain, because I think this is important and sometimes I 

think it gets lost in translation, how the freight cost factors into 

a typical shipper. I’ll use agriculture because that’s what we’re 

most familiar with and that’s what you’re most familiar with. 

But in a state like South Dakota, where we’ve got sort of historically low commodity prices, the cash price of corn is under $3.00, 

what, $2.75. On the board it might be $3.50, but what you’re able 

to pay a farmer who brings in a truckload of corn, of soybeans, to 

put on the rail to move to its ultimate destination, that’s the price 

that you’re going to pay them. And the basis, the transportation or 

freight cost is the difference. 

We did just a back of the envelope calculation for this year based 

on the number of bushels we think we’re going to produce in South 

Dakota this year; combined wheat, corn, and soybeans, and what 

the basis is today or for delivery in September of this year versus 

September of 2013, is 28 cents a bushel more for the freight cost, 

which means that’s about $311 million less that’s staying in the 

farm economy and the farmers’ pockets, at a time when we have 

historically low commodity prices to start with. 

So you can see the economic angst that gets created in a state 

like South Dakota or other states who are experiencing similar difVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00073 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\93974.TXT JACKIE
70 

ficulties. I don’t confine this just to grain movements. I think it’s 

true for a lot of commodity movements. 

But if you could, Mr. Cope, sort of explain how that process 

works when you as a shipper, how the basis works and what that 

means in terms of actual dollars and cents going back, staying in 

the pockets of the farmer, versus going into transportation costs. 

And I might add, when there is shortage of supply of cars or locomotives, high demand, the price goes up, and so you’re going to pay 

more for transportation costs, which means again less that stays in 

the farmers’ pockets. 

So could you again, for many of us who don’t understand exactly 

how the economics of this all works, explain how this impacts a 

typical farmer in a state like South Dakota. 

Mr. COPE. Sure. Thank you, Senator. Well, as you aptly put it, 

your basis—it’s complicated, but it’s simple, all at once. It’s the difference between the underlying futures market and the cash price. 

Where that comes from, it’s basically transportation, it’s the elevator’s margin, and those are really the two things, transportation 

all along the way. But anything that affects transportation’s going 

to go into that bucket. 

So you’re right, there are a lot of things that affect basis—weather, demand, time of year. But I think it’s pretty clear that, if you 

look back over time or even look not even at the last year, just from 

April until now, that the overall basis level has widened. I wouldn’t 

want to get into an argument about hard numbers. I think the important things are the trends, the trends of that. 

So the basis has widened, and that means less price paid to the 

farmer, because if you’ve got your futures market here and you’ve 

got your cash price here, the difference is the basis. So if the cost 

of freight goes up relative to everything else, that has to lower the 

cash price. That’s less price in the farmer’s pocket. 

It depends on the day. I guess you used the figure of 28. I did 

some looking when putting this testimony together, pretty quickly 

come up with 30 to 35 cents. It’s ranged as much as 50 or 60, it’s 

ranged as little as 10. I will say that the commercial elevators absorbed a lot of that increase in cost of freight in the winter and 

spring in general, because uncertainty on when’s it going to snap 

back, competitive issues, a whole host of things, and some just trying to be fair. 

So as the cost of freight went up, the basis has to go down to 

account for that. Now, when I talk about cost of freight there are 

two things in there. One is the tariff rates, and on grain in particular it’s all tariff-based. You can go onto any railroad’s website 

and see what the rates are from point A to point B. They also 

charge a fuel surcharge based on highway fuel that is tacked onto 

that rate. 

Then in the case of the Burlington Northern, people will buy 

freight commitments for a year or maybe a shorter time. Most commonly they’ll buy freight commitments for a year, and they’ll pay— 

and that’s an auction. You can go on BN’s website and see what 

the history of their auctions were. 

As you own that freight—when I talked about freight being a tool 

and now it’s become a hard limit that impacts your ability to do 

business, companies would buy that deck of freight thinking, I 

71 

know I’m going to need some over the course of a year, but I don’t 

know exactly when I’m going to need it, so I’m going to tie into this 

bucket of freight, and I’ll trade in and out of it as time goes. So 

if I come to a time where you need it, I don’t, I might sell you that 

train commitment, and vice versa, I’d buy it back from you when 

I need it. 

That price fluctuates up and down, and the main thing that 

drives that is car availability. Weather will impact it, but car availability is what drove it this last winter. We had cars—when I said 

cars traded in the secondary market the same as the tariff rate, 

they’re trading up to $5,000 a car. 

We were talking about it the other day. That’s like every car you 

see in that train is like buying an acre of land in central South Dakota. It’s a lot of money. You’re talking millions just for the right 

to ship that train. So somebody has got to pay that. Now, it might 

be the commercial elevator, it might be the farmer. In this case it 

has been a combination of both. Somebody’s got to account for that, 

because no matter what you paid for that commitment, that’s a 

check you write, but you also have to pay the STB their tariff rate. 

So if that makes sense, that’s kind of how that cost of freight can 

fluctuate. Now, the railroads will argue that that secondary market 

doesn’t go to them, that $5,000 a car did not go to them. And 

they’re absolutely correct, it didn’t. But what it did do when it 

rolled around to this summer and the freight for this next year was 

up for auction, people were nervous, they were scared: Are we 

going to get freight, are we not? So what they’ve done is translated 

that secondary cost of freight into the primary auction that went 

back to the railroad. 

Looking back just since January 1, the Burlington Northern I know has collected over $160 million in that. Now, I’m not going 

to argue that that’s bad. That’s a free market, it’s a free world. 

People bid that. But the underlying thing is the uncertainty and 

unpredictability of railroad performance is what drove that. 

Now, somebody’s got to pay that bill and, like I said, it ended up 

being a shared cost. If those premiums are being paid for trains, 

that’s either something grain companies have to absorb—I can 

guarantee you that grain margins aren’t good enough to handle all 

that. So it gets passed back to the farmer. 

So I think those costs are real. I said I wouldn’t get hung up on 

whether it’s 28 cents or 30 or 40, but I think in general we ballparked it at 30 to 50 cents a bushel. That’s a real impact and that’s 

out of the farmer’s pocket. 

Senator THUNE. And that’s an increase, when you say 30 to 50 

cents? 

Mr. COPE. Yes, increase in effective freight, decrease in effective 

cash price paid to the farmer. 

Senator THUNE. The numbers I used were based on a September 

delivery for corn to an elevator in central South Dakota, based on 

2013 rates and what we think the 2014 rate is going to be. That’s 

the 28-cent number I came up with. But at that rate, you’re talking again about $311 million less in 

the farm economy, in the farmers’ pockets, and more in transportation, which again, as you point out, there are lots of factors that 

contribute to that. 

72 

That’s what we’re talking about here. When you have a shortage, 

you don’t have the availability of cars, the price goes up, and that 

has very real-world consequences, which is why so many of my constituents and the others who are represented here today spoke out, 

because they’re hearing the same things that we are. And they’re 

particularly concerned about car availability with what we expect 

is going to be a bumper crop coming in here in the next few weeks, 

and what that might mean to the basis, again, and how that’s 

going to impact the ultimate return that a farmer receives. 

Mr. Chairman, I thank you. 

I appreciate all of you sharing your thoughts today. I hope that 

we can work in a constructive way to try and resolve some of these 

issues. I think our legislation and the STB reforms are an attempt 

to do that, perhaps not a perfect attempt. It never is, but if we can 

get folks to work with us I think we can come up with a more efficient, hopefully, system that better recognizes some of these issues 

in advance and hopefully avoids and prevents some of the disruptions that we’ve seen in the last year in my state and other states. 

So thank you. 

The CHAIRMAN. Well said. 

Hearing is adjourned. 

[Whereupon, at 4:43 p.m., the hearing was adjourned.] 

(73) 

A P P E N D I X 

WRITTEN TESTIMONY ON BEHALF OF THE NATIONAL RURAL ELECTRIC

COOPERATIVE ASSOCIATION

Chairman Jay Rockefeller, Ranking Member John Thune and members of the 

Senate Committee on Commerce, Science and Transportation, thank you for allowing the National Rural Electric Cooperative Association (NRECA) to submit testimony on the hearing, ‘‘Freight Rail Service: Improving the Performance of America’s 

Rail System. 

NRECA is the national service organization for more than 850 Distribution and 

65 Generation and Transmission (G&T) not-for-profit rural electric utilities that provide electric energy to over 42 million people in 47 states. Kilowatt-hour sales by 

rural electric cooperatives account for approximately 11 percent of all electric energy 

sold in the United States. Coal accounts for approximately 74 percent of the power 

produced by G&T members and 55 percent of all electric cooperatives electricity requirements. 

As you know, a wide range of commodity shippers have experienced rail delays 

in the last year. Dependable rail service is critical to all commodities, and congestion drives up the costs of products and hurts local economies. We all want a strong, 

robust rail network. We recognize the challenges facing railroads, including weather, higher than normal grain harvest, and the recent increased demand for crude 

oil. We appreciate the steps the Surface Transportation Board (STB) has taken to 

address these delays by holding two hearings on rail service issues in Washington, 

D.C. and most recently in Fargo, ND. 

The testimony to follow provides background on rail service delivery issues from 

Dairyland, Sunflower and Arkansas Electric Cooperative Corporation. It incorporates previous testimony provided to the STB on behalf of NRECA and Consumers United for Rail Equity and at the Department of Energy Quadrennial Energy Review Panel by Sean Craig, Fuel Manager at Dairyland Power Cooperative. 

We are providing accounts of experiences of our members from this past year. 

Dairyland Power Cooperative 

Dairyland, like other electric cooperatives, operates as not-for-profit. Dairyland’s 

directive from its member-owners is to provide affordable and reliable electric service not profits to investors. They are responsible to ensure that energy is delivered 

reliably and at the lowest reasonable cost. 

Electricity in the Dairyland system is generated primarily at coal facilities but the 

co-op has a diverse energy portfolio that includes natural gas, hydro, wind, solar, 

biomass, and biogas. Dairyland’s generation resources allow its members to supply 

over 14 percent of their consumers’ retail load from renewable sources. 

Recent Rail Service Issues 

Low sulfur Powder River Basin (PRB) coal is the primary fuel source for 

Dairyland and a number of other base-load generation facilities (see attached map). 

These facilities are essential to provide reliable electric service year round. Fuel delivery to these facilities is dependent upon reliable rail service. Burlington Northern 

Santa Fe Railroad (BNSF) delivers coal for Dairyland to the John P. Madgett (JPM) 

facility in Alma, Wisconsin, on lines that are captive to the BNSF. BSNF also delivers coal to a Mississippi River terminal in southeast Iowa, which is then loaded on 

barges and delivered to Dairyland’s Genoa Station #3 facility (Genoa). 

Reliable delivery service is necessary to ensure coal is available in sufficient quantities to produce power to meet demand. Coal delivery problems require Dairyland 

to use higher cost generation and/or purchase power on the open market, often at 

a premium, to meet members’ energy needs. 

Dairyland currently owns 250 rail cars and leases six more. They lease a full train 

set (about 125 rail cars) for shipments to the Mississippi River terminal in Iowa. 

The combined coal deliveries in any given year range from 2.0–2.4 million tons, or 

roughly 130–160 train loads. 

74 

Approximately 90–100 train loads are delivered to JPM annually. Average turnaround time (ATT) is defined as the time it takes for a train to make a round trip 

from the mine to the offload site and back again to the mine. Prior to 2014, ATT 

averaged six to eight days, which generally meets the fuel needs for the JPM plant. 

The station can unload an average train set in about six hours which provides three 

to four days of generation. In preparation for supply disruptions, the goal is to have 

between 30 and 50 available days of operation on hand to sustain reliable generation. 

Annual deliveries range from 50–65 train loads to the Southeast Iowa Mississippi 

River terminal for the Genoa Plant. One train fills nine to ten barges. ATT for shipments to this terminal prior to 2014 averaged five to seven days, fulfilling the shipping goals to meet the annual need for generation. 

Two barges provide one day of generation. In order to meet Dairyland’s generation 

needs for its’ members throughout the year it is critical to have reliable rail and 

barge transportation from carriers. To prepare for supply disruptions Dairyland’s 

goal is to have 165–195 available days of operation on hand prior to the end of October to provide generation for the winter. Since the Upper Mississippi River usually 

freezes, the typical barge delivery season is from March through October, roughly 

30 to 35 weeks. Once winter is over and the river thaws, inventories can be rebuilt 

at Genoa again for the next season. 

2013–2014: Unsatisfactory Rail Performance 

Earlier this year, Dairyland staff was in frequent communications with BNSF 

staff about delivery shortfalls. BNSF acknowledged Dairyland’s concerns, acknowledged they (BNSF) were not meeting expectations, but were slow to provide a solution. 

In July, Dairyland contacted both the Surface Transportation Board and members 

of the Congressional Delegations in the four states in which they operate. Without 

exception, every delegation member responded by communicating to the STB and/ 

or the BNSF of the need to quickly accelerate coal deliveries for the Genoa plant. 

In 2012 Dairyland experienced a six to eight day ATT at the JPM plant and an 

ATT of five to seven days at the Genoa Plant. Since August 2013 service has been 

inconsistent and failed to match the 2012 ATT at both plants. The BNSF year-todate through September at the JPM plant has been 11 days ATT and the ATT has 

averaged about nine days at Genoa. 

Through August of this year, the BNSF has failed to deliver 30 percent of 

Dairyland’s expected fuel needs. Dairyland did not increase their expected fuel 

needs from 2013, therefore, their expectations for 2014 deliveries did not change. 

Trucking PRB coal from Wyoming to either location is not a viable alternative. 

To equal one train set of coal 630 truckloads would need to be delivered, equating 

to 87,000–104,500 truckloads to deliver their annual supply. This is logistically and 

financially unworkable with a nonprofit electric cooperative’s mission to provide affordable service to its members and would cause a tremendous burden on the already overtaxed interstate, state and local highway systems. 

Dairyland continues to work with the railroad in an attempt to resolve these 

issues. It is in the best interest of Dairyland and their members to have a good 

working relationship with BNSF since they play a very important role in helping 

to provide reliable and reasonably priced electricity to the region. Since the beginning of August, the BNSF has worked to address deliveries at the river terminal 

serving Genoa and JPM. 

2014: Poor Rail Performance Impacts Dairyland’s Operations 

JPM 

Since January 1, monthly average coal inventory on hand for Dairyland has 

ranged from 12–33 days, and dipped to as low as nine days—well below the 

Dairyland target of 30–50 available days of operation on hand. Dairyland was forced 

to find solutions to ensure they had enough coal on the ground to meet generation 

load and reliable electric service for the Midcontinent Independent System Operator 

(MISO). Unfortunately, rail service to the Alma site has continued to deteriorate. 

August deliveries were less than any prior month this year, even less than during 

the polar vortex of last winter. At the end of August, coal inventory at Alma is 50– 

70 percent below the target range. 

Genoa 

Rail shipments to the Southeast Iowa Mississippi River terminal since March had 

not built inventory at a rate to keep pace with barge shipments to Genoa needed 

to meet power generation. If this trend had continued, Dairyland’s Genoa power 

plant would have run out of coal and would be unable to generate power after JanuVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00078 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\93974.TXT JACKIE
75 

ary 2015. Dairyland is pleased to report that BNSF service to the Mississippi River 

terminal for barge loading to Genoa has improved and the BNSF should be commended for its response. There were more trains delivered in the month of August 

than during the months of May, June, and July combined. Due to the BNSF’s efforts 

to increase deliveries to the terminal in August and September the inventory shortage has been reduced from 50 percent to approximately 10 percent. 

In the previous years, during reduced demand periods, Dairyland was able to shift 

train sets for several deliveries to the Mississippi River terminal rather than JPM. 

This year, Dairyland was not able to do this because JPM’s inventory were also low 

and they did not want to risk the inventory going even lower which would have left 

Dairyland with two plants with insufficient coal supplies. 

Sunflower Electric Cooperative 

Sunflower Electric Cooperative (Sunflower) is located in Holcomb, Kansas, and is 

a consumer-owned, nonprofit corporation operated cooperatively by six rural electric 

distribution cooperatives that serve people located in 32 central and western Kansas 

counties. Sunflower provides wholesale power to its members generated by six 

power plants including the only base load coal-fired electric generating unit (EGU) 

in the area, the Holcomb EGU. 

Holcolm EGU is captive to BNSF for its coal supply deliveries; there are no other 

reasonable options to transport coal from the PRB. Since September of 2013, Sunflower has seen ATT for its coal deliveries rise dramatically, sometimes over 11 

days. Considering one train load provides Holcomb with only three-to-four days of 

coal, Sunflower’s inventory pile is continuously decreasing. 

Sunflower’s Board policy and Risk Management strategy is to have a 30 day minimum inventory of coal. To maintain these best practices, Sunflower curtailed generation from March 14, 2014, through June 17, 2014 to save inventory for the summer peak period. As of mid-July, Sunflower had approximately 20 days of inventory. 

If rail service for the remainder of the year does not improve, Sunflower could be 

required to limit generation again this fall and its coal inventory will still reach zero 

days by the end of December, creating a potential reliability issue for the Southwest 

Power Pool (SPP), of which Sunflower is a member. Without substantial improvement, this delivery service problem will affect electric generation reliability well into 

2015. 

Arkansas Electric Cooperative Corporation 

Arkansas Electric (AECC) is a membership-based generation and transmission cooperative that provides wholesale electric power to electric cooperatives, which in 

turn serve over 500,000 consumer member/owners, located in each of the 75 counties 

in Arkansas and surrounding states. In order to serve its 17 member distribution 

cooperatives, AECC has entered into arrangements with other utilities within the 

state of Arkansas to share generation and transmission facilities. For example, 

AECC holds ownership interests in the White Bluff plant at Redfield and the Independence plant at Newark, each of which typically uses in excess of 6 million tons 

of PRB coal each year. In addition, AECC holds ownership interests in the Flint 

Creek plant at Gentry and the Turk plant at Fulton, each of which typically uses 

about two million tons of PRB coal each year. Because of the large volume of coal 

consumed by these plants, the need for long-distance rail transportation to move 

this coal, and the rail captivity of three of these plants, AECC and its members are 

very dependent on rail service in order to provide reliable and economical electrical 

service. 

In 2013 through the severe winter weather of 2013–2014, the major freight rail 

service problems seemed to be somewhat confined to the upper Midwestern portion 

of the United States. BNSF and Canadian Pacific (CP) seemed to be most affected. 

Certainly Arkansas did not see coal shipments affected at that point. However, as 

2014 began to unfold AECC started seeing slower ATT and lower throughput of coal 

to its power plants. AECC experienced ATT increases of as much as 30 percent and 

coal inventories drop by up to 50 percent. At one point an AECC plant had just 16 

days of coal inventory. 

Conclusion 

We are grateful that the Committee on Commerce, Science, and Transportation 

held this timely hearing on current rail service issues. Furthermore we thank Chairman Rockefeller and Thune for introducing S. 2777 the Surface Transportation 

Board Reauthorization Act of 2014. Although the bill will not address the immediate 

concern with coal deliveries for our members outlined in the examples above, in the 

long run, if enacted, the bill will make freight rail carriers more responsive and rail 

service more competitive. We believe this legislation is a good first step in the right 

76 

direction for practical reforms without adding regulation. It should help the STB to 

be more efficient, thus making a more robust and responsive freight rail network. 

The bill does not require direct government intervention and doesn’t reregulate 

(emphasis added) America’s freight rail system. The bill allows the STB to be 

proactive and grants them investigatory authority therefore the Board doesn’t have 

to rely solely on shipper complaints. Other provisions include establishing a voluntary alternative dispute resolution process as presented in the managers amendment; required complaints be compiled at the STB; streamline rate cases; and require quarterly reports of unfinished proceedings. One provision agreed upon by 

both shippers and the railroads would allow board members to talk to each other 

so long as they disclose those discussions with two days of meeting. NRECA supports S. 2777 the Surface Transportation Board Reauthorization Act of 2014. 

PORTLAND CEMENT ASSOCIATION

Washington, DC, September 10, 2014 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman, 

Committee on Commerce, Science, and 

Transportation, 

Washington, DC. 

Hon. RICHARD BLUMENTHAL, 

Chairman, 

Subcommittee on Surface 

Transportation, 

Washington, DC. 

Hon. JOHN THUNE, 

Ranking Member, 

Committee on Commerce, Science, and 

Transportation, 

Washington, DC 

Hon. ROY BLUNT, 

Ranking Member, 

Subcommittee on Surface 

Transportation, 

Washington, DC. 

Dear Chairman Rockefeller, Ranking Member Thune, Subcommittee Chairman 

Blumenthal, and Ranking Member Blunt: 

Thank you for holding today’s hearing, entitled ‘‘Freight Rail Service—Improving 

the Performance of America’s Rail System.’’ On behalf of the Portland Cement Association (PCA), I wish to share the views of America’s cement manufacturers. 

Our industry is hopeful that this hearing will lead to improvements in service levels from the railroads. Current service levels are delaying the delivery of our products, impacting construction jobs that could have a ripple effect in our Nation’s economic recovery. 

Cement is to concrete what nails are to wood. It acts as the glue that builds our 

bridges, roads, dams, schools and hospitals. The distribution of cement often occurs 

over hundreds of miles, and it must be done with carefully timed precision. A disruption in rail transportation and distribution can greatly influence the efficient deVerDate Nov 24 2008 10:32 Apr 07, 2015 Jkt 075679 PO 00000 Frm 00080 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\93974.TXT JACKIE

910NECRA1.eps
77 

livery of cement; this can result in projects being delayed or cancelled. Rail carriers 

are vital to the movement of cement, representing approximately 65 percent of cement movements on a per ton basis. Steep increases in rail rates, particularly over 

the past decade, have impacted cement shippers negatively wiping out efficiency and 

other gains. 

Since passage of the Staggers Rail Act of 1980, the rail industry has dramatically 

changed. In 1986, there were 23 Class I rail carriers in the United States. Today, 

there are seven Class I rail carriers of which four control over 90 percent of the U.S. 

market. About 80 percent of rail stations are now served by just one Class I carrier. 

Rail industry consolidation and a lack of competition amongst rail carriers and from 

other modes of transportation have given the rail industry very strong market 

power. For shippers that need to transport their products over long distances, motor 

carriers; for example, are typically a noncompetitive option, especially as fuel prices 

have risen over the decades. 

As the market power of the rail industry has grown, the importance of the Surface 

Transportation Board (STB) being able to provide a counterbalance has also increased. Yet rate and service cases are so expensive and cumbersome that many 

shippers often do not have the time or money to file a case. 

It also is unfortunate that so many commodities are forbidden from even having 

a rate or service case come before the STB. This is due to antiquated commodity 

exemptions, which no longer make any sense in today’s marketplace. For a variety 

of reasons that made sense in the 1980s, the Board’s predecessor, the Interstate 

Commerce Commission (ICC), engaged in a broad campaign to exempt certain goods 

from the protections of the law. Among these were exemptions for the rail transportation of cement, paper and forest products, clay, concrete, glass, stone products, 

and motor vehicles. In the decades since these exemptions were imposed, much has 

changed, both in the law and in the rail transportation marketplace. This is why 

the STB has been actively reviewing the issue of exempt commodities (Ex Parte 704) 

since 2011. PCA strongly supports the STB moving forward to modernize its list of 

exempt commodities. 

Thank you again for holding today’s hearing. Please feel free to contact me by email at ccohrs@americancementcompany.com or Justin Louchheim at jlouchheim 

@cement.org. 

Sincerely, 

CARY COHRS, 

Chairman of the Board, 

Portland Cement Association, 

President, 

American Cement Company, LLC. 

Cc: Members of the Committee on Commerce, Science, and Transportation 

AMERICAN BAKERS ASSOCIATION

Washington, DC, September 24, 2014 

Hon. JOHN ROCKEFELLER, 

United States Senate, 

Washington, DC. 

Hon. JOHN THUNE, 

United States Senate, 

Washington, DC. 

RE: U.S. Senate Committee on Commerce, Science, and Transportation Hearing: 

Freight Rail Service: Improving the Performance of America’s Rail System 

Chairman Rockefeller and Ranking Member Thune: 

The American Bakers Association (ABA) would like to thank you for holding a 

hearing to scrutinize the lack of adequate rail service in the Northern Mid-West. 

While this issue has definitely impacted the ability of farmers and grain elevators 

in this area to ship wheat and other farm commodities in a timely and efficient 

manner, the effect of the backlog in grain shipments does not end there. Bakers 

have also struggled in receiving flour shipments in a timely fashion, which is of 

major concern for an industry that depends heavily on certainty in transportation 

in order to provide a variety of baked products for America’s families. 

The American Bakers Association (ABA) is the Washington D.C.-based voice of 

the wholesale baking industry. Since 1897, ABA has represented the interests of 

bakers before the U.S. Congress, Federal agencies and international regulatory authorities. ABA advocates on behalf of more than 1,000 baking facilities and baking 

company suppliers. The baking industry generates more than $102 billion in economic activity annually and employs more than 706,000 highly skilled people. 

78 

Impact to the Baking Industry 

Beginning fall 2013, railroad service in the Northern Mid-West states was characterized by long delays, missed shipments, increasing backlogs and higher costs for 

those industries captive to rail. While shipping slowed dramatically due to extreme 

winter weather, the backlog has not improved since then. Joining with the concerns 

still held by farmers, grain elevators and millers, bakers too do not see an adequate 

response by the railroads to ensure that delivery concerns are addressed before a 

record fall harvest puts more pressure on capacity or winter weather returns. 

Bakers are dramatically affected by the decrease in efficiency as they depend on 

timely shipments from millers for their flour needs. Hard Red Spring Wheat is used 

as a primary ingredient to most breads and specialty baked goods. The majority of 

Hard Red Spring Wheat is grown in Montana, North Dakota, South Dakota and 

Minnesota, all states that are land locked and dependent upon the railroads for 

shipping grain to end users across the country. While shipping wheat by truck is 

always suggested as an alternative, it would take four trucks to equal the capacity 

of one grain rail car, making trucking much less efficient than rail service. In addition, there is not enough trucking capacity in the U.S. today to make up for rail 

inefficiencies, making rail a critical lifeline for the baking industry. Bakers are captive to the railroads due to the inability of grain millers to gain access to Hard Red 

Spring Wheat by any means other than rail. 

In addition, Bakers typically only have two to three days’ worth of flour storage 

on premises. When shipments of flour from millers are delayed due to backlogs in 

wheat shipments by rail to the milling facility, bakers struggle to find alternative 

flour sources. In some cases, bakers have shut down lines and reduced staff to accommodate for a lack of flour to bake products. Finished product has also been delayed when being shipped to the marketplace due to delays in fulfilling product orders and in intermodal transport. 

Conservative estimates show that the railway shipping crisis may cost the baking 

industry millions of dollars this year alone if concerns are not addressed. Unfortunately with the current pace of service recovery, the backlog will most likely continue and possibly even increase in severity and impact on the industry through 

next summer. 

Solutions to Address the Shipping Crisis 

ABA strongly supports the efforts by Chairman Rockefeller and Ranking Member 

Thune to pass the Surface Transportation Board Reauthorization Act of 2014. Giving the Surface Transportation Board (STB) authority to launch investigations before a costly complaint is filed is a critical step in holding railroads accountable for 

the lack of adequate service. In addition, making it easier for STB members to communicate and improving the dispute resolution process are necessary to improve the 

STB’s ability to serve all parties reliant upon railway shipping. 

ABA supports recent steps by the STB to increase transparency, requiring Burlington Northern Santa Fe and Canadian Pacific to offer weekly progress reports on 

backlogs and plans for improvement. Specifically, ABA believes more transparent 

information on rail cars that are past due, the average number of days late and unit 

train turnaround times are critical to solving the shipping crisis. This includes information on all shipping categories, including agriculture, coal, intermodal, energy 

and automotive. In addition to reporting, ABA urges the railroads to adopt a more 

open line of communication with its customers to ensure that all parties are working 

together to ensure proper and timely delivery of goods. Moving forward, it is ABA’s 

hope that stringent oversight will continue until the shipments return to more normal levels. 

Conclusion 

U.S. bakers rely upon a transportation network that is reliable and efficient. Unfortunately, this network has failed the baking industry in the past year. While 

progress has been made towards cutting the backlog of rail car orders in the region, 

it remains a very serious situation. 

ABA appreciates the proactive leadership of the Senate Committee on Commerce, 

Science, and Transportation to address freight rail service concerns in the U.S. ABA 

stands ready to serve as a resource and assist the Committee and the STB in solving the continuing shipping crisis. 

Sincerely, 

CORY MARTIN, 

Director, Government Relations, 

American Bakers Association. 

79 

M&G POLYMERS USA, LLC 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman, 

U.S. Senate Committee on Commerce, 

Science, and Transportation, 

Washington, DC. 

Hon. JOHN THUNE, 

Ranking Minority Member, 

U.S. Senate Committee on Commerce, 

Science, and Transportation, 

Washington, DC. 

Dear Chairman Rockefeller and Senator Thune: 

I am writing today on behalf of M & G Polymers in strong support of legislation 

you have both sponsored, S. 2777, the Surface Transportation Board Reauthorization Act of 2014. Our recent experience pursuing a rate remedy at the Surface 

Transportation Board convinces us that the reforms you have recommended in this 

legislation are needed if the Board is to be an accessible forum for resolving commercial disputes between the railroads and their customers. 

M&G Polymers is a leading producer of polyethylene terephthalate (‘‘PET’’) resin 

in North America with our principle domestic production facility located in Apple 

Grove, WV. We employ 144 and generate circa $500,000,000 in annual revenues at 

our Apple Grove facility. Unfortunately, we are served at our facility by a single 

railroad, the CSX Railroad. Our customers want to receive our PET ‘‘pellets’’, which 

are used to make plastic bottles by soft drink manufacturers and others, by rail and 

penalize us significantly economically if our products cannot be delivered by rail. 

Several years ago, shortly before our rail transportation contract with the CSX expired, we attempted to negotiate a new contract that would allow is to remain competitive in our markets and for our plant to remain economically viable. Having very 

little negotiating leverage, the CSX demanded a steep increase in our contract 

transportation rates. Since the proposed contract rates would cripple the economic 

viability of our Apple Grove facility, we requested that the CSX provide a tariff rate 

that we could challenge at the STB as being unreasonably high. As normally happens in such cases, the tariff rate provided by the CSX was even higher than the 

proposed contract rate and we were required to pay the tariff rate while we challenged its reasonableness at the STB. 

The rate challenge became extremely costly, including not only the cost of the litigation but the additional cost of paying the high tariff rate during the pendency of 

the challenge, and extremely lengthy. After four years, with only a decision in hand 

that we were indeed subject to the market dominance of the CSX—in other words 

we proved we were captive to that single railroad for our transportation—and facing 

another year or more of litigation on the reasonableness of the rate, we were forced 

to settle the complaint and move on. This experience convinced us not to expand 

our operations at Apple Grove and, indeed, our high rail transportation costs at 

Apple Grove remain a cloud over the economic viability of that plant. 

Based on this experience and our ongoing experiences with those of our railroad 

carriers that hold us captive, we are particularly interested in and supportive of 

Sections 6, 7, 8, 9 and 10 of the proposed legislation. These provisions strengthen 

the investigative authority of the Board and address some of the shortcomings of 

the current rate challenge processes of the Board. We also support Sections 12 and 

13 of the legislation that will inform Congress and the public of some of the important activities of the Board with regard to complaints about service and the status 

of unfinished Board regulatory proceedings. Finally, we support the proposed ‘‘Sense 

of the Congress’’ provision in Section 14 of the Act. 

Freight railroads exist to transport products and commodities to market reliably 

and on reasonable terms. Freight railroads serve no other purpose. Where a market 

exists for railroad services, commercial negotiations can be expected to result in reasonable service and reasonable terms. Where a railroad is the sole provider of a necessary service, as in our case in West Virginia, then the shipper often cannot negotiate reasonable terms and an independent forum reasonably accessible by shippers 

is required to ensure reasonable service at reasonable rates. We believe that the 

Board, under its current rules, processes and precedents, is not reasonably accessible to shippers to resolve in a reasonable period of time our commercial disputes 

with those railroads to whom we are captive. S. 2777 addresses some of the shortcomings of the Board today and would make the Board more reasonably accessible 

to shippers. 

Thank you, Chairman Rockefeller and Senator Thune, for your leadership on this 

issue. We stand ready to help you in any way we can to make the needed changes 

in law and policy that are contained in S. 2777. 

Sincerely, 

FRED FOURNIER, 

Executive Director. 

80 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. AMY KLOBUCHAR TO

ARTHUR NEAL

Question. During the reauthorization of the Farm Bill I worked to include a provision that would authorize a joint rural transportation study expanding upon a similar study mandated by the 2008 bill. My study language directs the USDA and Department of Transportation to examine rural transportation issues, including captive shipping, so that we can identify ways to help farmers and ranchers move their 

products more quickly and efficiently. Mr. Neal, does the USDA have an expected 

timeline for finishing the report? 

Answer. USDA believes an efficient and effective transportation system is critical 

to supporting our Nation’s economy. The 2014 Farm Bill mandated that USDA and 

the Department of Transportation complete an updated study on rural transportation issues, including freight transportation of agricultural products, renewable 

fuels, and other issues of importance to the economies of rural communities. The 

update of this study has been assigned to USDA’s Agricultural Marketing Service. 

Similar to the previous study, AMS has entered into a cooperative agreement with 

Washington State University to assist with development of the study update. The 

study team has been assembled and work has begun to conduct the update. Provided there are no unexpected difficulties that arise during the update process, 

USDA hopes to complete the study in 2016. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN D. ROCKEFELLER IV 

TO JERRY D. COPE

Question 1. I have worked for years to have the Surface Transportation Board 

(STB) proactively and efficiently address issued raised by shippers and to restore 

balance to a network that I believe favors the freight railroads. Unfortunately, I 

don’t believe the STB has done enough on this front. How have past decisions at 

the STB limited competition for shippers? 

Answer. The STB has previously been viewed as a rubber stamp for the RR’s. 

Many past board members went from the STB to working for a Class I. Fuel Surcharge issues were reluctantly addressed and then after extensive lobbying from National Grain and Feed Association and a suit by one of the major grain companies. 

Addressing rate challenges and other issues such as competitive switching and bottleneck rates still need to be taken up by the Board. 

Question 2. The STB has started several proceedings, but it doesn’t appear that 

they have completed many. What actions are most important for the Board to complete? 

Answer. That is hard to answer because the STB website doesn’t list actions or 

proceedings as completed. It requires knowledge of the case and what signals completion rather than categorizing actions as pending, in progress or complete. (I 

verified this through a staffer). 

Question 3. I continue to have concerns that the Surface Transportation Board 

has not used its full authority to identify and address problems. The ongoing service 

crisis is a prime example of this problem, where the STB has held hearings and required reports but has not changed underlying regulations to provide meaningful relief. Meanwhile, crops are lying on the ground, coal shipments aren’t being made, 

and businesses are suffering. A lack of responsiveness by the STB can be disastrous 

for businesses in our communities that rely on rail service. How have inefficiencies 

and delays at the STB damaged businesses in your industries? 

Answer. The commercial grain handlers lost opportunity when we couldn’t handle 

grain last winter and spring. Both farmers and commercial grain handlers lacked 

cash flow which increased credit lines, interest costs and forced expensive short 

term storage decisions. Total cost was in the millions to the affected states. 

Question 4. What could the Board have done to address rail service issues before 

the problem became critical? 

Answer. Under the current rules the board couldn’t address the rail service problems until a complaint was officially filed. A complaint was not filed right away because when problems are just starting to develop, it is hard to know if it is short 

term or the beginning of something longer. The grain and fertilizer industry typically takes a conservative approach and does not blow the whistle at every turn. 

However, the RR’s overall lack of communication and transparency that created the 

uncertainty in the beginning was a root cause of the problems that developed. 

Would the board of had the ability to investigate without a complaint being filed 

and had there been more board members so the outreach could be more broadly 

81 

based, the problem could have been addressed earlier and some of the issues perhaps avoided or at the very least worked through with more understanding. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN D. ROCKEFELLER IV 

TO CALVIN (CAL) DOOLEY

Question 1. I have worked for years to have the Surface Transportation Board 

(STB) proactively and efficiently address issued raised by shippers and to restore 

balance to a network that I believe favors the freight railroads. Unfortunately, I 

don’t believe the STB has done enough on this front. How have past decisions at 

the STB limited competition for shippers? 

Answer. To provide just one example, the STB’s outdated and misguided rules on 

competitive switching actually run counter to the Staggers Rail Act of 1980 and prevent shippers from obtaining service from a second railroad. While Congress has 

long envisioned competitive switching as a way to promote a competitive rail system, no shipper has ever obtained competitive switching since the STB’s rules were 

adopted. It is extremely frustrating for shippers that depend on a single carrier to 

be prevented from seeking competitive service—not by a statutory provision, but because of the way the Board has chosen to interpret the law. 

Question 2. The STB has started several proceedings, but it doesn’t appear that 

they have completed many. What actions are most important for the Board to complete? 

Answer. The STB has the authority to take on these issues and already has begun 

to do so, but it is simply moving too slowly. Competitive switching is a clear priority. 

The STB has been evaluating this issue in its Docket Ex Parte 711 for more than 

three years, receiving extensive data and stakeholder input. But the STB has yet 

to issue even a notice of proposed rulemaking. 

Another major priority is the development of a workable rate-reasonableness process based on a revenue adequacy standard. The STB has long recognized that when 

a railroad is revenue adequate, the railroad should not be allowed to continually 

charge much higher rates to its captive shippers. 

The Board, however, has never applied this revenue adequacy standard in rate 

cases. The STB continues to rely on the stand-alone cost process, which is overly 

complex, burdensome, and expensive. This process shields highly profitable railroads 

from market forces and shippers are left with no competition and no effective remedy for unreasonable rates. 

ACC strongly supports legislative changes and the ongoing efforts at the STB to 

promote competition in the rail industry and to make the Board and its procedures 

more accessible to shippers for all sectors of the U.S. economy. We think that the 

provisions in the ‘‘Surface Transportation Board Reauthorization Act of 2014’’ would 

help keep the STB focused on resolving many of the key issues that are important 

to shippers. 

Question 3. I continue to have concerns that the Surface Transportation Board 

has not used its full authority to identify and address problems. The ongoing service 

crisis is a prime example of this problem, where the STB has held hearings and required reports but has not changed underlying regulations to provide meaningful relief. Meanwhile, crops are lying on the ground, coal shipments aren’t being made, 

and businesses are suffering. A lack of responsiveness by the STB can be disastrous 

for businesses in our communities that rely on rail service. How have inefficiencies 

and delays at the STB damaged businesses in your industries? 

Answer. The business of chemistry is set to expand dramatically in the United 

States. The discovery of vast new supplies of shale gas has changed the economics 

of chemical manufacturing in this country. As a result of this competitive advantage 

for the chemical industry, it is anticipated that the U.S. will gain more than 700,000 

new jobs and $274 billion in new economic output. 

If the United States is to fully realize these potential investments, it is imperative 

that chemistry companies have access to a reliable and competitive freight rail networks that will effectively move our products along the supply chain and throughout 

the economy. 

Sharply rising freight rail rates are taking a heavy toll on American producers. 

According to research conducted by Escalation Consultants, the total rate premium 

for all commodity shippers in 2011 exceeded $16 billion. These premiums are having 

a big impact on our industry in the U.S. For example, a survey of ACC members 

found that more than a quarter of ACC members report that rail issues have hindered domestic investments. 

A key driver for rate increases over the last decade is the lack of a competitive 

market for rail service. Massive consolidation and railroad practices have allowed 

82 

the railroads to exert market dominance over their customers. These practices include ‘‘bundling’’ rates as a way to preclude shippers from exercising their right to 

ask the STB to review rates. And, in some instances, railroads protect each other’s 

market power by not bidding on traffic that they could carry. Another factor is the 

inability of shippers to make use of the STB as a workable venue to handle rate 

issues. 

If businesses have to absorb these freight rail costs, it cuts into their ability to 

create jobs, products, and exports. If consumers have to bear those costs, they have 

less to spend and to put into the economy. 

Companies in the business of chemistry operate in a highly competitive global industry that operates on tight margins. According to ACC’s survey of chemical manufacturers, the soaring cost of rail shipping is driving investment decisions and negatively impacting a company’s ability to compete in a global economy. Furthermore, 

an economic analysis conducted by ACC found that, if the $3.9 billion freight rail 

premium on chemical shipments were eliminated, the chemical sector could create 

up to 25,000 more jobs with $1.5 billion in new wages and $6.8 billion in new economic output. 

The U.S. chemical industry needs a financially strong private rail industry, and 

Congress agrees. Congress has tasked the Board with overseeing many important 

aspects of the railroad sector. ACC member companies are hampered by the many 

difficulties and the high costs of bringing matters to the Board for resolution. For 

chemical shippers, STB cases are complex, expensive, and time-consuming to resolve. In fact, the barriers for bringing a case before the STB are so high that very 

few of our member companies can justify the time and expense. The Board itself 

estimates that a stand-alone cost challenge takes more than three and a half years 

and $5 million to complete. This predicament is daunting for a large company and 

nearly insurmountable for a small or medium-sized company. ACC members have 

experienced cases that take even longer and cost much more to challenge. More 

competition and the introduction of free market forces can help pre-empt the need 

to file a rate case, reduce the need for government intervention, and improve rail 

service overall. 

Question 4. What could the Board have done to address rail service issues before 

the problem became critical? 

Answer. A number of ACC member companies experienced rail service delays during the past winter of 2013–14. When the Board held its public hearing on ‘‘U.S. 

Rail Service Issues’’ on April 10, the chemical industry spoke about the effects, 

which were not limited to the two carriers that were the primary focus of that hearing. ACC also addressed rail service at this Committee’s hearing on September 10, 

as well as in meetings with STB officials. 

The Board has remained engaged on rail service issues, and it also held a public 

hearing in North Dakota in September. We realize that the Board cannot resolve 

rail service issues itself. Moreover, we appreciate that the Board has ordered the 

Class I railroads to provide various kinds of additional data in a timely manner. 

While ACC applauds those efforts, we remain concerned for several reasons. First, 

what were initially characterized as winter problems did not clear up with warm 

weather. In fact, the carriers are indicating that their difficulties are of a longerterm nature. While our members are very concerned about the upcoming winter, 

throughout this year many chemical companies have been experiencing difficulties 

receiving raw materials, shipping products to customers, and/or getting freight cars 

back for reloading. 

Second, despite the Board’s early focus on two carriers, there have been problems 

with every Class I railroad. The Board has expanded its attention beyond those two 

carriers, but our members are troubled by the persistence of these service issues 

and the length of time that they might last. In addition, some carriers have not 

been transparent about their problems and their plans, which makes it even more 

difficult for chemical shippers and their downstream customers. 

In short, ACC members find themselves in the same predicament as other shippers. They continue to suffer from rail service problems and continue to have serious concerns about their ability to ship their products by rail and being able to meet 

their obligations to their customers. What they have experienced was not by any 

means confined to the issues that arose during the winter months. Quite simply, 

rail service has not yet recovered, and it is unlikely that it will improve soon unless 

the STB and Congress take action. 

Question 5. The Surface Transportation Board has been far too slow in addressing 

important issues like competitive switching. One of the reasons is that the railroads 

have repeatedly raised concerns that changing pricing ‘‘adversely affects all shippers 

83 

and the Nation’s economy.’’ From your testimony, the opposite seems true. Can you 

explain how a lack of competitive switching is adversely impacting shippers? 

Answer. Congress has long envisioned competitive switching as a way to promote 

rail competition. However, under outdated STB rules, no shipper has successfully 

obtained switching. When only one major railroad serves a facility, it can effectively 

block a shipper from obtaining competing service, even if a second railroad is only 

a few miles away. This lack of competition gives railroads dramatic market power 

and leaves shippers with few options. As one of our members explained during a 

recent STB hearing, competitive switching has the potential to improve rail service, 

provide better routing options, and establish competitive rates. 

Question 6. Before taking action, the STB has stated that they want to make sure 

the railroads are able to adequately invest in their infrastructure. Would competitive shipping impair this ability? 

Answer. While we do not support a return to the 1970s when all freight rates 

were automatically subject to strict government scrutiny, we also do not support 

current policies that protect railroads and override free market forces at the expense 

of shippers. 

More than 30 years ago, Congress enacted the Staggers Rail Act of 1980 that 

helped the railroads thrive and, ultimately, drove down rates. Since then, railroad 

freight traffic has nearly doubled, investment in rail infrastructure has increased, 

and the economic strength of the rail industry is greatly improved. At the same 

time, the rail industry has consolidated, reducing the number of Class I railroads 

from 26 to seven, with four largely dominating the market (two in the east and two 

in the west). 

Despite the direction of Congress, however, the full mandate of the Staggers Rail 

Act was not completed, and, subsequently, rail policies have not been able to keep 

up with the massive consolidation of the railroads. The majority of ACC member 

facilities have access to only one major railroad. Yet the same policies protecting 

railroads remain. 

With these dramatic changes in the state of the rail sector, it is appropriate for 

Congress and the STB to re-evaluate and modernize the U.S. rail policy framework. 

Rail reform that increases competition and levels the playing field between shippers 

and railroads would help strengthen the U.S. economy and the railroad industry 

itself. 

Question 7. Wouldn’t the railroads also see benefits from competitive switching? 

Answer. The best solution for all stakeholders is more free market competition, 

not more regulation and government protections for railroads. Consistent with the 

Staggers Rail Act, the STB should work to promote ‘‘effective competition among rail 

carriers’’ wherever possible. The government has always provided oversight where 

there is no competitive option for shippers. To provide this oversight effectively, STB 

processes must be more practical and less burdensome. The reforms we support will 

help create a more competitive and market-based freight rail system that will reduce the need for government involvement, while ensuring the STB has procedures 

to settle disputes efficiently. The results for the country would include more jobs, 

more exports, more competitiveness in global markets, and lower prices for consumers. And yes, ACC believes that the railroads themselves would thrive under the 

conditions of true competition. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN D. ROCKEFELLER IV 

TO SHANE KARR

Question 1. I have worked for years to have the Surface Transportation Board 

(STB) proactively and efficiently address issued raised by shippers and to restore 

balance to a network that I believe favors the freight railroads. Unfortunately, I 

don’t believe the STB has done enough on this front. How have past decisions at 

the STB limited competition for shippers? 

Answer. Two major policy decisions, in particular, have significant limiting effects 

upon rail competition. 

Competitive Access 

The first major policy decision was the agency’s decision not to exercise its full 

discretion to grant reciprocal switching. At 49 U.S.C. 11102, Congress authorized 

the agency to grant trackage rights or reciprocal switching when ‘‘practicable and 

in the public interest’’ or, in the case of reciprocal switching, ‘‘where . . . necessary 

to provide competitive rail service.’’ In an early decision interpreting this statute, 

the ICC noted that that ‘‘Congress’ aim in creating section 11103(c) of the Staggers 

Act was to provide a competitive counterbalance’’ to the broadened rate freedom that 

84 

1 Id. at 729 [emphasis added]. 2 Id. at 723. 3 Id. at 173–74. 4 Id. 

5Midtec Paper Corp. v. United States, 857 F.2d 1487, 1500 (D.C. Cir. 1988) [‘‘Midtec Court 

Review’’] 

was also part of the Staggers Act reforms.1 Del. & Hudson Ry. v. Consol. Rail 

Corp.—Reciprocal Switching Agreement, 367 I.C.C. 718, 729 (1981). In determining 

the ‘‘public interest,’’ the agency noted that ‘‘[a]dditional rail competition is a clear 

public benefit from the proposed operation, one which is endorsed by the rail transportation policy announced in the Staggers Act.’’ 2 But just four years later, the ICC 

abandoned the D&H precedent when it adopted rules determining that ‘‘a switching 

arrangement shall be established’’ under the statute only if the agency determined 

that the establishment of such a switching arrangement ‘‘(A) is necessary to remedy 

or prevent an act that is contrary to the competition policies of 49 U.S.C. 10101a 

or is otherwise anticompetitive, and (B) otherwise satisfies the criteria of 49 U.S.C. 

. . . 11103. . . .’’ Ex Parte No. 445 (Sub-No.1), Intramodal Rail Competition, 1 

I.C.C.2d 822, 840–41 (1985). 

The very first case adjudicated under the new rules was Midtec Paper Corp. v. 

Chicago and North Western Transp. Co. (Use of Terminal Facilities and Reciprocal 

Switching Agreement), 3 I.C.C.2d 171 (1986) [‘‘Midtec’’], which held that whether reciprocal switching was ‘‘necessary to remedy or prevent an act that is contrary to 

the competition policies of 49 U.S.C. 10101a or is otherwise anticompetitive,’’ required the agency to find ‘‘classical categories of competitive abuse: foreclosure, refusal to deal; price squeeze’’ or ‘‘other forms of monopolization or predation’’; or ‘‘inadequate service or excessive prices.’’ 3 Whether or not ‘‘abuse’’ had occurred would 

involve an antitrust-type inquiry.4 In defending its decision in court, the agency argued, and the court held, that the ICC’s new competitive access rules substantially 

narrowed the agency’s discretion under the statute to grant competitiveremedies.5

A series of four subsequent decisions denying requests for competitive access under 

this heightened bar has resulted in no shipper even attempting to request competitive access for more than 25 years due to perceived futility. 

Bottleneck Rates 

The second major policy decision was the agency’s determination not to require 

railroads to quote bottleneck rates in Central P. & L. Co. v. Southern Pac. Transp. 

Co., 1 S.T.B. 1059 (1996), clarified at 2 S.T.B. 235 (1997), aff’d sub nom. 

MidAmerican Energy Co. v. STB, 169 F.3d 1099 (8th Cir. 1999). Many shippers who 

are physically captive to a railroad at the origin or destination may have access to 

a competitive railroad over most of a route. Therefore, they only need a regulated 

rate for the bottleneck segment. But the STB has held that the bottleneck carrier 

is not required to quote a bottleneck segment rate if it has the ability to transport 

the shipment over a greater distance. This effectively precludes the captive shipper 

from taking advantage of competition to the extent it exists and relying upon regulation only for the captive segment. 

The impact of this STB decision has been exacerbated by end-to-end rail mergers. 

Such mergers over time have created longer and longer bottleneck segments, thereby increasing the distance that a shipper is captive at the origin or destination. The 

STB has refused to recognize this merger effect as anti-competitive by claiming that 

the bottleneck railroad will capture all of the monopoly rents regardless of the 

length of its bottleneck, and thus a merger that creates longer bottleneck segments 

does not have anti-competitive effects. 

Question 2. The STB has started several proceedings, but it doesn’t appear that 

they have completed many. What actions are most important for the Board to complete? 

Answer. Ex Parte No. 722 (Sub-No. 2), Railroad Revenue Adequacy. The STB recently began this proceeding to evaluate how it measures revenue adequacy and to 

determine the significance of revenue adequacy upon rail rate regulation. As more 

rail carriers have become achieved and maintained revenue adequacy in recent 

years, this provides the STB with an opportunity to adopt an alternative regulatory 

rate constraint to Stand-Alone Cost (‘‘SAC’’), which is far too complex, lengthy, and 

costly for most rail shippers to invoke efficiently. When the ICC adopted SAC, it 

also declared that a rail carrier should not be permitted to charge captive shippers 

higher rates than competitive shippers than are necessary to achieve revenue adequacy. The STB needs to complete this proceeding in order to offer an effective regulatory remedy to most captive shippers. 

85 

Ex Parte No. 711, Pet. for Rulemaking to Adopt Revised Competitive Switching 

Rules. The National Industrial Transportation League filed its petition for rulemaking on July 7, 2011. This proposal would reverse the competitive access precedent discussed in response to the preceding question by establishing a process for 

obtaining reciprocal switching in order to enhance competition instead of only in response to antitrust-type abuses. The STB waited a full year before taking any action 

on July 25, 2012. Although the League had proposed a very specific rule, including 

actual text, the STB did not issue a Notice of Proposed Rulemaking or even an Advanced Notice of Proposed Rulemaking. Instead, it solicited empirical analyses regarding the potential impact that the League’s proposal would have on rail industry 

finances and operations. The public comment phase concluded on May 30, 2013 and 

the STB held a public hearing on March 25–26, 2014. There has been no further 

action from the STB in the ensuing seven months. The STB needs to complete this 

proceeding in order to bring head-to-head rail competition to a larger portion of the 

captive shipper community. 

Question 3. I continue to have concerns that the Surface Transportation Board 

has not used its full authority to identify and address problems. The ongoing service 

crisis is a prime example of this problem, where the STB has held hearings and required reports but has not changed underlying regulations to provide meaningful relief. Meanwhile, crops are lying on the ground, coal shipments aren’t being made, 

and businesses are suffering. A lack of responsiveness by the STB can be disastrous 

for businesses in our communities that rely on rail service. How have inefficiencies 

and delays at the STB damaged businesses in your industries? 

Answer. The greatest logistics problem faced by auto manufacturers is the rail 

carriers’ failure to provide a sufficient supply of empty railcars to transport finished 

vehicles. Automakers have also incurred significant delays in the movement of railcars loaded with finished vehicles. In this regard, it appears that the priority of auto 

shipping has become less than that of other shippers. 

The most recent rail industry service problems have caused an unprecedented disruption in the ability of auto manufacturers to deliver vehicles to their customers. 

As a result of the rail service disruptions, auto manufacturers are spending tens of 

millions of dollars a month to find other means of moving stranded vehicles or to 

store them until rail service is available. For example, since January one automaker 

has spent an incremental $23 million, or approximately $186 per vehicle, on vehicle 

transportation at one assembly plant alone due to the lack of available empty railcars. 

These vehicles should have been transported much sooner via contracted rail services to dealerships for sale or delivery to consumers. For a significant portion of 

2014, vehicle inventory worth billions of dollars sat in rented storage yards all 

around North America. In early April—at the height of this crisis—more than 

200,000 vehicles were held in storage yards in and around automotive assembly 

plants. The longer transit times have resulted in higher carrying costs and customer/dealer dissatisfaction due to missed ETAs (Estimate Time of Arrival). Where 

possible, automakers have had to look to alternate, more expensive means to move 

vehicles to dealers. 

Question 4. What could the Board have done to address rail service issues before 

the problem became critical? 

Answer. It is not clear that the STB has the statutory authority either to prevent 

or remedy rail service problems of the type and magnitude that we currently are 

experiencing. Furthermore, there are serious concerns as to how the STB might use 

what authority it does have. 

The current service problems appear to be attributable in large part to a lack of 

railroad personnel and infrastructure to handle changes in traffic volumes and patterns. Those systemic problems, in turn, have been exacerbated by harsh winter 

conditions. Although the traffic changes were predictable, and in fact were forecast 

by some railroads several years in advance, they chose not to make the necessary 

investments to handle this traffic until after the volumes actually materialized. The 

STB is not in a position to know these facts, nor does it have the authority to determine which investments railroads make and when. Better reporting of operating 

metrics to the STB could help the agency to monitor and observe problems before 

they become intractable, but it is not clear what the agency could do to prevent 

problems from becoming worse. 

Once the current service problems occurred, there was little the STB could do to 

fix them. The railroads already are implementing measures on their own, albeit belatedly, and it will take time to complete those measures and to feel the impacts. 

Although the STB theoretically could order railroads to provide service to specific 

customers or industries, it could do so only by favoring some shippers over others. 

86 

In a shortage situation, the best thing for the STB to do is to ensure that the railroads themselves do not favor certain shippers or industries over others. The STB 

should exercise its authority to direct railroad service to specific customers only in 

true emergencies that have broad societal effects. It is expected, however, that a 

railroad would take such steps on its own initiative prior to an STB order. 

There is one regulatory change that the STB could implement, consistent with responses to the preceding questions, to ensure the most efficient distribution of limited rail capacity. Enhanced competition at origins and destinations through reciprocal switching would allow shippers to choose the carrier with the most efficient 

route and capacity in order to bypass service bottlenecks. In other words, more efficient use of existing infrastructure may reduce the need to build more. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. AMY KLOBUCHAR TO

EDWARD R. HAMBERGER

Question 1. Coal Delivery—Last year every utility in my state saw its stockpiles 

of coal precipitously drop to crisis levels. Inventories struggled to rebound in late 

spring, but deliveries have fallen off again over the summer when stockpiles should 

be higher. Utility companies are implementing operating curtailments—shuttering 

coal plants that will raise electric prices in the short term—in the hope that it can 

preserve coal supplies for the critical winter months and head off potentially serious 

electricity supply shortages. 

Mr. Hamberger, how can we avoid simply jumping from crisis to crisis leaving 

utilities and their customers with little, if any, certainty over their energy supply 

in the coming months? 

Follow-up question: I understand record harvests and cold weather may have contributed to last year’s poor service but why are we still seeing significant delays? 

Answer. Reliable, cost-effective freight trail transportation service is critical to our 

Nation’s economy. The vast majority of rail customers typically receive this high 

level of service. Unfortunately, there are customers that recently have not received 

the quality of service they have come to expect. Railroads are working diligently to 

improve this service. It is important to view these service challenges in the wider 

context of the overall rail network: U.S. railroads today are moving much higher 

quantities of freight than they had been: in the first nine months of 2014, U.S. railroads moved approximately 900,000 more carloads, containers, and trailers than in 

the first nine months of 2013. That equates to thousands of additional trains. Despite their best efforts, railroads and their customers did not fully anticipate the 

rapid increase in demand for service, which has been driven by commodity markets, 

expanding economic activity, new domestic energy production and increased domestic manufacturing output. Additionally, much of this new traffic is different both in 

terms of its commodity mix and origins. 

Last winter, this demand increase was accompanied by unusually severe weather, 

followed by numerous spring flooding events. Railroads are networks—disruptions 

in one segment of the system can quickly spread. Unlike other networks like airlines, railroads operate 24 hours a day, 7 days a week, so incident recovery must 

be accomplished during ongoing operations. As a result, in cases of extreme disruptions—like this past winter—recovery can take months. 

In order to remedy these specific service challenges, railroads are spending record 

amounts to expand capacity, hire and train new employees, and improve fluidity 

through effective network management. These actions will result in a stronger, more 

resilient rail network in the future. The best way to ensure that the rail network 

is able to provide effective and efficient service to customers today and in the future 

is to maintain a balanced economic regulatory framework that allows railroads to 

earn enough revenue to invest in and expand their systems in order to meet our 

Nation’s growing freight transportation needs. 

Question 2. Data and Reporting—Crude-by-rail shipments, logistics and supply 

data are commonly treated as confidential business information. Some shippers 

have indicated that making this data publically available would improve some of the 

railroad delay issues. 

Mr. Hamberger, is there a way to release information about commodity movement 

in a way that provides transparent information to the public but also considers the 

industry’s concerns about confidentiality? 

Answer. Railroads recognize that communication among members of the transportation and logistics chain is important. They are committed to providing information 

on commodity movements to their customers and public emergency response organizations. For example, railroads for years have provided information about hazardous 

materials shipments to bona fide state and local emergency response organizations. 

87 

Today this information includes crude-by-rail movements. This helps those organizations plan response strategies for potential accidents. Additionally, in October the 

AAR began the initial rollout of a new mobile device application called AskRail that 

will allow first responders to input the placard number on the side of any railcar 

and instantly receive information on the commodity it contains. As the technology 

continues to develop, in 2015 AskRail will be able to provide a train’s entire manifest by inputting the placard number from a single car. It is unclear how publicly 

reporting commodity movement information would benefit rail shippers, since railroads already maintain regular communication with their customers regarding the 

movement of their shipments. Furthermore, railroads are justifiably concerned that 

the public release of this information could have potential unintended, negative consequences in terms of the security of the rail system and business privacy among 

competing firms. 

Status Report on Taconite Shipments 

Thank you for bringing to my attention your constituents’ concerns regarding the 

taconite industry in Minnesota. Last year’s harsh winter adversely affected the 

state’s taconite market. Lake vessels had to wait longer than usual for ice to break 

up in locks, resulting in service disruptions and the need for vessel convoys to be 

escorted by ice breakers until May. 

The situation appears to have improved. Currently, vessels transporting taconite 

are shipping at maximum tonnage capacity. Rail service constraints, which contributed to stockpile depletion at receiving steel mills, are being addressed through increased investment in local assets, and by committing additional resources at specific facilities throughout the state. Additionally, we expect newly built and leased 

rail cars to continue to be added to the fleet serving the local taconite market over 

the coming weeks to support the efforts of our member railroads operating in the 

region. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN THUNE TO

ARTHUR NEAL

Question 1. The impacts of rail shortages have been felt by farmers, grain elevator 

operators, and many others. Can you further describe some of the economic impacts 

of these shortages within the agricultural sector and in the larger U.S. economy? 

Answer. Since October 2013, the Agricultural Marketing Service (AMS) has reported that railroad service to U.S. grain shippers has been inadequate, characterized by long delays, missed shipments, burgeoning backlogs, and higher costs. The 

impacts have been felt primarily in the States of Minnesota, Montana, North Dakota, and South Dakota. 

At the request of Senators Thune and Klobuchar, USDA is currently in the process of conducting an economic analysis of the impacts to these areas due to rail service problems. However, we are aware that at the request of Senator Heidi 

Heitkamp, a researcher at North Dakota State University provided preliminary 

analysis indicating North Dakota grain producers lost an estimated $66 million due 

to agricultural shipment delays from January through April 2014. The preliminary 

analysis suggested these farmers could lose another $95 million if the delays continued. Senator Heitkamp has stated this study is in the process of being updated and 

that she believes the losses to producers are likely to exceed $100 million, even 

greater than the previous finding of $66 million. Similarly, a study by the University of Minnesota estimated farmer losses in Minnesota from March through May 

totaled $109 million. These studies were based upon changes in grain basis caused 

by increased costs of obtaining rail service. 

With grain rail service in high demand and short supply over the past year, some 

agricultural shippers have paid additional premiums in the secondary railcar market to secure available space, guaranteeing service for grain shipments. While that 

practice is common in any given year, especially following a large harvest, this 

year’s rail service disruptions have extended and intensified that practice. Instead 

of being the exception, it has become the norm. In typical years with above-normal 

demand for rail service, agricultural shippers only needed to pay additional premiums through the secondary railcar market for about 20 weeks until supply and 

demand are rebalanced. However, shippers have paid record high premiums, 28 to 

150 percent above previous levels on average, for almost 60 consecutive weeks. That 

has had the effect of inflating the cost of shipping grain by rail 24 percent, on average, above what shippers would have otherwise paid for rail service over the past 

year if rail service had been adequate to meet agricultural shipper demand. 

88 

Question 2. In addition, please provide an analysis of the potential impacts of rail 

shortages on the U.S. export of agricultural products when it comes to the 2014 crop 

year. 

Answer. Currently, there is no indication of railcar delays negatively affecting 

overall grain exports in 2014 because grain car unloadings in the Pacific Northwest—as well as at the other major port regions—have been above the 3-year average and above last year’s levels. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN THUNE TO

EDWARD R. HAMBERGER

Question 1. With the recent rise in crude oil shipments by rail, can you explain 

what impact this has had on the rail network as a whole, and the movement of 

other commodities and shipments? 

Answer. Transportation of crude oil by rail in the U.S. has risen sharply in recent 

years. Just six years ago in 2008, U.S. Class I railroads originated only 9,500 carloads of crude oil. Last year, that number was 407,761 carloads. Although this represents a tremendous increase in traffic for this particular commodity, one must 

consider this change in the context of the larger railroad network. In the first half 

of 2014, crude oil accounted for 229,798 carloads, just 1.6 percent of total Class I 

originations and 24,058 more crude oil carloads than in the first half of 2013. Put 

another way, the 24,058 new crude oil carloads in the first half of 2014 accounted 

for an average of around 1.5 new train starts per day. According to Surface Transportation Board data, there are approximately 5,000 train starts per day. Thus, recent new crude oil train starts are a small fraction of total train starts nationwide. 

Moreover, in the first half of 2014 compared to the first half of 2013, railroads originated 118,500 more carloads of grain and 84,118 more carloads of coal, much greater increases than seen for crude oil. 

From January 2012 through February 2014, monthly year-over-year growth in 

U.S. rail carload traffic averaged –1.7 percent. However, from March 2014 through 

August 2014, year-over-year monthly rail carload growth averaged a much more robust 4.8 percent, thanks to a variety of factors such as the record grain crop last 

year, recovery in demand for coal to generate electricity and better general economic 

conditions. 

So while the movement of crude oil by rail has increased rapidly in recent years, 

even greater increases in rail transportation of other commodities have had a more 

significant impact on the rail network as a whole. These increases, combined with 

an unusually harsh 2013–2014 winter followed in many places by spring flooding, 

are the primary causes of increased network congestion and reduced velocity in the 

first half of 2014. 

Nevertheless, the rail industry is committed to providing the high level of service 

its customers deserve and have come to expect. Railroading is a very capital intensive industry, with the industry spending approximately five times more on capital 

expenditures as a percentage of revenue than the average for manufacturing firms. 

This year railroads will likely invest more than $26 billion to improve and upgrade 

their systems in an effort to improve their service and prepare for additional future 

demands. 

Question 2. Looking forward, can you please also provide comments on the potential system-wide efficiency impacts of the proposed crude by rail rule issued by the 

Department of Transportation earlier this summer? 

Answer. The Department of Transportation’s Pipeline and Hazardous Materials 

Safety Administration (PHMSA) Notice of Proposed Rulemaking on enhanced tank 

car standards and operational controls for high-hazard flammable trains contemplates a variety of potential operational restrictions for trains moving large 

quantities of flammable liquids, including crude oil and ethanol. The AAR has provided detailed comments on this proposal (attached). Unfortunately, several options 

contemplated by PHMSA could substantially impair railroad service without providing substantial safety benefits. 

For instance, the NPRM contemplates a 40 mph speed restriction. A fluid rail network is in the public interest from a safety, security, economic and environmental 

perspective. The primary cost of a speed restriction is a decrease in network fluidity 

and capacity. An unnecessarily onerous speed limit for trains carrying flammable 

liquids has the potential to affect significantly the fluidity of the railroad network, 

to the detriment of freight railroads’ customers, as well as the many passenger railroads that operate over freight tracks. Decreased network fluidity results in increased operating costs for all trains that must travel more slowly because of the 

slower network. That leads to increased capital and other costs, as railroads are 

89 

forced to expand corridors where capacity is constrained because of speed restrictions. Furthermore, decreasing the capacity and efficiency of the railroad network 

could mean that significant volumes of railroad traffic will be diverted to the highways. The result would be more traffic, more pollution, and an overall decrease in 

transportation safety. Additionally, operating restrictions that could adversely affect 

the railroads’ ability to transport goods should be considered in the context of other 

regulations that affect the fluidity of the railroad network. For example, the PTC 

regulatory scheme also requires reduced train speeds when problems occur with the 

PTC system. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. DAN COATS TO

EDWARD R. HAMBERGER

Question. In Indiana we rely heavily on railroads to efficiently transport the coal 

we produce and use. In 2011 coal accounted for the largest commodity picked up 

and dropped off by freight rail in Indiana. Looking over your testimony you talk 

about how natural gas prices spiked last winter, and thus the volume of cheaper 

coal on rails rose to fill consumers’ needs to power and heat their homes. Despite 

coal’s proven utility, the administration has continued to pursue policies to decrease 

and eliminate the coal industry. 

Since the railroad industry is heavily reliant on demand and market projections 

to maintain adequate service, have you taken into account the effects on freight rail 

service and profitability should the demand for coal be significantly decreased by the 

Obama Administration’s rules? 

Will you continue to consider the effects of these onerous rules in the future as 

you plan to maintain adequate service capacity? 

Answer. Railroads carry more coal than any other single commodity. Historically, 

coal has generated much more electricity than any other fuel source, and most coal 

is delivered to power plants by rail. Recent increases in natural gas prices have resulted in electric utilities using more coal this year. According to the U.S. Energy 

Information Administration, in the first six months of 2013, coal accounted for 764 

million megawatt hours of U.S. electricity generation, equal to 39 percent of the 

total. In the first six months of 2014, coal accounted for 806 million megawatt 

hours, or 40 percent of U.S. electricity generation. In the first half of 2014, railroads 

originated 3,002,392 carloads of coal, 2.9 percent, or 84,118 carloads, more than in 

the first half of 2013. 

Regulations that would reduce the use of coal as an energy source will directly 

impact the quantity of coal transported by rail. Freight railroads must raise their 

own capital and invest in their networks in the most effective way possible in order 

to provide safe, efficient service for their customers today and in the future. Any 

regulatory changes that would impact rail customers’ usage of coal will be considered as railroads utilize sophisticated techniques to predict and model future customer demand in order to develop their capital investment plans. 

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