U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

41–333 PDF 2008

FULL COMMITTEE HEARING ON

RAIL TRANSPORTATION ACCESS

FOR SMALL BUSINESSES AND

FAMILY FARMERS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MAY 1, 2008

Serial Number 110-90

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

VERN BUCHANAN, Florida, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida

Subcommittee on Rural and Urban Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

MARY FALLIN, Oklahoma, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES

Cleavinger, Mr. David, President, National Association of Wheat Growers, 

Wildorado, TX ....................................................................................................... 3

Keith, Mr. Kendell, President, National Grain and Feed Association ................ 5

Hotchkiss, Ms. Nelle P., Senior Vice President of Corporate Relations, North 

Carolina Electric Membership Corporation, Raleigh, NC, On behalf of the 

National Rural Electric Cooperative Association .............................................. 6

Weber, Mr. Dan, Chairman, Ceres Solutions, Terra Haute, IN, On behalf 

of the Agricultural Retailers Association ........................................................... 8

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 22

Chabot, Hon. Steve .................................................................................................. 24

Altmire, Hon. Jason ................................................................................................. 25

Cleavinger, Mr. David, President, National Association of Wheat Growers, 

Wildorado, TX ....................................................................................................... 26

Keith, Mr. Kendell, President, National Grain and Feed Association ................ 35

Hotchkiss, Ms. Nelle P., Senior Vice President of Corporate Relations, North 

Carolina Electric Membership Corporation, Raleigh, NC, On behalf of the 

National Rural Electric Cooperative Association .............................................. 40

Weber, Mr. Dan, Chairman, Ceres Solutions, Terra Haute, IN, On behalf 

of the Agricultural Retailers Association ........................................................... 47

(V) 

(1)

FULL COMMITTEE HEARING ON RAIL 

TRANSPORTATION ACCESS FOR SMALL 

BUSINESSES AND FAMILY FARMERS 

Thursday, May 1, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

1539 Longworth House Office Building, Hon. Nydia Velaquez 

[chairwoman of the Committee] presiding. 

Present: Representatives Velaquez, Grijalva, Cuellar, Altmire, 

Clarke, Ellsworth, Sestak, Chabot, Bartlett, Akin, and Fallin. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELAQUEZ. Good morning. I now call this hearing to 

discuss rail transportation access for small businesses and family 

farmers. 

Small businesses and family farmers in rural America depend on 

a reliable transportation system to move their goods. In an increasingly global economy, rural companies are just as likely to ship 

their products across the world as across the country. A key component in helping these businesses achieve success is access to an affordable rail system. Whether exporting wheat to Asia or shipping 

fertilizer to a small town in Vienna, rural communities have a critical stake in quality rail transportation. In many instances, it is 

the only option for sending and receiving goods. 

Today, we will hear from small businesses and their representatives who have been confronted with both rising rail transportation 

rates and declining service. The Committee will examine how this 

problem is affecting entrepreneurs and discuss ways to address it. 

Most small businesses do not negotiate contracts with Union Pacific. However, they certainly experience the impact of rail rates 

which have gone up by as much as 80 percent in the last three 

years. 

The rising cost of rail affects nearly all commercial activity in 

rural areas. Family farmers, in particular, are taking the biggest 

hit. The payments that wheat and corn growers ultimately receive 

are directly tied to rail costs. With up to one third of wheat costs 

attributable to transportation expenses, the situation cannot be ignored. This is especially true when one considers growing concerns 

of arising food prices. 

Rail rates have a ripple effect that extend beyond commodities 

and throughout the entire rural economy. Local retailers feel the 

2

impact of rising rail transport rates when they purchase fertilizer, 

seed, and other equipment. When these businesses cannot move 

and receive their products, it impairs the expansion of the local 

economy. 

Today, increasing costs of rail transportation is also having an 

enormous impact on affordable energy supplies. Coal is the primary 

source for electric generation in rural areas and it is shipped across 

the country on the railways. Unreliable and expensive rail transportation would only lead to higher energy prices. 

With small businesses already seeing skyrocketing fuel costs, 

this transportation problem is creating another major challenge. At 

a time when there is major focus in rural areas with the development of renewable fuels, there must be infrastructure in place to 

support this growth. We need to welcome new opportunities for expanding our rural economies and assure valuable shipping options 

are available at competitive rates. 

Clearly, the federal policy framework must be examined to ensure adequate competition. That is especially true when you consider the laws on the books regulating rail transportation were establish at a point in our history when railroads were not financially 

viable. The nation’s rural businesses have shown an ability to 

adopt and change with the development of new technologies, but to 

keep their products competitive in the domestic and global markets, transportation is key. In most instances that means rail 

transportation. If such service is not available at a fair price, American farmers and small businesses will lose market share. Foreign 

competitors will more easily sell their products to U.S. customers 

and our rural economy will suffer. 

I look forward to hearing about possible reforms to ensure the 

continued growth of small businesses in rural America. I appreciate 

the witnesses coming here today and I thank you for taking time 

off your busy schedule. 

I yield to the Ranking Member, Mr. Chabot, for his opening 

statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. Thank you very much, Madam Chair, and thank 

you for holding this hearing today on rail transportation access for 

small businesses and family farmers. I also want to thank our witnesses for being here and taking the time out of their busy schedules to share their views with us on this important issue. 

Railroads have played a crucial rule in the history and development of our nation and are one of the most important contributors 

to our economy today. They were critical to the development of the 

American West, and have had some part in almost all stages of our 

nation’s development. Whether it was shipping steel used to build 

the Golden Gate Bridge, which was fabricated in New Jersey, or 

transporting the Indiana limestone and granite which composes the 

facade of the Empire State Building, railroads have played a key 

role in creating the face of America and maintaining the health of 

our economy. 

Currently, more than 40 percent of our nation’s freight is moved 

by rail. Many goods Americans depend on and use every day would 

never even make it into our homes if small businesses and family 

3

farmers could not ship them via rail. For example, coal which is 

used to produce nearly half of the nation’s electricity that lights 

American homes is shipped by railroads. In 2006, there were 561 

freight railroads operating in America with an aggregate revenue 

of $54 billion. 

Railroads, which contribute billions of dollars each year to the 

economy through wages and purchases, retirement benefits and 

taxes are vital to keeping America competitive in the world market. 

Freight railroads employed 186,000 people in 2006 and were one of 

America’s highest paying industries. America’s small businesses 

and family farm depends on the rail system to safely and efficiently 

ship their goods to the American consumer. 

In the past few years, many of these family farmers and small 

businesses have voiced concern over the rising cost of access to 

these railroads. It is in the best interest of all Americans that we 

make sure small businesses and family farmers continue to have 

access to affordable transport on American rail. 

Once again I want to thank Chairwoman Velaquez for holding 

this hearing and look forward to hearing testimony from all the 

witnesses here before us this morning and I yield back the balance 

of my time.

Chairwoman VELAQUEZ. Thank you. It’s my pleasure to introduce 

Mr. David Cleavinger. Mr. Cleavinger is a wheat grower from 

Wildorado, Texas and currently serves as president of the National 

Association of Wheat Growers. His production has included wheat, 

corn, grain, sorghum, seed milo, sorghum silage, corn and sugar 

beets, along with stock or cattle. NAWG works as a team of state 

wheat grower organizations to benefit the wheat industry at state 

and national levels. 

Gentlemen, you are welcome, and you will have five minutes for 

your testimony. 

STATEMENT OF MR. DAVID CLEAVINGER, PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS, WILDORADO, 

TEXAS 

Mr. CLEAVINGER. Madam Chairman and Members of the Committee, my name is David Cleavinger and I am a wheat grower 

from Wildorado, Texas. I currently serve as the president of the 

National Association of Wheat Growers and I’m very pleased to be 

here today to discuss an issue of great importance to the wheat 

growers that I represent. 

Wheat growers know that an effective railroad system is necessary for the success of the wheat industry. By and large, wheat 

country is centered away from our waterways and ocean ports, 

leaving us primarily dependent on railroads to move our products 

to waterway terminals and export facilities. 

As the GAO found in a recent study, rates in captive areas can 

well be above the threshold of reasonableness established under 

the law and utilized the Surface Transportation Board. Full operating costs to most railroads are about 100 to 140 percent of variable costs. Rates in excess of 180 percent are considered above the 

threshold of unreasonableness by the STB and are therefore 

4

challengeable. In some captive wheat growing areas the rates have 

run as high as 300 to 400 percent of variable cost. 

Farmers are not in a position to pass their freight costs along to 

consumers. In fact, we pay freight on fertilizer and other supplies 

we purchase, and pay freight on the wheat that we ship out. Further complicating our position, these farmers are not the actual 

customers of the railroads that haul their grain. The grain companies buy the producers’ wheat and other grains, and order the 

freight from the railroad, passing the cost directly to the farmer. 

This is an important point, because of the rights to appeal to the 

Surface Transportation Board are granted to the actual rail customers which are the grain companies. 

NAWG and other agriculture industry leaders have requested 

oversight by the Surface Transportation Board, as we believe it is 

within their charter to do so. But very little progress has been 

made. The STB’s proposed new revisions to simplify guidelines are 

highly restrictive and would make challenge unreasonable rates 

virtually impossible for all but a few facilities shipping small volumes of grain. This frustration with a lack of regulatory oversight 

has led us to help develop and support together with other captive 

shippers, including the Alliance for Rail Competition, legislation 

that would strengthen the rules of the game for growers. We believe parts of HR 2125 and Senate Bill 953 would put us in a position to be treated as a customer should be treated. 

H.R. 2125 contains language addressing areas of inadequate 

competition, common carrier obligation, bottlenecks, and terminal 

access. 

It would also develop a system of arbitration of rate and service 

issues. While we support these bills we also know that these issues 

will take time to move through the congressional process, so paying 

heed to the old saying ‘‘if you’re not at the table, then you are on 

the menu’’, we have begun a process of problem resolution with one 

of the four major Class 1 railroads. Corn, soy, and wheat growers 

and other interests, along with representatives from BNSF Railways, have formed the Ag Business Rail Council. Our first meeting 

was in February, and I will have to say we were treated like customers, rather than as a third-party who has been picking up the 

freight. 

The agenda included discussion of railcar allocation, harvest congestion, differential pricing, revenue to variable cost ratios, and 

what constitutes a ‘‘reasonable freight rate.’’ some of these topics 

will require considerable homework on our part, but we are determined to find solutions for our growers. This is a forum to educate 

the railroad about the needs of producers. It will also enhance our 

understanding of the rail freight business, with the ultimate goal 

of finding mutually beneficial solutions. 

Wheat industry leaders have been working on rail rate and service issues for over 30 years. We believe the complexity of this issue 

has been a deterrent for many of the parties including Congress. 

It would be easy to throw in the towel and say ‘‘we’re tired of messing with this’’, but we can’t do that. Opportunities exist to increase 

service to American agriculture, such as the new STB accountability, HR 2125, and coalitions like the Ag Rail Business Council. 

5

We understand that new railroads are not going to be built, so 

competition in that sense is unrealistic. What we can accomplish 

is accountability on all sides, to find good service at reasonable 

rates. 

Madam Chairman, thank you again for allowing me to be here 

today and I am here to answer any questions that you have. 

[The prepared statement of Mr. Cleavinger may be found in the 

Appendix on page 26.]

Chairwoman VELAQUEZ. Thank you, Mr. Cleavinger. 

Our next witness is Dr. Kendell Keith. Dr. Keith is president of 

the National Grain and Feed Association. He has served for 21 

years as NGFA president in charge of the overall direction and has 

900 company members in the grain, feed, and processing sectors. 

The NGFA, founded in 1896, is a broad-based, nonprofit trade association that represents and provides services for grain feed, and 

grain-related commercial businesses. 

Welcome. 

STATEMENT OF MR. KENDELL KEITH, PRESIDENT, NATIONAL 

GRAIN AND FEED ASSOCIATION 

Mr. KEITH. Chairwoman Velaquez, Ranking Member Chabot, and 

Members of the Committee. I am Kendell Keith, president of 

NGFA. We do have 900 member companies most of which are 

small businesses throughout the U.S. 

One of the paramount concerns for U.S. agriculture and small 

business in rural communities is that overall rail shipping capacity 

in the U.S. is not meeting the growth and demand. While the cost 

of rail service is a matter of concern, more significant is whether 

there will continue to be predictable service at all in some locations. For that reason, NGFA is supporting legislation that would 

provide a tax credit for investments in rail infrastructure. 

Railroads are rationing rail transport capacity in today’s marketplace, often through demarketing strategies that price rail service 

above economic levels. At the same time, some of the railroads are 

investing in new infrastructure to serve the growing demand for 

transportation. But a serious question is will the railroads invest 

in new infrastructure at the rate that would be desirable by consumers and the customer base of the railroads? We think legislation would help in this regard. 

In the grain-based agricultural industry, railroads have been encouraging grain elevators and grain users for a number of years to 

build the infrastructure to ship longer trains. This also has caused 

us increasingly concentration of grain handling at fewer loading 

points which means farmers have fewer points to deliver grain to. 

So the farm-to-market distance is increasing on average, leading to 

more traffic on highways and local road systems. The added cost 

of highway repairs, of course, is borne by the taxpayer. 

With the constrained rail capacity, we have seen higher freight 

rates in grain in the last three years. Revenue per grain rail car 

has increased between 27 and 52 percent for the major U.S. rail 

carriers. I might add that that includes both fuel surcharges as 

well as the rates on the cars themselves. 

6

Part of this rate increase is related to the fuel surcharge issue, 

but mostly it is tied to increased demand for transportation. We’re 

not judging whether this level of rate change is justifiable or reasonable, but we do think that such rate increases suggest the need 

to monitor the situation and consider how increasing rail rates may 

affect rural communities in small business. And the situation of 

higher rail rates underscores the need to review whether there are 

effective tools available to shippers to deal with unreasonable rail 

rates. 

The Surface Transportation Board is in the process of making 

some changes to federal rules that govern the challenge of rail 

rates. But it’s been 13 years since the U.S. Congress passed the 

Interstate Commerce Commission Termination Act which specifically directed the STB to provide a way for shippers to challenge 

rates in so-called small rate cases. In that 13 years, no small rate 

case has been completed which provides ample evidence that the 

STB for most of that period has been unresponsive to the needs of 

rail customers in the clear direction given by the U.S. Congress. 

There are three cases now pending under STB’s new small rate 

case guidelines. We believe the new STB rules will also prove to 

be of little use to shippers. This is because the agency chose to cap 

the potential benefits of such rate challenges at such a low level 

that it will discourage shippers from bringing cases. We think this 

approach by the STB will fail to achieve the market discipline on 

rates intended by Congress and unfortunately also fail to improve 

the business relationship between railroads and their customer. 

Thank you again, and we look forward to questions. 

[The prepared statement of Dr. Keith may be found in the Appendix on page 35.]

Chairwoman VELAQUEZ. Thank you, Dr. Keith. 

Our next witness is Ms. Nelle P. Hotchkiss. Ms. Hotchkiss is 

Senior Vice President of Corporate Relations for the North Carolina 

Electric Membership Corporation. She’s testifying on behalf of the 

National Rural Electric Cooperative Association. NRECA was 

founded in 1942 and is the national organization representing cooperative electric utilities. Welcome. 

STATEMENT OF MS. NELLE P. HOTCHKISS, SENIOR VICE 

PRESIDENT OF CORPORATE RELATIONS, NORTH CAROLINA 

ELECTRIC MEMBERSHIP CORPORATION, RALEIGH, NORTH 

CAROLINA, ON BEHALF OF THE NATIONAL RURAL ELECTRIC 

COOPERATIVE ASSOCIATION 

Ms. HOTCHKISS. Madame Chairwoman, Ranking Member Cabot, 

and Members of the Committee: My name is Nelle Hotchkiss and 

I am the Senior Vice President of Corporate Relations for the North 

Carolina Electric Membership Corporation. Our 

membershipconsists of 26 electric cooperatives serving over 2.5 million consumers in 93 counties of the 100 counties in North Carolina. I appreciate the opportunity to speak before you today about 

the issue of rail transportation and the importance of adequate rail 

competition in my state and across this nation. 

As member-owned, not-for-profit organizations the obligation of 

rural electric cooperatives is to provide a reliable supply of elecVerDate 0ct 09 2002 12:56 Jun 05, 2008 Jkt 033615 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\41333.TXT LEANN
7

tricity to all consumers in our service areas at affordable rates. We 

take our obligation to serve very seriously. The personal and economic health of our members, our communities, and our nation depends on it. 

Electric Cooperatives are dependent on the railroads for the 

transportation and delivery of coal. Simply put, we do not believe 

that America’s four major railroads are meeting our transportation 

needs in the most efficient and dependable manner. Electric cooperatives and other rail customers do not receive reliable rail 

service at reasonablerates. The Surface Transportation Board or 

STB, the government agency charged with the regulatory responsibility for the nation’s railroads, is not addressing crucial rail customer rate and service problems. 

Some utilities are being forced to buy more expensive foreign coal 

because they can’t rely on railroad deliveries from the Powder 

River Basin, the richest source of low sulfur coal in the world. 

Electric cooperative consumers in North Carolina and around the 

country have experienced deteriorating rail service and sharply increased rates. For example, from 2002 to 2007, North Carolina’s 

electric cooperatives experienced a 45 percent increase in the coal 

freight component of our energy cost which, in turn, was reflected 

in the wholesale rate of power. That increase calculates to over 

$8.7 million in higher costs during this time frame than have been 

borne by our end customers: residents, small farmers, and small 

businesses. Service problems and high rail costs occur primarily in 

areas where shippers are captive meaning they have no transportation option but to use a single railroad. 

Captive rail customers are shippers who must rely on those single railroads to deliver their products. These customers usually 

move bulk commodities such as coal, grain or lumber, or certain 

materials that, due to size or characteristics, cannot be moved on 

our nation’s highways. 

Historically, 20 to 30 percent of the nation’s rail movements have 

been ‘‘captive’’, with many of these movements covering rural 

America. Today, in a capacity-constrained rail system, a majority 

of rail movements may lack competition. 

The nation’s antitrust laws are meant to protect consumers and 

the overall public interest from anti-competitive behavior by businesses. The railroads are exempt from antitrust laws and do not 

play by the same rules. The railroads’ antitrust exemptions are antiquated, have no public policy justification, and allow anticompetitive conduct. The resulting lack of competition, together with ineffectiveness of the STB, have allowed freight railroads to reap huge 

profits with no market consequences or legal accountability for 

their unreliable service or exorbitant rates and fees. 

There are solutions however. The railroads must be covered by 

the nation’s antitrust laws, just like other industries and the STB 

must be more responsive to the public interest and concerns of rail 

customers. Legislative activity in the 110th Congress has moved to 

give America the railroad system it needs for the 21st century, and 

to correct current railroad abuses. 

Madam Chairwoman, thank you for conducting today’s hearing. 

We look forward to working with this Committee and all other 

8

stakeholders to resolve these critical rail issues in an objective and 

constructive manner. And I’d be happy to take questions. 

[The prepared statement of Ms. Hotchkiss may be found in the 

Appendix on page 40.]

Chairwoman VELAQUEZ. Thank you, Ms. Hotchkiss. 

And now I recognize Mr. Ellsworth for the purpose of introducing 

our next witness.

Mr. ELLSWORTH. Thank you, Madam Chairwoman. It’s an honor 

for me to introduce one of my constituents from the great State of 

Indiana. Before I do that though I’d like to take just a second. Mr. 

Weber and I were talking before the hearing and he inquired about 

the Farm Bill. Since a lot of farmers and ranchers are small business owners, I think it concerns this Committee that we do pass 

a Farm Bill. It does come out of conference and the President has 

signed that. We talk about stimulus packages. If our farmers and 

ranchers knew what their future held, that might be the stimulus 

package that we need. So I hope that we can get that out and I’m 

cautiously optimistic that we have a deal cut and that the President signs that and we can deliver good news to you. 

With that, it’s my honor to introduce, like I said, a constituent, 

someone who hails from the great State of Indiana, Mr. Dan 

Weber. Mr. Weber is chairman of the Agriculture Retailers’ Association, otherwise known as ARA. He currently is vice president of 

agronomy with Ceres Solutions in Terre Haute, Indiana, which is 

also in my District. The company serves more than a dozen counties with agronomic inputs, energy, grain marketing and a wide variety of other products and services for producers and consumers. 

ARA serves agriculture retail and distribution businesses by ensuring a profitable business environment for members. 

Mr. Weber, thank you for coming and the floor is yours. 

STATEMENT OF MR. DAN WEBER, CHAIRMAN, CERES SOLUTIONS, TERRA HAUTE, IN, ON BEHALF OF THE AGRICULTURAL RETAILERS ASSOCIATION 

Mr. WEBER. Thank you for the introduction, Congressman Ellsworth. 

Madam Chairwoman and Members of the Committee, thank you 

for inviting me to testify today on behalf of the Agriculture Retailers Association concerning rail transportation access for small business and family farmers. I’m Dan Weber, Vice President of Agronomy, with Ceres Solutions LLP, a cooperative selling crop inputs 

and application services in the State of Indiana. I am also Chair 

of the Board of Directors for the ARA which represents a significant majority of the nation’s ag retailers and is located in Washington, D.C. 

Ceres Solutions is an agricultural cooperative owned by farmers, 

operating 26 agronomy retail locations serving 5,000 agricultural 

producers in Western Indiana with crop inputs and application 

services. I began my role in the agronomy division of Ceres Solutions in February 2007. My background includes 34 years in agriculture retail sales and management, wholesale fertilizer, crop 

chemicals and seed distribution in the Midwest Region. Ceres SoluVerDate 0ct 09 2002 12:56 Jun 05, 2008 Jkt 033615 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\41333.TXT LEANN
9

tions’ key agronomy products marketed to farmers are nitrogen, 

phosphates and potash. 

Rail services played a critical role in the distribution of the necessary crop inputs in the past and was a reasonable cost effective 

transport alternative. In my job I oversee the procurement and receipt of about 125,000 tons of fertilizer with 40,000 tons of that 

being rail delivered into our facilities. 

In doing business with the railroads for the past three and a half 

decades, I have experienced a deterioration in the service to the agriculture industry. In the 1960s, the industry moved away from 

animal manures and bag fertilizer to bulk and spray applied fertilizer. These new fertilizer retail facilities were built next to the 

railroads. Railroad service to these facilities was acceptable 

through the ’70s, but beginning in the ’80s, the railroad began to 

abandon service to many of the smaller communities and business 

operations. By the 1990s, most of their service to the smaller communities was lost. 

Now, the railroad is giving preference to the unit car receivers. 

Unless you are a large distribution center fertilizers are typically 

shipped to your retail operations in small quantities because of the 

short side tracks and the storage limitations at our retail operations. 

As an example, one railroad just announced the rates of the 

phosphate shipments from Florida which will increase in June by 

10 percent for single car shipments while unit train shipment of 65 

cars will increase six percent and unit train shipments of 85 or 

more cars will increase only 3 percent. 

An example of excessive fees is the railroad’s practice of arbitrarily invoicing for services. If one of our retail locations received 

less than 25 freight cars per year, we received an invoice of $6,000 

for an annual side track connection charge. Most of our facilities 

in the country average six cars annually. 

Furthermore, the railroad has changed their tariffs without giving receivers adequate warning. This practice can result in huge investment losses for our business that have expanded or changed 

their business model based on the expected tariff or car credits that 

were in place and we thought would continue. We’ve learned to get 

their promises in writing. 

One difficulty in dealing with the railroad fees and tariffs is that 

small business owner has little recourse to challenge the railroad’s 

decisions because of the cost of arbitration and the long length of 

time the process requires. In my opinion, the railroads increased 

poor service is caused by: one, the railroads’ unwillingness to carry 

toxic-by-inhalation chemicals which is like our anhydrous ammonia; two, because of their monopoly status on our industry, and 

third, the lack of oversight by the Surface Transportation Board. 

ARA has a number of recommendations in the written testimony, 

but a few are: increase the transparency in the charges and rates, 

reform the STB to make it more accountable and responsive and 

review the railroads’ antitrust exemption status. 

Please remember that for every rail car that is eliminated, that 

we receive fertilizer in, we add four semi-trucks to the road to 

move that same volume. 

10

Thank you, Madam Chairman for allowing me to testify and I 

will be willing to answer any questions the Committee may have. 

[The prepared statement of Mr. Weber may be found in the Appendix on page 47.]

Chairwoman VELAQUEZ. Thank you, Mr. Weber. 

Mr. Cleavinger, I would like to address my first question to you. 

With rising food prices, there has been a great deal of discussion 

as to what is driving grain and corn prices. Do you believe increasing rail costs are part of the reason we are seeing higher commodity prices? 

Mr. CLEAVINGER. No. Rail costs have nothing to do with the price 

of the commodity paid by on the top side. We’ve seen a reduction 

of $4 per bush in wheat in the last two months, yet we haven’t 

seen a reduction in bread costs. So the commodity prices have nothing to do with—on the top side have nothing to do. They have to 

do with what the farmer actually gets for his wheat, but not what 

the top side. 

Chairwoman VELAQUEZ. Can you explain to us how do rates, rail 

rates generally affect the bottom line for farmers? 

Mr. CLEAVINGER. What we are paid for wheat comes off, the 

freight cost comes off our per bushel wheat. Like where I am, we 

take the futures market and subtract the freight costs to get what 

I’m paid for a bushel of wheat. So that’s how an off-rate cost comes 

off that, including rail, trucking, whatever it takes to get it to the 

market. 

Chairwoman VELAQUEZ. Dr. Keith, I understand you believe that 

the Surface Transportation Board, STB, is not being proactive in 

their case management. What are some examples of delivery problems your shippers are facing? 

Mr. KEITH. Well, one of the most common complaints we get is 

when facilities will order a train to be delivered for loading. There 

are restrictions on how long you have to load. Generally, it’s 15 

hours or you start to incur penalties. And so you try to plan for 

the arrival of the train and you try to have labor available, but it 

is still very unpredictable when some train will be delivered and 

sometimes they’re delivered on Friday night at midnight and those 

kinds of things, so it forces the labor situation at your facility to 

be more difficult to manage. 

We’re also getting some complaints about slow approval of new 

switches to gain access to rail service, in particular, in new ethanol 

facilities where they’re trying to ship both the ethanol product as 

well as the DBG’s byproduct. 

Chairwoman VELAQUEZ. Can you talk to us as to how STB handles those types of complaints? 

Mr. KEITH. The STB has a formal complaint process that you 

have to go through if you want to lay out arguments. They’ve also 

got an informal complaint process that you can go to a particular 

office and sometimes get quick resolution. On things like this, 

though that have a significant impact on a business, generally, you 

go through a formal complaint process and those formal complaints 

can take a long time. That’s part of the problem. There was a complaint that was on storage of tank cars that lasted five years from 

start to finish. And it just shouldn’t take that long. 

11

We think the STB is starting to improve in some areas in trying 

to expedite some, but when it takes five years of litigation, it gets 

costly. It sours relationships with your carrier and we should be 

able to do better than that. 

Chairwoman VELAQUEZ. Ms. Hotchkiss, one of the problems you 

mentioned is how the lack of rail car access creates unpredictable 

or limited coal shipments. Has this problem become so severe that 

rural electric co-ops are seeking alternatives to coal? 

Ms. HOTCHKISS. Madam Chairwoman, this problem—I wish we 

could do it that quickly or it’s like taking off your coat and putting 

on another coat. When you build a power plant it’s built specifically 

to burn a particular fuel, in this case they’re impacted by this problem, our coal plants. So to seek an alternative fuel for those particular plants is really not an option. So what we try to do is when 

inventories get too low, sometimes we have to buy on-the-spot market which is very expensive and that flows right now to consumers 

in costs. Or we have to import coal from foreign sources and ultimately it is cheaper to do that which to me just doesn’t make sense 

when we are so rich in that particular mineral resource. 

Chairwoman VELAQUEZ. So you don’t see in the foreseeable future rural electrical co-ops start shifting towards alternative 

sources of fuel? 

Ms. HOTCHKISS. Well, I think if this particular problem isn’t 

solved, as well as other challenges that we face in the electric industry that perhaps aren’t specific to this particular problem, we 

will be looking at other sources, for instance, natural gas, perhaps. 

But then you have capacity problems and pipeline issues that they 

have to be built out for that. So there isn’t a really good solution. 

Our view is that these exorbitant costs and poor service and poor 

resolution process at the STB needs to be resolved so we can bring 

a better value to our consumer. Because right now that’s not bringing a value to the consumer. 

Chairwoman VELAQUEZ. Thank you. Mr. Weber, I heard when 

you say that you have been involved for almost 34 years or 35 

years. Can you compare service and rates from when you began 

your business with today? What are some of the changes you have 

seen? 

Mr. WEBER. Madam Chairwoman, I think the major change is 

the shift from the local yard having the control to position our cars 

versus going to a regional control. The local no longer makes that 

decision. The cars may be sitting in their yard, but they’re taking 

direction from a regional distribution control. 

I think that’s the major—before we could talk to the local and 

tell them what we expected as far as needing a car in so many days 

or where we were at in movement. Now we don’t have—we don’t 

have access to that regional guy, they don’t answer the phones. You 

get recordings instead of people. 

Chairwoman VELAQUEZ. With utilization of new technology, is 

rail service better today than it was 35 years ago? 

Mr. WEBER. No. Do you want me to expand on that? I don’t think 

so. I think we have more difficulty getting, specially the two and 

three-car shipments than we ever have. But I understand the economics. The railroad wants to push for the multiple cars, 65-car 

plus units, 85 cars. Much more economical for them, but that’s not 

12

what our facilities were built around. Most of them were built 

around two and three car receiving locations in the ’60s and ’70s 

and okay it has not improved. It’s deteriorated. 

Chairwoman VELAQUEZ. Mr. Chabot? 

Mr. CHABOT. Thank you, Madam Chair. Mr. Cleavinger, I’ll start 

with you, if I can. 

As you had mentioned the rates of reasonableness for shipping 

have been established by law and are to be used by the STB to 

evaluate rail rates. The current threshold for the rate of 

unreasonableness is 180 percent of variable costs. You also stated 

that some rates in wheat growing areas are as high as 300 to 400 

percent above the variable costs. So just a couple of questions. 

Could you sort of explain what is meant by variable cost, what goes 

into that and how are shippers in these areas handling the situation right now and how do they make ends meet and what attempts have been made to remedy the situation? 

Mr. CLEAVINGER. Well, the AJL Studies were done in 2006, so a 

lot of this information was from that time period. That’s the most 

recent data we’ve had. And I stated that some, they have been as 

high as 300 to 400 percent. With some negotiations we’ve had with 

the railroads, they are working. We’ve had one huge problem in 

Montana in that state as far as rates go and they are working to 

get those rates down and I think a lot of it has—is a direct result 

of our going to the railroads and through this process of bringing 

legislation forward. Had this legislation not been brought forward, 

there was no incentive to address rate issues. So all those variable 

costs are passed on to the producer and also was stated a lot of 

these efficiency that the railroad has become more efficient with 

shuttle trains, it has been at the expense of the producer because 

instead of delivering our wheat to a local facility, we’ve had to 

truck it further distances to get to a shuttle facility and putting 

more costs on producers. So I think that’s an important point to 

make. 

The railroad has become more efficient and rates have gone down 

on shuttle facilities, but it’s larger shipments and it has put more 

costs on the producers. 

Mr. CHABOT. Thank you very much. Dr. Keith, if I could go to 

you next. You had mentioned one of the costs that have to be dealt 

with is the fuel surcharges which have been going up. 

Mr. KEITH. Yes. 

Mr. CHABOT. And I assume that that’s related to the overall additional increases in energy that consumers are dealing with at the 

gas pump or that our truckers are dealing with with diesel. It’s 

costing us much more. And my question would be getting to what 

we, as Congress, or what we as a nation ought to be doing about 

that, would you agree that one thing, one of the problems is that 

we’re too dependent on foreign sources of energy, we need to go 

after what we have accessible to us and that two of those places 

that we do have access to that we’ve put off limits are up in Alaska 

and ANWR and in the Outer Continental Shelf. It’s a debate we 

have around here all the time and I don’t know if you’d like to 

weigh into it. 

Mr. KEITH. Yes. Dependence on foreign oil is a national problem 

and we think it’s time to get down to business on solving the probVerDate 0ct 09 2002 12:56 Jun 05, 2008 Jkt 033615 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\41333.TXT LEANN
13

lem in practical ways. We don’t think that the railroads are out of 

line by wanting to recoup some of their increased costs. It is the 

cost of doing business. However, some of the formulas that they 

had at one stage were extremely biased toward their revenue bottom line and those things, we think have been largely corrected. 

We’re a little disappointed that the STB did not require the railroads to provide more information about how they compute surcharges across modes because you cannot compare the surcharges 

applied to grain and compare that whether it’s fair compared to 

coal or intermodal. You simply don’t have the data. That was another STB ruling that we were a little disappointed in. 

Mr. CHABOT. Thank you. Ms. Hotchkiss, you had mentioned in 

your written testimony that rail transportation is often unreliable 

and that this contributes to the loss of customers. In your past experiences what have the railroads done that make them unreliable? 

Do you have any particular instances? 

Ms. HOTCHKISS. What we have experienced nationally is not dissimilar to what the other gentlemen here on this panel have discussed. Time frames that they were supposed to have delivery, we 

had one instance where a major railroad put an embargo, basically 

just stopped delivery for a while and there’s Catch-22s in that because of certain contractual situations. You can’t go to another 

hauler. And so you’re forced perhaps to truck it in and has already 

been mentioned, if you have to truck it in, you’re looking at four 

or five trucks on the road as opposed to a rail car. 

We had tried to meet the railroads in a way of actually paying 

for the building out of infrastructure when we get into the short 

line situation. We have paid literally paid for the rail cars. We’ve 

tried to get the lighter rail cars that they’re asking us and the 

longer ones for aluminum. So basically, we feel like we keep trying 

to help and we keep trying to be a good customer and we’re not 

necessarily getting the same response back. And that has just continually been an issue. And so when we run into low inventory situations, we have to find alternative ways to either get the coal 

there or we have to buy on-the-spot market. We just don’t have it. 

Those are things that wreak havoc on our systems. 

Mr. CHABOT. Thank you very much. I should probably note you 

mentioned Catch-22. I heard this morning on NPR that I believe 

today is Joseph Heller’s—would be his birthday who wrote the book 

Catch-22 that that comes from. I knew everyone would appreciate 

me bringing that to their attention. 

Finally, Mr. Weber, what type of special handling do the goods 

that you ship require and are they more difficult to handle and I 

assume that has something to do with the increased cost as well. 

Is that correct? 

Mr. WEBER. Somewhat. The rail cars they use for coal is the 

same we use for fertilizer. The same rail cars they use for grain 

are the same ones we use for fertilizer. They just sweep them out, 

clean them and they’ll load grain going back to the receivers. 

The only one that has a special use is the pressurized vessels for 

anhydrous ammonia. That is a specific use vessel and that adds 

more cost. The railroad has been asking for a waiver where they 

wouldn’t be held accountable if there was an accident on the rail 

system and anhydrous was released. They were wanting to cap 

14

their liability there. If they do that, they need to do the same for 

truckers. We have to employ four more trucks for every rail car we 

don’t receive. Right now, I have real difficulty finding enough 

trucks when that rail car doesn’t show up because there’s the difficulty in the drivers—availability of drivers and the NH3 bottles 

themselves that we need for transport. 

Mr. CHABOT. Thank you. And just to make sure I have this clear. 

The general breakdown would be about—if you had four tractortrailer trucks, you’re talking about the trucks that would equal, in 

general, one railroad car? 

Mr. WEBER. Right. 

Mr. CHABOT. Thank you very much. I yield back, Madam Chair. 

Chairwoman VELAQUEZ. Mr. Sestak. 

Mr. SESTAK. Thank you, Madam Chairwoman. I think I only 

have three questions. I apologize I wasn’t here and if you mentioned this, I hope you don’t mind my asking again. 

The question I have is mainline railroads began to rent out or 

do other short line railroads. There were certain agreements made, 

you might say certain restrictions at times made to what’s known 

as you well know, paper barriers. What is your take, if I might ask, 

you two gentlemen, about this impact for—on rail-to-rail competition in the sense that—I mean should there be some movement towards disallowing these to help this ability to bring down price? 

Mr. CLEAVINGER. Obviously, if there’s an agreement that only 

one railroad can carry freight and they have to carry that freight 

and other competition is not allowed, it affects what cost will be involved in that freight carrier. So those paper barriers of allowing 

only that short line to carry that freight causes anti-competition. 

Mr. KEITH. Our view is that sometimes paper barriers are necessary on a temporary basis, maybe for a three or five-year period 

because it affects the value of the line. And the railroad may be 

faced with situations do we abandon the line or do we spin it off 

and if they spin it off and it’s affordable to operate for a short line 

operator, then we think there may be some justification for a short 

period of time. But maybe the burden of proof should shift. If 

you’ve got one of these and it extends beyond say five years, the 

burden of proof should be on the carrier to demonstrate why it’s 

necessary to have an agreement like that in perpetuity. 

Mr. SESTAK. So you’re saying after a while it may be bad public 

policy to not allow shippers to utilize all potential routing options? 

Mr. KEITH. Yes, and to the extent you can create competition by 

forcing—

Mr. SESTAK. Is this something STB should look at? 

Mr. KEITH. They already have looked at that. 

Mr. SESTAK. Have they looked at it well? 

Mr. KEITH. My conclusion is the way the STB decided on this 

was that they decided not to establish any firmer rules or guidelines than what exist today. 

Mr. SESTAK. Got it. Let me ask that question along the same 

line, if you don’t mind, bottlenecks, through rates. Has that also 

had a similar impact upon the cost so that somebody ships from 

Washington, D.C., Chicago, but it goes to Pittsburgh and so you 

could off-load or short line or something there, but you do not ever 

see that they are permitted only to show you what the through rate 

15

is rather than showing you what the competitor might do here. 

There’s this—would that help at all? 

You know what I’m talking about. 

Mr. KEITH. There’s no question that competition affects rates. 

Mr. SESTAK. But is this a problem, this bottleneck through rate 

issue on the cost again, it’s something we should be looking at? 

Mr. KEITH. It’s probably more of a problem in the energy than 

it is in agriculture per se, but yes, there’s places where it does create issues. 

Mr. SESTAK. Ms. Hotchkiss, did you have a comment on that, 

since you mentioned energy? 

Ms. HOTCHKISS. Yes, sir. Bottleneck rule has been a problem. 

One particular cooperative in Arkansas had experienced this and 

a third-party independent carrier was willing to do it and they 

could not and it does increase the cost. There’s no doubt about it. 

Mr. SESTAK. Are they precluded from it or are they self-precluded 

from it because they know somebody else will—they could be two 

main lines doing this, but one main line from Pittsburgh, he may 

have—from Chicago, but he knows that if he offers a separate rate, 

he’s going to be jammed on the other side. Is that wrong? 

Ms. HOTCHKISS. No. I mean I think there are times when there 

may be a situation that does exist and needs to be addressed, but 

I think there have been abuses using this. 

Mr. SESTAK. Is this something STB should look at? 

Ms. HOTCHKISS. Absolutely. 

Mr. SESTAK. Do they do it well now? 

Ms. HOTCHKISS. The ruling so far have not been in favor of the 

shippers. 

Mr. SESTAK. My last question is probably more philosophical, but 

the common carrier obligation under Title 49, what do you believe 

is reasonable obligation? Has the STB interpreted that correctly, do 

you think under Title 49 to provide real services at a reasonable 

request of obligation? Do you know what I’m asking, sir? 

That’s kind of a subjective phrase. 

Mr. KEITH. We are concerned because we’ve got capacity limits 

today and because we’re not seeing an expansion of capacity in rail 

that we’re going to run into more and more service problems dealing with this issue. I think the issue, in particular, though may be 

a sensitive one for the chemical industry. 

Mr. SESTAK. Is that? 

Mr. KEITH. The chemical industry in situations where the railroads would like to see some relief from the common carrier obligation because of what they perceive as the risk involved in hauling 

that type of freight, but that’s really not in my area of expertise. 

Mr. SESTAK. I guess and this is something—I’m done for time. 

I’m sorry. 

Chairwoman VELAQUEZ. Time has expired. 

Mr. Bartlett. 

Mr. BARTLETT. Thank you very much. Two of the reasons that 

your costs are going up are lack of competition and the increase in 

energy costs. It’s very attractive when looking at the increasing energy costs to question why we haven’t drilled in ANWR and offshore and on our public lands. I for one am glad that we have not 

drilled there because I have 10 kids and 16 grandkids and 2 great 

16

grandkids and I’d like to have a little energy for their generation, 

thank you. 

The world has now reached its maximum capability for producing 

oil. That happened in our country in 1970. It has happened in the 

world now. IEA and AEA, the two big organizations that track this 

have verified that with their data. There’s a finite amount of oil in 

the world. It is not infinite. If we drilled ANWR it would be ten 

years before any of that hit the market. It is not a solution to our 

current problem. I’d just like to get that on the record, Madam 

Chairman. There are solutions to our current problem. Drilling in 

ANWR or offshore or public lands is not one of those solutions. 

Your rates are up for shipping. Are the railroad companies making exorbitant profits? 

I haven’t seen their profit sheets, but I would doubt that they’re 

making exorbitant profits. So we have to look at why the rates are 

up. Is their cost shifting? Are some of their customers getting lower 

rates and they are disadvantaging you by increasing your rates? 

Before we know how to solve a problem, we have to know what 

the problem is. I don’t really know what the problem—you have a 

problem and that is unreliable service and rates that are too high. 

But I don’t know why the service is unreliable and why the rates 

are too high. Clearly, lack of competition and Mr. Cleavinger, I was 

very interested in your first graph. It looked like a tennis elimination. We start out with a whole lot of railroads and now we’re 

down to four. Country-wide, we’re now down to four railroads. 

Madam Chair, I don’t know what the ultimate solution is, but 

clearly, clearly, we have got to have competition. Unfortunately, we 

have been moving away from rail to trucks which are just a little 

handier and when oil was $10 a barrel and I remember buying gasoline six gallons for a dollar, six gallons for a dollar back during 

the Depression. I can remember that. It didn’t make any difference 

that it was five times more expensive than moving by truck than 

it was by rail because it was so darn cheap to move it either way 

because energy was so cheap. That’s not true today. And unfortunately, we have allowed our rail system to deteriorate. We have 

had a Rails to Trails program. I’m glad for that, as I mentioned, 

when I said hello to you because now that means those road beds 

are still there and now in the future, Madam Chair, we may have 

a very aggressive Trails to Rails program, as we take those roadbeds and put rails back on them. 

I don’t know what the problem is and until we know what the 

problem is we don’t really know how to get a solution. You have 

a problem. That is your rates are too high and your service is unreliable and I think it’s incumbent on us to try and find out why and 

what can be done about it, to turn back the hands of time and to 

start over and to keep in place the enormous rail system that we 

have. Now unfortunately, we have developed an infrastructure in 

our country which is essentially unsustainable in a carbon-deficient 

world. We have nowhere near the rail transportation that Europe 

has, for instance, and the developing countries are now putting in 

rail transportation because that’s their first transportation. 

So I am very interested in this hearing. Thank you, Madam 

Chairman for holding it. I just don’t know what the problem is. 

17

And until I know what the problem is, I don’t know how to address 

the problem. 

I thank you all very much for your testimony. We appreciate, for 

the record if you can, your analysis of what you think the problem 

is and how we can solve these problems. If they’re cost shifting, we 

need to stop that. If someone else is getting good service and you’re 

getting lousy service because of discrimination against you, we can 

help stop that. But we don’t know what the problem is and until 

we know, we don’t know how to solve the problem. 

So thank you very much for your input and Madam Chair, thank 

you for holding this hearing and I yield back. 

Chairwoman VELAQUEZ. Ms. Fallin, are you ready? If not, I could 

go on and ask some questions. Are you ready to ask your questions 

now? 

Ms. FALLIN. I might just ask a few. Thank you. I wish I could 

have made it to your testimony a little earlier, but I had some 

other commitments, but I appreciate all of you being here today. 

In my State of Oklahoma much of our state was built with railroads throughout our rural communities and were very important 

to the beginnings of our state and of course, now as has been mentioned, we’re seeing a decline in access and available and infrastructure. I also serve on the Transportation Committee, and so we 

talk about rail a lot and all modes of transportation for our nation. 

And as was mentioned by Congressman Bartlett, we are experiencing some challenges with our energy industry and how do we 

supply the energy that our nation needs and the world needs. I can 

disagree with him though on the need to look at other energy 

sources and more exploration of production. I hope we do do that 

as a nation. 

And as we continue to look at alternative sources of fuel, are 

there any other alternative sources of fuel that can be used in the 

rail industry that maybe Congress could help encourage? I know 

that your main source of energy on the rails are usually coal. That 

may not be in your expertise, but do you see any other forms of 

energy that could be used to power the rail systems and help you 

transport your goods and services? 

Ms. HOTCHKISS. As the energy person here, I don’t know that I 

could address specifically to provide an alternative fuel to the actual railroad itself. I will tell you they also move material that we 

use for the operation of our nuclear plants. And to provide—these 

are base load plants. These provide power 24-7 and rail is very important in that aspect, so to switch to different types of fuels for 

us away from more conventional fuel which we use for base load 

at this time with the technology that we have today, we are still 

going to be dependent on the rails for quite some time. 

I’d like to take a moment to address something that Mr. Bartlett 

said is that we would love to see more transparency with the STB, 

to find out why some of these costs are so high. So I absolutely 

agree with you, sir. I think that is part of the concern that we 

have. We have these decisions come down and we’re not exactly 

sure why they made that decision and typically they’re not helpful 

to us. But you’d have to ask the railroads as far as alternatives to 

be able to literally move the trains down the track. I don’t know 

enough about that industry to tell you. 

18

Mr. KEITH. Diesel is the primary fuel for locomotives, but there 

has been some technological gains in diesel fuel utilization and I 

mean the engines that they’re making today are much more efficient than they were say ten years ago. And so as we try to expand 

capacity, the addition of new locomotives will help the fuel efficiency. 

Today, with current technology, there’s really not a good replacement for diesel, at least at this stage. There are concepts in development, but it’s probably going to be diesel for quite a while. 

Ms. FALLIN. I was meeting with a railroad concern a couple of 

weeks ago and they were talking about the cost mile per gallon in 

transporting of services and goods on trucking versus the railroad 

and we’re saying when you look at the miles per gallon per transport that the rails actually have a better cost factor when it comes 

to delivering products and services versus the diesel engine of a 

truck. And I don’t know if you’ve ever—of course, you may not be 

able—I don’t know if your industries can use trucking at all, but 

I’m sorry I missed all your testimony, but have you ever looked at 

the cost comparison between shipping on rails versus shipping on 

the road? 

Mr. WEBER. We receive probably the 125,000 ton. We use 40,000 

ton by rail and the rest is by truck. And we—the cost to do the 

trucking for us is more of a time issue. We can get more timely delivery with a truck. Rail is still the cheapest delivery because our 

product comes from the phosphate mines in Florida, the Canadian 

potash mines and then we have four nitrogen producers left in the 

United States and one large one in Canada. All of our product travels long distance. We bring the product primarily to a central hub 

distribution center. Then we have to truck it out of there if we cannot receive direct distribution by rail from the production. And so, 

yes, we use trucks and it is more expensive for us, but it sometime 

is the only way we can put product into our ag retail facilities. 

Ms. FALLIN. Is that because of availability of rail or is it sometimes based upon congestion, like we talk a lot about congestions 

on our highways and how congestion is time and it’s money when 

it comes to shipping products and goods. 

Mr. WEBER. I would say that in listening to the railroad systems 

and some of their comments, congestion is an issue because so 

much more product is moved by rail than it was ten years ago. It 

is much more economical for them to ship a 65 or an 85-car unit 

to an area and then allow us to truck it rather than to continue 

as we have had in the past with a two- and three-car receivers. The 

two- and three-car receivers is still my cheapest way of receiving 

product. From an economic and a rail congestion perspective, they 

are doing the things that are going to make them the most money 

and that is the unit trains. But that is not what we have invested 

in from our ag retail facilities since the 1960s. We were building 

these facilities on two- and three-car receiver locations. 

Ms. FALLIN. Thank you so much. I think it takes a combination 

of both, rail and trucking to make it all work. 

Mr. WEBER. It is now, yes. I agree with you. 

Ms. FALLIN. Thank you. 

19

Chairwoman VELAQUEZ. Dr. Keith, as demand for rail transportation grows, our rail shipping network will continue becoming 

strained, creating capacity constraints. 

From your experience what is the best way to address the issue 

of limited rail capacity? 

Mr. KEITH. Well, to the extent that you can, we think you should 

rely on the industry, private industry making decisions as to where 

we need capacity most. If you look at railroad where capacity constraints exist, it’s not even throughout the system and the railroads 

really know best where their constraints are most serious and need 

to be dealt with. 

We support this concept of an investment tax credit, at least on 

a limit basis because we think it would speed the investment decisions. We think we would get more bang for the buck early on in 

the process and we’re quite fearful that if start to get another 

growth spurt in this national economy that we’re going to see constraints like we’ve never seen before if we don’t build infrastructure 

soon. 

Chairwoman VELAQUEZ. To expand rail capacity, do you think 

that only by investment and commitment coming from railroads or 

do you think that a combination of the federal government and the 

private sector? 

Mr. KEITH. We think the federal government has some involvement and some responsibility, frankly, from a national network for 

transportation. The federal government doesn’t want to have to 

build more and more highways because we’ve run out of rail capacity and pushed freight on to highways. And so there’s a national 

interest here, we think, but we also think we need a system of 

monitoring how those investments were made and to make sure 

that we are expanding capacity and we’re not just replacing old ties 

and infrastructure. We need new capacity. 

Chairwoman VELAQUEZ. Any other of the witnesses would like to 

comment? 

You all agree on this? Okay. 

Ms. Hotchkiss, you discuss the problems that small shippers face 

in the agriculture industry and you discuss the lack of transparency of STB. Do you think that within the authority that was 

granted to STB that they can make the changes or do you believe 

that a legislative fix is needed, and if it’s needed, what are the legislative options that are before us, which one addresses the issues 

that you raise? 

Ms. HOTCHKISS. Well, thank you, Madam Chairwoman for that 

question. We have—I would agree with Dr. Keith that the STB is 

working on things. Our concern is that it perhaps won’t go far 

enough or that perhaps these conversations are going on the Hill 

that that conversation now is taking place at STB. 

Our particular thought in what would make our consumers, I 

think, more comfortable and our customers more comfortable would 

be that Congress look at reforming the STB. Chairman Oberstar 

has Bill 2125 and that would make STB more accessible to rail customers. 

One of the things I wanted to bring to light, especially for small business, to go through the formal process. It can cost $175,000 

just to file a case. That doesn’t include the money that goes—it 

20

goes into the millions of dollars to actually see that case through 

when we’re looking at two and three and four and five years of 

working on one issue. So we do believe that legislative and reform 

legislation is necessary. 

There is also the Antitrust Enforcement Act, HR 1650. That was 

reported out of House Judiciary yesterday and we are supportive 

of that legislation as well. When the Staggers Act was changed in 

1980, this was a problem that antitrust exemptions continued and 

I think it can help address some of the issues we’ve talked about 

today. 

Chairwoman VELAQUEZ. Any other of the witnesses would like to 

comment on any legislative fix to the problems facing? 

Mr. CLEAVINGER. We just believe if the STB is accountable and 

fixes some of these problems that we’ve seen and actual accountability on their end and rate cases, as Ms. Hotchkiss said, they’re 

very expensive to file and they haven’t been very effective up to 

this date, so if we would require STB to be more accountable we 

feel like that would be part—help part of the problem. 

Chairwoman VELAQUEZ. Thank you. Mr. Chabot, do you have 

any other questions? 

Mr. CHABOT. Yes, more a comment than a question. Unfortunately, the gentleman that I wanted to respond to had left the 

room, but I’ll be brief and I was going to be kind in any event, but 

relative to whether or not we should go after the energy that is 

contained in ANWR up in Alaska or in the Outer Continental 

Shelf, the—excuse me, the gentlemen mentioned what well, even if 

we passed it now, we wouldn’t get it for ten years or some—that’s 

what he said, but we don’t know the exact number. It would be a 

number of years down the road until we actually got it. This legislation has been before this Congress for over the last ten years and 

unfortunately, the Congress has decided to keep that off limits. So 

had we voted this way—Bill Clinton vetoed legislation when it 

went to his desk some years ago that would have included ANWR, 

so had we done it back then we’d have the access to that oil now 

so that would be reflected in the amount that we have available to 

us here and would be reflected in the energy costs that we’re paying and the gas that we’re paying at the gas pumps. 

And also, I would note that even if we—since we didn’t take that 

action back then and I argue we should have, even if we did take 

the action now, much of the price reflected at the gas pumps that’s 

killing consumers in this country right now is speculative in nature. So if we pass this now, I think you would see that reflected 

very quickly even though we wouldn’t necessarily get the oil to 

them now because what happens out there is people are betting on 

what it’s going to be down the road, and right now people think it’s 

going to be higher and higher. And if we continue to put large 

amounts of our oil that we know about off limits, ANWR, Outer 

Continental Shelf, it’s going to continue to go up and there are 

other things that we need to do as well, like make it possible to 

build oil refineries, once again in this country. We’ve made that virtually impossible. The last one we built is back in ’76. 

We had over 300 oil refineries in this country at that time. Now 

we have fewer than half that. We have 148. So even if we have 

enough crude, we can’t refine it quickly enough. These boutique 

21

fuels that have to be dealt with makes it that much more difficult 

to solve this problem. And I am very much for what many of my 

colleagues on the other side of the aisle would also be for and that’s 

alternative sources of energy, whether it’s wind, solar, biomass, all 

those, hydrogen fuel cells. We do need to put money into those 

technological advances somewhere down the road. But until those 

occur, the fact is we in this country, as other countries around the 

world, we’re very dependent upon gas and diesel and the rest, and 

unless we do something about it, we’re going to have some real 

problems. 

And that, I think, is reflected in the weakness of the economy to 

some degree and whether we’re in a recession and we argue about 

that all the time, whether we’re in a recession, apparently 81 percent of the American people, according to some poll I saw recently, 

think we are in one, and of course, it depends on the definition. 

The definition that’s accepted is two quarters of negative economic 

growth and one just came out indicating that it was low growth, 

but it wasn’t negative. So apparently, by definition, we’re not in a 

recession, but whether we are or whether we’re not, it’s tough 

times out there for a lot of people. One thing that we could do to 

help is at the gas pump and that’s why I’m so supportive of going 

after what we have ought to have gone after a long time ago and 

that’s ANWR and the Outer Continental Shelf. 

Does anybody want to comment? You don’t have to. Okay, thank 

you very much, and I yield back. 

Chairwoman VELAQUEZ. Ms. Fallin? 

Ms. FALLIN. Amen. 

Mr. CHABOT. Let the record reflect that the gentle lady from 

Oklahoma said amend. 

Chairwoman VELAQUEZ. Let me just say that we will continue to 

monitor this issue and look at what the Transportation Committee 

is doing regarding Mr. Oberstar’s legislation. One possibility might 

be to bring some of the railroad executives here and STB to answer 

some of the concerns that have been raised here. 

With that I ask for unanimous consent that Members will have 

five days to submit a statement and supporting materials for the 

record. Without objection, so ordered. This hearing is now adjourned. 

Thank you. 

[Whereupon, at 11:18 a.m., the hearing was concluded.]

22


41333.001
23


41333.002
24


41333.003
25


41333.034
26


41333.004
27


41333.005
28


41333.006
29


41333.007
30


41333.008
31


41333.009
32


41333.010
33


41333.011
34


41333.012
35


41333.013
36


41333.014
37


41333.015
38


41333.016
39


41333.017
40


41333.018
41


41333.019
42


41333.020
43


41333.021
44


41333.022
45


41333.023
46


41333.024
47


41333.025
48


41333.026
49


41333.027
50


41333.028
51


41333.029
52


41333.030
53


41333.031
54


41333.032
55

Æ


41333.033