Street Talk: Shippers and Railroads on a Collision Course

Posted May 29, 2009 at 2:16pm

A good lobby battle is akin to a good sports rivalry, and if Capitol Hill is the league, then this week should start off with a great game between two perennial opponents: the railroads and the people whose products the rail cars haul — the shippers.

[IMGCAP(1)]It’s a simple-concept fight — shippers think they pay too much, railroads think they don’t — masking a complex set of issues most immediately spawned by the Staggers Rail Act, which deregulated the railroads in 1980. But it also looks back to their initial regulation by the Interstate Commerce Act — in 1887.

Both groups play up the consumer angle, and to read their PR literature, it seems that helping consumers is their prime motivating factor.

“Much of what they say is greatly exaggerated,— the Association of American Railroads chief spokeswoman Patti Reilly says, echoing exactly what the shippers say about Reilly’s industry. “What they want more than anything else is lower prices, and they have overexaggerated how much they have been maligned by the railroads over the years.—

The shippers are a diffuse lot with lots of issues on their plates: They include coal companies, electric utilities, cement makers, graineries and chemical firms, among others, and many years ago they banded into one single-minded unit, Consumers United for Rail Equity.

It goes by the name of CURE, and it is run by Bob Szabo, a lobbyist at Van Ness Feldman and one-time staffer for former Sen. Bennett Johnston (D-La.), who started working for the coalition in 1984.

It’s not a bad client for any law firm; last year, CURE paid Van Ness some $670,000 in lobby fees. And many of the shippers have their own lobbyists working the case.

But their efforts, financially, at least, are dwarfed by the railroads, whose association alone spent just shy of $10 million on lobbying expenses in 2008, and is on track to spend that much this year.

Not all that money was spent in-house, of course, and not all the fees paid to outside consultants were for work against the shippers. But in the first quarter of 2009, the AAR paid former Sens. Trent Lott (R-Miss.) and John Breaux (D-La.) a cool $150,000 to fight the shipping interests; Ernst & Young, led by Bobby Rozen, got $60,000 for the same fight; former Clinton White House aide Steve Ricchetti pulled in $50,000; and former House Judiciary counsel Jon Yarowsky at Patton Boggs, who joined this illustrious team earlier this year, earned $30,000 for his law firm.

And the remaining seven Class 1 railroads operating in the United States all have their own lobbying operations as well, most of them pretty big in their own right.

This week’s game had some really strange pregame publicity — a “Dear Colleague— letter released last Tuesday in the Senate, signed by Commerce, Science and Transportation Chairman Jay Rockefeller (D-W.Va.) urging members “to join us in voting against cloture on S.146, the Railroad Antitrust Enforcement Act, when it comes up for consideration on Tuesday, June 2.—

The odd thing is, as the folks in the Judiciary Committee’s antitrust subcommittee, who wrote the bill, like to point out, Rockefeller is one of S. 146’s 10 co-sponsors.

It is one hell of a conundrum for the shippers, but it makes for some very interesting lobbying dynamics.

There are two parallel fights: Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights Chairman Herb Kohl (D-Wis.) has produced a bill that would remove the railroad’s historic exemption from antitrust laws. Mergers, for example, of which there have been scores over the years, are reviewed by the railroad’s overseer, the Surface Transportation Board, which is widely considered to operate with a fairly light regulatory touch. The Department of Justice does not get involved.

The bill would also subject two common railroad practices to antitrust scrutiny: “paper barriers— and “bottlenecks,— both of which in effect tie a shipper to one rail carrier even if there is a competing railroad available for at least part of the trip.

In either an indication of the complexity of the issues or a sign that the railroads are operating in a parallel universe, the rail carriers say they consider paper barriers a “huge success for the nation’s shippers and consumers.— And bottleneck rates are a good thing, too, they say, because they prevent shippers from using the railroads as “rolling warehouses— — forcing the railroads to carry their goods on the slowest routes to delay shipments until they can find a buyer.

At the same time, the Senate Commerce Committee, especially since the ascension of Rockefeller to the chairmanship, has been working on a bill to overhaul the STB and give it the teeth its critics say it lacks.

Kohl was promised floor time for his antitrust bill by Majority Leader Harry Reid (D-Nev.) in exchange for releasing a hold on a rail safety bill last year. And that floor time is set for today, with a Tuesday cloture vote.

But Rockefeller has still not produced his bill — he has been absent from the Senate since mid-April after an accident that required immediate knee surgery.

And that could pose a problem for any railroad reform. If Senators follow the advice in Rockefeller’s May 27 letter to vote against cloture on the Kohl vote, that could kill any further opportunities to take up a railroad regulatory bill this Congress, since floor time is at an absolute premium. And Rockefeller is not speaking alone; the letter is also signed by the panel’s ranking member, Sen. Kay Bailey Hutchison (R-Texas) and the chairman and ranking member of the Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security, Sens. Frank Lautenberg (D-N.J.) and John Thune (R-S.D.).

On the other hand, if Kohl’s bill passes, the same logic could apply: that there’s no need to waste precious floor time on another railroad bill, at least this Congress.

Either option should make the railroads happy.

That’s because it’s not antitrust legislation they fear; it’s a real tightening of the STB’s regulatory regime. And for an industry that has only recently emerged as a powerful transportation sector after several debilitating decades, that’s the last thing it wants.