Railroads come under more price-fixing fire
New suit filed by ADM as class action suit gets amended
By Dave Hannon -- Purchasing, 3/31/2008 10:18:00 AM
U.S. railroads came under more fire last week for alleged collusion to fix fuel price surcharges. Agricultural giant Archer Daniels Midland (ADM) filed a price-fixing case in Minneapolis last week against all five major U.S. railroads, alleging the firms conspired to inflate fuel surcharges. A report in the Minneapolis Star Tribune says ADM alleges that the five Class I U.S. railroads used their membership in the Association of American Railroads "as an instrument to develop, organize and conduct their conspiracy." The AAR was not named as a defendendent in the suit, however.
ADM has reportedly paid the railroads more than $250 million in fuel surcharges since 2003, and is seeking triple damages in the lawsuit, saying the triggers used by the railroads for increasing their fuel surcharges were nearly identical.
"Absent collusion, it is extremely unlikely that defendants operating in similar geographic areas would independently price their rail fuel surcharges to arrive at the identical percentage [trigger point] month after month, year after year, for a period of more than three years," the suit says, according to the Star Tribune.
Also, Dow Jones Newswires reported that a class action suit in the District of Columbia that combines more than 25 shipper suits against the rail companies is being amended and is due to be filed in early April. According to news reports, lawyers involved in the class-action case said ADM’s suit could bring even more suits from other large shippers.
The five railroads named in the suits are Burlington Northern Santa Fe Corp. (BNSF), CSX Corp., Kansas City Southern, Norfolk Southern Corp. and Union Pacific Corp. All five also face a grand jury probe into fuel surcharges by New Jersey, according to Dow Jones Newswires.
In September, the Department of Transportation’s Surface Transportation Board said it is spending $1 million to commission an independent study that will assess the current state of competition in the freight railroad industry. The study will focus on competition, capacity, and the interplay between the two and is expected to be ready in fall 2008.
See also: Railroads predict higher prices in 2008
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There has been no paradigm shift of freight off highways and onto rails, even with the recent spike in diesel fuel prices, and contrary to anecdotal claims of shipping managers. It is also highly unlikely that we will ever see such a shift no matter what happens to the cost of fuel. The whole "railroad vs truckers" drama is a myth, because in a modern context railroads really don't compete with truckers anymore. Railroads have over the decades retrenched to the point of optimizing their long haul advantage, while truckers have optimized their mid-to-short haul advantage. Each mode has thus optimized it's contributions to the supply chain, so relative fuel price changes aren't going to disrupt this optimization. The only way we'd ever see a paradigm shift in traffic from truck to rail is if railroads start offering more mid-to-short haul moves, and the railroad beancounters simply won't let that happen. Only federalization of rail lines into comparable "steel highways" would allow trucking firms to utilize rail to the trucker's advantage.
David W Smith - 5/3/2008 4:13:00 PM EDT -
It's not hard at all to see why railroad revenue's are up while demand is down. With the spike in the price of fuel, rail is still, by far, cheaper than truck albeit slower. This growth in rail revenues should match a decline in truckload demand.
Charlton R. Wissmueller - 4/30/2008 9:45:00 AM EDT
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