Survey: Rail shippers growing tired of carrier pricing tactics
Analyst says "Shippers are not particularly happy with railroads and their pricing practices in this recession."
By David Hannon -- Purchasing, 10/15/2009 2:00:00 AM
With volumes down and regulation looming, one would think the Class I railroads would be doing all they can to satisfy their list of customers. But market watchers say freight buyers and shippers are growing more impatient with the railroads' lack of partnership and continuing focus on higher rates.
In a recent report, Stifel, Nicolaus and FTR Associates concluded that "Shippers are not particularly happy with railroads and their pricing practices in this recession. That feeling has led to little support from shippers as railroads endeavor to reduce the negative impact associated with any forthcoming bills from Congress that will deal with increasing railroad competition."
The Stifel/FTR report says shippers want more collaboration from their rail carriers focusing on streamlining deliveries and more flexibility in negotiating rates. "The railroads seem to be burning some bridges with customers with respect to their current aggressive stance on pricing," the report says. "It appears to the shippers that the railroads have placed their shareholders ahead of their customers."
The rails are certainly feeling the freight slump just like the other modes. According to the latest data from the Association of American Railroads, for the first 33 weeks of 2009, U.S. railroads reported cumulative volume of 8,715,641 carloads, down 18.8% from the same period last year. And railroads are increasingly coming under regulatory pressure on rates. As reported on Purchasing.com, more railroads are being targeted under the Surface Transportation Board's rate complaint procedures, where shippers can get mediation if they feel they are a captive shipper. And the Railroad Antitrust Enforcement Act of 2009 was forwarded to committee in the House recently.
Railroad executives speaking at an investor conference said despite their 2009 volume slump, a gradually rebounding economy could bring price increases to rail shippers next year. Reuters reports that executives speaking at the Dahlman Rose & Co. Global Transportation Conference in New York are forecasting rail freight price hikes of between 3% and 6% next year, as shipping volumes rebound from this year's drought.
Thomas Hund, CFO for Burlington Northern Santa Fe Corp. forecasted rate hikes of 3–4% in 2010 and 2011. CSX Corp. is even more bullish, predicting price increases of more than 6%, according to Lester Passa, CSX's vice president of strategic planning.
A survey from Wolfe Research found that shippers are forecasting higher than expected rail rate increases. Shippers said they expect to pay 2.2% average rail rate increases during 2010, somewhat above current expectations of 1.9% for 2010.
And rail shippers are clear in their opinions about carriers' captive shipper pricing models: the Wolfe survey found 67% of shippers polled support the reversal of the rails' current antitrust immunity exemptions, and 51% want a switch to a replacement cost methodology and a larger STB with increased authority over regulations. "However, an overwhelming 87% of shippers oppose bringing the rails back to pre-Staggers regulation with capped rates," Wolfe reports.
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