In recent years, railroads have been combining with each
other, merging into super systems, causing heightened concerns about monopoly.
As recently as 1995, the top four railroads accounted for under 70 percent
of the total ton-miles moved by rails. Next year, after a series of mergers is
completed, just four railroads will control well over 90 percent of all the
freight moved by major rail carriers. 71. Supporters of the
new super systems argue that these mergers will allow for substantial cost
reductions and better coordinated service. Any threat of monopoly, they argue,
is removed by fierce competition from trucks. But many shippers complain
that for heavy bulk commodities traveling long distances, such as coal,
chemicals, and grain, trucking is too costly and the railroads therefore have
them by the throat. The vast consolidation within the rail
industry means that most shippers are served by only one rail company. Railroads
typically charge such "captive" shippers 20 to 30 percent more than they do when
another railroad is competing for the business. Shippers who feel they are being
overcharged have the right to appeal to the federal government’s Surface
Transportation Board for rate relief, but the process is expensive,
time-consuming, and will work only in truly extreme cases. 72.
Railroads justify rate discrimination against captive shippers on the grounds
that in the long run it reduces everyone’s cost. If railroads charged all
customers the same average rate, they argue, shippers who have the option of
switching to trucks or other forms of transportation would do so, leaving
remaining customers to shoulder the cost of keeping up the line. It’s
theory to which many economists subscribe, but in practice it often leaves
railroads in the position of determining which companies will flourish and which
will fail. "Do we really want railroads to be the arbiters of who wins and who
loses in the marketplace" asks Martin Bercovici, a Washington lawyer who
frequently represents shipper. 73. Many captive shippers also
worry they will soon be his problem with a round of huge rate increases. The
railroad industry as a whole, despite its brightening fortunes, still does not
earn enough to cover the cost of the capital it must invest to keep up with its
surging traffic. Yet railroads continue to borrow billions to acquire one
another, with Wall Street cheering them on. Consider the $ 10. 2 billion bid by
Norfolk ’Southern and CSX to acquire Conrail this year. Conrail’s net railway
operating income in 1996 was just $ 427 million, less than half of the carrying
costs of the transaction. Who’s going to pay for the rest of the bill Many
captive shippers fear that they will, as Norfolk Southern and CSX increase their
grip on the market.