September 10, 2014 / 11:19 PM / in 3 years

UPDATE 1-U.S. lawmakers fault rail sector for slow service, profits

(Recasts throughout with details, quotes from hearing)

By Patrick Rucker

WASHINGTON, Sept 10 (Reuters) - U.S. rail operators must put investment ahead of profits to clear the way for grain, automotive and chemical shipments now clogging the tracks, lawmakers said at a congressional hearing Wednesday about the health of the rail grid.

Rail backups in the Midwest are particularly acute with farmers expected to harvest record large corn and soybean crops over the next two months and move much of that grain to market.

The rail sector has promised to spend $26 billion this year to improve service but Senator Jay Rockefeller, chairman of the Senate Commerce Committee, was not placated.

“You pretty much get what you want and stop what you want around here,” said Rockefeller, a West Virginia Democrat in his final months in office. He accused the rail industry of having undue influence with Washington regulators and lawmakers.

“You are doing a great job for your shareholders. What about these folks?” Rockefeller said, referring to officials from the farm, auto and chemical industries who also testified at the hearing.

Automakers are spending tens of millions of dollars a month to avoid snarls on the tracks for their cargoes, said Shane Karr of the Alliance of Automobile Manufacturers.

Meanwhile, the massive grain harvest could exceed permanent storage bins by about 694 million bushels this harvest season, or about 3.5 percent of expected totals, said Arthur Neal, who analyzes market and transportation issues for the Department of Agriculture.

That glut could fill roughly 174,000 jumbo hopper rail cars with South Dakota, Indiana, Missouri and Illinois, among the states most impacted, he said, adding that much of last year’s crop is still lying around.

“It is critical to move as much of the 2013 grain crop as quickly and efficiently as possible,” Neal said.

The grain glut is causing snarls along train lines controlled by BNSF Railway Co and Canadian Pacific Railway Company and driving up other transportation costs.

Barge rates along the Mississippi and Illinois rivers, for instance, are about 50 percent higher than the five-year average.

Higher costs for agriculture deliveries could push some foreign buyers to turn away from United States producers, warned Senator Amy Klobuchar, a Minnesota Democrat.

“We have to find a way out of this,” she said.

Ed Hamberger, president of the Association of American Railroads, said operators aim to strike a balance between delivering good service and satisfying investors.

When Rockefeller accused the rail sector of profiteering, Hamburger said operators deliver a return on invested capital about half the average for Fortune 500 companies.

If the railroads were financially weaker it would be more difficult for them to draw investment used to improve service, he said, while acknowledging that service can be improved.

“For a not insignificant group of rail customers, rail service in recent months has not been of the quality they have come to expect,” Hamberger told the committee. “Rest assured, railroads are working tirelessly to remedy these challenges.” (Additional reporting by Karl Plume in Chicago; editing by Matthew Lewis and Cynthia Osterman)

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