Interview with Ed Hamberger,
President and CEO, Association of American Railroads
AgriTalk Radio program
Host: Mike Adams
October 13, 2008

MIKE: We continue to look at this debate over rail service and the prices charged for rail service – especially for agriculture and rural America. Now let’s hear from the other side of the debate. Joining us is the President and CEO of the Association of American Railroads, Ed Hamberger. Ed, welcome to AgriTalk, thank you for joining us.

ED: Mike good morning. Thank you so much for having me on.

MIKE: Ok we’ve heard from our previous guests concerns about service issues, especially about what is called captive rail, and lack of options, and basically the prices that are charged for services on these limited lines that are available. There’s a lot there but just your overall reaction to these concerns that are being raised by agriculture and rural American in particular.

ED: Well I appreciate the opportunity to respond because the facts of the matter are rail rates in this country have gone down since 1980. Both in inflation adjusted terms and in real terms, almost 10 percent on average. The rate that people are paying today in real terms is almost 10 percent less than they paid in 1980. So if in 1980 you were paying 10 cents for a Coca-cola, you would be paying 9 cents today if Coke had done exactly the same as rail rates did. Rail rates have gone down as the industry has invested. We have put over $400 billion in the last 25 years into this industry to improve service, to get new locomotives out there, to improve safety. And as we’ve gotten more efficiency we’ve passed that cost savings to our customers. In fact Mike, if you take a look - and I don’t have any doubt at all that the agriculture community in this country has faced hard times and will again, but we are partners with them. And if you take a look at what farmers pay for various requirements that they have, for example fuel or fertilizer or agriculture chemicals, machinery; what we have charged for grain rates is at the bottom of increases in what is putting more pressure on the farm communities. So I guess I reject the concept.

MIKE: Ok let me follow up on that because the concern here seems to be over captive rail rates. And I believe there is a GAO report out that in October of ’06 that said captive rail rates have risen sharply, especially in the last few years. Now what about that?

ED: It also went on to say that the number of people whose rates have gone up has gone down, and that there is no need for any major realignment between the railroads and their customers. There is another new report coming out, due out in about a month, that the Surface Transportation Board did at the recommendation of the General Accountability Office to take a look at, are there areas where competition is not adequate? And we’ll see what that report says when it comes out in November. But, I think that, one of the guests that I understand you had on earlier was from the American Coalition for Ethanol, and I’d like to give you a quote from a gentleman by the name of Ron Lamberty, who works for the American Coalition for Ethanol, and he was asked in a written comment here about whether or not there was a need for pipelines and he said “well the industry’s exploring that option but rail has been a very good thing for the ethanol industry. We haven’t had problems where we’ve run out of product. The safety’s been excellent. The timing has been good. The volume has been good. So there’s no widespread belief that we’ve got to do something different.” The fact is we value very much our agriculture customers. They’re about 8 percent of our business. Ethanol has tripled. And we’re committed to making sure that we provide service at reasonable rates.

MIKE: So let’s talk about the service issue. Concerns have been raised about that. Availability. Are you able to serve the needs of agriculture rural America?

ED: I believe we are. And there’s an August Rail Business story out dated 1 September praising the industry for on time grain deliveries this summer. I’ve got another quote here from a gentleman by the name Bob Dinneen who is with the Renewable Fuels Association back here in Washington talking about ethanol and he says “as the demand for ethanol grows the infrastructure has expanded as well. And railroad companies are working to meet future demands for ethanol.” So I think we will. We’ve accommodated a tripling of the ethanol business in the last year or two, and we’re working with customers. A big announcement today out in Stockton, California of a new ethanol plant being served by one of our members. Burlington Northern Santa Fe had an announcement last week about an Ethanol Express serving the Dallas Forth Worth area, Musket Corporation’s newest ethanol storage terminal. So I think we’re making the investment necessary to provide the capacity and the service the agricultural community needs.

MIKE: The other part of this, the challenge that we heard about earlier to the railroad industry’s exemption from federal antitrust laws. Why should the railroad industry continue to receive that exemption?

ED: Well the fact of the matter is we don’t have an exemption from the antitrust laws. We are subject to the same laws of not being able to conspire about prices, not being able to divide up geographical areas and customers, as any other industry is. In fact, the Department of Justice just completed a four year investigation into whether or not any antitrust laws were being broken by our members in transporting coal out of Wyoming. They concluded that they were not but that investigation occurred because we are covered by most of those laws. There is some exemption in the area of mergers. But that is covered by the Surface Transportation Board. But we are not exempt from antitrust laws. And as my good friend Glenn English knows very well, there was just an argument here in Washington, last Friday, on an antitrust lawsuit that was brought against the railroad industry over fuel surcharges. So, we are covered, and we are very cognizant and are very careful not to come even close to violating any antitrust laws.

MIKE: So obviously we have a very big difference of opinion here on this issue. So I ask you one more before we’re out of time because they also talked about the Surface Transportation Board and the rate challenge process. And basically are they asleep at the switch? Are they not doing their job? What’s your reaction to that challenge?

ED: Well, the facts are, of the last 15 large coal rate cases that have come before the Board, eight of them were decided against the railroad industry, seven in favor of the railroad industry. That is to say, in eight of those cases the rates were ordered to be rolled back in some sort of payment made by the railroads to the utility company. More importantly, I think, is that this Board announced about a year ago what are known as small rate cases, that is where a customer that doesn’t have the volume to justify going through an entire large rate case can bring what’s known as a small rate case. And interestingly enough the first one was brought by that small shipper DuPont out of Wilmington, Delaware against CSX and they won three out four of the cases they brought. And I expect to see a lot more of those cases here in the next several months. So I believe that the Surface Transportation Board is doing its job. I believe that inadequate regulation is a bad thing, but smart regulation, balanced regulation, and I believe that’s what the STB brings to the table.

MIKE: Ed in final I’ll wrap up with this. I asked our previous guest the impact on all of us if changes aren’t made. Let me ask you, what impact do you think would have on all of us as customers, consumers in this country, if the legislation this group is proposing is passed?

ED: I appreciate that. And I’ll answer it very bluntly and very starkly. The railroad companies have said, that if this legislation were to pass, and by that I mean the re-regulation bill that has been pending for many years, and fortunately Congress has taken a look at it and decided not to move it. But if that re-regulation bill were to pass it would dry up the ability of this industry to invest in new capacity, in new locomotives, in new hopper cars. You would see just as the credit crunch is hurting other industries, including the rail industry, and the broader economy. If this bill were to pass you would see a drying up of investment, the needed investment, to help our farm community get its products onto the world market. And we do that very well. We spend about 40 cents of every dollar we collect goes back into this industry in terms of maintaining or expanding our capacity, and this legislation would rob us of the ability to make those investments.

MIKE: Ed Hamberger, President and CEO of the Association of American Railroads. Ed, thanks for being with us.

ED: Thanks for having me.

MIKE: Appreciate it. There you’ve heard from both sides on this debate on is there a rail monopoly? Are they getting away with charging more than they should be able to? Is it hurting or not hurting rural America and the agriculture sector? Would the proposed legislation hurt even more? If you’ve heard that argument made. So there you go, you have both sides of that as you weigh those two positions on that issue.

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