Railroad Pricing Power successfully challenged again, but not enough to end rate increases

Implications: On June 30, 2008, the STB ruled that CSX was charging excessively high rates to Dupont for several movements of chemical products and ordered the railroad to reduce them and pay reparations to Dupont . Several weeks ago, the STB ruled that UP had overcharged a Kansas Utility and ordered them to reduce their tariffs and to pay reparations. While it is possible that these cases might be the firsts of many shipper challenges to recent railroad freight rate increases,  neither case set effective limits for the railroad companies and it is doubtful that they will mean an end to the pricing power of the railroads.  

Analysis:

Although both cases involved rate rollbacks, the issues in each were very different. In the UP case, a freight tariff was involved and both parties agreed that there was market dominance and that the decision was to be based on whether the tariff was over 180% of UP’s variable cost for the movement. In the CSX case, the freight rates were well in excess of the variable cost of the railroad (280%-580%), but CSX argued that there was truck competition for the traffic at similar rates to theirs and therefore they did not have market dominance. The board rejected their arguments and held for the Dupont, but set the reasonable revenue to variable costs for these movements to be around 330% for CSX and ordered them to reduce their rates to reflect this ratio.

 

In the UP case, the arguments were much simpler and might have been adopted by any other shipper facing similar circumstances. In the CSX case however, the STB arguments and logic are less easily copied by other plaintiffs, although the speed and reduced cost of the hearing might encourage others to follow Dupont in challenging the railroads.