Ongoing efforts to bulk up regulation of the railroad industry -- and stem some price increases -- may well backfire by sapping incentives to improve and grow railways, the top executive of the nation's largest railroad by revenue warned Wednesday, the Dow Jones Newswires reported.
"Do we want railroads to expand their level of capital spending?" said Matt Rose, chief executive of Burlington Northern Santa Fe Corp., speaking during a JPMorgan transportation conference.
A trend of rising railroad prices in recent years has been spurring a backlash, prompting some railroad customers to push for Congress to reinstate tighter industry oversight.
Last week, the Senate Judiciary Committee approved legislation that would repeal longstanding legal provisions making railroad mergers exempt from antitrust law and allowing freight railroads to engage in collective ratemaking.
In addition, Burlington Northern was fined a record $345 million by the federal Surface Transportation Board last month in a case involving rates it charged to two Western power companies for coal shipments. Burlington Northern has said it intends to appeal the ruling.
Rose acknowledged Wednesday that the huge fine heartened many railroad customers. But he said few have stopped to consider what the fine could do to rail service in the region.
Under the ruling, Burlington Northern must reimburse $100 million for overcharges since 2004, when the complaint was filed. The remaining $245 million represents the difference between what the railroad will be allowed to charge for the next 15 years and what it would have earned otherwise.
"Nobody asked...where will the ($345 million) now come from?" Rose said, hinting that railways serving the region's coal industry could deteriorate because needed infrastructure improvements may not get done.
He said he's not opposed to all regulatory efforts but stressed that any changes need to "justify investments" by acknowledging that railroads are hugely capital intensive.
"We've got to make sure we protect the financial viability" of railroads, Rose said. He also said the industry needs regulatory "certainty and stability."
Rose and other railroad executives have defended rising rail prices by noting, among other things, that prices still remain well below 1980 levels when adjusted for inflation.
They also point to improving service levels, such as on-time performance, as well as the fact that railroads are considered much more fuel-efficient than trucks and help reduce congestion and pollution.
(The preceding article by Bob Sechler of the Dow Jones Newswires appeared on the Web site money.cnn.com on March 11, 2009.)
