Wall Street powerhouse Morgan Stanley is telling investors that the UTU's call for a mediated settlement of captive shipper issues is likely to earn rail labor a meaningful reward at the bargaining table.

Railroads, report Morgan Stanley rail analysts William Green and Adam Longson, recognize that UTU and labor support on Capitol Hill is essential if railroads are to avoid costly legislation being advanced by the most aggressive of captive shipper groups.

Following is the Morgan Stanley report issued to investors March 23:

"Rail regulatory risk premiums have soared in recent months as anti-railroad rhetoric has grown in Washington. Recent rate case decisions and the re-introduction of anti-trust legislation have created more doubts about the long-term rail pricing story.

"With labor now involved in the debate, rails could earn the support of a powerful ally in Washington, but at a price.

"Labor could help craft legislation that is less dire, but rails will need to make concessions in the next round of bargaining. At a minimum, labor could help delay any vote on new legislation until a time when Washingtons anti-business rhetoric is less shrill.

"The United Transportation Union issued a statement urging railroads, rail customers, and labor to meet amicably and quickly to resolve disputes over rail regulation. The UTU believes a mediated solution is necessary to end debates in Congress over rail regulation that could jeopardize the long-term future of rail transportation for all stakeholders.

"Labor is a key player in the regulatory debate.While investors might view Democrats as anti-railroad, we think it more accurate to describe Democrats as pro-labor. Labor unions represent a powerful constituency, and no major piece of rail legislation has passed without labor support.

"Rail senior management may need to offer unions something of value in labor negotiations as a quid pro quo for support in Washington, but labor's support is imperative in fending off harmful legislation in this climate. As a result, one-man crews are unlikely in the next round of negotiations, and we expect labor to push for a greater share of profits going forward."

Imagine a school zone where speed limits are posted, but there is no enforcement even after children are run down.

Imagine if regulators and accountants had done their jobs at Enron and WorldCom.

Better yet, question why railroads have been permitted to eliminate effective competition through mergers, abuse their resulting market power, insert monkey wrenches into the gears of regulatory agencies, and thumb their noses at labor agreements, public safety and national security all the while sitting Scrooge McDuck-like in their vaults counting colossal profits and handing out titanic executive bonuses.

What the hell is going on in America?

So much rail capacity has been eliminated that electric utilities despite America having a 250-year supply of cleaner-burning coal have to import coal from Russia and Indonesia, or use more expensive natural gas and imported oil to supply power to homes, businesses and hospitals.

As capacity is eliminated, railroads cherry-pick the most vulnerable customers and then raise their rates higher. Forget highways and barges. Most shippers of bulk commodities, such as coal, grain and chemicals, cant use trucks effectively; and most shippers are land-locked.

Moreover, there is no effective means for rail captive shippers to arbitrate route, rate and service disputes without spending millions of dollars and waiting years for a decision from a regulatory agency most shippers see as a wholly owned subsidiary of the rail industry.

Railroads last year were permitted to impose fuel surcharges on customers at three times the average fuel-cost increase. During third quarter 2006, BNSF collected $500 million in fuel surcharges even though fuel expenses rose only $293 million, says Dow-Jones Market Watch.

Indeed, net income at CSX soared by 237 percent last year; by 93 percent at BNSF; and by 70 percent at Union Pacific, according to economists at Snavely, King, Majoros, OConnor & Lee.

In the face of terrorist threats to target deadly hazmat traveling by rail, the carriers -- crying poverty in the face of record profits -- are demanding one-person crews while cutting back on employee training and working their train crews to the point of exhaustion.

Carriers acknowledge that going to work tired is like going to work drunk, but profits trump safety when the canary in the mine is missing.

Even as rail profits soar and are projected by Wall Street to continue soaring for years ahead -- railroads threaten not to invest in safety-related technology and increased capacity unless they are granted hundreds of millions of dollars in tax cuts.

And as million-dollar-plus bonuses are paid to rail executives, carriers are demanding almost $1 billion in health-care givebacks from unionized employees.  

This is not what Congress intended when railroads were largely deregulated in 1980.

For sure, there was expectation of some money-losing lines being abandoned, but not a wholesale dumping of thousands of miles of track and, now, switching yards for the sole purpose of abrogating labor agreements. Despite laws on the books seeming to provide labor protection in such line sales, railroads, in concert with regulators, found a loophole.

There was no expectation that railroads would merge on the scale they have -- or that rail regulators would send the Justice Department packing when DOJ's antitrust experts implored those regulators to be more cautious. Massive service failures stemming from those mergers still adversely affect shippers.

And certainly there was no expectation that railroads would look to Mexico as a means of bypassing U.S. ports, exporting equipment-maintenance jobs and even laying plans to operate trains with cheap foreign labor while dumping American unionized employees onto the welfare and Medicaid roles.

For too many years, railroads have used massive political contributions and political influence to tilt the playing field in their direction.

As railroads are mostly immune from the antitrust laws almost unique among American industry in that regard the sole sentry against market-power abuse is the federal Surface Transportation Board. Yet only a centipede has enough toes to count the regulators hand-picked by railroads for such regulatory assignments and who later are rewarded with lucrative jobs at carriers or carrier law firms.

Is it any wonder that the agency found a loophole for carriers to avoid labor protection in line sales, has been so receptive to carrier merger requests, and largely deaf to shipper route, rate and service complaints?

At the National Mediation Board, carrier-influenced appointments allowed railroad executives to brag to investors that any breakdown in labor negotiations would result in carrier-favorable Presidential Emergency Board recommendations for settlement.

What BNSF Chairman Matt Rose termed as the perfect storm favoring railroads the confluence of market power, a strong economy and carrier-friends in high places -- is what brought the United Transportation Union and captive rail shippers together into a congressional lobbying alliance.

This labor-shipper alliance is being formed as railroads recognize that Election Day results likely will dilute the number of railroad friends in Congress.

As a new Congress is organized next year, the UTU will be working with captive shippers to develop an effective campaign to level the playing field for shippers and labor.

Among the objectives will be to restore labor protection in all line/yard sales and leases; strengthen rail safety laws; assure shippers have a cost-effective and trusted forum for arbitration of route, rate and service disputes; and re-affirm the railroads' common-carrier responsibility.

UTU International President Paul Thompson, who serves on the AFL-CIO ruling executive council, is recruiting other labor unions to assist in the effort. Most rail-labor organizations already are on board.

"Neither shippers nor labor intend any longer to be victims of 21st century robber-baron railroads," Thompson said. "We're mad as hell and we're not going to take it any longer."