Analysts say shippers will move away from rail as economy grows

NEW YORK (May 3, 2002) — Rail service is better and customers generally are happier. But customers who ship in bulk see themselves as at the railroads’ mercy and would support legislation to force more railroad-to-railroad competition and other changes in the way railroads do business, according to two recent surveys of rail customers.

In a survey from Morgan Stanley securities analyst Jim Valentine, 23% of respondents expect to shift volumes to rail, including intermodal. That’s down from 45% a year ago, Valentine told eyefortransport.com, a logistics-oriented web site. He attributed the decline to the growing economy: last year, when the economy was flagging, shippers were tightening their belts and looking for low prices. As the economy improves, shippers are beginning to value service more.

Scott Flower of Salomon Smith Barney, in his report to clients, wrote, “Shippers believe the rails are using ‘oligopolistic’ positioning to pass through excessive rate increases, which could limit share recovery from truck … Importantly shippers perceive the [rails’] service gap to trucking competitors as too great to warrant a narrowing of the price gap to trucks.”

Overall, customers grudgingly admit that rail service has improved, but not enough to justify recent rate hikes.

Furthermore a shipper who responded to Valentine stated: “Of the four largest carriers, BNSF, CSX, and NS are preying on shippers ruthlessly. It may take a few years, but re-regulation will resurface as it did for the Robber Barons of the late 1880s, which resulted in the creation of the U.S. Interstate Commerce Commission.”