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DeFazio Testifies Before the Surface Transportation Board

Apr 24, 2008
Press Release

WASHINGTON, DC- Congressman Peter DeFazio (D-Springfield) testified before the Surface Transportation Board today. His testimony, as prepared for delivery, is below:

Congressman Peter DeFazio (D-Springfield) testified before the Surface Transportation Board today. His testimony, as prepared for delivery, is below:



Testimony of the Honorable Peter A. DeFazio

Member of Congress

Surface Transportation Board Hearing on

Railroads’ Common Carrier Obligation

April 24, 2008

Chairman Nottingham, Vice Chairman Mulvey, and Board Member Buttrey, I thank you for the opportunity to address the Board today on the issue of the common carrier obligation of railroads. Access to rail is a nationwide issue and one that my congressional district in Oregon is all too familiar with.

I will focus my remarks today on two of the issues that the Board requested comments on in relation to the common carrier obligation: carrier-imposed requirements for infrastructure investments by shippers and the proper use of rail embargoes.

First, I would like to frame my comments around a rail problem currently affecting a large portion of my district, in which a short line railroad has refused to comply with its common carrier obligation.

Last September the Central Oregon and Pacific Railroad (CORP), a subsidiary of RailAmerica, Inc. (RailAmerica), announced it was shutting down service on its Coos Bay line between Coquille, Oregon and Vaughn, Oregon due to unsafe tunnel conditions. The CORP line is vital for shippers and industry along the south coast of Oregon and CORP gave less than 24 hours notice it would be shutting the line down, leaving shippers suddenly without a viable way to get their goods to market.

At my request, the Federal Railroad Administration inspected the tunnels and their inspection confirmed that the line had been allowed to deteriorate to such a degree that repairs are necessary before safe operations of the line can resume. While there were known problems with the Coos Bay line, CORP never communicated to its customers or the Oregon Department of Transportation that the line had deteriorated so badly that an emergency closure might be necessary. Furthermore, RailAmerica had owned the line

for ten years at the time of the embargo and had clearly not made the basic investments necessary to ensure the line was safe for operation. As RailAmerica testified to at a House Rail Subcommittee hearing in March, when Fortress Investment purchased RailAmerica last year they did their due diligence and knew full well the state of disrepair of the Coos Bay line. I fear this lack of investment is not unique to RailAmerica and that short line customers across the country will soon face the same consequences due to lack of investment.

After giving less than 24 hours notice to shippers along the Coos Bay line, according to press reports at the time, CORP then used the line to remove equipment. If the line was safe enough to make one last trip to bring in company equipment, why was it not safe enough to move one last load for shippers?

What’s worse is that in its press release announcing the closure, a manager for CORP was quoted as saying "The Coos Bay line just doesn’t have enough business on it today to justify us making the repairs." So, was it the unsafe tunnels that forced them to embargo the line or the fact that they weren’t making enough money? If it’s the latter, that is clearly a violation of the common carrier obligation.

The impact of this embargo on my district was swift and far-reaching. The week after the closure, a Georgia-Pacific sawmill temporarily shut down, laying off 120 employees for more than two weeks. The average shipper along the Coos Bay line now pays 10 – 15 percent more in shipping costs because they have to use trucks. For a small business, that’s an increase that is too much to bear for long.

The State of Oregon, the Port of Coos Bay and shippers along the line are now engaged in a protracted battle with CORP and RailAmerica to restore service to the south coast. Last fall, CORP said it would cost approximately $2.9 million to repair three tunnels in order to reopen the line. That was soon followed by a proposal to the State that would cost over $23 million to "restore the line to the status quo." As part of the proposal, CORP and RailAmerica wanted the State, the Port of Coos Bay, shippers, and the Union Pacific Railroad to each pay $4.66 million to restore the line and a large operating subsidy. The Governor has clearly stated he wants to see CORP make the necessary repairs to get the line up and running before he will consider investing any state money. I firmly believe that all involved are willing to pay more for service, but no one in Oregon is convinced CORP is serious about fulfilling its common carrier obligation after the investment is made.

Frankly, this situation begs the question as to why, if CORP is as serious about offering service as they say they are, did they not work with shippers to fix the line before embargoing it? RailAmerica had engineering firm Shannon and Wilson conduct a study of the line between March 30 and July 9, 2007. Seventy-three days later CORP embargoed the line. In 73 days it seems shippers could have been approached about paying increased rates to improve the line. The common carrier obligation should require carriers to impose requirements for infrastructure investments by shippers before an embargo, not after.

The Board recently released a decision that directed RailAmerica to prove its embargo of the Coos Bay line is not an unlawful abandonment. In that decision the Board stated that a "carrier is not given a free pass to choose not to serve just because of circumstances that make it difficult or expensive to provide service." Clearly CORP and RailAmerica have decided the Coos Bay line is not worth investing in and instead of abandoning the line and allowing another carrier to offer service, they continue to sit on a public asset, which benefits no one.

It is too easy for railroads not to invest in the maintenance of lines and then to use the deteriorated track as an excuse to embargo. They then have an easy out for filing for abandonment, or in the case of RailAmerica, they can hold a state and shippers hostage until their ransom is paid.

An embargo allows a carrier to suspend its duty to fulfill its common carrier obligation and that can be necessary for a short while in order to make repairs. But how long can the embargo go on before the carrier is no longer meeting its common carrier obligation? What’s a "reasonable" amount of time for an embargo before the carrier must make the necessary investments to make the line safe for operation? In the case of CORP and RailAmerica, the Coos Bay line has been embargoed for seven months. In that time they have made no commitment to fix the line, other than to ask others to foot the majority of the bill. There are shippers on that line that have made a reasonable request for service. At what point is CORP violating its common carrier obligation? I contend that what may have started as a proper embargo has now become an improper use of an embargo.

While I commend the Board for the action you have taken thus far in the Coos Bay case, I encourage you to exercise greater regulatory authority over rail embargoes and those railroads that use embargoes to shirk their common carrier obligation. Shippers shouldn’t have to go through the expensive and time-intensive process of appealing an embargo to the STB, a process that is intimidating to small shippers that often don’t have the resources to file a case.

In recent months the Board has taken great steps to make it easier for small and medium shippers to challenge rates and to require more disclosure for paper barrier agreements. The Board must do more to protect shippers from the improper use of rail embargoes. At the very least, carriers should have to give more notice to shippers when they intend to embargo a line.

If the Board doesn’t have the authority to change its regulations, as a senior member of the House Transportation and Infrastructure Committee and a member of the Subcommittee on Railroads, I stand ready to work with you to give you that authority. I intend to consider legislation to give the Board more independent enforcement authority and to give shippers more rights when a line has been embargoed. I am also interested in more regulation of investment in the rail industry, which is a topic for another day.

Again, I thank you for the opportunity to testify today and look forward to working with you on this issue.