Thursday, September 16, 2010

"Railroads Under Congressional Review" (BRK.B; CSX; KSU; UNP)

There is some irony in having a Rockefeller overseeing the railroads, given his namesake great-grandfather's manipulation of freight rates, which went as far as getting rebates on competitors shipments of oil!
From Zacks Analyst blog:
In a recent report presented by the U.S. Senate Commerce Committee it is stated that the discretionary pricing power enjoyed by the Class I freight rail transport companies are putting excessive pressure on freight customers. The freight railroad operators are enjoying this pricing power since 1980 when the U.S. government adopted the Staggers Rail Act. The idea was to allow rail transporters to hike price on captive shippers like electric utilities, chemical and agricultural companies in order to improve profitability of the struggling railroad industry.
The Senate Commerce Committee headed Sen. John D. Rockefeller has expressed his opinion that the railroads have become financially stable. An improving U.S. economy, massive surge in automotive shipments, and a sharp rebound in many end markets are expected to fuel the future growth of this industry. However, because of the Staggers Rail Act, the railroads are hiking their freight rates nearly 5% per annum and maintaining a double digit profit margin. On the other hand, a higher transportation rate is actually trickling down to the end users resulting in higher household expenditures....MORE