Shippers warn of antitrust ramifications

Shippers are concerned that the freight railroads’ justification over alleged price fixing that occurred in the early 2000s could open the door towards loosening antitrust laws.

The concerns are related to lawsuits from dozens of shippers aimed at four U.S. Class I railroads, CSX (NASDAQ: CSX), Norfolk Southern (NYSE: NSC), Union Pacific (NYSE: UNP) and BNSF (NYSE: BRK). The lawsuits allege that between 2003 and 2008, these four railroads applied fuel surcharges on rail rates that weren’t related to fuel. The shippers argue that the purpose of the fuel surcharges and the fuel cost recovery program was to garner additional revenue. 

There are two proceedings in the federal appeals court before two judges. They involve multiple companies. One proceeding before Judge Paul L. Friedman is multi-district litigation that was originally brought before the courts as a class action lawsuit but now consists of seven lawsuits occurring on a non-class basis after a federal court determined last year that the proceeding couldn’t act as a class action suit. The other proceeding consists of approximately 85 lawsuits filed after class action was denied. Those lawsuits have been consolidated and are under Chief Judge Beryl A. Howell. Companies in this proceeding range from steelmakers such as AK Steel and power companies such as Georgia Power, to food products producers such as Smucker and automakers such as Toyota. Both Friedman and Howell serve the U.S. District Court for the District of Columbia.

In filings in April and May, the shippers allege that the four railroads are presenting arguments to the courts that seek immunity from antitrust liability. The shippers categorize the railroads’ latest actions as using a narrow statute to protect their conduct from antitrust scrutiny, which they believe is an action that puts the railroads above antitrust laws, according to a source familiar with the matter. 

Specifically, the shippers are countering the railroads’ argument that the railroads’ communications in the early 2000s were part of conversations on interline rates. 

Statutory subsections of the Staggers Act, which deregulated the rail industry in 1980, “were enacted to provide only narrow protections for specific actions and agreements between interline partners as to a shared movement or rate, which is a far cry from what the evidence shows here,” said a May 7 filing from shippers to Judge Friedman.

The shippers say that the railroads’ latest argument has great implications not just for the proceedings but also for the logistics and supply chain generally because it would give the railroads permission to talk to each other about rail rates, thus circumventing the competition that the railroads are supposed to have with each other, according to the source. It could also provide precedent for other logistics and transportation companies to communicate with each other about rates.

Should the railroads prevail, it could result in higher prices because the railroads can agree to not undercut each other on price, the source said. It could also result in a deterioration of service since companies wouldn’t feel compelled to compete with each other on price. 

The courts have asked the Federal Trade Commission, the Surface Transportation Board and the U.S. Department of Justice to weigh in on the proceedings in July.

The courts have scheduled a joint hearing on these proceedings for August 26. 

Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.