Railroad Supersystem

In recentyears,railroads have been combining with each other,merging into supersystems,causing heightened concerns about monopoly.As recently as 1995,the top four

railroads accountedfor under 70 percent of the total ton一miles moved by rails.Next year,after a series of mergers iscompleted,just four railroads will control well over 90

percent of all thefreight moved by major rail carriers.

Supporters of thenew supersystems argue that these mergers will allow for substantial costreductions and better coordinated service.Any threat of monopoly,they argue,is

removed by fiercecompetition from trucks.But many shippers complain that for heavy bulkcommodities traveling long distances,such as coal,chemicals,and grain,truckingis

too costly and therailroads therefore have them by the throat.

The vastconsolidation within the rail industry means that most shippers are served byonly one rail company.Railroads typically chargesuch"captive"shippers 20 to 30

percent more thanthey do

when anotherrailroad is competing for the business.Shippers who feel they are beingovercharged have the right to appeal to the federal government's Surface Transportation

Board for raterelief,but the process is expensive,time consuming,and will work only in trulyextreme cases.

Railroads justifyrate discrimination against captive shippers on the grounds that in the longrun it reduces everyone's cost.If railroads charged all customers the sameaverage

rate,they argue,shippers who have the option of switching to trucks or other forms oftransportation would do so, leaving remaining customers to shoulder the cost ofkeeping

up the line.It's atheory to which many economists subscribe,but in practice it often leavesrailroads in the position of determining which companies will flourish andwhich

will fail."Dowe really want railroads to be the arbiters of who wins and who loses in themarketplace?"asks Martin Bercovici,a Washington lawyer who frequently represents

shippers.

Many captiveshippers also worry they will soon be hit with a round of huge rateincreases.The railroad industry as a whole,despite its brighteningfortunes,still does not earn

enough to cover the costof the capital it must invest to keep up with its surging traffic.Yet railroadscontinue to borrow billions to acquire one another,with Wall Street

cheering themon.Consider the $10.2 billion bid by NorfolkSouthern and CSX to acquire Conrail this year. Conrail's net railway operatingincome in 1996 was just$427

million,less thanhalf of the carrying costs of the transaction.Who's going to pay for the restof the bill?Many captive shippers fear that they will,as Norfolk Southern andCSX

increase their gripon the market.According to thosewho support mergers,railway monopoly is unlikely because________.

A.cost reduction isbased on competition

B.services call forcross-trade coordination

C.outsidecompetitors will continue to exist

D.shippers will havethe railway by the throat