Norfolk Southern and other railroads are raising some rates

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(Note: Article from Feb. 10 - Fair Use for Education and Research Purpose Only)

NORFOLK -- Facing higher fuel and labor costs, Norfolk Southern Corp. and the nation's other freight railroads are raising certain rates more aggressively than in recent years.

Norfolk Southern is looking to increase rates from 2 percent to as much as 4.3 percent to cover a projected increase of 4.3 percent in its costs this year, said Susan Terpay, a spokeswoman for the Norfolk-based railroad.

``This increase is not across the board for all customers,'' Terpay said. ``As contracts come up for renewal, we're looking at whether we need to take rate increases.''

The railroad has already increased rates this year for shippers of scrap metal, paper, lumber and container freight.

Terpay pointed out that Norfolk Southern's freight rates had dropped 21 percent between 1991 and 1998 as the railroad squeezed out costs and became more productive.

Fort Worth, Texas-based Burlington Northern Santa Fe Corp. is notifying shippers that it will raise rates for some customers as much as 4 percent in the railroad's first broad price hike since 1995.

Top officials of Omaha, Neb.-based Union Pacific Corp. and Richmond-based CSX Corp. have also signaled that they intend to raise rates, citing higher labor costs and the rising price of diesel fuel.

Norfolk Southern's average price per gallon for diesel rose 18.5 percent in 1999 and is expected to increase 17.9 percent in 2000, Terpay said. And wage costs under the railroad industry's contracts with its unions have increased 7 percent in the past 18 months, she said.

Some analysts, who have been looking for signs of higher prices to boost profits, are underwhelmed by the announcements, however.

``It's selective, and I'd say it affects less than a quarter of the business,'' said James Valentine, an analyst with Morgan Stanley Dean Witter.

Valentine's skepticism is due to the fact that the increase won't apply to the roughly 60 percent of rail customers who have long-term contracts with the railroads. Other customers, such as farmers and automakers, can't afford to pay more or will shift to truck shipments, he said.

Adam Hollingsworth, a CSX spokesman, said his company's increases -- he declined to say how much CSX will raise rates -- are also due to stronger market conditions, including a shortage of rail capacity, price increases averaging about 5 percent imposed by trucking companies, and the shortage of truck drivers, which limits trucking capacity.

Burlington Northern spokesman Jim Sabourin said the increases, scheduled to be completed during the first three months of the year, are the first since Burlington Northern merged with Santa Fe Pacific in 1995.

Jill Evans, an analyst with J.P. Morgan, said rather than improving service, railroads in recent years resorted almost entirely to cost-cutting to bolster their bottom lines.

``Rail service has improved, they have a very good on-time record in intermodal,'' she said, referring to containers that can be loaded from trains onto trucks. ``They've also improved in shipping commodities, such as forestry products, because of more direct routes as a result of mergers.''

Railroads' on-time record, however, still lags far behind that of truckers. Analysts say Burlington Northern's on-time record is around 90 percent, but the industry as a whole rates about 75 percent, while the trucking industry is well above 90 percent. Valentine called timeliness ``the Achilles heel'' for raising railroads' profitability.

Analysts said they doubted the rail freight price increases would affect consumers.

``It's relatively small in the scheme of the economy,'' Evans said.

The Associated Press and staff writer Christopher Dinsmore contributed to this report.

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-- Dee (T1Colt556@aol.com), February 14, 2000