President

where shippers have an alternative to rail, this means that railroads will offerrates to some shippers that do not cover a full share of their capital costs. Theymake up for this by charging prices that cover more than a shipment’s share ofcapital costs in markets where shippers do not have economical alternatives.Understandably, many shippers in these markets complain that they payshipping rates substantially higher than those paid by shippers in morecompetitive markets. However, the railroads’ ability to charge different ratesto different shippers plays a vital role in enabling railroads to maintain thelarge capital investments needed to operate a railroad. If railroads were forcedto charge the same price for all freight, many shippers that have alternativeshipping options would respond to an increase in rail rates by shifting towardroad, water, or other transportation. This reduction in revenue would makerailroad capital investments less profitable, and the likely result would bereductions in investment and in rail capacity. In the long run, the resultcould be even higher shipping rates for those who continued to use railtransportation.Chapter 6 | 147