Freight rail regulatory proposal would raise costs, diminish service

The Surface Transportation Board (STB) this week is considering a proposal that could undermine the ability of freight rail to deliver on its mission to keep the U.S. economy moving.  The proposal from the National Industrial Transportation League (NITL) seeks to impose what are effectively price controls benefitting some shippers, no matter the fallout for other rail customers or the national economy.

This attempt to secure favorable, non-market-based regulations for a select few shippers would come with very real market consequences for all rail customers. These include erosion of the hard fought-and-won network efficiencies and massive infrastructure improvements that have resulted from the $550 billion in private – not taxpayer – investments railroads have spent over the last three decades to get their businesses and America’s rail network on solid footing.

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Specifically, NITL wants to override market forces by requiring major railroads to turn over substantial portions of rail traffic to their competitors. This is traffic which moves across tracks they own and have spent decades building, maintaining and continuously upgrading. Running a railroad is a hugely capital-intensive endeavor, and providing rail service to a facility requires a massive infusion of funds and risk borne by the rail company – not the shipper.

This proposal is a solution looking for a problem, since railroads already voluntarily switch traffic when it makes economic sense for all parties.  Existing STB regulations provide various options if a shipper believes its rates are unreasonable.  In fact, of the 46 shipper rate complaints filed with the STB since 1996, 37 were decided in favor of shippers or settled through commercial negotiations.

It doesn’t take a Federal Reserve chairman to predict the likely fallout of government intervention that sweeps aside market forces: diminished service; angry customers opting for less environmentally effective, non-rail transportation; increased capital improvement costs; a loss of network operating efficiencies that have taken decades to develop; revenue declines, and diminished interest from investors.

The increased operating and infrastructure costs would take many forms, including: an increase in the number of locomotives and rail cars needed; increased, but otherwise unnecessary, infrastructure; increased shipment dwell and delay time; increased fuel use, and increased risk for employee injury due to additional handling and switching requirements.

Despite continuous claims otherwise that began almost from the moment the Staggers Act was passed, shippers have greatly benefitted from the improved health and success of the railroad industry. Average inflation-adjusted rail rates today are down 42 percent from what they were in 1980.  Railroad investments and innovation have yielded incredible operational efficiencies and service reliability that 30 years ago were only aspirational. And a strong underlying network has allowed railroads to swiftly meet emerging customer demand, including North America’s growing domestic energy market.

This much is certain –if this proposal is adopted, what we can expect are higher overall transportation costs, service quality reductions and decreased investment capital. The proposal would make it virtually impossible for railroads to cover fixed costs, and would reduce funds available to invest across the nation’s rail network—that alone has huge implications for the U.S. economy.

It’s not just railroads who are saying this, but some lawmakers on Capitol Hill also know what’s at stake.  Out of concern that this proposal could cause significant harm to the public interest, a bipartisan group of senior House lawmakers, including the chairman and ranking member of the Transportation and Infrastructure Committee, cautioned the STB against what would effectively be a move toward re-regulating the industry.

“Any policy change made by the STB that decreases the railroads’ efficiency and limits their ability to reinvest, grow their networks and meet the nation’s freight transportation demands both today and in the future will be opposed by this committee,” they wrote.

In business, adding more regulations is rarely a sound approach if the goal is to lower costs and improve services. History has been a cruel teacher, and repeatedly demonstrates the exact opposite.

Hamberger is president and CEO of the Association of American Railroads based in Washington, D.C.