America’s freight is run on 140,000 miles of private rails which are owned and operated by a multitude of different railroad companies. The industry won some progressive policies through the FAST Act, but a new proposed rulemaking from the U.S. Surface Transportation Board (the entity that regulates railroads, known as STB) has freight companies up in arms.
At issue is how to deal with shipments that have to travel over more than one company’s rails to reach their final destination. Currently, the law (established in 1985 by the Interstate Commerce Commission) states that, in order to avoid an “anti-competitive act,” if a shipment can’t get to its destination using one railroad company’s rails, the railroad companies must negotiate with each other to move the freight, a practice called “reciprocal switching.” Railroads have been voluntarily negotiating these switches, and the Staggers Rail Act of 1980 enables rail shippers to challenge rates that they find unreasonable.
The proposed new regulation would require at least two Class I railroads to be able to compete for freight carloads, even if the tracks to be used are only owned by one of the railroads. This means railroads would be required to provide switching services to their competitors, even if there isn’t an anti-competition argument to be had–“forced access” is what they’re calling it. Voluntary negotiations would be supplanted by capped rates, potentially resulting in below-market rates being applied to competitors’ shipments.
Those requesting this change (shippers that feel current rates are excessively high) are claiming the new rule will provide more competition and a lower price for freight movement, especially for agricultural products. But the industry is pushing back, claiming that the rule would create inordinate inefficiencies. If enacted, this new regulation would upturn the market-based approach established by the Staggers Act, thereby increasing the complexity of interchange movements (as illustrated in this video), and potentially clogging up the movement of goods across the nation—all while instituting a form of price control. By industry estimates, 7.5 million carloads of traffic could be impacted, placing nearly $8 billion worth of revenues at risk and putting a “chill” on the industry’s ability to invest in freight infrastructure.
In an op-ed for the Association for American Railroads, Anthony Hatch writes:
At the most basic level, the rail network would require more resources to move the same amount of freight in a time of very tight capacity, swiftly returning the industry to the dark days of gross inefficiencies.
STB is purportedly tackling this issue in order to provide a new rate review process that could provide better access for small rate disputes. Even though many feel rates are excessively high, since 1981, no shipper has filed a rate complaint. The argument is that the complaint process is cumbersome and expensive, especially for small shippers. (Ironically, however, the real beneficiary of this rule change would be the big shippers enjoying capped rates). The quandary for policy makers is how to improve the process without stomping on a market system that fosters the extraordinary benefits provided by the nation’s private freight system.
The comment period is open until October 26.
An earlier version of this post said the comment period would be open until November 14. It has been corrected.