From Baltimore merchants chartering the first North American railroad in 1827 to the high-tech innovations happening across the network today, freight rail has fueled economic growth and connected American businesses to markets around the globe for nearly 200 years.
As the first piece of this series explored, the passage of the Staggers Rail Act of 1980 was a fundamental moment in freight rail’s legacy and ushered in America’s rail renaissance. By removing some of the most damaging regulations that kept railroads from effectively competing and earning the revenues needed to maintain their network, Staggers set freight rail on track to become one of the safest, most efficient and cost-effective transportation networks in the world.
For years, leading economists have held up the historic bipartisan legislation of the Staggers Act as a shining example of how an economic regulatory framework based on sound economics and market-based competition can allow industry — and in return our American economy — to flourish. “No serious economic scholar has claimed that deregulation of freight rates and entry led to generally higher prices or lower quality of service,” says George Washington University scholar Jerry Ellig.
Today, Staggers remains the cornerstone for a prosperous future that, if not upended, will enable railroads to play a critical role in helping address some of the nation’s largest challenges: economic recovery, climate change and infrastructure revitalization.
Re-regulatory Efforts Cast a Shadow on the Spirit & Power of Staggers.
While the Surface Transportation Board (STB) has largely stuck to its Congressional mandate, the same body is now considering several regulatory proposals that could curtail freight rail’s ability to invest, innovate and deliver for customers today and into the future, undermining the various benefits rail transportation provides.
Consistent reinvestment into the rail network closely correlates with increased safety, efficiency and reliability. Yet, some of these proposals, including a measure to arbitrarily resolve disputes between railroads and their customers, chip away at the core tenet of Staggers — that market forces, not government regulations, should govern rail rates. The Board serves a crucial role adjudicating and mediating rate disputes between railroads and their customers; however, Board intervention must be limited to instances where the rate is unreasonable and when there is no effective competition. Although railroads face fierce competition from trucks, barges and other market forces, the Board is still considering regulations that would limit freight rail’s ability to invest in its networks.
Final Offer Rate Review (FORR) would replace careful deliberation about rates with a single binary decision.
Looming largest at the moment is proposed rule, FORR, which loosely draws inspiration from the kind of arbitration practiced in baseball, but goes against standards of fairness and due process. In Major League Baseball, after a certain level of experience, a player can engage in salary arbitration. A panel reviews both the player and the team’s offers and selects one of the two offers. Similarly, under FORR, when a customer can challenge a railroad’s rate, both the railroad and customer develops and submits final offers on what the rate should be using any methodology each side desires. The Board then limits its selection — and thereby its discretion — to one of the two offers, making a choice simply because it perceives one proposed rate to be more reasonable than the other.
Railroads serve shippers in a highly competitive market and set rates based on market conditions, but FORR would allow rail customers to effectively set their own desired rates. No other federal government agency reviews regulated rates in this manner. Not only would this vague, arbitrary review process hurt railroads, it would also negatively impact other shippers.
Through Smart, Evidence-based Regulations, the STB Can Help Freight Railroads Continue Delivering for America.
Just as the rail industry has evolved with the times to create an efficient network that meets the challenges of today’s modern American economy, so too should the Board by proposing smart, evidence-based changes to address current challenges.
One measure it can take is to update the rate case process, based on sound economic principles, to ultimately reduce the time and finances that railroads and shippers — especially small shippers — expend on adjudicating cases. Another simple yet effective tool is a cost-benefit analysis (CBA), which can help the Board test a regulatory action by weighing its upsides and downsides and ultimately come to a reasoned decision. If an action would benefit one narrow special interest group and end up hurting all other parties, then the analysis will make that clear.
CBA has broad and bipartisan appeal, having found support from presidents of both parties through the decades and which the OMB has guided other agencies to do. Additionally, the practice helps the Board make transparent decisions based on the most current and reliable data available.
Here’s to Another 40 Years: Freight Rail Looks to the Future & Beyond…
This blog series has explored the epic transformation of American freight rail, which in the 1970s was on the verge of total collapse. Based on sound market-based economics, the Staggers Rail Act rescued the industry and turned it into a dynamic and productive workhorse for the American economy. Staggers also made railroading safer, more efficient and resilient, enabling it to survive multiple recessions and even a global pandemic this year.
If the last 40 years have shown anything, it is that the partial deregulation borne of Staggers works. Regardless of what will happen in these uncertain times, the core of Staggers is what will prepare railroads, shippers and the American economy for the next 40 years and beyond.