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Policy Issues

Economic Regulation 

WHY THIS MATTERS: The current regulatory framework allows railroads to make massive investments into their private, 140,000-mile network, which enables freight rail to continue being the critical connector for the U.S.

AAR POLICY POSITION: Freight railroads support:

  • A continuation of the existing balanced regulatory policies that protect rail customers against unreasonable railroad actions while providing railroads the opportunity to earn enough to make the massive private investments required to meet our nation's growing freight transportation needs.
  • Retaining the existing limited antitrust exemptions for railroads, which are extremely narrow and only cover aspects of railroad conduct that are subject to STB oversight.
  • The current policy requiring the STB to first find that a railroad serving a terminal area engaged in anti-competitive conduct before the STB can order the railroad to "switch" to another railroad's traffic.


The United States Surface Transportation Board (STB) has announced plans to enact punishing regulations —​ and is considering other like-minded proposals — that will undermine the ability of U.S. freight railroads to operate efficiently and effectively.

If enacted, railroads will not be abl​e to earn enough revenue to invest sufficient funds back into the nation's rail network and expand capacity while meeting the needs of a growing economy.

The result of the regulations will be service problems across the rail network. But just as important, a myriad of U.S. government policies that rely on a healthy and viable rail network will be put at risk, from energy transportation to passenger rail service ​​ all will be undermined by the government's quest to reregulate the freight railroad industry.

Ensuring that the regulations proposed by the STB are scuttled should be a priority for Congress. The goal of federal policy should be to ensure a smarter, pro-growth regulatory framework for an economy that sorely needs it.


​Proposed Regulations​


 


Forced Access: Requires railroads to open up their lines to competitors, introducing a radical approach that would force carriers to turn over traffic to other railroads, potentially at below-market rates and without any showing of competitive abuse. This "forced access" rule also would significantly compromise the efficiency of the nation's rail network.

Commodity Reregulation: Reregulates certain commodities (crushed and broken stone; coke produced from coal; primary iron and steel products; hydraulic cement; and iron and steel scrap, wastes and tailings) that the agency has previously determined are subject to pervasive competition. The STB is requiring this major reversal without any evidence that market conditions have changed adversely and despite the fact that none of these commodity groups petitioned for reregulation.​​

​Revenue Adequacy: Turns on its head the concept known as "revenue adequacy" —​ in which Congress directed the agency to assist the carriers in achieving long-term financial health and stability. The proposal would cap rates that railroads charge shippers, a step that would amount to nothing less than government price control.​


​IMPACT ON CONSUMERS AND the Economy


If the STB makes good on this threat of returning to anti-market measures, railroads will not be able to continually modernize the 140,000-mile rail network and meet shipper demands as effectively as they do today. That will endanger many national policies and goals advocated by the U.S. government that are tied directly to an efficient freight rail system. These include:

  • Improving the capacity, efficiency and productivity of freight railroads overall to aid a growing economy
  • Increasing U.S. exports — and their shipment over rail — and supporting jobs tied to exports
  • Achieving U.S. energy independence through the rail transportation of domestic energy products
  • Increasing freight railroads' share of freight traffic to get environmentally damaging trucks off the road
  • Ensuring reliable service for Amtrak passengers and commuters, because passenger trains run on freight rail infrastructure​​

 ​

How the Collective Regulations Threaten the Network​


Taken together, the proposed regulations represent a sweeping change to the market-based approach favored by regulators over the last three-plus decades. That approach has allowed the industry to greatly enhance efficiency and attract the revenue necessary to make railroads the "comeback kid" of the U.S. transportation network.

Up to this point, today's balanced regulatory framework has allowed railroads to make reasonable revenues, which they invest back into the rail network at a staggering clip —​ some $26 billion annually for the last five years alone. Railroads are capital intensive, and they must spend massive amounts of money on rail infrastructure and equipment to keep them safe and efficient. But taxpayers don't foot the bill to maintain the nation's 140,000 miles of rail that carry freight, passenger and commuter trains; freight railroads pay for most all of it.

The new proposals indicate a willingness at the STB to consider increasingly interventionist, anti-market options. They would undermine the current incentive that railroads have to invest in their networks and facilities, and they would undo the efficiencies realized through consolidation of rail traffic along certain corridors while injecting a huge amount of complexity into operations.

They are a giant step backwards ​ a throwback to another era when excessive regulations resulted in massive damage to the industry, to the nation's rail infrastructure and that led to poor rail service around the country.​
​ ​

What ThE Experts Are Saying


United Parcel Service
"UPS' experience in other contexts leads us to conclude the implementation of a new reciprocal switching scheme will lead to decreased network velocity, diminished capital investments into the freight network, and deteriorating rail intermodal service levels." 

SMART-TD
"The proposed regulations would further undermine the existing regulatory framework and could have a chilling ripple effect on areas affecting labor, including the wages, rules and working conditions of employees. Any reduction to railroads' revenue will directly impact employees' wages and benefits." 

Competitive Enterprise Institute, American Commitment, American Conservative Union et al
"The regulatory proceeding regarding revised reciprocal switching rules that was recently opened by the STB reverses three decades of precedent." 

Anthony Hatch
Analyst & Financial Transportation Consultant
"Simply put, forced access is a bad idea...Rail industry leaders say that forced competition could mean an annual revenue loss of $7.9 billion. Rail companies would have less money to maintain and expand the nation's 140,000-mile rail network." 

Clifford Winston
Applied Microeconomist and Senior Fellow at The Brookings Institution
"With technological advances, such as automated vehicles, not only with railroads but also with trucks, now would be a terrible time to introduce new regulations that may affect competition in the industry. I would urge any lawmaker considering additional regulations to take a long-term view. Realize that this industry is still evolving from an inefficient past, and while there may be some bumps along the way, overall, the path the industry is on today has been much better for railroads and American society compared with the industry's evolution when it was stifled by excessive regulations before regulatory reform began in the 1970s." 

Peter Goelz
Former Managing Director of the NTSB
"While no one is alleging that any one single policy proposal will cripple the industry, the aggregate of regulations could have a real dampening effect. In these less-than-ideal economic times, why should we ignore the safety record of railroads and unnecessarily disrupt an economic engine like freight rail?" 

Philip Romero
University of Oregon Professor of Business
"Trade is only possible with an efficient transportation system. For the majority of the world's population that does not live near a seacoast, this means rail. Being exposed to competition from distant competitors forces firms to 'up their game' even in isolated, landlocked rural areas. So even rural customers get greater choice and lower prices. And workers earn more, because competition forces them to be more productive." 

Robert Gallamore
Rail Economics Expert
"(Partial deregulation) not only saved U.S. freight railroads from further bankruptcies and liquidation, it became, almost miraculously, the catalyst that transformed them into what they are today, the envy of the world's transportation systems." 

Steve Forbes
Forbes Media Chairman & Editor-In-Chief
"Railroads were failing under government control. When that control was lifted they flourished, creating jobs, making the U.S. more competitive in global markets, and improving the natural environment as a result. A healthy rail system spurs growth in all economic sectors," former presidential candidate Steve Forbes recently wrote. "It is frightening to think what the U.S. trade imbalance would be without railroads." 


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