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Eno Transportation Weekly

Guest Op-Ed: Surface Transportation Board Is Headed Down the Wrong Track

Guest op-ed by Ed Hamberger, President and CEO, Association of American Railroads.

Congress set the nation’s transportation system on the right path when it partially de-regulated the freight railroad industry 30-plus years ago. Congressional oversight has been essential every year since to ensure that the U.S. Surface Transportation Board doesn’t revert back to over-regulation of an industry that is the backbone of the nation’s economy and an enabler to so many other industries.

Consider that in 2014 alone, major U.S. railroads supported approximately 1.5 million jobs, $274 billion in annual economic activity, nearly $90 billion in wages and $33 billion in tax revenues, according to Towson University’s Regional Economic Studies Institute.

But as Congress returns to work after August recess, it faces an independent federal agency proposing to reverse years of success while putting a core industry at great risk.

Most recently at issue is a proposed rule that would require railroads to open up their lines to competitors, introducing a radical approach that would force carriers to turn over their tracks to other railroads without any showing of competitive abuse. Through private-market negotiations, railroads currently engage in what is known as reciprocal switching, in which a railroad will agree to serve a customer on behalf of another railroad when it cannot single handedly service the move in an efficient manner. The practice can benefit railroads and shippers alike, but the government is considering interference to force such arrangements without regard to efficiency or whether the railroad that has been carrying the freight from origin to destination by itself has engaged in any unreasonable practices or pricing

Under the proposed system, Railroad One gets access to Railroad Two’s customer because the government forces Railroad Two to provide that access across its lines – not because it is the optimal route.

Because switching operations on a track from one railroad to the next requires extensive work – a switch of one rail car requires six steps to occur – widespread forced switching would significantly compromise the efficiency of the nation’s rail network. It would gum up the network by creating unnecessary movements of rail cars in yards and slow the overall movement of goods just to fulfill the narrow interests of a certain shipper, or the ill-conceived desire of the regulator to “regulate something” in the absence of any demonstrated need for government intervention.  This “forced access” proposal did not even analyze its potential operational or economic impacts, and embodies a troubling trend where data do not guide government decisions.

At the same time, the STB is also proposing to re-regulate 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 proposed this major reversal without any evidence that market conditions have changed adversely and despite the fact that none of these commodity groups petitioned for re-regulation.

In addition, the STB is considering another proposal that would cap rates that railroads charge shippers based on their overall level of revenue, a step that would amount to nothing less than government price control.

Taken together, the proposed regulations represent a sweeping reversal of the market-based approach favored by regulators over the last three-plus decades.  Congress should be especially concerned because it just last year passed comprehensive legislation to authorize the STB for the first time in almost 20 years.  Strikingly, Congress did not direct the STB to embark on any of these proposals.  In fact, every time Congress has considered such proposals, they have been soundly rejected.

Railroads are capital intensive, and they must spend massive amounts of money on rail infrastructure and equipment so that taxpayers do not have to – a huge public benefit considering the crumbling state of many taxpayer-funded transportation enterprises.

The impact of the STB’s proposed changes would be far reaching, touching consumers, businesses and passenger rail lines from coast to coast. The government intervention into railroads’ business and operations will inhibit their ability to invest sufficient funds back into the nation’s rail networks to expand capacity, while they also meet the needs of a growing economy or further improving safety.

Re-regulating the sector will endanger many national policies and national goals advocated by the U.S. government that are tied directly to an efficient freight rail system, including:

  • 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 railroad’s share of freight traffic to reduce congestion on our nation’s highways and associated environmental impacts.
  • Ensuring reliable service for Amtrak passengers and commuters, because many passenger trains run on freight rail infrastructure.

These regulations would be 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 poor rail service around the country.

The goal of federal policy should be to ensure a smarter, pro-growth regulatory framework for an economy that sorely needs it.  These STB proposals are emblematic of an agency that has lost sight of its role and strayed from its Congressional directive. It’s time for the agency to return to the path of balanced economic regulation that Congress set forth.

Mr. Hamberger’s views are his own and do not necessarily reflect those of the Eno Center for Transportation.

For an opposing view from the National Industrial Transportation League, click here.

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