Railroad Industry Will Suffer Under Proposed Rate Regulations

Railroad Industry Will Suffer Under Proposed Rate Regulations

New Study Warns Against Repeating Regulatory Mistakes of the Past
March 12, 2013

WASHINGTON, D.C., March 12, 2013 – A new study from the Competitive Enterprise Institute strongly warns against recent efforts to re-regulate the railroad industry, which has been enjoying success and progress since the Staggers Rail Act of 1980 largely deregulated the industry.

In “Slow Train Coming? Misguided Economic Regulation of U.S. Railroads, Then and Now,” Marc Scribner, CEI Fellow in Land-Use and Transportation Studies, explains how regulation nearly drove the American railroad industry to ruin in the mid-20th century.

“In the first half of the 20th century, the government’s only remedy for failed regulation of the railroad industry was more regulation of the industry,” says Scribner. For decades, government control of rail rates prevented the industry from responding to market conditions or investing in innovation. But in 1980, Congress passed the Staggers Act, which, according to its congressional conference report, was enacted to “reverse the decline of the railroad industry, which has been caused, in part, by excessive government regulation.”

It worked: since 1980, average inflation-adjusted rail rates have declined 45 percent, and railroad employee productivity has increased over 400 percent. The railroad industry has invested more than $500 billion of its own funds into rail networks. A 2011 Government Accountability Office study found that rail now receives the lowest net government infrastructure subsidies when compared to truck, air, and waterway freight transportation.

But the age of rail progress may soon come to an end, if shipping special interests and their political allies in Washington get their way. Legislation introduced in 2007 and 2011 sought to impose new rules on rail carriers’ rates and contracts. More recently, the National Industrial Transportation League (NITL)  petitioned the Surface Transportation Board (STB) to initiate a rulemaking proceeding on potential forced access requirements which would benefit a small number of shippers, at railroad companies’ and consumers' expense. The proceeding is still open.

“NITL is proposing that regulators be permitted to make arbitrary and capricious determinations based on faulty data in order to allow its members to extract short-term rents from rail carriers,” Scribner says.

“Restoring rate freedom to rail carriers was one of the most positive economic policy reforms of the second half of the 20th century,” he continues. “It would be a shame for self-interested short-termism to trump the clear economic benefits of deregulation.”

>> Read the full study: “Slow Train Coming? Misguided Economic Regulation of U.S. Railroads, Then and Now.”