This past summer, the Surface Transportation Board (STB), an independent federal regulatory agency charged with resolving rate disputes in the freight rail industry, proposed a dramatic change to the rules governing forced reciprocal switching. Reciprocal switching refers to an industry practice whereby an incumbent railroad allows a competing railroad to access its tracks for a fee, so that even if the competing railroad cannot physically access the customer in question using its own network, it is able provide single-line service just like the incumbent railroad. See this diagram below for a helpful visual:
Reciprocal switching agreements exist across the country on a voluntary basis when market conditions can justify these contracts. But what the STB did was propose to change the rules that would force railroads to enter into these arrangements.
Forced reciprocal switching has been a goal for major coal, petrochemical, and agriculture shippers for decades, but regulators have generally made it extremely difficult. Since the 1980s, the Interstate Commerce Commission and its successor, the STB, have required that shippers provide evidence of anticompetitive conduct prior to any consideration of a forced reciprocal switching arrangement. To date, no shipper has been able to demonstrate any anticompetitive behavior on the part of the rail carriers.
As no guilt could be found, the STB decided to simply eliminate the requirement that guilt be found. Worse, Congress for decades has repeatedly rejected attempts to amend the federal statute to do precisely what the STB now proposes to do, making this action an attack on Congress’s authority by unaccountable bureaucrats.
The new Congress should fight back. If it fails to reclaim its authority from the STB, these new rules will force rates below market prices along high-risk segments, leading to reduced efficiency across the entire network and disincentivizing badly needed private investment in freight rail infrastructure. The short-run gain of multinational giants like Dow Chemical and Cargill will be to the great long-run detriment of smaller shippers, rail carriers, and consumers.
To remedy this problem, Congress should codify in statute the longstanding anticompetitive conduct requirement the STB is seeking to repeal at 49 C.F.R. § 1144.2(a)(1). This can be accomplished by amending 49 U.S.C. § 11102(c)(1) to read:
The Board may require rail carriers to enter into reciprocal switching agreements, where it finds such agreements to be practicable and in the public interest
, or where such agreements are necessary to provide competitive rail service, and where such agreements are necessary to prevent or remedy an anticompetitive act. The rail carriers entering into such an agreement shall establish the conditions and compensation applicable to such agreement, but, if the rail carriers cannot agree upon such conditions and compensation within a reasonable period of time, the Board may establish such conditions and compensation.
This legislative fix would put to rest decades of shipper rent-seeking before regulators and preserve the cautious, pro-market regulatory stance that has largely characterized ICC and STB decision-making over the past three decades. Failure to do so risks undermining freight rail deregulation, which is perhaps the clearest economic policy reform success story in the history of the United States.
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