Railroad Industry Releases New Economic Impact Report, Urges Regulatory Restraint

Today, the Association of American Railroads (AAR) released its latest State of the Industry Report, highlighting new research from Towson University’s Regional Economic Studies Institute on the overall economic impact of Class I freight railroads. As Railway Age magazine summarizes, “[S]pending by the seven largest U.S. railroads created $274 billion in economic activity, generated nearly $33 billion in state and federal tax revenues and supported nearly 1.5 million jobs nationally in 2014 alone.”

The health of the American freight rail industry is largely thanks to the successful deregulatory reforms that culminated in the Staggers Rail Act of 1980. As CEI has noted in multiple policy papers and several formal public comment letters to the Surface Transportation Board, the success of the Staggers Act cannot be overstated. The private railroad industry as we know it would simply not be possible without the post-Staggers reforms.

Unfortunately, some politicians and bureaucrats are seeking to re-regulate the industry at the behest of their shipping industry supporters. These shippers operate through industry umbrella lobbying organizations, most notably the National Industrial Transportation League (NIT League).

Chemical giants represented by the American Chemistry Council and led by Dow Chemical are the loudest critics of deregulation and seek to impose onerous price controls on a large share of railroad traffic. Frank Wilner has a great summary of shippers’ hypocrisy on rail rates in a 2014 issue of Railway Age.

Price controls may be good for their short-run bottom line, but they would deter much-needed investment to rail networks and ultimately disadvantage the very shippers NIT League and others claim to be supporting. Forty years ago, when the railroad industry was near-death after 70 years of crippling regulation, things were so bad that the industry tracked a statistic for what was known as a “standing derailment”—stationary railcars would simply tip over as the dilapidated track bed beneath them collapsed. In the late 1970s, the Federal Railroad Administration adopted this depressing new accident reporting category.

Thankfully, a bipartisan coalition in Congress and the Carter White House recognized that only deregulation could save the railroad industry from extinction. This was also the era of airline and trucking deregulation, two other bipartisan reforms that greatly improved the quality of life of Americans. Standing derailments are now a thing of the past, a reminder of how far the industry has come and what can result from simply allowing markets to work without government intrusion.

More need to understand the critical importance of a healthy freight rail industry and why these re-regulatory proposals pitched in the name of “fairness” will start us down another slippery slope to ruin. If these large shippers and their political allies succeed in reversing economic liberalization in the railroad industry, we will all end up paying the price for their temporary benefit.

Read AAR’s full June 13 “State of the Industry Report” here and the Towson RESI study here. See also this January 2016 Washington Examiner op-ed coauthored by CEI founder Fred L. Smith, Jr., and myself on the important lessons of railroad deregulation.