Yesterday, I filed a comment letter with the Surface Transportation Board (STB) on behalf of CEI regarding the board’s request for comments prior to a scheduled June 22 hearing on competition in the railroad industry. Based on the notice filed in the Federal Register, the debate will largely center on two issues some shippers have been complaining about for years: “captive shipper” pricing and a lack of “open access.”
“Captive shippers” are those who lack an economical transport alternative to their present single rail line. Think a coal mine or a coal-fired power plant or a chemical plant. Generally these segments — known as bottlenecks — are only used by a handful of customers. This comparatively low demand is why another railroad hasn’t built its own infrastructure to compete with the monopolist.
Railroads generally charge these captive shippers significantly more — and why shouldn’t they? Do customers deserve to be treated equally even when serving some presents a much greater risk to the railroad? I would argue no, but some of these shippers wish to use regulation to force railroads to furnish rates that they find adequate.
“Open access” is a concept used in the context of regulation of network industries. Unlike public network infrastructure such as most highways and inland waterways where many carriers can use the network, private railroads in the United States control their rights-of-way and can easily exclude other competing carriers from their lines.
Some rent-seeking captive shippers want to force railroads to allow interchanging traffic on their lines. While this might temporarily lower prices faced by these shippers, an STB action favoring forced access would decimate the future railroad industry by disincentivizing investment on the part of railroads.
As was seen with the Telecom Act of 1996 and the FCC’s Local Competition Order, competition might increase, but most of the new entrants are horribly inexperienced and do little to actually build out infrastructure. In essence, open access unfairly pits incumbent and capital-intensive firms against artificially created free-riders.
If the pro-regulation crowd gets their way, expect a lot more scenes like this unfolding in the future as U.S. rail infrastructure deteriorates.