Surface Transportation Board Rejects Misguided Push to Re-Regulate the Railroad Industry… For Now

Late last week, the Surface Transportation Board (STB) refused [PDF] to initiate a rulemaking (Ex Parte 711) proceeding that was petitioned by the shippers’ primary lobby group, the National Industrial Transportation League (NITL). This docket was opened following the conclusion of an informational proceeding (Ex Parte 705) on competition in the railroad industry. The STB deferred a decision on whether or not to start a rulemaking proceeding while it continues to weigh the arguments and evidence submitted into the Ex Parte 705 docket.

The Ex Parte 711 proceeding called on the STB to force railroads into reciprocal switching arrangements for some so-called “captive shippers.” Essentially, the NITL wanted to force major U.S. railroads to switch each others’ traffic, arguing that this would enhance competition. The problem, as we at CEI pointed out in our comments to the STB, is that network industries such as railroads are totally different than your typical product industry and that flawed, traditional “pro-competitive” antitrust arguments are completely meaningless in this context. The railroad industry was deregulated 30 years ago after excessive federal regulation had nearly destroyed it. Most observers consider today’s reinvigorated railroad industry a major deregulatory success story. But not those who used to face government-imposed, sub-market prices. Ever since 1980’s Staggers Act, which deregulated the U.S. railroad industry, the same “captive” shippers have been complaining that they are being treated unfairly by the railroads.

The “captive” segments in question generally have low traffic and limited customers (coal mines, grain elevators, etc.). This is why multiple railroads haven’t built out to service these customers — the service demand is low and the freight is typically of low value (bulk commodities). It would simply not be economical enough to invest in expensive rail infrastructure in order to grab shares of tiny markets that are generally characterized by a great deal of uncertainty (commodities prices are extremely volatile). That’s why railroads haven’t invested in as much redundant, less productive track as western shippers would like. The risk is simply too great to support multiple carriers and the servicing railroad attempts to price as much of this risk away as possible.

The STB obviously hasn’t ruled out taking any re-regulatory action, but this is certainly a good sign that they won’t ignore 30 years of success and reverse course just to satisfy the unreasonable demands of the rent-seeking NITL.

Below are the comment letters CEI submitted to the STB on the dangers of railroad re-regulation:

Ex Parte 705
CEI Submits Comments on Railroad Competition Before the Surface Transportation Board (March 18, 2011)
CEI Submits Supplemental Comments on Railroad Competition Before the Surface Transportation Board (April 12, 2011)
CEI Replies to Consumers United for Rail Equity Before the Surface Transportation Board (May 27, 2011)

Ex Parte 711
CEI Replies to the National Industrial Transportation League’s Petition for Rulemaking to Adopt Revised Competitive Switching Rules (August 2, 2011)