After decades of lobbying, large industrial shippers in the petrochemical, agriculture, and manufacturing sectors finally succeeded in convincing the STB to propose backdoor price controls on the railroad industry in 2016. This move threatens the gains made by partial deregulation and reverses three decades of precedent for a shockingly arbitrary reason.
In a nutshell, the STB is proposing to modify its requirements for finding cause to impose forced reciprocal switching on rail carriers. Reciprocal switching refers to an arrangement whereby one carrier interchanges the traffic of another carrier for a fee. In the past, the STB, and the ICC before it, required that shippers seeking a forced reciprocal switching order demonstrate the existence of anticompetitive conduct on the part of the incumbent rail carrier.
Since courts upheld the anticompetitive conduct requirement in the late 1980s, shippers have not been able to provide any evidence of anticompetitive conduct on the part of rail carriers. Today, real shipping rates are nearly half of what they were in 1980, even as rail traffic has grown and become more diverse.
Instead of ignoring this transparent rent-seeking request from industrial shippers, the STB adopted many of the harmful elements of their proposal and now seeks to eliminate the anticompetitive conduct requirement. In essence, after being unable to find any evidence of anticompetitive conduct, the STB proposes to convict railroads of crimes the STB concedes they haven’t committed. This arbitrary and capricious regulatory overreach should be immediately discontinued, as I have explained to both the STB and Senate Commerce Committee leadership.
Frank Wilner of Railway Age offers some suggestions and highlights currently discussed candidates. The STB board picks should be carefully vetted to ensure they have a sound, market-oriented understanding of railroad economics and policy. Partial deregulation of freight rail remains one of the most powerful case studies in American economic policy reform. It is up to the administration to make sure it stays that way by nominating qualified individuals to fill the three empty STB seats.