CEI Leads Coalition Opposing Reciprocal Switching Regulation in Senate

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Dear Chairman Thune, Chair Fischer, and Ranking Members Nelson and Booker:

We write today to strongly oppose efforts to re-regulate our nation’s freight rail industry currently being considered by the Surface Transportation Board. We believe that freight rail deregulation—culminating in the Staggers Rail Act of 1980—represents one of the most significant economic policy successes in the history of the United States and that these reforms must be protected.

After nearly a century of stultifying economic regulation under the Interstate Commerce Commission, the American railroad industry was facing total collapse in the 1970s. The largest corporate bankruptcy in history left the Northeast U.S. facing the prospect of losing all meaningful rail service. More bankruptcies followed and many more were expected. This led to the nationalization of U.S. passenger rail under Amtrak and the nationalization of Northeast freight rail under Conrail. Many observers at the time believed either outright nationalization of the entire industry or wholesale elimination of rail transportation were the two choices facing America.

Fortunately, a bipartisan coalition within Congress and the Carter administration recognized another path: remove the regulatory barriers that had been strangling the railroad industry for decades.

The reforms following passage of the Staggers Act worked. The industry rebounded in the decades that followed, becoming an American economic success story. Since 1980, the industry has invested more than half a trillion dollars of its own funds into its networks, with annual investments averaging more than $25 billion over the last few years. According to Towson University’s Regional Economic Studies Institute, major U.S. railroads in 2014 alone supported approximately 1.5 million jobs, $274 billion in annual economic activity, nearly $90 billion in wages, and $33 billion in tax revenues. Moreover, average inflation-adjusted freight rates are down more than 40 percent since 1980.

Unfortunately, some powerful industrial shipping interests have succeeded in opening a proceeding before the Surface Transportation Board (STB) framed in the language of promoting competition, but it is really nothing more than backdoor price controls—the same sort of regulation that nearly drove the industry to ruin.

The regulatory proceeding regarding revised reciprocal switching rules that was recently opened by the STB reverses three decades of precedent. Many industry observers have expressed concern that imposing forced access and reducing railroad rate freedom will come at the expense of network investment. This unprecedented action threatens railroads, shippers, and consumers with degraded service quality and higher goods prices that would naturally follow the resulting reduction in railroad investment.

The STB has proposed eliminating the requirement that reciprocal switching agreements may only be imposed in response to evidence of anticompetitive behavior. Most shockingly, the STB argues that because it and the Interstate Commerce Commission before it have been unable to find any evidence of anticompetitive conduct on the part of the railroads in the past three decades, it must repeal this requirement to find cause for forced access.

Congress has repeatedly rejected railroad re-regulation, correctly recognizing that reducing private railroad investment is not in the public interest. Nevertheless, the STB is illegally rewriting the law to find guilt where none exists, something we expect to read in Kafka or before courts in banana republics, not within a U.S. federal regulatory agency.

We strongly urge the Committee and Subcommittee to investigate the STB’s conduct and prevent its unlawful attempt to push the U.S. railroad industry back into the economic dark ages. If this is the caliber of decision-making now emanating from the STB, perhaps Congress should reconsider the need for this agency altogether.


Competitive Enterprise Institute

American Commitment

American Conservative Union

Campaign for Liberty

Center for Individual Freedom

Georgia Public Policy Foundation

Grassroot Institute of Hawaii

John Locke Foundation

The Maine Heritage Policy Center

National Taxpayers Union

Rio Grande Foundation

R Street Institute

Taxpayers Protection Alliance