Few Americans give much thought to the Surface Transportation Board (STB), the nation’s economic regulator of railroads. Yet, the STB oversees a critical infrastructure network that affects commerce nationwide.
This month, President Trump nominated two new members to the five-member board. Both are experienced in railroad policy and deserve serious consideration during their Senate confirmation hearings. The Senate, in particular the Commerce Committee, has a duty to ensure potential board members have a sound grasp of railroad economics and the gains made in the rail sector in recent decades.
President Trump’s nominees, Patrick Fuchs and Michelle Schultz, would fill two empty Republican STB seats. As a senior Senate Commerce Committee staffer, Fuchs helped craft the 2015 legislation reauthorizing the STB. Schultz has spent more than a decade as a senior attorney for the Southeastern Pennsylvania Transportation Authority, the Philadelphia area’s mass transit agency. If confirmed, they would join fellow Republican Acting Chairman Ann Begeman, recently nominated for chairman, and Democrat Deb Miller. One Democratic seat remains vacant.
The STB has generally been a conservative regulator, in keeping with the Staggers Rail Act of 1980 that partially deregulated the industry, leading to its revival. Following the Staggers Act, the freight rail industry went from being on life support to an American success story. Freight rates have fallen by 45 percent while rail traffic has doubled, according to industry data. Train accident rates are down nearly 80 percent, while railroads have invested more than $600 billion of their own funds into network improvements.
Any qualified nominee should be supportive of partial railroad deregulation, which has brought enormous benefits to railroads, shippers, and consumers. But recognizing the societal gains post-Staggers Act is not enough. Senators should press nominees to state their commitment to preserving these gains and opposing efforts to reverse this progress.
One notable example of attempted re-regulation involves what the STB refers to as competitive switching, but which the railroad industry calls forced access. Both terms refer to an industry practice known as reciprocal switching, whereby an incumbent railroad handles railcars from a competing railroad for a fee in order for a customer that is only physically served by the incumbent’s tracks to access the services of the competitor.
This is frequently done voluntarily and can be mandated in cases where the STB makes a clear finding of anticompetitive behavior. The anticompetitive conduct requirement was established in two Interstate Commerce Commission proceedings in the 1980s, which were upheld in federal court in 1987 and 1988. Since then, the STB, like the Interstate Commerce Commission before it, has found not one instance of anticompetitive conduct on the part of rail carriers.
This has posed a challenge for industrial shippers seeking re-regulation of the rail industry. So, in August 2016, after years of lobbying by industrial shippers, the STB proposed to eliminate the anticompetitive conduct requirement because it had been unable to find the anticompetitive acts necessary to impose forced reciprocal switching. In essence, the STB of 2016 sought to convict the railroads for crimes the STB conceded they had not committed.
This Kafkaesque reversal of three decades of precedent is grounded neither in law nor economics. For years, economists had decried this type of regulation as a backdoor price control that failed to consider the railroads’ major capital investment risks. This dangerous re-regulatory proposal threatens to reduce the efficiency of existing rail networks by mandating more time-consuming switching, reduce investment from rail carriers, and harm shippers and consumers through higher rates and lower service quality.
Members of the Senate Commerce Committee should ask each of the nominees for their perspectives on the economic impacts of partial freight deregulation, the current state of railroad competition, and the relevance of the longstanding anticompetitive conduct requirement for imposing forced reciprocal switching arrangements.
The nominees appear well qualified, but the Senate must fulfill its critical role in scrutinizing nominees to ensure the unequivocal gains made under partial deregulation are not undone by bureaucrats in defiance of Congress.