Problems Faced by Rail-Dependent Shippers
In 1980, federal law governing the U.S. freight rail system was changed from strict and pervasive regulation to one that presumed the deregulation of most railroad activities. The law that ushered in this change – The Staggers Rail Act of 1980 – was intended to let market competition replace prescriptive government regulation. Freight railroads, who have benefited greatly from the federal government since their inception, would have wide authority over their business practices and, in return, shippers would benefit from a competitive market.
However, Congress understood that even with deregulation, there would be freight rail shippers who would not have the benefit of competition due to the nature of the rail system. To protect those shippers, and, as the Staggers Act stated, “maintain reasonable rates where there is an absence of competition and where rail rates provide revenues which exceed the amount necessary to maintain the rail system to attract capital”, to “prohibit predatory pricing and practices” and “to avoid undue concentrations of market power,” Congress charged the Interstate Commerce Commission to implement the Staggers Act in a way that protected those rail customers without access to transportation competition. In 1995, Congress eliminated the Interstate Commerce Commission and replaced it with the smaller and weaker Surface Transportation Board (STB).
Thirty years later, rail dependent shippers have neither access to rail transportation competition nor effective protection from unreasonably high rail rates. In 1980, Congress failed to provide the Department of Justice with oversight authority over rail mergers and acquisitions. As a result, often over the ignored objections of the Department of Justice, the more than 40 railroads in existence in 1980 have consolidated into four major railroads that are responsible for 90% of the nation’s rail traffic and have divided the country into their own regional monopolies. The lack of competitive transportation options for rail-dependent shippers has forced them to pay monopoly rates and often receive unreliable service. The costs of rail shipping have skyrocketed, particularly for those shippers served by a single railroad. In fact, since 2003 – through one of the nation’s worst economic periods – freight rail rates in general have increased two and a half times the rate of inflation and two and a half times the level of truck rates. Rates for individual shippers served by a single railroad have increased even more. These unreasonably high rates are hurting our national economy by rendering certain producers and manufacturers uncompetitive, reducing the profits of American companies and driving up the costs of everything consumed by Americans from electricity to cereal.
The lack of freight rail competition in the U.S. has also given an enormous advantage to foreign manufacturers and producers. Their access to competitive rail transportation from our ports to our markets often allows them to sell their products in American markets for less than our own American producers and manufacturers who are served by a single railroad and pay high prices for their domestic transportation. In March, 2011, the President’s Export Council wrote him a letter listing rail transportation prices and service as one of the five things the government needed to address to increase U.S. exports.
With no competitive options, no antitrust protections and little support from the small federal agency that is supposed to oversee the freight rail system, American shippers are being forced to cut jobs, close plants or ship work overseas. Not only are we losing American jobs, but American consumers ultimately bear the costs of artificially inflated prices for electricity, groceries, and a broad range of manufactured goods.
A reliable, competitive and transparent freight rail system is critical to the American economy. While railroads are enjoying record profits, rail customers and American consumers are paying more and getting less. Guaranteeing competition for rail dependent shippers would ensure that shippers and the consumers they serve will finally begin to enjoy the benefits of a deregulated freight rail system.