Board Recommends Updating Regulation of Freight Rates

Greenwire/E&E Publishing, Sean Reilly
June 10, 2015

The existing federal framework for regulating freight railroad rates has outlived its usefulness and needs an overhaul, an advisory panel said in a report released today.
Following the resurgence of freight rail companies since enactment of a 1980 deregulation law, “this is just not the same industry in almost any respect,” said Richard Schmalensee, chairman of the Transportation Research Board committee that produced the congressionally mandated report, at a hearing this morning.
The committee’s findings implicitly endorse shippers’ complaints about the inadequacy of the current rate review process in keeping pace with a freight rail business now dominated by a handful of large carriers. The Surface Transportation Board, the agency charged with regulating the industry, needs “more appropriate, reliable and usable procedures” to protect shippers “in markets that lack effective competition from unreasonably high rates,” the report said.
Among its recommendations, the report urges replacement of STB’s often slow and costly “rate reasonableness” hearings with arbitration that can “compel faster resolutions of disputes.” It also recommends that STB abandon yearly reviews aimed at determining whether large freight railroads are earning enough money to attract capital.
“This annual pass/fail appraisal of revenue adequacy has become ritualistic while offering little substantive information for regulators and policy makers in monitoring the industry’s economic and competitive conditions,” the report said.
In conjunction with the report’s release, STB today began a public hearing into its rate complaint procedures for grain shippers. Schmalensee, a retired Massachusetts Institute of Technology management professor, was the leadoff speaker.
In the next few months, the board could look “at making significant changes to our processes,” along with other reforms, acting Chairwoman Deb Miller said.
Some members of Congress are already pushing in that direction. S. 808, a bipartisan reauthorization bill introduced earlier this year by Senate Commerce, Science and Transportation Chairman John Thune (R-S.D.), would set timetables for rate reviews and allow for expanded use of arbitration.
The committee approved the bill in March. The new report “underscores the need” for the legislation, Thune spokesman Frederick Hill said in an email this morning, adding that the panel looks forward to reviewing specific recommendations.
Applauding the findings was Consumers United for Rail Equity, a coalition of freight rail shippers. Thirty-five years after passage of the Staggers Rail Act, as the 1980 deregulation law is known, the review recognizes that “economic regulation of the nation’s freight railroads must be modernized to take into account the changes in both railroads and shippers,” said David Sauer, the coalition’s president, in a statement.
But Edward Hamberger, the head of the Association of American Railroads, an industry trade group, called the report “a solution in search of a problem.”
The United States already has the world’s safest and most efficient freight rail network, Hamberger said in a separate statement, adding that rates are on average 43 percent below 1980 levels. “The report is a theoretical exercise that would upend the real world concrete successes achieved” since passage of the Staggers Act, he said.
The Transportation Research Board is part of the National Research Council, the main operating arm of the National Academy of Sciences. Congress commissioned the report in a 2005 transportation authorization law but only appropriated money to pay for it in a fiscal 2012 spending bill. Besides Schmalensee, the committee that worked on the report included economics, engineering and urban planning specialists from George Mason University, Michigan State University, Stanford University and other institutions.