Freight Railroads Are Braking for Regulatory Creep

The paperwork for safety compliance alone costs about $1.5 billion a year. And more rules are coming.

Economic forecasters are projecting the slowest expansion in four years, slashing expectations for the year to only 1.8% in overall GDP growth, according to a new survey from the National Association for Business Economics. Thus continues the weakest recovery from a recession since World War II.

One explanation for this sluggish performance may be the increasing regulatory burden on American industry, including freight railroads. A web of regulations drove the freightrailroad industry to the brink of financial ruin in the 1970s. Regulatory creep since then—and damage caused by rules that create disincentives for railroads to modernize—threatens to hobble the industry again.

The cost of the paperwork alone to be in compliance with safety regulations issued by the Federal Railroad Administration (FRA) is about $1.5 billion a year, according to analysis by my organization, the Association of American Railroads. That accounts for some 25 million hours worked in the freight-railroad industry in 2015, about 5.3% of the total. And that doesn’t include time spent doing paperwork for the myriad other agencies that oversee industry safety. Nor does it include compliance costs beyond paperwork and the impact of the regulations, which can distort the marketplace and disrupt railroads’ incentives and ability to invest in infrastructure to meet future demand.

For railroads, two proposed rules epitomize the government’s troubling approach to developing regulations. In one, under the guise of safety, the FRA would require railroads to run every train with at least a two-person crew unless special permission is granted based on unspecified criteria. Crew size has never before been considered a matter for safety regulation, and instead has been addressed between the railroads and their employees under collective bargaining.

When issuing the rule in March, the FRA acknowledged that it lacks any data to support the assertion that two-person crews are safer than one-person crews. In fact, the FRA noted that “it is possible that one-person crews have contributed to the improving safety record” of the rail industry.

This rule was proposed with railroads closing in on implementing a multibillion-dollar safety system known as Positive Train Control—an automated system that stands between human mistakes and accidents, and that will make the world’s safest freight rail system even safer. But the FRA’s proposed rule deprives railroads of the efficiencies that come with such a system, stranding that aspect of their investment. It effectively freezes the evolution of railroad operations that might affect crew size.

In another proposal under consideration at the Surface Transportation Board, some companies that move goods by rail want to force railroads to open up their tracks and facilities to other railroad competitors in order to obtain lower shipping costs. Doing so would upend the logistical efficiencies that today benefit all customers using the U.S. rail system to move their goods.

Railroads purposely concentrate and move traffic along certain routes to maximize operational efficiencies and fluidity. The railroads’ routing practices—honed over the three decades since partial deregulation in 1980—take into account the effectiveness of the entire network. Undoing efficiencies for the benefit of a few shippers would hurt the great majority of businesses that rely on rail.

The importance of the railroad industry to the U.S. economy is hard to overstate. In 2014, major U.S. railroads supported approximately 1.5 million jobs, $274 billion in annual economic activity, nearly $90 billion in wages and $33 billion in tax revenues, according to Towson University’s Regional Economic Studies Institute. Railroads have also invested $25 billion annually on average in their own infrastructure in recent years—a huge public benefit considering the crumbling state of many publicly funded transportation enterprises.

These achievements have been hard won against a powerful and haphazard regulatory tide. The federal regulatory process is in dire need of repair. The Federal Railroad Administration and Surface Transportation Board should develop regulations that adapt to and promote innovation and industry investment in infrastructure, not undermine them.


Mr. Hamberger is president and CEO of the Association of American Railroads.