Economy & Business

More Burdensome Regulations Are Not What the Freight-Rail Industry Needs

A BNSF train at the rail yard in Cicero, Ill., in 2009. (John Gress/Reuters)
Despite the Trump administration’s deregulation efforts, a small government agency is considering adding more red tape to this critical sector of the economy.

As the winds of deregulation blow through D.C., a small federal agency is considering a proposal that would introduce more red tape into an important sector of the American economy.

At issue is a coordinated campaign by major U.S. companies to unravel indisputably successful deregulation and enact backdoor rate regulation on freight railroads. While pretending to support “deregulation,” a cohort of companies and groups flying under the banner of the innocuously named Rail Customer Coalition (RCC) are calling on the government to disregard decades of precedent and congressional direction and ignore the rights of private businesses to use their property to act in ways that ensure their future economic viability.

The proposal currently pending at the Surface Transportation Board would force a railroad to move freight cars over its tracks and then hand them over to competitors. The proponents of the measure also seek a cap on the price of such services by having the government set the fee. This would be a significant departure from the current practice of switching freight cars among railroads through voluntary, privately negotiated agreements. And most alarmingly, it would occur absent any showing of wrongdoing by the railroad.

Because switching operations among railroads require extensive work, widespread forced switching would greatly reduce network fluidity, drive up costs for many U.S. companies that ship over freight rail, and reduce revenues needed for rail-infrastructure investment. If the STB were to adopt some of the more radical elements of the proposal, railroads could even be forced to modify existing infrastructure or build new systems to facilitate switching where it is not currently possible.

The proponents of such a misguided policy are clear about their motivations: They hope that government intervention will lower their own rail-shipping costs. Never mind that the STB has a clear pathway for direct rate regulation, which this would ignore, or the fact that rail rates, adjusted for inflation, were 45 percent lower in 2016 than in 1981.

Indeed, the fight sets a dangerous precedent, particularly when considering the RCC’s overt pandering to the White House. Though proponents of forced access use terms like “free market” and tout the need to “cut red tape,” the group’s “solutions” would actually constitute a drastic increase in regulation, and thus a clear break from the goals of the Trump administration.

Sure, the STB can do more to streamline procedures and legally protect shippers and railroads alike, just as it was directed to do when reauthorized by Congress in 2015. But that reauthorization explicitly refrained from directing the STB to embark on a forced-access regime.

If the proponents of aggressive regulations succeed, the ability of railroads to serve them will suffer greatly. Railroads, which have seen more than $100 billion in industry investment over the past four years alone, require ample, costly upkeep to safely and reliably move goods.

Moreover, this proposal would have broad real-world implications, because the rail industry touches nearly every part of the economy as a means of transporting raw commodities and finished goods. The industry does so by privately bankrolling a 140,000-mile rail network.

If the proponents of aggressive regulations succeed, the ability of railroads to serve them will suffer greatly. Railroads, which have seen more than $100 billion in industry investment over the past four years alone, require ample, costly upkeep to safely and reliably move goods. The RCC’s proposal would undermine the industry’s ability to provide such upkeep in the future.

The fight will intensify soon as the administration and Congress work to fill three vacancies on the STB, which has wisely resisted the call to rule on such a far-reaching regulation until it is fully staffed. Current and future STB members should bear in mind a foundational truth as the process ensues: Only those rent-seeking through sweeping government intervention support a drastic shift in railroad regulation.

Last year, 25 leading free-market organizations urged policymakers to reject the overtures of the RCC. From Brookings to the Heritage Foundation, policy experts across the spectrum oppose a return to an era when government mandates routes and sets prices — because ultimately, that approach is the antithesis of American free-market principles.

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