Long before President Trump signed his executive order calling on regulatory agencies to identify “outdated, unnecessary, or ineffective” regulations that “inhibit job creation,” one small government agency was already hard at work doing just that.
The Surface Transportation Board (STB) has broad economic oversight of the nation’s freight railroads. Because of the unique structure of our nation’s freight rail network and concentration of market power by a handful of railroads, the STB serves an indispensable role in addressing problems with rates and service where no effective rail-to-rail competition exists. In 2016, the board issued a proposal to revise outdated regulations that have effectively blocked farms and factories across the country for more than three decades from accessing competitive freight rail service. The STB’s proposal would cut bureaucratic red tape and provide market choices to rail customers that currently have no competitive transportation options.
The Staggers Rail Act of 1980 is widely credited with saving the railroad industry from overly burdensome regulation. The act recognizes that “competition and the demand for services” should drive rail transportation markets, not government regulation and gave the board important tools to promote greater rail competition.
One of those tools is called reciprocal switching, also known as competitive switching. Competitive switching simply allows a shipper served by a single major railroad to request to have its freight “switched” to another railroad at a nearby interchange. It allows rail customers to choose a rail carrier that provides the most competitive rates and best service.
The Staggers Act already authorizes the STB to require competitive switching where it is “necessary to provide competitive rail service.” In fact, the U.S. Department of Agriculture has gone on record saying, “Competitive switching offers a market-based solution to balance the needs of the railroads and shippers and is in keeping with the goals of the Staggers Act.”
Unfortunately, existing rules impose such high regulatory hurdles that no rail customer has ever been able to successfully request switching. As stated by the board itself, these rules have “effectively operated as a bar” rather than as “a standard under which [switching] could be granted.” By blocking access to competitive bids from more than one railroad, these rules artificially increase the railroads’ market power at the expense of rail customers, consumers and the American economy. In its recent proposal, the board announced plans to scrap the outdated requirements and offer rail customers a more realistic and workable process to obtain competitive switching.
Not surprisingly, the rail industry is fighting hard to keep the current regulations in place. They misleadingly call the STB’s proposal “re-regulation.” In reality, competitive switching will further reduce the need for government oversight by allowing the marketplace to work. Any change to freight rail rates would come through negotiations between shippers and railroads, and would not prescribed by the STB or set by regulation. Importantly, enhanced competition would also create market incentives for railroads to improve service and invest in new infrastructure.
Competition is the foundation of the free enterprise system and helps American producers grow their businesses and create new jobs. That is why a large cross-section of manufacturing, agricultural and energy industries have formed the Rail Customer Coalition to urge the STB to complete its deregulatory efforts and open up greater access to competitive and reliable freight rail service. With President Trump calling for regulatory reform that will help spur the economy and job creation, there has never been a better time for the STB to adopt reforms that will get our nation’s freight rail system back to work for American producers.
Mike Walls is the Vice President of Regulatory & Technical Affairs at the American Chemistry Council.
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