C. F. Lynch & Associates

1870 Redux?

By Clifford F. Lynch

DC Velocity, June, 2009

Mark Twain’s love affair with the Mississippi River notwithstanding, for most American transportation buffs, nothing comes close to the romance of the rails. Almost since the first mile of track was laid, the railroads have been immortalized in music and literature – not to mention toys. What young boy hasn’t fantasized about holding the throttle of a powerful locomotive laboring up the eastern slope of the Rockies or speeding past the prairies of Kansas or the buffalo herds of Wyoming?

"When I hear the iron horse make the hills echo with a snort like thunder," wrote Henry David Thoreau, "it seems as if the earth has got a race now worthy to inhabit it."

But it seems that not everyone is enamored with the railroads these days. We’ve been hearing a chorus of complaints from shippers and organizations that believe the rails are abusing their market power and overcharging customers – particularly those with limited or no service alternatives.

Congress has responded to their concerns. On March 5, the Senate Judiciary Committee approved the Railroad Antitrust Enforcement Act of 2009, a bill that would rewrite the rules of the game. Among other provisions, it would eliminate antitrust law exemptions for railroads and change the way the industry is regulated. Right now, the Surface Transportation Board has sole oversight over the railroads’ rate activities. The new bill, which many industry watchers expect will ultimately pass, would extend jurisdiction over rate cases to the Department of Justice in addition to the STB.

Proponents of the bill argue that sweeping changes are needed because rail carriers are exercising monopolistic power over captive shippers – those that are served by just one railroad. They also charge that the current system has failed to safeguard shippers’ interests. Bob Szabo, executive director of the lobbying group Consumers United for Rail Equity (CURE), was quoted in a Reuters news story as saying, "The railroads have unrestrained monopoly pricing power and the STB protects the rails’ interests instead of their customers."

The rail carriers deny that they are trying to take advantage of anyone. They insist that they’re simply trying to make a fair return and pay for capital expenditures made necessary by increased demand and deteriorating infrastructure.

Ironically, many of these same arguments were raised during a similar dispute back in the 1870s, when a small number of railroads controlled the movement of freight. That fight, which was sparked by shippers who accused the "robber baron" rail owners of exploitation, ultimately led to the Act to Regulate Commerce of 1887.

The difference is that then those charges were true; today, they’re not. Furthermore, we now have 100 years of proof that rail regulation doesn’t work. Since 1980, when many of the regulatory restrictions were lifted from the railroads, rates have declined significantly, productivity has tripled, and much-needed infrastructure improvements have been made.

While the current Senate bill does not advocate total re-regulation, it is considered by many, including me, to be a dangerous first step.

Do captive shippers deserve consideration? Yes, indeed. No system should give a carrier total control over its customers’ destiny. Nor should an agency be allowed to promote inequities.

But that doesn’t appear to be the case here. In fact, the STB recently ruled against a railroad in a price dispute, finding that the BNSF Railway had charged unlawfully high rates to move coal from the Powder River Basin. The agency awarded the shippers in the case $345 million in rate cuts and reparations.

The decision is under appeal, and ultimately, the courts will decide the final outcome. But as it now stands, it could hardly be described as a decision that gives preferential treatment to carriers or as an endorsement of monopolistic powers.



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