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The Consumer Case for Reimagining and Innovating Railroad Policy
Introduction
In American lore, trains and railways have always held a type of romanticism. From the settling of the American West, to the industrialization of the large population centers on the East Coast and Midwest, locomotive technology has been a key factor in the economic development of the continental United States.
While passenger travel by train has waned in the face of competition from personal vehicles, rail freight transportation has remained robust, spread out over 140,000 miles of railways, the largest network in the world.
In the 21st century, railroads still remain an integral part of the domestic consumer economy, moving over 1.6 billion tons of commodities and goods between ports, factories, and warehouses. While container ships may bring raw materials and products to ports, freight rail is used to transport those items to trucking centers or distribution hubs before they make their final trajectory.
These “middle miles” for commodities and finished products we buy both online and in stores mean that millions of American consumers depend on a highly competitive, efficient, and productive freight rail industry to get products in our homes and businesses.
While competition for transportation of both raw and finished goods is intense – whether it be by trucking, rail, or air freight – the existing restrictions and bureaucratic requirements imposed on freight rail firms have subjected the industry and those who depend on it to an unpredictable regulatory regime and enforcement more akin to central planning than a robust system of free enterprise. As we’ll learn, this is a lesson we’ve already had to learn in rail regulation history.
About the Research
In this policy primer, we will examine the evolution of regulations on freight rail, and how new rules and enforcement ideologies held by the industry’s regulator, the Surface Transportation Board (STB), threaten to harm consumers by artificially raising prices for products we depend on.
We discuss the common carrier obligation enforced on freight rail carriers by the federal government through the STB, how it unnecessarily intervenes in the free movement of goods and private contracts, and some policy suggestions that would improve the status quo on behalf of consumers.
Modern Policy Issues
While commercial transportation in the 21st century for commodities and finished goods is highly competitive – by land, air, and sea – there have been many proposals in recent years that have sought to restrain the influence of commercialization, specifically in the rail sector.
In a highly regulated economy, it is no surprise that thousands of private industries and firms must conform to legal procedures and correspondence with government officials to provide services. The more activist role of the railroads’ chief regulator, however, is seemingly growing beyond the intentions set by Congress in decades past.
Disputes on pricing, the number of train cars available, or even the timing of a delivery are subjects the Surface Transportation Board views within its remit. In any other industry or with any other regulator, we would find this not only burdensome, but unnecessarily interventionist to the point of outright exogenous control.
As more industries are relying on rail to ship their products in a timely and economic fashion – whether it be coal, chemicals, or agricultural products – the STB’s power to arbitrate between these interests has only grown. Frustrations over shipping policies have created strife between various industries and rail companies that the STB has used as a pretext for more intervention.
As we’ve summarized here, early regulation on railroad firms arose because of concerns of market power and price to shippers and end consumers. Now, however, the impetus has changed to questions of specific rail service, which we examine in three parts below.
Reciprocal switch
STB closely monitors complex rail switches, often taking days. They proposed reciprocal switching in 2016, reemerging in 2023, but it’s controversial with concerns about price-fixing, competition limits, and higher consumer prices.
Service requirement
The STB now focuses on service issues between rail firms and shippers, sparked by a 2022 executive order from President Biden. An ongoing case involving Navajo Energy and BNSF illustrates this shift, where the STB compelled additional rail cars. This case, initiated in late 2022, may set a precedent for more STB involvement, broadening common carrier obligations.
Expansion of common carrier
In 2023, federal legislators propose the Reliable Rail Service Act to give STB more oversight power. If passed, it broadens common carrier criteria, including factors like schedule, service time, and equipment use. Critics fear central planning, legal disputes, cost hikes, competition reduction, and higher shipping prices for consumers.
Policy Proposals
To reimagine and allow for innovation in railroad policy in the United States, there are simple proposals that should be adopted. These proposals aim to increase competition, generate investment, and ensure that lower costs can be passed down to consumers who rely on rail for their homes and businesses. To achieve this, it will require a simpler and more uniform legal definition of common carrier obligations – if not a total reform – and an updated mandate for the Surface Transportation Board so that it does not act as a regulatory threat to competitive enterprise.
Promote innovation and competition
To promote innovation and competition in the U.S. railroad industry, one crucial policy proposal is to oppose the Reliable Rail Service Act (S2071). This act, as currently proposed, may inadvertently lead to overregulation and increased central planning. Instead, policymakers should focus on regulatory frameworks that encourage efficiency and competition without burdening rail companies with excessive mandates that could ultimately harm the industry and consumers.
Reform the Common Carrier obligation
A significant reform proposal is to limit or even eliminate the common carrier obligation for rail companies. By simplifying or removing this requirement, rail companies could have more flexibility in their operations, leading to increased efficiency and potentially lower costs. This policy shift would allow rail companies to adapt to market demands, invest in modernization, and compete more effectively with other transportation modes, ultimately benefiting consumers and the overall economy.
Amend the regulatory framework
To ensure that the Surface Transportation Board (STB) does not impede innovation and competition, Congress should consider amending the STB Reauthorization Act. This amendment would redefine the STB’s role as a remedial agency, focused on resolving disputes and promoting a competitive environment rather than creating its own policies. This change would create a regulatory framework that supports a healthy balance between government oversight and private sector innovation, leading to better outcomes for consumers, businesses, and the rail industry.
Conclusion
Though the common carrier obligation for railroads may have been necessary at one point in American history, its modern interpretation is leading to higher costs and burdens that are making their way to consumers who rely on those goods. The activist role of the STB has led to it becoming more of a directing agency than one which provides sound and just regulations.
If we want consumers to benefit from a competitive environment with lower prices and fewer regulatory roadblocks, this will mean a reimagining of rail policy and how common carrier regulations provide guidance for trade and transport. Rather than using federal agencies as a battering ram for one industry over another, we must foster a competitive environment that will provide more innovation, investment, and choice for companies shipping products and the consumers that receive them.
The 21st century has spawned a new economic age for competition in transportation. We must ensure that our regulatory practices evolve with them at the same time.
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Author
Yaël Ossowski
Deputy Director
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