Issue Brief—Freight Rail Competition
ISSUE
Mass consolidation in the freight rail sector and anticompetitive regulatory decisions have resulted in the nation’s Class I railroads operating as virtual monopolies. As a consequence, rail customers have little leverage in securing competitive rates or commitments on level of service.
BACKGROUND
Railroad mergers and acquisitions have greatly reduced competition. There were sixty-three Class I railroads in 1977. Today there are only seven. Moreover, two in the east and two in the west control over 90 percent of freight rail traffic. This unprecedented consolidation has led to whole states, regions and entire industries that are captive to a single railroad.
As railroads have consolidated, competition between these companies has dramatically decreased. For example, nearly two-thirds of rail-served chemical facilities are served by only one railroad. When a single railroad enjoys a monopoly, it does not need to quote reasonable rates to its customer or guarantee its service. The current regulatory structure has provided Class I rail carriers wide ranging and unnecessary protections from competition. This has resulted in poor service and excessive rates for rail customers, for which they have no meaningful recourse.
AMERICAN CHEMISTRY COUNCIL VIEWPOINT
ACC member companies rely on the railroads to provide reliable and competitive service to deliver their products. Unfortunately, these same companies are facing skyrocketing rail transportation costs and poor service due to outdated and broken freight rail policies that fail to promote access to competitive rail service.
Rail customers are routinely subject to poor service and exorbitant prices because railroads enjoy unnecessary government protections that give them monopoly-like power. The Surface Transportation Board (STB), established by Congress to address these concerns, has failed to address customer grievances. Congress should restore competition and balanced commercial relationships that would lead to better service at competitive prices.
It didn’t have to be this way. The 1980 Staggers Rail Act created a mechanism to bring market forces to the relationship between railroads and their customers. But the STB, which has broad regulatory oversight of railroads, has failed to resolve disputes between customers and railroads. The U.S. economy needs a strong, healthy freight rail system with first-rate service at competitive prices. But we must end the railroad’s longstanding monopolistic practices. ACC has joined with a diverse group of organizations representing the agriculture, pulp and paper, glass, fertilizer, and petroleum industries and electric utilities to give all American businesses access to competitive pricing and service.
This broad coalition is backing reform legislation that would remove artificial protections that have led to rail monopolies.
Specifically, we are supporting:
The Railroad Antitrust Enforcement Act: These bills remove the railroads’ broad and unnecessary antitrust exemptions, making them subject to the same antitrust laws as all other industries. On March 5, 2009, the Senate Judiciary Committee, voted 14 - 0 to report S.146, the Railroad Antitrust Enforcement Act of 2009, favorably to the full Senate. This bill is sponsored by Senator Herb Kohl (WI). The House version, H.R. 233, was unanimously approved by voice vote in the House Judiciary Subcommittee on Courts and Competition Policy on July 30, 2009. The bill is sponsored by Rep. Tammy Baldwin (WI-02) and has also been referred to the House Transportation & Infrastructure Committees. The Judiciary Subcommittee on Courts and Competition Policy held a legislative hearing on H.R. 233 on May 19, 2009.
The Railroad Competition and Service Improvement Act: These bills make needed reform to the Surface Transportation Board by ensuring rail customers have access to competition; establishing a fair and workable rate challenge process; and clarifying the railroad’s obligation to serve their customers. Senator Jay Rockefeller (D-WV), Chairman of the Senate Commerce, Science and Transportation Committee, expects to introduce legislation this summer.
Monopolies are relics of the past and enemies of an open and free marketplace. The solution is simple: let the railroads compete for business, like other American companies.