Free Market Reforms Are the Bedrock of Competitive Freight Rail Service

November 16, 2016

The Surface Transportation Board (STB) has proposed long-overdue reforms that will remove regulatory barriers and help promote greater competition within the freight rail industry. Instead of embracing these free market reforms, the railroads are claiming that STB’s proposal for “competitive switching” is unlawful.

Competition is the cornerstone of a strong and efficient economy and is typically embraced by industry as a better alternative to regulatory protections for establishing prices for goods and services. The fact that the STB’s proposal recognizes that the marketplace is preferable to regulatory oversight should be welcome news to the railroads as it is to the broad array of businesses across America – big and small – that use freight rail.

The STB should be given credit for adhering to the law that directs the Board to ensure effective competition among rail carriers. That law, the Staggers Rail Act of 1980, established competition as a fundamental goal of U.S. freight rail policy. The same law is heralded as saving the railroad industry from the brink of destruction.

Under the statute, the STB’s first responsibility is “to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail.” In other words, the Board is required to promote rail competition wherever possible.

As if that were not clear enough, Congress went further to define one of the key tools that the STB can use to further this objective. The Staggers Act states,

“The Board may require rail carriers to enter into reciprocal switching agreements…where such agreements are necessary to provide competitive rail service.”

Reciprocal switching, also known as competitive switching, would allow a shipper that is served by a single major railroad to request to have its freight “switched” to another major railroad at a nearby interchange. Switching simply allows rail customers such as farmers, manufacturers and energy providers to choose a rail carrier that provides the most competitive rates and best service.

This proposal is needed because outdated rules in place at the STB impose such high regulatory hurdles that no rail customer has ever been able to successfully request switching. As stated by the Board itself, the current rules have “effectively operated as a bar” rather than as “a standard under which [switching] could be granted.”

Railroads argue that it is somehow illegal for STB to require competitive switching unless a railroad is found guilty of “abusive” practices. This argument perversely views competition as a punishment rather than recognizing it as the bedrock of American commerce. As highlighted recently by a bipartisan group of Senators and a former STB official and longtime railroad industry employee, STB’s authority to use reciprocal switching to promote rail competition could not be clearer.

Furthermore, the National Academies of Science’s Transportation Research Board has urged STB to update its policies, concluding,

“Some of the [railroad] industry’s remaining economic regulations have not kept pace and should be replaced with practices better suited for today’s modern freight rail system.”

Moving away from the STB’s outdated protections for the railroads and obstacles to commerce is not only legal, it is smart. It’s time for the STB to remove regulatory barriers and put competition back on the tracks.